International Financial Reporting Standards (IFRS) is being giver global recognition, with a view to ensuring consistency, in financial reporting. Arguably, the adoption of International Financial Reporting Standard, (IFRS) makes the conduct of international business easier as it facilitates the raising of fund in the capital market.  The objective of this paper is to evaluate the implications of the adoption of international financial standards (IFRS) on corporate governance practice.  The paper examines empirical literature to identify the effects of the adoption international financial reporting standards on the existing corporate governance. The paper concludes that IFRS will positively  strengthen the exiting corporate governance practices in Nigeria financial sector by giving room for transparent reporting of financial information.

1.1       Background of the study
            Prior to the advent of International financial reporting standard (IFRS) as a global reporting standard, every country has it’s own standard accounting practice version of generally accepted accounting principle (GAAP).
            In Nigeria, the preparation of entity’s financial statement was hitherto, based on her local statement of Accounting standards (SASs) issued by Nigeria Accounting Standard board (NASB). The statement of Accounting Standard which is a blue print from GAAP, usually contain references at the concluding part of the standards to the effect that each of the SASs accord substantially with the equivalent International Accounting standard, Ogbonnaya (20040. this implies that, before the adoption of IFRS as a global financial reporting standard, Nigeria’s Local statement of accounting standard was prepared based on the International Accounting standard (IAS). Despite the foregoing differences exist between Nigeria’s SASs and the International Accounting Standards (IAS). The 203 & 204 World Bank’s report on the observance of standards and code (ROSc) in Nigeria (p.8); showed that there is a gap when SASs are compared with their International equivalent. It was found that even though; Nigeria’s SASs are based on IAS, the Accounting Statements are outdated, and does not meet the needs of a modern financial system. In the words of Folajimi (2011), the SAS does not inspire. Investor’s confidence, and hence, present obstacles to the growth and internalization of Nigeria’s banking sector.
            In the light of the above, financial Statements are reconciled with different Nation’s Accounting Standards, hence the need for a Universally accepted accounting Standard. IFRS sprang from the need to harmonize the work of International Accounting standard committee (IASC) and International Accounting standard Board (IASB) into a common framework for global adoption Ojeka (2011).
            With the globalization of the capital market, there is the need for Nigeria to harmonize her accounting standards in order to ensure comparability and reliability of accounting Information. IFRS has been accepted as the basics for reporting in major emerging international market. It is included in the financial stability forum (FSF) as one of the key standards for sound financial system and used by the world bank as part of it’s standards and codes initiative (SCI) Folajimi (2011).  With the universal adoption of IFRS as a global standard for preparation of financial do cross border business. 
    Today, more than 100 countries of the world have adopted IFRS as a global financial reporting standard.  In Nigeria, the adoption of IFRS is expected to take place in four phases beginning with the public listed companies in 2011, significant public interest entities in 2012, other public interest entities in 2013, and small and medium scale entities in 2014.

1.2       Reporting Format Between GAAP and IFRS
    There are differences in the reporting format between the generally accepted accenting principle and the international financial reporting format: INCOME STATEMENT IFRS.  There is no prescribed format for the income statement.  The entity should select a method of presenting its expenses by either function or nature.  Generally IFRS requires a minimum format of presentation of the following items on the face of the income statement:
1.         Revenue
2.         Finance cost
3.         Share of post –tax result of associates and joint ventures associated for using the equity.
4.         Method
5.         Tax expenses
6.         Post tax gains or loss attributable  to the results and to re-measurement of discontinued operations.
7.         Profit and loss account for the period.
            The portion of profit attributable to the minority interest and to the parent entity is separately disclosed on the face of the income statement as allocations of profit or loss for the period.
GAAP: Presentation of Income statement is done in one of two formats.
1.         A single step format where all expenses are classified by function and are deducted from total income to give income before tax.
2.         A multiple step format where cost of sales I deducted from sales to show grow profit and other income and expense are then presented to give income before tax.

1.3       Statement of Problem
            Recently, the central Bank of Nigeria (CBN) rescued Eight commercial banks after the consolidations exercise. The consolidation of banks in Nigeria perhaps, contributed to restore the confidence of the investing public in the banking industry. On the other hand, the recent development in the banking industry that affected the eight commercial banks which had been given a clean bill of health by the apex bank is perhaps an indication of weakness in corporate governance and risk management practices.
            In the same vein, some of the rescued banks hide multibillion naira losses in deferred taxes. Business (2011).
            This is done to deceive investors and the general public who accept accounting Information as contained in the entity’s financial statements as the ultimate truth. Indeed, the present accounting systems of most banks is such that a lot of things are hidden which analysts will not be able to see Sanusi (2010).
The worrisome reality is that Nigeria is yet to embrace with the global trends in accounting principles. Before the introduction of IFRS in Nigeria, perhaps, there has been in existence the code corporate governance and code of best practices, yet the country has marguably witnessed cases of banks and institutional failures arising from problems of technical financial distress, unprofessional and unethical practice and standards.
            It therefore, makes a research sense to find out, whether the corporate governance practices have failed, and if not, what is likely the effect of the adoption of IFRS on the existing corporate governance practices in Nigeria Banking Sector.
            It is base don the above stated problems and question, that this study seeks to address.
1.3       Objectives of the Study
            The board objective of this study is to analyze the implications of the adoption of International finical reporting standards on corporate governance in the banking sector in Nigeria which the specific objectives include;
(i)        To determine the effectiveness of corporate governance practices in Nigeria.
(ii)       To ascertain the influence of IFRS adoption on the existing corporate governance practices.

2.1       Introduction
            The acquisition of non-performing loans (NPL) by AMCON and injection of equity into the rescued banks in order to bring their net Asset value back up to Zero is an indication that the banking Industry is not yet stable.
            However, the adoption of International financial reporting standards is a measure to achieving the harmonization of accounting polices so that comparison of financial information will  be easier and more meaningful across jurisdictions Sanusi (2011).
            This chapter focuses on the conceptual, empirical and theoretical literatures regarding International financial reporting standards and its implications on the code of corporate governance practices in Nigeria banks.
            A lot of work have been documented by scholars and intellectuals in the area of study, but the review was selected based  on information form articles from learned journals, seminar papers, reports, magazines, newspapers and other relevant materials.  

The issue reviewed include:
Corporate governance in the Nigeria financial sector, Implications of IFRS adoption on corporate governance practices IFRS adoption, Implications on management accounting and Taxation, and Impact of the Implementation of IFRS on key financial measures of UK firms and volatility effect.

2.2       Concept of Corporate Governance
            For Sulaiman (2003), corporate governance is the frame work for accountable decision making as well as the structures that turn decision into actions in organization. He further added that, it is a combination of processes structures and relationships through which business corporations are directed and controlled.
            Oyediran (2003) posits that, corporate governance is the way and manner in which the affairs of companies are conducted by those charged with that duty.
            The governance of limited liability companies in Nigeria is the responsibility of the Board of directors who oversees the activities of the Executives.
            Dozie (2003) observes that corporate governance is characterized by transparency, accountability, probity and the protections of stakeholder’s right. He further posits that corporate governance refers to the manner in which the power of a corporations is exercised in the management of it’s total portfolio of economic and socio resource with the aim of increasing shareholders value and safeguarding the interests of other stake holders in the context of its corporate mission. From the above definitions, the concept of corporate governance implies rules and regulations which ensures that a company is managed in a transparent and accountable way so as to ensure the survival of the enterprise.
            Generally, the objective of corporate governance is to strengthen the confidence of the investor sin the business.
2.3       Academic Review
            Adeyemi and Adesoji (2010) carried out a study on the efficacy of internal and external audit in corporate governance in Nigeria financial sector. He reported that weak internal controls were evident in the sector due to the overbearing influence of the chairman, particularly in family controlled firms and the existence o a rubber stamp board. The researcher used secondary data and simple statistics to express the quantitative aspect of the data.
            At the foreign scene Joana and Ivy (2011) conducted a study on Accounting evidence from relative performance evolution around IFRS adoption. They reported that, with greater globalization and accounting convergence, firms likely increasingly turn to foreign peers as benchmark for managers. According to them, changes in ownership composition can influence corporate governance practices. Although, there was no systematic evidence to support this. Their study was specific to continental European firms and may not be generalizable to other setting.
            Foloyimi (2011) equally carried out a study on IFRS adoption: Implications on management Accounting and Taxation in Nigeria Economy. He reported that Implementation of IFRS will ensure segment reporting of management accounts for inflow of direct investment, it will give room for good corporate governance for transparent reporting of financial statements. According to Lius, the global reporting Language will ensure that investors fund are moved easily within the global market. He used chi-square statistical method to analyze the result of the survey.
George (2010) conducted study on IFRS adoption and financial statements effects, the case of UK firms. He reported that HRS implementation has favourably affected the overall financial performance and position of firms. The study compares the financial numbers reported under UK GAAP in the pre-official adoption period, is 2004 with the IFRS re-stated numbers reported in 2004. The logistic regression that is employed uses dummy variable as the dependent variable which is dichotomous and takes two values, ie 1 for firms reporting IFRS re-stated financial numbers in 2004 and O for firms reporting their accounting figures under UK GAAP in 2004. He used a multiple regression model in his analysis.
2.4       Theoretical Framework
            The theoretical framework guiding this study is Institutional Theory (IT).
            Institutional theory is defined as a way or though or action of some prevalence or performance which is embedded in the habits of a group or the customs of a people Burns x Scapens (2006) in the light of above definition, the researchers drew an understanding of accounting processes as being rule-based or based on how things should be done, and routine based highlighting how things are actually done. He further explained that, routilization involves the concept of the formulation of rules to mutually acceptable ways of compliance ending with routines.
            However, despite the fact that IFRS changes are principle based, set of accounting standards, their implementation into the working process of a company can be argued to be subject to a process of institutionalization. This implies that institutional theory is used as a means of describing the processes/phases which countries must follow, in order to fully adopt IFRS as a global reporting standard. The existing routines and institutions shape the selection and implementation process of the new IFRS standard change Tiina Tamena p99 (2011).

            Watt (1986) observed that the adoption of IFRS may have some direct impact on corporate sector. He maintained that agency shareholders can be substantially reduced through implementation of IFRS managers to act more in the interest of the shareholder.
            In the light of the above, if can be established that there is a nexus between IFRS and corporate governance in Nigerian Financial sector. Both IFRS and Corporate governance code provide-transparent information that not only inspire the confidence of investors but also enables shareholders to judge whether or not their interests are served.

3.0       Discussion
3.1       Introduction
            This chapter presents the discussion of strategies that could be adopted in accomplishing the stated objectives. It equally presents the discussion of the theoretical framework upon which this study is based.
3.2       Discussion on the strategies for accomplishing the stated objectives.
(i)        In determining the effectiveness of corporate governance practices in Nigeria financial sector, this objective could be accomplished by analyzing the opinions of  respondents using chi-square method.
(ii)       In ascertaining the influence of IFRS as option adoption on the existing corporate governance practices, this objective could be accomplished by analyzing information obtained through secondary data using chi-square.
3.3       Discussion of the Stated Theoretical Framework
            In assessing the impact of International financial reporting standard adoption (IFRS) on corporate governance, Institutional theory is chosen. The choice of this theory is due to its applicability to the study of IFRS adoption. It is used to describe the processes that must be followed in order to successfully adopt the new accounting standard. In the light of the above, Burns and scapens (2000) noted that, the existing routines and institutions shape the selection and implementation process of the new IFRS standard changes, meaning that the changes are path dependent. Understanding the current process in the organization is thus necessary for understanding the changes that need to be made. When the new rules and routines become the unquestionable form of management control, they can be said to be institutionalized.
            However, institutional theory is suitable for this study because, it gives a holistic understanding of the organization in question and its current processes. This is because, every organization are usually have an Accounting manual which describes the rules and routines of the organization for reporting which represents an institution.
            Routinization refers to what an Institutional theorist would call Institutionalization Tiina Tanimenpaa (2011)Notwithstanding the strength of Institutional theory, the theory is saddled with developmental stages which makes the idea slow.
3.4       Discussion of the Reviewed Literature
Regarding the work of Adeyemi and Adesoi (2010) on corporate governance in the Nigeria financial sector: The efficiency of Internal control and External Audit, the methodology they adopted was sound. They relied heavily on secondary sources of data using simple percentages in canalizing the data.
For Folajimi (2011) the researcher made use of both theoretical He employed strategies sampling method is selecting the sample size of the study.
With regards to the work of Latridis (2010) on IFRS adoption and financial statement effects: the UK case. The researcher used logistic regression to analyze the data.
3.5       GAPS in the Literature
            The gap in the literature is based on the fact that most of the existing literatures placed emphasis on the implications of International financial reporting standards (IFRS) adoption on the economy. There is yet inadequate studies on the implication of IFRS adoption on the existing corporate governance practices in the Nigeria financial sector.

            In the light of the mandatory adoption of International financial reporting standards (IFRS) in Nigeria, this study investigates the implications of IFRS adoption on the existing corporate governance practices in Nigeria financial sector.
            From the academic review, the results of the study showed that IFRS implementation will positively impact on the existing corporate governance culture in Nigeria financial sector. This is because the mandatory IFRS adoption would reduce information asymmetry, and would smooth the communication between managers, shareholders, lenders and other interested parties (Bushman and Smith 2001)
            However, with the mandatory adoption of the global accounting framework, (IFRS)Accountants of entities would have to; be fully responsive in the use of information technology (IT) applying real time  operations in the production of accounting information in the bid to achieving the objectives of IFRS in Nigeria.

Share on Google Plus


The publications and/or documents on this website are provided for general information purposes only. Your use of any of these sample documents is subjected to your own decision NB: Join our Social Media Network on Google Plus | Facebook | Twitter | Linkedin