Structure Of Nigerian Financial System Accounting Essay

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The need for transparency and clarity in the presentation of financial statements has been an endemic phenomenon which has contributed to the high level of corruption in Nigeria. This level of inadequacy in proper disclosure of relevant information is peculiar to most developing economies. Ali et al., (2009) buttressed the point that the level of disclosure of adequate and reliable information by companies in emerging nations lags behind developed western capital markets and regulatory bodies are less effective in enforcing the accounting regulations. They added that overseas investors are often hesitant to invest in companies operating in emerging economies due to the lack of transparency and lack of acceptance of internationally recognised standards. Chamisa (2000) pointed out that the international accounting harmonization objective is vital for developing countries because of their significant dependence on inflows of foreign capital to finance economic and industrial developments. This argument is clearly relevant to the Nigerian economy, which is dependent on the international institutions like World Bank and International Monetary Fund for funding.

In a developing economy, such as Nigeria, financial sector development has been accompanied by structural and institutional changes. Financial sectors generally have long been recognised to play a crucial role in economic development of an economy (Ogujuiba and E.Obiechina, 2010).This sector is often seen as the backbone of the country's economy due to its impact. The financial system in Nigeria became liberalized when structural adjustment programme was introduced in the 1980s. In recent years the system had undergone significant changes in terms of the policy environment, number of the institutions, ownership structure, depth and breadth of markets, as well as in the regulatory framework. However, in spite of the far reaching reforms of the past two decades, the Nigerian financial system is not yet in a position to fulfil its potential as a propeller of economic growth and development (Onoja et al.,2012).

In Nigeria, most companies including financial institutions have been complying with standards issued by The Nigerian Accounting Standard Board (NASB) for a number of years. These standards represent Nigerian Generally Accepted Accounting Practice (PWC, 2011). The information disclosed in Audited Financial Statements (AFS) is guided primarily by the Companies and Allied Matters Act (CAMA) 1990. Section 334 (2) of the Act provides details of information to disclose. In addition to this provision, banks and other financial institutions including Primary Mortgage Institutions (PMI) are expected to comply with Banks and Other Financial Acts (BOFIA), and Nigeria Deposit Insurance Corporation (NDIC) Act 2006 (Abiola and Ojo, 2012).

However, in recent years it has been quite common for emerging economies to adopt, either wholly or partly modified form, International Financial Reporting Standards (IFRS) as promulgated by the International Accounting Standards Board (IASB), with a view to improve corporate reporting standards and encourage international investments for the development of their economies otherwise struggling due to lack of resources (Ali et al, 2009). To this end, all financial institutions in Nigeria have been mandated by the regulatory bodies from January 1, 2012 to adopt IFRS as a means of improving financial reporting standards and encourage international investors to invest in the country.

1.2 Research Aim

The overall aim of this research is to assess the prospects and the challenges of adoption of IFRS by financial institutions in Nigeria. It considers what impacts the adoption of IFRS could have in curbing the level of corruption and ensuring that high level of transparency is maintained in the major sector of the economy.

1.3 Research Objectives

Specifically, within the context of this dissertation, the objectives of this research are to:

1) To examine if lack of transparency, mainly the inadequate disclosure of relevant information in the financial statements and incomparability with global accounting standards were the factors that necessitated the adoption of IFRS by Nigerian Financial institutions.

2) To assess if the costs of the adoption of IFRS outweigh its benefits. Consequently to enable the researcher to evaluate the prospects and challenges the adoption of IFRS is having on the financial sector.

3) To evaluate the impacts the adoption of IFRS will have on relevant areas of the financial reports ranging from the preparation and presentation of the financial statements, information technology and audit report.

4) To explore the potential benefits local and foreign investors will derive from the IFRS adoption.

The review of the current writings on IFRS adoption has focused mainly on the developing economies, considering the impacts its adoption will have on those emerging markets. For instance, Bremer and Elias (2007) highlighted that companies from developing economies with weak financial transparency and corporate governance will find it difficult to raise capital and attract foreign investors. Similarly, D.Singh and Newberry (2008) focus on good corporate governance as one of the requirements for complying with International financial reporting standards by developing economies.

The uniqueness of this dissertation is that it is specifically concentrating on the financial institutions in a developing economy, where the application of these international financial reporting standards is paramount. The role of financial institutions in developing economies cannot be overlooked, as stated by Bakker and Gross (2004,p.3) because they facilitate savings mobilisation by offering both individuals and institutional savers and investors additional instruments and channel for placement of their funds. In addition, they provide credibility for developing economies in International market. Hence, the researcher would be delving into the prospects and challenges the adoption of international financial reporting standards will have on these financial institutions in the context of Nigerian economy.

1.4 Statement of Research Problem and Questions

The intention of this research is to gain an insight on the rationale behind the adoption of IFRS by financial institutions in Nigeria, the prospects and challenges of the transition from Nigerian GAAP to IFRS and the impacts of its adoption.

In Nigeria's economic history, the strides of the last few years, which have been internationally acclaimed, was exceptional. The many reforms that have engendered the current success have largely included those in the financial sector, particularly, the positive policy shifts in the domestic money market as a first step towards a more robust and enduring facilities for the sector (Iganiga, 2010). President of Institute of Chartered Accountant of Nigeria (ICAN), Mrs Elizabeth Adegite has stressed the need for transparency in the nation's financial institutions, saying this would wage war against future failure in the sector (Ekeleme, 2009). The adoption of IFRS by this sector should address the issue of this lack of transparency.

In order to achieve the objectives of this research, the questions that this finding seeks to answer are:

1) What are the driving factors and likely constraints the adoption of IFRS will impose on the financial Institutions in Nigeria?

2) What impacts would IFRS adoption have on the financial statements and other essential areas of the financial system?

1.5 Value of this Research

This research adds value to current research specifically in the area of Impacts of IFRS adoption, in the context of Nigerian financial institutions, where the implementation of IFRS just took off beginning of this year 2012. This report will serve as a benchmark for future researchers or any knowledge seeker on the relevance of IFRS in an emerging economy like Nigeria, taking into cognisance the various schools of thought examined in this field. It will also enlighten the Nigerian public and as well boost the confidence of potential investors (be it foreign or local) on how the adoption of IFRS will provide credibility to the financial reporting made by the financial institutions.

1.5.1 Structure of Nigerian Financial system

It is important to give a brief description of the structure of Nigerian Financial system in this early part of the research so as to have a glimpse of what it entails. Afangideh and Olofin (n.d.) stated that the Nigerian financial system can be broadly divided into two sub-sectors namely: the informal and the formal sectors. The informal sector comprises the local money lenders, the thrifts, saving associations, etc. This component is poorly developed, limited in reach, and not integrated into the formal financial system. Its exact size and effect on the entire economy remain unknown. The formal financial system on the other hand can be further subdivided into capital and money market institutions. This is shown in the diagram below:

Figure : Structure of Nigerian Financial System

Source: CBN 2010 Report

1.6 Structure of the Dissertation

This dissertation is divided into five chapters.

The first chapter is the introduction which includes background of the study, research aim and objectives, statement of research problem and question, structure of Nigerian financial system, value of the research and structure of the dissertation.

Chapter two focuses mainly on literature review which comprises the globalisation of IFRS and definition of key terms, conceptual framework and models, the drive for IFRS by Nigerian financial institutions, previous research and evolution of Nigerian accounting system.

Chapter three deals with research methodology which encompasses research method, research strategy, research approach, limitation of the research and method of data collection.

Chapter four considers the case analysis and interpretation of findings. This consists of compatibility of Nigerian GAAP and IFRS, accounting differences between Nigerian GAAP and IFRS, converting to IFRS: effects on Nigerian Banking.

Finally, Chapter Five is the conclusion and recommendation.

This chapter deals with analysing the data and interpretation of the findings. This analysis involves data collected from both primary and secondary sources relating to financial institutions in Nigeria. This research utilizes hybrid method comprising both qualitative and quantitative methods. However, the qualitative method is the key method while quantitative method is used to back some of the findings of the qualitative method. It is expedient to first consider the compatibility of the Nigerian GAAP and the International financial Reporting Standards before assessing the prospects and challenges the adoption of the foreign standards on the financial institutions.

4.2 Compatibility of Nigerian GAAP and IFRS

Before any logical country would consider adopting a foreign accounting standard, the first thing will be to look at the similarities and differences. If there are no differences, then adoption would be of no immense value. With the advent of globalisation, the world's capital markets have witnessed rapid expansion, diversification and integration. These changes have brought a shift away from local financial reporting standards to global standards (Terzungwe, 2012). It is important to state here that no research work or even publication can do justice to the many differences in the details that exist between IFRS and Nigerian GAAP. According to Price Waterhouse Coopers Report (2011), the major similarities and differences between the IFRS and Nigerian GAAP are shown in the table below:

institutions

The prospects of adopting IFRS by Nigeria represented an ample shift in financial reporting for the country's financial institutions because many requirements in IFRS differ from those in the Nigerian GAAP. The adoption of these foreign standards has a lot of promising prospects for the Nigerian financial institutions as they aim towards establishing their presence in the global markets. The various prospects that necessitated the adoption will be analysed below taking into cognisance the responses from the interviewees coupled with some relevant articles in order to enhance credibility.

4.3.1 Transparency and Credibility

One of the most salient points put forward by the interviewees as a main prospect of adopting IFRS by Nigerian financial institutions is that it will enhance transparency and credibility. Thirty percent of those interviewed mentioned that lack of transparency and credibility in the area of financial reporting by financial institutions in the country has contributed to the slow progress of the economy. Some of them clearly stated that this lack of transparency is as a result of poor integrity of the management staff. They further explained that the lack of transparency is in the area of provision of inadequate reports, publishing financial statements on a highly selective basis and non-disclosure of important information that could influence the users of financial statements. This response is corroborated by Dr Ngama (2012), the former minister of state for finance in Nigeria, who highlighted that the failure of banks and other financial institutions is the lack of transparency, mainly in form of manipulation of figures and full disclosure. According to Omotoye (2011) transparency and credibility are seen as important ingredients in nation building and formation of national character; help scholars better understand the dynamics of corruption and hold the key to successful resolution of corruption problems. With the adoption of IFRS, Coker (2012) stated that Nigerian financial institutions can be seen to hold their own in the international market and at the same time compete favourably. He added the financial sector must be seen to comply with the new transparency standards under IFRS in order to achieve their objectives.

However, two of the respondents are of different opinions that they do not think the adoption of IFRS will create any more transparency than the local accounting standards. They believed that transparency is not a function of the accounting standards but the preparers of the financial statements.

4.3.2 Boost Reputation in the foreign market

Another prospect highlighted by the interviewees is the boosting of the reputation of Nigerian financial institutions in the foreign market. A statement from one of the interviewees read: 'Nigeria and everything Nigerian including financial institutions have lost their reputation in the international market just because of our bad leadership and insincerity in terms of preparation and presentation of financial statements. He further stated that no Nigerian company wants to be associated with by foreign investors simply because of fraudulent act linked with Nigerians who are top officials in the so called reputable companies in the country.'

Sixty percent of the interviewees strongly agree that boosting of reputation of financial institutions in the international market is the main prospect of the adoption of IFRS in Nigeria. They believe that if financial statements are prepared under a global accounting standard, there will be less manipulation of figures which will inadvertently promote good image of the Nigerian companies in the foreign market. To support this statement, Ramanna and Sletten (2009) argued that countries choose to adopt IFRS when they expect to increase the share of foreign capital and trade in their economy: expected foreign involvement in an economy can make current adoption of international standards more attractive. They added that financial institutions with low levels of foreign capital and trade can choose to adopt IFRS if they are expecting growth in those factors.

4.3.3 To encourage foreign investors

This is another vital prospect the respondents consider cannot be overlooked. In their opinion, they mentioned that the main rationale behind adopting IFRS is to encourage foreign investors. This prospect share the same percentage with the prospect mentioned above in the data collected. Sixty percent of the respondents are of the opinion that with the adoption of IFRS by financial institutions, foreign investors will be encouraged to invest in the companies because reports are clearly written in compliance with the foreign standards that they understand. Some of the respondents acknowledged that foreign investors' confidence will be boosted because financial statements of potential companies can be compared with other similar companies in the foreign market. To substantiate this statement, Ali et al.(2009) wrote that overseas investors are often hesitant to invest in companies operating in emerging economies due to the lack of transparency and lack of acceptance of internationally recognised reporting standards. Ogunwale (2011) buttressed the point that the adoption of IFRS by companies operating in both private and public sectors would boost the investment climate in Nigeria. Foreign investors want financial statements that are comparable with those of similar businesses in other parts of the world, for strategic decision making in relation to mergers and acquisitions. Many foreign investors will require their subsidiaries in Nigeria to report in accordance with IFRS so that the parent company can comply with its reporting requirements in its home territory. Similarly, the implication of the new reporting format is that banks and other institutions are at the end of the financial year expected to embark on full disclosure of their activities to the extent that it should be understandable to both the shareholders and investors, while at the same in compliance with international best practice (BusinessDay, 2012). This means that financial statements prepared under international financial reporting standards will be more reliable than Nigerian GAAP.

4.3.4 To reduce level of corruption

Another vital point raised by the interviewees is that with the adoption of IFRS the level of corruption among top management officials in financial institution will be reduced. Five percent of the people interviewed clearly pointed out that corruption may not be totally eradicated from the financial system but to a reasonable extent will be reduced. During the interview, reference was made to the sacking of corrupt bank chief executives by the Central Bank of Nigeria governor. In their opinion, the interviewees believed that if there had been a more concise and transparent accounting standards than the local standards, the fraudulent activities perpetrated by the banks' top officers would not have been possible. One interviewee explained that in a view to fight corruption in the country, especially among top officers in notable companies, is one of the rationales that made the Federal Government of Nigeria to mandate companies to adopt IFRS. He further stated 'the more stringent provisions in IFRS can address creative accounting that Nigerian GAAP is susceptible to.' Onwubuariri (2012) stated that fighting corruption is not easy and since IFRS will ensure an accounting system that will checkmate corruption and fraud, there is expectation that not all stakeholders will be satisfied with its adoption. It is observed during the course of this research that there are some IFRS frameworks which Nigerian GAAP has no guidelines. For instance, the Price Water House Report (2011) reveals that no guidance exists for non-current assets held for sale or disposal group, financial liabilities classification, convertible instruments and other vital accounting transactions under the Nigerian GAAP compare to IFRS. These are areas susceptible to corrupt practices.

4.3.5 To facilitate cross border exchange listing

Kip (2007) defines cross border listing 'as the listing of securities issued by a foreign issuer on a domestic securities exchange.' He added that the reasons for this cross border exchange is for companies to boost their status as a truly global player, increase trading volume and improve shareholder relations. Five percent of the correspondents admitted that adoption of IFRS would enhance cross border exchange listing which may not be possible with Nigerian GAAP. They added that with IFRS in place, the obstacles like differences in accounting standards, inadequate financial information to cross border exchange listing will be removed because of the uniformity in the accounting standards. In a similar research conducted in India, with a parallel growing economy like Nigeria, it was observed that IFRS will eliminate blockades to cross border listing and would be beneficial for the investors who generally attributed to risk premium if the underline financial information is not prepared in accordance with international standards (Ray, 2012).

The overall prospects of IFRS adoption by financial institutions responses from the research questionnaire distributed are shown in the table below coupled with a pie chart:

Table : Percentage distribution of responses of respondents on the prospects of IFRS adoption by Nigerian financial institutions

Ranking according to % of respondents

1

2

3

4

5

1Transparency and credibility

30%

2 To boost their reputation in the foreign market

And also encourage foreign investors

60%

3 To enhance international comparison

60%

4 To reduce level of corruption

5%

5To facilitate cross border exchange listing

5%

Figure : Prospects for the adoption of IFRS by Nigerian financial institutions

4.4 Challenges of IFRS adoption by Nigerian financial institutions

The adoption of IFRS presents many challenges especially for many developing nations. Ehijeagbon (2010) wrote that the convergence to a single set of globally accepted high quality standards is vital to economic growth and ultimately in the best interest of the public, it is essential for all the stakeholders to consider the need for their operation in overcoming the attendant challenges that come with the adoption and implementation of international financial reporting standards. These challenges are analysed below:

4.4.1 Cost factor

The first challenge put forward by the interviewee is the cost of implementation factor. Fifty percent of the responses from the questionnaire mentioned that there are various costs associated with the implementation of the foreign standards ranging from cost of training and cost of replacing Nigerian GAAP packages with IFRS packages. In their opinion, they believe the cost of hiring IFRS trainer, creating a conducive environment for the implementation and changing the local statement of accounting standards packages to IFRS packages will have a big impact on the earnings of the financial institutions. In support of this view, Terzungwe (2012) highlighted that converging to IFRS has a huge cost outlay which include the cost of training personnel to understand the new global standards, cost of acquiring new accounting packages that are needed for the implementation, cost of discarding former accounting packages that are not compatible with IFRS. Madawaki (2012) added that professionals (accountants, financial analysts, auditors, tax practioners, regulators, stockbrokers and accounting lecturers) are all looked upon to ensure successful implementation of IFRS which may prove costly to small-size financial institutions. He further stated that training materials on IFRS are not readily available at affordable costs in Nigeria to train such a large group which poses a great challenge to these financial institutions in adopting IFRS.

However, twenty five percent of the respondents are of different opinion that cost cannot be a challenging factor to financial institutions taking into cognisance their financial strength. They asserted that majority of the country's financial institutions have the financial capability to overcome the cost factor which is evidenced in their published financial statements; although their reported profits may be slightly affected in the short term but will be recupperated in the long term. An argument in favour of these respondents' opinion was pointed out by Chadha (2010) that financial institutions with the intention to go global will consider cost as a benefit instead of a challenge because all their business units/investments will be on a common accounting platform.

4.4.2 Lack of personnel

Thirty percent of the responses from the questionnaire showed that financial institutions in Nigeria do not have the right personnel to implement the IFRS. They are of the opinion that most of these financial institutions' staffs are neither accountants nor auditors, thereby making it difficult to quickly adapt to the new accounting system. They added that some of the accountants in the financial organisations are not IFRS compliant because they are locally qualified. Oduware (2012) emphasised that the average accountant in most entities in Nigeria lacks understanding of advanced financial management techniques for instance financial instruments valuation, impairment analysis forecasting etc. This has slowed down the reporting process. These financial instruments are essential transactions of most financial institutions globally. In the course of this research, it is observed that lack of right and adequate personnel is major predicament for most emerging economies. The Minister of Finance in Nigeria, Mrs Ngozi O. Iweala (2011) acknowledged the fact that despite some training programme on the set of International standards organised by some financial firms in this category, they have not really gotten to the stage of embedding IFRS into their systems and process, even as some insisted that most of the companies in the country have no idea of how to go about the IFRS. Also, Adam (2009) cited a recent study conducted by the United Nations Conference on Trade and Development (UNTAD) indicates that there is serious shortage of personnel in developing countries that have the basic skills and experience to implement IFRS. This therefore makes it crucial for the issue of skill gap to be tackled at the very outset in our IFRS transition.

In contrast to the above view, twenty five percent responses indicated that Nigerian financial institutions have the people it takes to implement the international accounting standards. In a similar manner, some responses from the interview conducted also supported this notion that there are qualified staffs in financial organisations that possess the necessary skills to implement the IFRS, although they may need to update knowledge.

4.4.3 Lack of infrastructure

This is another challenge preventing the smooth flow of the implementation of IFRS by financial institutions in Nigeria as mentioned by some of the interviewees. Ten percent of the responses received agreed that most Nigerian companies lack the proper infrastructure to effectively carry out the execution of the foreign standards. Mwaura and Nyaboga (2009) wrote that more than a half of all African countries do not have the functional accounting organisations to ease the execution of the IFRS. They added that International Financial of Accountants (IFAC) faces the daunting task of assisting these developing countries to first develop functional professional accounting organisations. Similarly, O.Ailemen and Akande (2012) argued that some of the obstacles to full implementation of IFRS are the absence of training facilities and academic curriculum in school. They also pointed out that poor reporting systems are also indication of poor infrastructure.

On the contrary, forty five responses disagreed with the above mentioned point. They strongly believed that Nigerian financial institutions have the technical know-how to Implement IFRS. They added that without proper infrastructure in place, they would not have been mandated to adopt IFRS in the first place. In their view, it is upheld that most Nigerian accounting standards are a replica of International financial reporting standards, except for few standards that are amended to suit the country's environment. This argument is supported by Iyoha and Jafaru (2011) which declared that there are strong institutional infrastructure to make the transition to IFRS effective and rewarding like accountancy bodies (ICAN and ANAN), Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), Nigerian Accounting Standards Board (NASB).

4.4.4 Political and cultural factor

Politics and culture is also one of the challenging factors for adoption of IFRS by financial institutions in Nigeria, as most companies are being regulated by governmental bodies. Government, in both developed and undeveloped countries play important part when it comes to making decisions that affect the vital part of the country's economy. The adoption of IFRS is of great significance to Nigeria which makes the role of the government inevitable. Ten percent responses confirmed that political and cultural factor is another unavoidable challenge in the Nigerian sector. The political factor is seen to be a challenge as explained by one interviewee due to lack of continuity when there is change of political power, which might have a negative effect on the activities of the financial sector. He stated that a new government might take over and not be in support of the IFRS due to the poor structure of the political setting... With regards to culture, Jones et al., (2009) stated that integrating world-wide cultural differences to ensure that IFRS are applied and interpreted consistently is sure to be a difficult task. The management culture in most financial institutions in terms of compensation plan would have to be changed due to the differences in terms and conditions of Nigerian GAAP and IFRS (Ailemen and Akande, 2012). This tends to be a great challenge as most of the top officers feared that the terms and conditions of IFRS might be less favourable.

However, five percent of the responses were of different opinion that the politics and culture may pose no challenge as the Nigerian government is more than prepared to ensure the smooth transition from the local GAAP to IFRS. To corroborate this opinion, Omankhanlen (2010) reported that the Federal Government of Nigeria is in support of the adoption of the foreign standards because it will facilitate rapid economic development as explained by the country's Minister of Commerce and Industry in a summit organised by NASB. In addition, the Financial Reporting Council of Nigeria, a federal government agency, has concluded the arrangements for the establishment of IFRS academy as a platform the development of contemporary skills sets in all aspects of accounting and financial reporting amongst preparers, users, regulators and auditors of financial report, and the teaching and learning of IFRS in Nigeria and Africa (Financial Reporting Council of Nigeria , 2012).

The overall responses on the challenges of IFRS adoption by Nigerian financial institutions are depicted in the table and graph below:

Table : Percentage distribution of responses on the challenges of IFRS adoption by Nigerian financial institutions

1

2

3

4

Ranking according to % of respondents

Agree

Disagree

Agree

Disagree

Agree

Disagree

Agree

Disagree

1. Cost

50%

25%

2. Lack of personnel

30%

25%

3. Lack of infrastructure

10%

45%

4. Political and cultural factor

10%

5%

Figure : Challenges of IFRS adoption by Nigerian Financial Institutions

4.5 The Impacts of IFRS adoption

According to Liu et al., (2011) as more countries consider the adoption of International financial reporting standards (IFRS) that are based on practices prevalent in the English-speaking countries with free markets, it is increasingly essential to understand the impacts of IFRS on some salient areas of the financial institutions like auditing of the financial statements, corporate governance and information technology. Each of these areas will be analysed below based on the responses from the questionnaire, the interview conducted and relevant articles.

4.5.1 Impact of IFRS on corporate governance

It is important to give a brief description of what corporate governance entails in order to understand the effect IFRS adoption will have on it. Corporate governance is referred to as procedures and processes according to which an organisation is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organisation-such as the board, managers, shareholders and other stakeholders- and lays down the rules and procedures for decision making (OECD, 2005).

Sixty percent responses indicated that with the implementation of IFRS, there is likelihood that the corporate governance obtainable in the foreign companies where IFRS is in place might be imbibed into the Nigerian financial system. Similarly, one of the interviewees pointed out that for IFRS to be effective in the financial Institutions, there is need for well structured corporate governance. Nkiru(2011) cited that the recent events involving the much publicised corporate governance failure in Nigerian banking sector reveal common trends in the affected institutions; the noticeable trends involved poor corporate governance culture, typified in poor management which led to fraud, insider abuse by management and board members, weak internal controls and supervision, among other things. She added that the introduction of IFRS will enhance reliable financial information and audit quality assurance thereby boosting confidence in the corporate governance in Nigerian financial institutions. This indicates that there will be need for financial institutions whose governance structure is not aligned with global standards to either change or amend it.

4.5.2 Impact of IFRS on financial statements audit

The impact of IFRS on the audit of financial statement cannot be overemphasized. Questions 10 and 11 of the survey conducted show that thirty percent of the responses agreed that the adoption of IFRS will make auditing much easier for the auditors. It is noted that the big auditing firms (PWC, KPMG and Deloitte) in Nigeria are multinational that are IFRS compliant already. So adopting IFRS by Nigerian financial Institutions will make it much easier for these auditing firms to use any of their personnel to audit the financial statements rather than using only those who understand the Nigerian GAAP. This denotes that the adoption will encourage the rotation of audit partners without much stress, since financial statements are prepared in accordance with the global standards. Onafalujo et al., (2011)wrote that IFRS emphasises the preparation of accounts be instilled with human qualitative values that determines the quality of account in terms of: materiality, relevance, understandability and comparability .Being an accountant, the researcher reasoned that with the transparency and full disclosure the adoption of IFRS will bring to the financial statements, less audit procedures may be required during auditing. In a statement made by the Minister of finance in Nigeria, Mrs Ngozi O.Iweala (2011), she mentioned that the convergence to IFRS, which comprises of principle-based standards and interpretations, is expected to bring about uniformity in operations and auditing of companies. She added that it is expected to have significant impact on firms' financial position and financial performance.

4.5.3 Impact of IFRS on Information technology

The path to IFRS as discussed earlier in this chapter will lead to change in the use of accounting packages from the local to the International. These packages are mainly software relating to information system. Ten percent respondents coupled with responses from some of the interviewees specified that most accounting data are performed using IT software; and with the implementation of IFRS, there may be an overhaul of the current accounting package to allow the easy process of the accounting transactions. Bastos (2009) cited that the largest impact of IFRS related rule or logic changes is on those IT systems responsible for the classification, processing and posting of financial transactions. He further stated that most finance companies today rely on one or more Enterprise Resource Planning (ERP) systems to process their financial accounting records and prepare their financial statements. In the same way, finance companies worldwide have spent considerable time, money, and other resources to convert to IFRS- and many of them report that a substantial component of their conversion costs were IT related (KPMG, 2008). In a report by Aladenusi (2012), she mentioned that general provision of 1% on performing loan already configured on banks' IT systems may need to be replaced by specific provision while the current provisioning method for non performing loans may be replaced by source systems that captures the result of impairment tests according to IAS 39. She further cited that IT systems should be broken down and recognises information components of property, plant and equipment in line with IAS 16.

The percentage of responses on the Impact of IFRS adoption is shown in the bar chart below:

Figure : Impacts of IFRS Adoption

4.6 Benefits of IFRS Adoption to both Local and Foreign Investors

IFRS may seem too challenging in the short run especially for first time adopter like Nigeria, but in the long run there are immense benefits associated with its adoption. These benefits will be considered from the points of both local and foreign investors, who are usually the targets of these financial organisations. These benefits will be discussed briefly below:

4.6.1 Benefits to Foreign Investors

Most financial institutions in Nigeria have subsidiaries in other countries using different accounting standards or IFRS. With the adoption of IFRS there will be improved communication among subsidiaries due to a universal accounting language which can improve management reporting and decision making (Deloitte, 2011).The adoption of IFRS by the financial sector will enhance easy consolidation of financial information of the same company with branches in different countries (Agboola, 2012). Having financial statements prepared in a universal accounting language will unarguably boost the confidence of the foreign investors as noted by one of the interviewees.

4.6.2 Benefits to Local Investors

The adoption of the IFRS will ensure better working conditions for financial Institutions' employees in Nigeria because one of its standards covers employee benefits (IAS 19) while the Nigerian GAAP only addresses retirement benefits (KPMG, 2008).Most Nigeria employees do have shares in the company they work for as observed by the researcher, this new standard will there encourage goal congruence because the benefits of the investors are taken into cognisance.

Responses to question five of the interview questions revealed that local investors' confidence will be boosted due to the fact that the adoption of IFRS will provide more credibility than the Nigerian GAAP. It is also observed that with full disclosure of relevant information as a mandatory requirement of the IFRS, local investors will be highly confident of whatever investment decisions they make.

CHAPTER FIVE: CONCLUSION AND RECOMMENDATION

5.1 Introduction

To begin with, it is important to re-state the overall aim of this research which is to assess the prospects and the challenges of adoption of IFRS by financial institutions in Nigeria. This section will reconsider the research objectives stated in section 1.3, summarise the findings of this research work and offer conclusion based on the findings. Also recommendations for future research will be discussed.

5.2 Summary of findings and Conclusion

Research Question 1: What are the driving factors and likely constraints the adoption of IFRS will impose on the financial Institutions in Nigeria?

It is observed in the course of this research that one of the rationales for the adoption of IFRS by developing economies is to ensure transparency in the preparation and presentation of financial statements. This particular reason of transparency is seen to be one of the main drivers why the adoption of IFRS is embraced by Nigerian economy. Section 4.3.1 clearly addressed the first objective which was to examine if transparency was the rationale for the adoption of IFRS by Nigerian financial institutions. The responses from both the questionnaire and interviewees clearly indicate that the adoption of IFRS by these institutions will ensure full disclosure of the necessary information in the financial statements, which is not required under the Nigerian GAAP.

Also noted from the responses, relevant articles and speeches made by notable and experienced IFRS inclined personnel in Nigeria, it is observed that the adoption of the foreign standards by these institutions may seem costly at present but the long term benefits are unquantifiable. In order to address the second objective, careful analysis of the interview responses shows that the implementation of IFRS will attract foreign investors and also encourage cross border listing as stated in the 4.3.3 and 4.3.5 sections which have been the major prospects of Nigerian financial institutions. This denotes that IFRS adoption will provide quick and easy access for Nigerian institutions to enter foreign market; consequently the overall benefits outweigh the cost.

In summary, the collective results from the survey and interview responses as explained above gave an explicit answer to the first research question. This means that the resultant factors for the adoption of IFRS by financial institutions are to ensure transparency, encourage foreign investors, removal of barriers to cross border listing; while the constraints are-cost of implementation, politics, lack of personnel and infrastructure.

Research Question 2: What impacts would IFRS adoption have on the financial statements and other essential areas of the financial system?

The results of the study prove that with the implementation of IFRS, financial statements will be prepared and presented in a much clearer manner which will aid better understanding. This signifies that areas not addressed by the local GAAP are clearly dealt with under international financial reporting standards (IFRS). It is deduced from the responses and relevant articles that IFRS will enhance full disclosure of relevant information of the financial statements n accordance with IAS 1 which had been one of the major weaknesses of the local GAAP. For instance areas relating to financial liabilities classification and equity instruments have no guidance under Nigerian GAAP as discovered in the course of this research, which are key to financial institutions. Another important impact on the financial statement as inferred from the interview responses shows that level of creative accounting or manipulation of figures will be reduced to the barest minimum if not completely eradicated. This is because the financial accounts are prepared in a language understood by both local and foreign investors.

A succinct review of the findings also indicates that impact will also be felt in the following areas: corporate governance, financial statements audit and information technology. The benefits to both local and foreign investors were briefly considered in terms of enhancement of confidence and credibility.

In summary, answering the second research question above helped in addressing the last two objectives which were: evaluation of the impacts the adoption of IFRS will have on relevant areas of the financial reports and also the exploration of the potential benefits local and foreign investors will derive from the IFRS adoption.

5.3 Limitations of Study

There are several limitations experienced in the course of this research which emanated as a result of the method of data collection. The use of both primary and secondary sources poses their challenges as will be discussed below.

Firstly, the case study chosen is an economy where less research is being undertaken thereby limiting the availability of data from that source. In addition, research on the adoption of IFRS in the financial sector has not been undertaken prior to this research work, thereby making it a bit tedious for the researcher to obtain relevant data.

Secondly, the use of online questionnaire tends to cause a delay in completion of the research due to late responses from the respondents. Aside the late responses, some respondents did not reply without any plausible reasons. This non response therefore limits the richness of the information obtained.

Thirdly, the interviews conducted via the phone and other social networks chosen were not explicit due to the limited time. Also, the telephone interview was not allowed to be recorded for confidentiality reason best known to chosen interviewees.

Finally, the adoption of IFRS has just recently been adopted in Nigeria thereby limiting the scope of the research.

5.4 Recommendations

In order to ensure that the full benefits of IFRS adoption accrue to Nigerian financial institutions, the researcher would therefore recommend the following:

IFRS should be incorporated into the organisational culture. This will create continual awareness and familiarity with the new accounting standards. In addition it will enable the institution to make provision for training facilities.

An IFRS compliance officer should be nominated. This officer is to serve as a change agent as described in Lewin's change model to prevent the institution from falling back to the local GAAP. This officer is to ensure that regular training is conducted to effect any update in the international financial reporting standards.

5.5 Further Research Suggestion

Nigeria, being a first time adopter of IFRS has provided a foundation for advancement of research in different areas of the country's economy aside the financial sector. Below are suggestions for further research:

An investigation of the areas of the International Financial Reporting standards (IFRS) that is relevant to financial Institutions. This is important because IFRS cut across all sectors of the economy like agriculture, manufacturing etc.

An assessment of the prospects and challenges of IFRS adoption in a particular sector of the financial system like: Insurance, Nigerian Stock Exchange and Pension Companies. Research in this area will streamline the focus to a single segment of the financial sector rather than generalising the results as done in this research.

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