The Drive For Ifrs By Nigerian Financial Institutions Accounting Essay

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Deming stated that tthe emergence of IFRS has coincided with the requirement of their use by the European Union. Beginning in 2005, virtually all public-held companies listed on stock exchanges in the European Union are required to adopt IFRS. Many small or developing countries have turned to IFRS as their national GAAP, as they became the prevailing global accounting standards.

The rising growth in international trade, cross border financial transactions and investments which inevitably involves the preparation and presentation of accounting reports that is useful across various national borders, has necessitated the adoption of IFRS by both the developed and developing countries (E.Okpala, 2012). Accounting standards compliance and harmonisation constitute an important issue as a company can find it difficult to follow different accounting standards for the same business structure in different countries. Differences in accounting standards could lead to additional cost of financial reporting if they are not managed well. For example, profit could be transformed to losses under different accounting standards (Tripathi and Gupta, 2009).

According to Ballas et al (2010) the debate on international harmonisation of accounting standards started in the 1960s and numerous surveys of the extensive literature on harmonisation and IFRS implementation have been written over the years. However, the year 2005 heralded a new era in financial reporting as many countries adopted International Financial Reporting Standards (IFRS) for the first time. As it is realised, the globalisation trend affects the way that firms worldwide report their financial transactions. Accounting standards globalisation significantly changes the reported earnings and reported financial position of many firms and public sector entities (Godfrey & Chalmers, 2007,p.1). To butress this point, A.Bhimani (2008) wrote that the growth in business activities globally with inter-organisational linkages, cross-national financial inter-dependencies and flows becoming increasingly complex also facilitated the globalisation of IFRS. He added that given the extensively uncertain, uneven and constantly evolving nature of global business changes, the aptness of applying judgment in assessing financial performance and position rather than relying on the application of pre-defined rules continued to achieve wider acceptance.

VCH ( 2011) stated that globalisation of capital market has led to a sharp increase in the importance of international financial reporting regulations in recent years. Accountants worldwide no longer speak national languages but international one language. The common language of accountants is 'International Financial Reporting Standrads(IFRS)' of The International Accounting Standard Board (IASB). Many developing countries and countries with economies in transition strive to mobilize financial resources from domestic and international sources to achieve their social and economic development goals. The availability of relevant information on potential investment targets has a bearing on effort to mobilise investments for financing economic and social development. Such information plays an important role in making critical investment decisions and conducting risk assesment. It also contributes to improve investors' confidence and decreased cost of capital (Practical Implementation of International Financial Reporting Standards: Lesson Learned, 2008) . In order to facilitate the free flow of resources for economical growth and transparency in the area of finance globally led to the Internationalisation of IFRS. Walton (2011) argued that one of the reasons for the globalisation of IFRS is not because of transparency alone but that governments, companies and stock exchanges are generally quite reluctant to spend any money on formulating accounting standards. Consequently, they are in normal times quite happy to use a 'free' import of reputable standards.

In simple terms, the definition of key terms in this research is considered below:

International financial reporting standards(IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. (AICPA IFRS Resources, 2012)

Adoption of IFRS means that IFRS have replaced national accounting standards and requirements as the basis for preparing and presenting group financial statements for listed companies (Mirza & Holt 2011,p.3). In this context, it means replacing Nigerian GAAP with IFRS. Adopting IFRS involves making a number of decisions which have a significant impact on the company's financial position and performance as well as on systems, processes and related controls (Deloitte, 2011)

Financial institutions are organisations whose principal function is managing the financial assets of business concerns and individuals (Gup, 2008,p.1). Financial institutions as defined by Jorion (2009,p.865) are:

Commercial banks, whose primary function is to hold customers' deposit and to extend credit to businesses, households or government.

Securities houses, whose primary function is to intermediate in securities markets.These include investment banks, which specialise in the initial sale of securities in the primary market, and broker dealers whose primary function is to assist in the trading of securities in the secondary markets.

Insurance companies, which provide property and casualty or life insurance coverage.

Wood &Sangster (2008, p.653) defined International Accounting Standard Board as the body responsible for issuing International Financial Reporting Standards and International Accounting Standards (the previous name used).

2.3 The Drive for IFRS by Nigerian Financial Institutions

Bruce (2007) explained that the process of moving to IFRS has not simply been a series of technical accounting changes. It has been a cultural transformation as much as an accounting one. In many places, including Nigeria, capital market reporting didn't exist before. The figures were produced for a tax-based system, for example. The changes have been what exactly the capital markets needed. Ojo (2012) pointed out that in a move aimed at integrating the banking system into the global best practices in financial reporting and disclosure, Nigeria's central bank (CBN), commenced partial adoption of the International Financial Reporting Standards (IFRS) in the banking system- the move according to CBN, being aimed at enhancing market discipline and reducing uncertainties which limit the risk of needless contagion.

Terzungwe (2012) stated that another driving factor for the adoption of IFRS by Nigerian Financial Institutions is because most of these institutions have raised capital from international stock markets and have established their presence in other countries of the world, while Nigerians hold securities of non Nigerian issuers. He added that world economies are interconnected and nations are desirous of moving forward by freeing themselves from the limits of the present system of financial reporting. To corroborate this, S.Rich et al.(2010,p.785) pointed out that business is becoming an increasingly global activity as companies conduct operations across national boundaries. Not only are companies engaging in international transactions, companies are increasingly seeking capital from foreing stock exchanges. They further stated that due to a variety of factors(e.g cultural differences, differences in legal system) the historical development of accounting standards on a country-by-country basis has led to considerable diversity in financial accounting practices. To facilitate the conduct of business in an international environment, there has been increasing interest in the development of International accounting standards. Beko (2011) emphasised the fact that International investors need access to financial information based on unified accounting standards and procedures. Investors constantly face economic choices that require a comparison of financial information. Without harmonisation in the underlying methodology of financial reports, real economic differences cannot be separated from alternative accounting standards and procedures.

Ballas et al (2010) mentioned that the need for better governance, stewardship of business, improved financial reporting and more efficient financial market has been an essential driver for change of the local statement of accounting standard to international financial reporting standard in Nigeria. Oghojafor et al., (2010) buttressed the point that the crisis in the banking sector is a clear manifestation of poor cooperate governance practices, inadequate performance orientation, lack of accountability in the financial sector. In order to address these issues and ensure safety of depositors' fund, the need for a more reliable and transparent accounting standards was recommended. Bolt-Lee and Smith (2009) added that standard setting at the national level has been filled with political controversy in recent years. A transfer of the standard setting process to an entity external to national boundaries could eliminate what people in the regulatory and political arena regard as a messy process at the national level. They further suggest that outsourcing the setting of accounting standards to a single private agency appears to be rational , lower cost option, which reduces economic and political cost for individual countries as long as they retain residual decision rights regarding International financial reporting standards adoption.

2.3.1 Recent Banking Sector Crisis In Nigeria

In Nigeria, the banking sector is an important part of the financial system. The banking sector dominates the Nigerian financial system as it accounts for about 90% of the total assets in the system and about 65% of market capitalisation of the Nigerian Stock exchange (O.Alabede, 2012). The banking sector is strategic to Nigeria's economic prosperity and the crisis has precipitated some panic and deep concerns about the Nigerian economy (Voice of America, 2009).This denotes that the crisis experienced in the banking sector had a significant impact on Nigerian financial system. This crisis is discussed below.

Sanusi (2010), the Governor of Central Bank Of Nigeria stated that the banking sector crisis was as a result of some of the factors stated below:

The lack of effective corporate governance at banks was indeed a prime factor contributing to the financial crisis. Consolidation created bigger banks but failed to address the fundamental flaws in corporate governance in many of these banks. Governance malpractice within banks, unrestrained at consolidation, became a way of life in large parts of the sector, enriching a few at the expense of many depositors and investors.

A lack of investor and consumer complexity also contributed to the crisis by failing to compel market discipline and allowing banks to take advantage of consumers. Many new investors were ignorant of the risks they were taking and consumers were often subjected to poor service and sometimes hidden fees.

It was reported in the BBC News(2009) that ten banks were audited by the Central Bank of Nigeria and only half of them got the pass mark. The others were said to have fallen far short of the prudent and transparent management required by law and by public trust.

Akinpelu (2012, p.253) stated that after the national banking crisis, It appeared everything had resumed back to normal in the Nigerian banking sector in 2008. However, towards the end of that year, the world economy entered into recession following the financial meltdown that started with the subprime mortgage crisis in the United States of America and other economic catastrophe in Europe and other parts of the world. He stated that the crisis had led to the collapse of many banks and other financial institutions, and even rendered a number of nations bankrupt. During this era, it appeared banking system in Nigeria had weathered the storms until some banks began to show signs of failure due to huge concentration in their exposure to certain sectors (capital market, and oil and gas being the most prominent ones), and a general weakness in risk management and corporate governance.

2.3.2 Roadmap to IFRS adoption in Nigeria

Ayuba (2012) pointed out that the impact of IFRS accounting policies decisions of a parent on the subsidiary, data capture for accounting and management reporting, availability of technical resources, acquisitions and dispositions, executive compensation calculations and the basis of incentive pay, debt covenants and potential impact of IFRS-reported results, etc were considered before arriving at the road map. Ogunwale (2011) added that the application of local accounting techniques in preparing financial statements does not always result in building of proper accounting standards, simply because similar transactions and events are not similarly reported or treated in like manner , this necessitated the idea of preparing financial statement in a modernised way.

Since globalisation is an inevitable process and since high quality standards are crucial to securing and restoring the trust reposed by investors in financial and non financial information (also playing a crucial role in contributing to a country's economic growth and development) led to the adoption of IFRS in Nigeria (Marianne, 2012). It is predicted that the financial system be robust enough to sustain one of the world's 20 largest economies. This is noted in the Financial System Strategy 2020 (FSS2020), in which the Central Bank of Nigeria brought together stakeholders in the financial system to craft the common vision and road map (The African Economy, 2013).

According to the Minister of Federal Ministry of Commerce and Industry, Martins-Kuye (2010) mentioned that the Roadmap outlines specific milestones that if realised, could lead to the adoption of IFRS in three phases as follows:

"Phase 1: Publicly listed Entities and Significant Public Interest Entities

Publicly listed Entities and Significant Public Interest Entities are to prepare their financial statements using applicable IFRS by January 1, 2012. The choice of January 1, 2012 is anchored on the need to effectively transit to IFRS over a three year period. Any entity that starts preparation for transiting would need to convert its closing balances at December 2010 to IFRS-based figures which then become the opening balances as at January 1, 2011 for IFRS-based financial statements as at December 31, 2011. This provides opening balances for January 1, 2012 which is the first IFRS full financial statements as at December 31, 2012 (with 2011 as comparative year).

 Phase 2: Other Public Interest Entities

All other public interest entities are expected to mandatorily adopt IFRS, for statutory purposes, by January 1, 2013.

 Phase 3: Small and Medium-Sized Entities (SMEs)

IFRS for SMEs shall mandatorily be adopted as at January 1, 2014. This means that all Small and Medium-sized Entities in Nigeria will statutorily be required to issue IFRS based financial statements for the year ended December 31, 2014. Entities that do not meet the IFRS for SME's criteria shall report using Small and Medium-sized Entities Guidelines on Accounting (SMEGA) Level 3 issued by the United Nations Conference on Trade and Development (UNCTAD) ."

The roadmap is shown in the diagram below:

Figure Roadmap to adoption of IFRS in Nigeria

Source: Institute of chartered accountants of Nigeria

2.4 Formulation of International Financial Reporting Standards

The IASB has a formal due process which any issue has to go through before becoming an accounting standard. According to J.Epstein and Jermakowicsz (2010, p.7-8) the process usually involves the five steps below:

1) Discussion of a paper outlining the principal issues;

2) Preparation of an exposure Draft that incorporates the cautious decisions taken by the Board-during which process many of these are re-debated, sometimes several times;

3) Publication of the exposure Draft

4) Analysis of comments received on the exposure Draft;

5) Debate and issue of the final standard, accompanied by application guidance and a document setting out the basis for conclusion (the reasons why IASB rejected some solutions and preferred others).

Final ballots on the exposure draft and the final standards are carried out in secret, but otherwise the process is quite often, with outsiders able to consult project summaries on the IASB website and attend Board meetings if they wish. Mackenzie et al., (2012) added that the standard setting process is more involved in practice than in theory. They further mentioned that in theory, an internal process is involved where the staff proposes solution to a draft paper, and IASB either accepts or rejects them; in practice, the process is more complex especially for project like financial instruments where individual members of the Board are delegated special responsibility for the project with the problem discussed regularly with the relevant staff, helping to build the papers that come to the Board. The international financial reporting standards formulated to date by IASB are shown below:

The IFRS framework describes the basic concepts that underlie the preparation and presentation of financial statements for external users. This framework serves as a guide to the board in developing future IFRSs and as guide to resolving accounting issues that are not addressed directly in an International Accounting Standard or International Financial Reporting Standards or Interpretation (Deloitte, 2011). Paul (2011) added that the conceptual framework is needed to guide preparers of financial statements when they encounter gaps in the standards that are inevitable.

According to Alexander et al (2009, p.138-139) argued that the framework does not have the status of an IAS,does not overide any specific IAS and, in case of conflict between the Framework and an IAS, the latter prevails. They further stated the following purposes of the framework:

To assist the Board of IASB in the development of future IASs and in its review of exisiting IASs;

To assist the Board of IASB in promoting harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements;

To assist national standard-setting bodies in developing national standard;

To assist preparers of financial statements in applying IASs and in dealing with topics that have yet to form the subject of an IAS;

To assist auditors in forming an opinion as to whether financial statements conform with IASs

2.5 Early studies of accounting choice until 1990s

According to Jackson and Cook (1998), the existence of International accounting standards can be traced back to the middle ages (400-1400 AD), when international trade expanded significantly as a result of the crusades which stimulated European demand for foreign goods. Toward the end of this period foreign trade had become quite prevalent and the establishment of foreign business branches was a natural result. They added that the Italian company of Francesco di Marco is an example of a company that operated through foreign branches. This company had a branch in Barcelona that had a balance sheet in its Datini Archives, with also an income statement covering the period from 11July 1397 to 31 January 1399. At this point in time, the exchange profit or loss was calculated by taking the differences between the balances stated in the foreign currencies and the balances stated in the local currency.

Blake & Lunt (2001, p.1) stated that prior to the establishment of the accounting standards programme, the ICAEW gave guidance to its members in a series of statements, 'Recommendations on Accounting Principles'. The issue of such recommendations started with the establishment of the Taxation and Financial Relations Committee (Later renamed Taxation and Research Committee) in 1942, and 29 recommendations had been issued by 1969. They added that 'Recommendation on Accounting Principles' generally consisted of summaries of current practice rather than giving a lead in new developments, and were rarely backed up by formal research. During the 1960s a number of cases where existing accounting and auditing practice seemed to lead to an unsatisfactory result led to considerable criticism of the accounting profession.

Sullivan (2005) reports that consensus emerged that inadequate transparency by international organisations, national government units, and private sector entities was a contributing force to the serious financial turbulences that have plagued the global economy. The conclusion was reached that market cannot function efficiently, and that they will continue to be highly susceptible to instability, in the absence of adequate, reliable, and timely information from all quarters. Lack of accurate and timely information on economic and financial developments and policies, particularly in an environment of economic and financial weakness, aggravates the weakness and contributes to the emergence of crises situations. In order to address these issues, the IFRS was introduced to provide an agreed minimum conceptual framework for reporting.

In a similar manner, Koen (2001, p.2) highlighted that financial and capital market liberalization trends of the 1980s, which brought increasing unpredictability in financial markets, increased the need for information as a means to ensure financial stability. In the 1990s, as financial and capital market liberalisation increased, there has been mounting pressure for the provision of useful information in both the financial and private sectors; minimum disclosure requirements now dictate the quality and the quantity of information that must be provided to the market participants and to the general public. The adoption of the internationally accepted accounting standards is a necessary measure to facilitate transparency and proper interpretation of financial statements.

The researcher found out that the early researchers on IFRS focused more on how IFRS could aid transparency and credibility in financial reporting. However, the recent researchers now have extended their scope beyond transparency of financial statements but have delved into IFRS relevance to foreign investments, governance, equity, earnings and financial instruments.

2.5.1Recent studies of accounting choice using IFRS

With growing prominence of IFRS, the relevance of its concept has gone beyond transparency and credibility of the financial statements. Several recent studies have examined the effects of IFRS in the area foreign investments, corporate governance and derivatives which constitutes the structure and basic dealings of financial institutions.

Bartov et al, (2005) stated that in recent years, most companies have reported consolidated financial statements under UK GAAP, U.S GAAP, other local GAAPs and International Accounting Standards. Market observers, researchers, and regulators have argued that financial statements prepared under the shareholder model, such as UK GAAP or IAS, provide better information than financial statements prepared under the stakeholder model (Nigerian GAAP). They argued that IASs provide better information on quality of earnings in the case of loss firms compared to local GAAP, with their focus on German GAAP. Similarly, Vafaei et al.,(2011) assert that any improvement in the quality of earnings and equity due to IFRS adoption is likely to have supplementary grip in the market if companies provide superior Intellectual Capital information. Such enhanced disclosure would allow investors to better take into account the extent of value-generating capabilities not directly captured in the reported earnings and equity numbers. With the global prominence of IFRS, financial institutions like banks are expected to make adequate disclosures of derivatives due to the nature of their complexity. These disclosures require extensive qualitative and quantitative information explaining the importance of financial instruments to an entity's financial statements, its exposure to risk and how this exposure is managed. The financial crisis has had a significant impact on the financial sector, and there is substantial demand from financial statement users to improve the quality of disclosure, including explanation of significant management judgement and sensitivity analysis (KPMG International , 2011). However, Jeanjean and Stolowy (2008) are of different opinion that the introduction of IFRS does not bring about decline in the pervasiveness of earnings management but rather increased it. They further stated that issuing Board should devote their efforts to harmonise incentives and institutional factors rather than harmonising accounting standards.

Bolt-Lee and Smith (2009) wrote that prior research reveals that investors perceive a higher risk associated with foreign investments due to numerous factors, including differences in financial accounting standards, uncertainty about financial statements quality, and a lack of familiarity with anticipated future cash flows. Home bias is the idea that shareholders favour domestic over foreign investments, preferring the certainty and familiarity of financial information available from domestic firms. In addition, investors feel they have a greater understanding of domestic financial reporting, which enhances their decision making. Marquez-Ramos (2008) added that tthe creation of international markets is related to four fundamental freedoms: 1) the free movement of goods, 2) the free movement of services and freedom of establishment, 3) the free movement of persons and workers and 4) the free movement of capital. To achieve all these, the infrastructure of national markets has to be harmonised. International accounting standards is considered a part of the structure.

It is argued by Farooque et al., (2009) that the emergence of concerns relating to governance issues, adoption of International financial reporting standards (IFRS), enforcing rule of law and awareness of controlling corruption now warrant an increasing global importance, in particular developing countries striving for foreign direct investment. Akisik (2008) stated that without having an effective financial reporting system that provides investors with reliable and true information, emerging market countries are unlikely to attract foreign direct investment. As a result , a number of developing countries has recently enhanced their efforts to improve financial reporting systems and corporate governance in order to increase their bargaining power in attracting foreign direct investment.

2.6 Legal and Regulatory Framework of Accounting in Nigeria

The legal and regulatory framework of accounting in Nigeria is expressed via the Companies and Allied Matters Act (CAMA), and the pronouncement of the accounting professional body, the NASB.

2.6.1 The Company and Allied Matters Act (CAMA)

The Company and Allied Matters Act 1990 stipulate some format and content of company financial statements, disclosure requirements and auditing. It also requires that financial statements comply with the statement of accounting standards (SAS) issued from time to time by the Nigerian Accounting Standards Board (NASB) and that audit be carried out with generally accepted auditing standards (Madawaki, 2012).

2.6.2 Nigerian Accounting Standards Board

The Nigerian Accounting Standards Board (NASB) came into being on September 9, 1982. It is the only recognised independent body in Nigeria responsible for the development and issuance of Statements of Accounting Standards for users and preparers of financial statements, investors, commercial enterprise and regulatory agencies of the government.

NASB first became a government parastatal in 1992 as component of the then Federal Ministry of Trade and Tourism. The NASB issued some standards without being fully established by laws of the Federal Republic of Nigeria. This however did not make accounting standards issued by NASB less effective or irrelevant but, was not whole-heartedly followed by all players in the accounting industry (Nigerians Financial Hub, 2011).

2.6.3 Development of Nigerian Statements of Accounting Standards

The development of accounting standards in Nigeria is similar to that of United Kingdom as stated in Financial Reporting Council of Nigeria (2010) report. Acccording to this report, the Nigerian SAS is developed as follows:

Statements of Accounting Standards in Nigeria are developed through a formal system of due process involving broad national consultation and a thorough consultation and a thorough consideration of local laws, current practices, and standards of other countries, most especially, those of International Accounting Standard Boards.

Usually, the development and issuance of a statement of accounting standard involves choosing a topic for standardisation in response to suggestion from the business community, academia, member organisations or members of staff and Council of NASB. A steering committee, consisting of experts drawn from public, private and professional sectors of the economy, is then set up. This committee, with the NASB secretariat, prepare a preliminary exposure draft, which is presented to the Governing Council for consideration and approval.

The Council, at a technical session, finalises the document and approves it for exposure to the public if two-thirds of Council members vote in favour of its exposure. Exposure period is usually three months, during which the public is expected to comment. The exposure draft may be modified in light of the comments received and thereafter issued as a Statement of Accounting Standards.

2.7 IFRS Pathways towards Global standard

Most people agree that there is a need for one set of globalised accounting standards. As communication barriers continue to drop, companies and individuals in different countries and markets are becoming comfortable buying and selling goods and services from one another. Most notably, investors no longer confine themselves to the markets of their home country (Weygandt et al., 2009). With this incentive to invest in foreign markets, this necessitates the need to harmonise the financial reporting framework globally for effective flow of resources.

2.7.1 Entry Pathways 1912 vs. 2012

A century ago or more Nigerian economy was greatly influenced by its British Empire, being one of its colonies in the West African region. Up till date, Britain is still a dominant entity in a trade friendly international political economy and the major source of Nigerian trade and Institutional framework (Evans and Poullaos, 2012, p.16-17). These pathways tend to point out how the british accounting system is imbibed into Nigerian accounting system. The roadmap to adoption of IFRS in Nigeria is based on the pathways below:

Table : Key contrasts in entry pathways -1912 vs. 2012

British Empire -Circa 1912

Globalisation- Circa 2012

British models of accounting adapted to Nigerian conditions

Nigerian models now being adapted to fit the global accounting arena

Defining and controlling state/national turf

Going beyond the national

Closure as a strategy

Openness as a strategy

Competition between professional bodies

Competition between professional bodies

Accounting work - not tightly defined but narrowing

Accounting work - not tightly defined but broadening

Very little government (or university) involvement in entry pathways

Significant government and university involvement in entry pathways

Adapted from: The Institute of Chartered Accountants in Australia

2.7.2 Evolution of Nigerian Accounting System

Accounting is, above all, a human practice, and like all human practices it is based on human interaction. Such Interaction is established in what went before-both individuals and organisations may be regarded as learners, whose current thoughts and actions are to a large extent the effect of their own past and the past of the societies and setting in which they live and interact. The instincts that shape the decisions of preparers, users and auditors, and the financial and management information that they use, are the products of experience (Carnegie and Napier, 2012).

According to Ekoja (2004), the history of Nigeria accounting can be traced back to the period of colonial administration. During this period, Nigeria was operating two types of cash-based accounting systems. These were the cash-based and the modified cash-based systems. The former is the one adopted in Nigeria's public sector accounting processes and it records changes in the cash flow while the latter includes some elements from the accrual-based accounting such as inventory or property capitalisation. Saudagaran (2009, p.7) pointed out that most countries that were colonized for an extended period of time typically found themselves using the accounting system of the colonial power. This was the case of Nigeria. Accounting system is seen as a phenomenon that can help combat poverty-which is a major predicament in the developing countries, through sound economic policies and the urge for accountability in allocating land, labour and capital. Allocating such resources is, in most part, an organisational practice that is normally enhanced through the provision of accurate information. Accurate information is the basis for accounting, as the accountant is the processor and custodian of information in organisation. Nigeria, with its peculiar variables, motivating parameters, accounting concepts, and career choices, is the country of focus (Udemezue,2008, p.1).

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

This chapter will provide details of the research methodology adopted to address the research objectives stated in chapter one above, together with the means of collecting data for analysis. The next section 3.2 focuses on the research method. Principally two research methods are adopted for data collection. The first is the use of questionnaire and telephone interview and the second is through secondary sources like journal, books, websites and relevant articles. Section 3.3 highlights the research strategy which is a case study of financial institutions in Nigeria. The last section of this chapter is on the research approach adopted in carrying out this research.

3.2 The Choice of Nigeria Financial Institutions

The desire to increase the financial reporting in the country and to add to the literature on emerging economies influences the decisions of the researcher to choose Nigeria's financial institutions as the case study. The adoption of IFRS in Nigeria offers the researcher the opportunity to assess the prospects and challenges faced by financial institutions, which is a key sector in the economy. It is also important to state here that this area had not been looked into by prior research.

3.3 Research Methods

Every research undertaken has its purpose and various methods must be devised in order to accomplish this purpose. Biggam (2008,p.80) mentioned that research studies that lack key information on the research methods used, and why the research was implemented, are worse than useless and cannot be trusted. There are different definitions given by different authors on what research methodology entails but all centres on the same meaning. Singh and Bajpai (2008,p.163) defined research method as "a style of conducting a research work which is determined by the nature of the problem." Kumar (2008, p.4) stated that research methods include method for data collection, techniques which are used for establishing relationships between the data and the unknowns and method for evaluating the accuracy of the results obtained.

3.4 Research Strategy

The strategy to be adopted in this research is a case study. Gillham (2000) defined a case study as "one which investigates a phenomenon to answer specific research questions (that may be fairly loose to begin with) and which seeks a range of different kinds of evidence, evidence which is there in the case setting, and which has to be abstracted and collated to get the best possible answers to the research questions."

The researcher has chosen to adopt a case study strategy to enable him focus the research on a particular sector of the economy rather than the whole economy. It will also allow the researcher to streamline his understanding on the dynamics present within single settings. In addition, the use of case study takes the advantage of the rich context for empirical observation provided by case settings to study a selected phenomenon using qualitative or quantitative methods without offering formal theoretical interpretations of the study (Swanson and Holton, 2005,p.359).

Qualitative methods are described by Gillham (2000, p.10) as essentially descriptive and inferential in character and, for this reason, are often seen as soft. He added that they focus primarily on the kind of evidence that will enable the researcher to understand the meaning of what is going on; this means that their great strength is that they can clarify issues and turn up possible explanations. Pellissier (2007) mentioned that this method enables a researcher to understand in greater details through probing and understanding of respondents' attitudes, motivations and behaviours. He added that qualitative method tends to go deeper beyond historical facts and surface comments in the snapshot approach, in order to get to the real underlying causes of behaviour.

While quantitative method is the research that is concerned with quantities and measurements, such as numerical figures or rate of an identified population (Biggam, 2008). This method can be used to discover the relationships, interpretations, and characteristics of subjects that suggest new theory and define new problems (Swanson and Holton, 2005,p.33). Quantitative research is an excellent way of finalising results and proving or disproving a hypothesis. He stated further that it useful for testing the results gained by a series of qualitative experiments, leading to a final answer and a narrowing down of possible directions for follow up research to take (Shuttleworth, 2008).

The researcher will be using more of the qualitative method with a bit of quantitative method. The chosen method is greatly influenced by the research topic and the research objectives. The research topic is to explore prospects and challenges of IFRS adoption by financial institutions in Nigeria, which is a reflection of 'why' and not 'how'. This denotes that qualitative method will be the most suitable research method as it links with in-depth exploratory studies and also answer the question 'why' as explained by Biggam (2008). However, the reason for the use of both is that the qualitative assessments will enable the revision of the data analysis framework, while the quantitative analysis is to provide a logical explanation of the financial data (Bamberger, 2000, p.112).

3.5 Research Approach

Due to the qualitative nature of this research work, the research approach to be adopted is inductive in order to develop an understanding of the context of IFRS adoption in the developing economies like Nigeria. Research using an inductive approach comprises mainly qualitative data collection and evaluation from which a hypothesis can be derived. This approach also considers the involvement of the researcher in terms of direct involvement in collating data. In addition, this inductive approach will enable the researcher to make more informed decisions about the research design based on the evidence gathered from the use of his means of data collection (Saunders et al., 2009, p.126). The data collection is both primary and secondary data. The use of questionnaires and interviews is utilised as a primary source of data collection. Questionnaire is used because it consists of both closed and open ended questions, thus yielding both quantitative and qualitative data. It also saves cost, time and removes geographical and temporal boundaries that could have served as an obstacle to the researcher (Katsirikou and Skiadas, 2010, p.293). The questions were all set in simple language for clarity and ease of understanding. The essence of the interview is to get undiluted and accurate information from the respondent. The response rate is good and data will be complete and immediate- there is also an opportunity for the respondent to go into more detail. This method also allows the researcher to be in control throughout the interview and to also offer help where the respondent seems confused or not clear (Colins, 2010, p.124). In addition to the phone interview, some selected individuals were interviewed via face-book and blackberry messenger. This medium was chosen in order to achieve the anticipated result from some selected individuals who preferred to relate with the researcher via social networks. This was made possible due to the advancement in information technology. However, due to the weaknesses associated with this method of data collection as explained by Ghauri and Gronhaug (2005) like less degree of control on data collection, difficult access to target group that are willing and ready to answer the questions and also the dependence on the willingness and ability of respondents will lead to the researcher using secondary data as well.

The vital question which is 'what are the driving factors and likely constraints the adoption of IFRS will impose on the financial Institutions in Nigeria?' is mostly explored using secondary sources like journals, press releases, other documentary sources and some responses from the interviewee. In addition, the annual reports of relevant banks and accounting and auditing firms are also duly consulted. A large number of publications and sources have been used to give a broader and clearer picture. The secondary sources challenge the opinions of the different schools of thought. The source is also economical because the cost of collecting original data is saved. Vartanian (2011, p.14) mentioned that secondary data cover broad range of topics, and the quality of these data sets, from reputable organisations, is often high. He added that using existing data may allow for the timely assessment of current policy issues; because many existing data sets have been designed to confine policy relevant outcomes, they have the potential to begin capturing policy effects as soon as policy shifts. Prescott (2008) stated that regardless of the merits of secondary research mentioned above, the researcher needs to take sufficient steps to critically evaluate the validity and reliability of the information provided. In addition, another demerit for using the secondary data is that the researcher needs to rely on data that is presented and classified in a way that is similar to his needs. He further stated that in most cases, researchers find information that is valuable and promising but may not get the full version of the research to gain the full value of the study.

3.5.1 Sample

The research methodology requires gathering relevant data from a target segment of the Nigerian economy, which is the financial sector. Choosing this sector will enable the researcher to avoid ambiguity and also to ensure focus rather than undue attention on the whole economy. Due to the chosen topic and case study, interviewees were selected from the following groups: banks' staff, members of Institute of Chartered Accountants of Nigeria, brokers from Nigerian Stock Exchange, senior auditors from reputable auditing firms in Nigeria and top officers in consultancy firms. The selection criterion for the interviewees was based on the level of understanding and experience of each selected person in the area of Nigerian accounting system.

Due to the work and time constraints of the chosen professionals and the researcher's inability to meet them in persons owing to the location in which the research is undertaken, structured questionnaires were sent ahead of time through emails, in order to get the interviewees acquainted with the topic area before the proper interview. These questions contain certain multiple choices that were drawn from literature review and clearly set out to address the research objectives.

In order to obtain additional evidence and also to corroborate the answers provided by the questionnaire respondents, phone and face-book interviews were conducted. Most of the randomly chosen participants for the interview preferred the interview via face-book because it is more economical and could easily be reviewed by the researcher. The phone interviews were not recorded due to refusal of participants and confidentiality purpose. This is one of the major limitations of the study in addition to distance barrier stated above. The response rate for the questionnaire can be summarised as follows:

Table : Analysis of online survey responses

Target for questionnaire

Number circulated

Number returned

Percentage response

Bankers

20

15

75%

Accountant and Auditors

5

5

100%

Stockbrokers

5

4

80%

Total

30

24

63%

3.5.2 Data Analysis

All data gathered through interview and documents will be analysed qualitatively, while those from questionnaire will be analysed using quantitative methods. Data analysis gives convincing reasons to reduce prejudice and to assist the study to make fair analytical conclusions that rule out misinterpretations. This analysis helps the researcher to orchestrate the data collected against the meaning or implication of the study being conducted. In addition, data analysis creates the ability to acquire significant data needed to make quality decisions based upon actual business trends and decisions (Melbourne, 2008). Furthermore, data analysis enables the researcher to filter unwanted information from the relevant data. It involves scrutinising data, presentation of data and drawing conclusion.

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