Academic journal article Journal of Finance, Accounting and Management

Emerging Nations and Financial Reporting Complex: A Case for IFRS Adoption in Nigeria

Academic journal article Journal of Finance, Accounting and Management

Emerging Nations and Financial Reporting Complex: A Case for IFRS Adoption in Nigeria

Article excerpt

Introduction

Prior to the platform for series of intellectual debates on the need for uniform accounting standards, what obtained all over the world were country specific versions of the Generally Accepted Accounting Principles (GAAP), which were based on cultural, legal, economic and regulatory peculiarities of the countries. Hence, in most cases, proponents argue that differences in national standards create confusion to investors and multinational corporations that needed to prepare varying sets of financial statements for the different countries where their subsidiaries operate. Thus, this created misunderstanding, additional costs and incomparability to the users. In this respect, Tarca (2004) asserts that, as companies were becoming more involved in cross-border activities both in products and capital markets, international convergence of accounting standards and practices emerged. As a result of the differences, Chamisa (2000) observes that, the quest for international harmonization has been widely accepted as the most expedient and pragmatic way to reduce these problems.

In this regard, Street and Gray (2002) report that, in May 2000, the new IASB received an endorsement from the International Organization of Securities Exchange Commissions (IOSCO) and European Commission (EC) announced that, it would encourage member states to agree to legislation requiring all European Union (EU) listed companies to prepare consolidated financial statements based on IAS by 2005. To date, all the EU member nations with more than 7000 listed firms in the EU and many more around the world have already adopted IAS (Daske & Gebhardt, 2006). While the nomenclature IAS remains, subsequent developments of new IAS are referred to International Financial Reporting Standards (IFRS), and so far, IFRS have been developed by the IASB.

The adoption of IFRS issued by IASB is supported by most countries hoping to achieve the goals of improving high quality and international comparability of financial reporting produced by companies from countries throughout the world. Gordon (2008) observes that, recently, most of the countries and firms worldwide have passed the point of debating whether or not they should move to one set of accounting standards. The decision has been made - no more need for debates. Over 100 countries have or have committed to adopting IFRS, and in all the countries, the benefits of one set of global accounting standards have been determined to outweigh the costs. Among the countries that favor the adoption of IFRS is Nigeria, the researcher's location of study. Therefore, it is not the intention of this study to join in the debates of whether or not countries and companies should converge with IASB. It is based on the understanding that, in Nigeria, the benefits of convergence would facilitate the goals of achieving high quality and comparable accounting standards that this study would be conducted.

On the other hand, reports show that, the goals of convergence are less likely to be achieved without functional regulatory bodies that would be responsible for promoting rigorous monitoring and consistent enforcement of the adopted IFRS. Part of achieving this outcome is the establishment of enforcement bodies with powers to enforce the standards (Brown & Tarca, 2007; Brown & Tarca, 2005; CESR, 2003; and SEC, 2000). To facilitate enforcement, EU member countries were required to set up bodies responsible for the enforcement of accounting standards by 1st January, 2005 (CESR, 2003). This means that enforcement remains, by necessity, largely a national matter. Different types of bodies may be used, such as a government body, for example, the SEC in US (and Nigeria), ASIC in Australia, or a private review panel, illustrated by the Financial Reporting Review Panel (FRRP) in the UK (Brown & Tarca, 2007).

Although other reports show that, even in well-regulated developed nations with functional regulatory enforcement bodies, there have been mixed reports on their effectiveness. …

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