Are IFRS Adoption Benefits in Developing Countries a Time-Lag?: A Critical Review of the Case of Nigeria

Are IFRS Adoption Benefits in Developing Countries a Time-Lag?: A Critical Review of the Case of Nigeria

Koholga Ormin (Adamawa State University, Nigeria)
DOI: 10.4018/978-1-4666-9876-5.ch012
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The IFRS is a useful international financial reporting framework that ensures comparable and quality financial information disclosure. IFRS perceived benefits compare to local and regional accounting standards has led to its adoption and implementation by several countries around the globe. However, IFRS is argued to benefit the developed countries the most due to their strong market and institutional settings (He, Wong & Young, 2009). This paper critically explores the question of whether IFRS adoption benefits in a developing country such as Nigeria is time-lag. The paper is a library research thus inferences were drawn deductively base on previous works conducted in Nigeria and elsewhere on IFRS adoption. This approach was further complimented by the conduct of interview with three professional accountants in practice and two economics analysts. It was revealed and concluded that due to their weak market, institutional settings and other factors, a time-lag is necessary for Nigeria and indeed all other developing countries to fully maximise the benefits of IFRS adoption and implementation. Notwithstanding, the paper recommends that to fast track IFRS benefits, developing countries and Nigeria in particular, should overhaul capital market infrastructure and ensure a strong ethical and good corporate governance environment as well as strict compliance with IFRS requirements through increase monitoring and use of sanctions by regulators.
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Financial reporting has been governed by the accounting and other regulatory statutes of each country, or at most, regional frameworks for a long time. Though, specific-country accounting standards and statutory regulations reflects the unique economic, social, political, cultural and legal environment thereby the relevance and usefulness of financial reporting to users, globalization have challenged the worth of such standards particularly for foreign investors decision making. The IFRS is evolved to harmonized accounting standards globally in order to among others allow investors explore cross-broader investment opportunities (Bhattacharjee & Islam, 2009).

Prior to IFRS introduction, restatement of financial statements was core to investors of other nationalities to make meaning out of the accounting information disclosed by companies in nations they desire to have business dealings. In other words, as Ocansey & Enahorol (2014) puts it, financial statements comparism was not only difficulty but meaningless without adjustments. Bhattacharjee and Islam (2009) posits that, for usefulness, the information disclosed need not only be intelligible but comparable such that investment and credit decisions are facilitated globally. The need for a single set of financial information which is reliable, understandable, and comparable globally underpinned the introduction of the IFRS.

Daske, Hail, Leuz & Verdi (2008) notes IFRS introduction as one of the most significant regulatory changes ever witness in the history of accounting. IFRS has been described as an international financial reporting standard of the International Accounting Standards Board (IASB) that regulates financial reporting by public entities globally. The IASB is an independent organization registered in the United States of America but based in London, United Kingdom (Oduware, 2012). According to Okpala (2012), IFRS is a principles-based and globally accepted standard issued by the IASB aimed to enhance preparation and presentation of high quality, transparent and comparable financial statements. The adoption of IFRS for financial reporting is stated to have several other benefits.

There is evidence that since introduction, over 120 countries require the use of IFRS by listed companies within their jurisdiction while over 70 countries use the IFRS for Small and Medium Enterprises (Bewaji, 2012). Terzi, Oktem & Sen (2013) documented that about 27 member countries of the European Union prepare financial reports using IFRS with many countries in Africa, Asia, Australia, and America sacrificing local GAAP for IFRS. Nigeria adopted IFRS in 2012 with the expectation to reap the acclaimed benefits of the global standard. However, there are indications that IFRS may benefit the developed countries the most than developing countries due to market and institutional settings (He, Wong & Young, 2009). Impliedly, until developing countries like Nigeria are able to adjust their market and other institutional settings, they may not fully reap the benefits of IFRS adoption. In fact, Cuijipers and Buijinks (2005) cited in Atanassova (2008) pointed out that IFRS adoption benefits will take some time to fully materialized. Several studies have been conducted on the economic consequences of IFRS adoption in different countries including its effect on financial reporting quality (Chan, 2001; Morais & Curto, 2008; Brochet, Jagolinzer & Riedl, 2011; Morunga & Bradbury, 2012; Ames, 2013; Barth, Landsman, Lang & Williams, 2013; Umoren & Enang, 2015), capital market (Li, 2009; Cai & Wong, 2010; Okpala, 2012; Dhaliwal, Wen, Li & Pereira, 2013), tax (Gee, Haller & Nobes, 2010; Roe, 2014) and corporate governance (Cormier, 2013). However, little comprehensive evidence exists as to whether a time-lag is required for IFRS adoption to produce benefits in developing countries since they have weak market and institutional settings compared to their developed counterparts (He, Wong & Young, 2009). Empirically, Li (2009) provides evidence of IFRS adoption reducing firms cost of equity but in countries with strong legal enforcement. Also, Beneish, Miller & Yohn (2015) found that IFRS adoption significantly increase foreign equity investment but this effect is limited to countries with higher governance quality, economic development and creditor rights.

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