Effect Of IFRS Adoption On The Financial Reporting Quality Of Quoted Beverage Companies In Nigeria

This study examines the effect of international financial reporting standard adoption on the financial reporting quality of Quoted Beverage companies in Nigeria. Specifically, the study attempts to The study utilises a period based approach to analyse changes in the degree of financial reporting quality (FRQ) that hinges on three proxies: Value Relevance, Earnings Quality and Earnings Management. Three models were developed to capture each proxy, and the models were analysed using regression analysis to evaluate the R2 statistics; which captured the direction of change in the reporting quality. The results showed that financial reporting quality increased after the adoption of the IFRS for all the relevant proxies. The study concludes that the adoption of IFRS to enhance financial report- ing quality while reducing the probability of earnings management practices could be beneficial in the long run to the Nigerian financial landscape.

Introduction

1.1 Background of the Study

The accounting industry has emphasized the need for a unified set of high-quality reporting standards in the wake of globalization, the stock market crash, the global economic crisis, and the Enron case, but the resulting discourse on GAAP has become increasingly complex. In addition, the ever-evolving nature of the global business climate necessitated the eventual demise of GAAP due to its inability to provide cross-border or cross-national uniformity. Cultural and national differences may explain the seeming dissimilarity between financial reports from companies operating in various economies throughout the world. In order to adequately represent the diverse economic and financial circumstances of these locations, it is widely acknowledged that different national accounting standards have arisen in different economies across the world. Accounting standards vary from country to country, according to a hypothesis put out by Jinadu et al. (2016). (GAAP). These allowed companies to provide annual and quarterly financial statements in accordance with GAAP in the country in which they were incorporated.

The need for uniformity of financial statements across borders led many economies to adopt the International Financial Reporting Standards (IFRS). International Financial Reporting Standards are issued by the International Accounting Standards Board (IASB), an independent organisation registered in the United States of America (USA) but based in London, United Kingdom. IASB issues financial reporting standards that ideally would apply equally to financial reporting by public interest entities world wide. In Nigeria, adoption of IFRS was launched in September 2010, by the Honorable Minister, Federal Ministry of Commerce and Industry, Senator Jubril Martins-kuye. The adoption was organised such that all stakeholders would use the IFRS by January 2014 (Madawaki, 2012).

The IASB in its objectives and preamble, expects the beneficial effects from IFRS adoption to include transparency, improved accounting quality and reduced cost of capital. Despite the perceived benefits of the implementation of the IFRS, the adoption is wrought with challenges. These benefits and challenges could lead to favourable/adverse implications at both the micro and macro-economic levels. It becomes an interesting source for stakeholders to ascertain whether the standards are achieving their basic tenets and objectives. For instance IFRS is perceived to engender improvements in financial reporting quality due to increased stringency in its usage and application, and one wonders if this is really the case. It is also argued that implementing IFRS enhances earnings quality by reducing information asymmetry, decreasing earnings management, providing more value relevant financial information to investors/shareholders, and decreasing cost of capital.

1.2 Statement of the Problem

In Nigeria Listed and Public Entities adopted IFRS in December 2012. It is important to note that the primary objective of financial reporting based on IFRS is to provide high quality financial reporting information concerning economic entities, (Umabong 2014). Financial reporting refers to the communication of financial information by business enterprises to their parties such as customers, government, and the general public (Besst, Brean, and Boeclens 2009). Financial Reporting Quality entails full and transparent disclosure of information that does not mislead users (Jones and Blanchet, 2000). The key prerequisite for quality in financial reporting is the adherence to the objective and qualitative characteristic of financial reporting which comprises of relevance, faithful representation, comparability, timelines and understandability (IASB 2008).

Quoted Consumer goods manufacturing companies have overwhelming role in the development and growth of the nation"s economy because of their dominant contribution to the economy. Misrepresentations of information in the financial report have daring consequences on the quality of information to users. The integrity of financial reports has been an issue of concern among regulators and other stakeholders. In Nigeria the manufacturing companies among others has also witnessed several cases of corporate failures, and these failures were linked or blamed on lack of business ethics, unethical accounting practice, weak regulations, among others (Wilson, 2006). In view of the above, this study seek to examine the effect of international financial reporting standard adoption on the financial reporting quality of Quoted Beverage companies in Nigeria.

1.3 Objectives of the Study

The main purpose of this study is to examine the effect of international financial reporting standard adoption on the financial reporting quality of Quoted Beverage companies in Nigeria.

The study has the following specific objectives.

Determine whether there is significant relationship between IFRS adoption and the value relevance of financial information of Quoted Beverage companies in Nigeria.

Determine whether there is significant relationship between IFRS adoption and earnings quality of Quoted Beverage companies in Nigeria.

Determine whether there is significant relationship between IFRS adoption and earnings management of Quoted Beverage companies in Nigeria.

1.4 Research Question

The research is guided by the following questions.

Is there a significant relationship between IFRS adoption and the value relevance of financial information of Quoted Beverage companies in Nigeria.

Is there a significant relationship between IFRS adoption and earnings quality in Nigeria of Quoted Beverage companies in Nigeria.

Is there a significant relationship between IFRS adoption and earnings management of Quoted Beverage companies in Nigeria?

1.5 Research Hypothesis

Ho1: There is no significant relationship between IFRS adoption and the value relevance of financial information of Quoted Beverage companies in Nigeria.

Ho2: There is no significant relationship between IFRS adoption and earnings quality of Quoted Beverage companies in Nigeria.

Ho3: There is no significant relationship between IFRS adoption and earnings management of Quoted Beverage companies in Nigeria.

1.6 Significance of the Study

The study of IFRS will be of great value in policy formulation. It is of high importance to the firms listed at NSE. The study will assist the management of capital market Authority with information on how to use IFRS as a tool for Quality of financial reporting and thus be able to spot problems and uncover opportunities.

The study will contribute to the existing body of knowledge on IFRS and generate interests among academicians, scholars" and researchers. It will also form as an in depth information in terms of literature review and a reference point in examining different aspects of IFRS.

The findings should enable regulators and other key player to gauge the effectiveness of the financial reporting system in place such as training and development for practitioners and new members, due diligence for Accounting standards and the overall institutional and professional organization conducive for effective standards application.

1.7 Scope of the Study

The scope of this study boarders on the effect of international financial reporting standard adoption on the financial reporting quality of Quoted Beverage companies in Nigeria. The study will cover Quoted Beverage companies in NSE.

1.8 Limitation of the Study

This research project, like all human endeavors, had some challenges that threatened to derail the study"s completion. One of the reasons is that the time allotted for this work was so limited that the researcher did not have enough time to complete the task thoroughly. During data collection, the researcher also had to put forth extra effort to understand the respondents" interview schedules, several of whom fell into the incomprehensible age group. Also, there were financial and transportation constraints to deal with. Insufficient funds tend to impede the efficiency of the researcher in sourcing the relevant materials, literature, or information and in the process of data collection (internet, questionnaire, interview).

1.9 Definition Of Terms

The International Financial Reporting Standards (IFRS): These are guidelines for how financial records should be kept and reported that are established by the International Accounting Standards Board.

FASB; Financial Accounting Standards Board

GAAP; Generally Accepted Accounting Principles.

IASB; International Accounting Standards Board.

1.10 Organization of the Study

The study is categorized into five chapters. The first chapter presents the background of the study, statement of the problem, objective of the study, research questions and hypothesis, the significance of the study, scope/limitations of the study, and definition of terms. The chapter two covers the review of literature with emphasis on conceptual framework, theoretical framework, and empirical review. Likewise, the chapter three which is the research methodology, specifically covers the research design, population of the study, sample size determination, sample size, and selection technique and procedure, research instrument and administration, method of data collection, method of data analysis, validity and reliability of the study, and ethical consideration. The second to last chapter being the chapter four presents the data presentation and analysis, while the last chapter(chapter five) contains the summary, conclusion and recommendation.

Summary, Conclusions and Recommendations:

5.1 Introduction

This chapter summarizes the findings on the effect of international financial reporting standard adoption on the financial reporting quality of Quoted Beverage companies in Nigeria. The chapter consists of summary of the study, conclusions, and recommendations.

5.2 Summary of the Study

In this study, our focus was to examine the effect of international financial reporting standard adoption on the financial reporting quality of Quoted Beverage companies in Nigeria. The study was specifically carried out to determine whether there is significant relationship between IFRS adoption and the value relevance of financial information of Quoted Beverage companies in Nigeria; determine whether there is significant relationship between IFRS adoption and earnings quality of Quoted Beverage companies in Nigeria; and determine whether there is significant relationship between IFRS adoption and earnings management of Quoted Beverage companies in Nigeria.
The study utilises a period based approach to analyse changes in the degree of financial reporting quality (FRQ) that hinges on three proxies: Value Relevance, Earnings Quality and Earnings Management. Three models were developed to capture each proxy, and the models were analysed using regression analysis to evaluate the R2 statistics; which captured the direction of change in the reporting quality.

5.3 Conclusion

IFRS is driving the revolutionary world of accounting with over 120 countries either requiring or permitting its use. Organisations must fully understand benefits and challenges of the adoption in order to enhance their implementation and utilisation of the standards. Hence, professionals must be prepared to "learn, unlearn and relearn" in order to minimise any negative impact, while maximising the benefits associated with IFRS adoption in the short, medium and long term (Omoye and Aderin, 2014).

The need to ascertain the effectiveness of the adoption of IFRS in enhancing the quality of financial reporting forms the crux of this re- search. Through an understanding of this, the study therefore sets out to analyse the overall effectiveness of the adoption of these standards in enhancing value relevance, earnings quality, and reducing the extent of earnings management practices.

The results of the study reveal that the adoption of IFRS has overall benefits in terms of improving the quality of reported financial information. It can also be concluded that the adoption of IFRS will have significant prospects as well as challenges on the activities of stake- holders. Specifically the benefits that would be derived from the adoption of IFRS as gleaned from our study indicate that IFRS on the overall would enhance financial reporting quality while reducing the probability of earnings management practices. This shows that IFRS adoption could be beneficial in the long run to the Nigerian financial landscape.

5.4 Recommendations

Adequate resources should be put in place to support through consultative groups the sustainable implementation of IFRS.

The awareness of professional accountants, regulators and preparers should be raised to improve the knowledge gap, through regular trainings and seminars.

The adoption and implementation of IFRS should be on the basis of cost-benefit analysis; not just based on following the crowd or the bandwagon.

The capacity and adequacy of regulatory bodies and the statutory framework of accounting and auditing should be strengthened and regularly reviewed.

Professional accounting bodies should align their professional educational requirements with IFAC guidelines including business ethics and widen exposure to practical IFRS applications, and build capacity of various stakeholders in the accounting profession as often as necessary.

Strong accounting institutional framework must be developed to manage IFRS change process, by strengthening the oversight function of the Financial Reporting Council to shoulder the responsibility of setting accounting and auditing standards, monitoring compliance with accounting standards, review auditors" practice and reporting practices and enforcing sanctions for violations.

Title Page

Certification

Dedication

Acknowledgement

Table of Content

List of Tables

Abstract

Chapter One:

Introduction

1.1 Background of the Study

1.2 Statement of the Problem

1.3 Objective of the Study

1.4 Research Questions

1.5 Research Hypothesis

1.6 Significance of the Study

1.7 Scope of the Study

1.8 Limitation of the Study

1.9 Definition of Terms

1.10 Organisations of the Study

Chapter Two:

Review of Literature

2.1 Conceptual Framework

2.2 Theoretical Framework

2.3 Empirical Review

Chapter Three:

Research Methodology

3.1 Introduction

3.2 Research Design

3.3 Population of the Study

3.4 Sources of Data

3.5 Method of Data Collection

3.6 Model Specification

3.7 Data Analysis

Chapter Four:

Data Presentation and Analysis

4.1 Descriptive Statistics

4.2 Discussion / Interpretation of Findings

Chapter Five:

Summary, Conclusion and Recommendation

5.1 Summary

5.2 Conclusion

5.3 Recommendation

References

• Impact Of The Adoption Of IFRS On Value Relevance And Accounting Information In The Insurance Sector
• Influence Of IFRS Adoption On Corporate Performance In Nigeria
• Assessment Of The Challenges On The Adoption Of IFRS By Deposit Money Banks
• Impact Of IFRS Adoption And Banking Reform On Earning Management
• Adoption And Implementation Of International Financial Reporting Standard (IFRS) Issues And Challenges On Nigeria Economy
• Investigation Into The Challenges Of IFRS Adoption And Implementation Amongst Small And Medium Scale Enterprise Operators In Nigeria

• Accounting Project Topics and Materials