INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) ADOPTION AND VALUE RELEVANCE OF FINANCIAL INFORMATION OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

MSc Project Topics in Accounting and Finance

Abstract 

Globalisation, capital market crash and the Enron’scase led the accounting profession to insist on the need for a single set of high quality reporting standards. International Financial Reporting Standards (IFRS) were first adopted in 2005 by EU countries while Nigeria agreed to adopt in 2012. The question is: How does IFRS adoption improve the value relevance of accounting information? Several studies have explored the value relevance of IFRS adoption;however, they are based on foreign countries while Nigerian researches do not contain empirical evidence as they are mostly theoretical. This study therefore seeks to investigate the impact of IFRS adoption on value relevance of financial information of listed Deposit Money Banks (DMBs) in Nigeria.. The study used correlation research design anddata on Earnings per Share (EPS), Change in Earnings per Share (CEPS), Book Value per Share (BVPS)and share price (SP) were sourced from published annual reports of listed banks and cashcraft asset management. Moreover, Edwards Bells and Olhson (1995) model was adopted to conduct a pre (2006-2009) and post (2010-2013) IFRS analyses on seven (7) listed banks. Using the Generalized Least Square (GLS) the study documented that: PreIFRS financial information is value relevant; post IFRS financial information has very weak value relevance and post IFRS financial information has no relative value relevance over pre- IFRS financial information. The study therefore, recommends a need for strong enforcement effort, rigorous IFRS training and good corporate governance.

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

The primary function of accounting is the provision of information necessary for evaluation of past business decision, which consists of current operating profit and realizable cost saving (Edward & Bell, 1961). Financial information is the output of accounting process and should be duly communicated to users to enhance decision making. As such, Bello (2009), opined that corporate organisations use accounting to communicate to all stakeholders about their operating performance and position at a particular time period. However, the role of accounting cannot be over emphasized as Psaroulis (2011) stated that Accounting is a very important aspect in any business operation which involves the measurement and provision of accurate financial information to managers, investors, tax authorities, and other stakeholders to help them make decisions about how they should allocate the resources of a company, organization, or public agency. Investors are not in a position to directly assess the performance of the company in which they intend to invest as they usually depend on financial statements prepared by the management of the company. Karunarathne & Rajapakse (2011) opined that rational investors use financial reports and disclosures to assess the risk and the value of the firm. Based on this Fisher and Jordan (2005), purported that an overwhelming weight is placed by analyst and investors on information contained in the financial statements of firms because of its vouchsafed as its forms and contents are controlled under variety of rules, regulations and statutes.

There are set of rules and regulations that guide the practice of accounting and reporting in different countries leading Ikpefan & Akande (2012) to state that accounting is business language while financial reporting is for communicating and they are both regulated by Generally Accepted Accounting Practices (GAAP) which are usually country based. The Nigerian GAAP like other countries has a unique characteristic that has been a subject of argument which is the historical cost accounting. In this regard, Kirkulak and Balsari (2009); Cohen (1982); Kirkman (1974) argued about the irrelevance of historical cost accounting in decision making especially, in the time of unstable price or inflation as it misrepresents firms real position. On another hand, financial reporting inconsistencies has persisted due to varying reporting standards and requirements in different countries and as such posed great challenges to international investors (Pologeorgis, 2013). In view of the above, the International Accounting Standards Board (IASB) sought a workable solution to alleviate the existing complexity, conflict and confusion created by inconsistency and the lack of streamlined accounting standards in financial reporting (Pologeorgis, 2013). Prior to 2005, all countries were at liberty to choose reporting system that suits them and most countries reported based on historical cost. But with the event of capital market crash and Enrons case which were argued on the basis of irrelevant information produced from historical cost accounting, the need for one quality standard of accounting across the globe then gained ground.

The International Financial Reporting Standards (IFRS) was developed in 2001, launched for adoption in 2005 and the EU countries had voluntarily adopted at that time. According to Ikpefan and Akande (2012), accounting framework has been shaped by IFRS to provide for recognition, measurement, presentation and disclosure requirement relating to transactions and events that are reflected in the financial statements. While Pologeorgis (2013) clearly stated that IFRS as opposed to rule based GAAP, is principle based in that it begins with the objectives of good reporting and then provides guidance on how the specific objective relates to a given situation. IFRS is regarded as a set of high quality accounting standard as compared to national GAAP (Dimos, 2011). Furthermore, Gyasi (2010) noted that the adoption of IFRS would enhance the quality and credibility of accounting information as its impacts is on internationalisation of economic trade, foreign investment and globalisation of business ventures.

The adoption of IFRS definitely affects many aspects of accounting. In view of this, Delloite (2013) reported that the inception of IFRS has led to the use of a variety of definitions for elements of financial statements like assets, liabilities, equity, income and expenses. It has also resulted in the use of different criteria for the recognition and measurement of items in the financial statements. In addition, Galaen & Stenheim (2010) recognised that the shift to IFRS represents substantial change in recognition and measurement of accounting numbers and it is reasonable to believe that adoption of IFRS will affect the quality of accounting numbers. Consequently, fair value measurement has been noticed to be one of the most prominent changes in IFRS as Agostino, Drago & Silipo (2009) Put forth that one critical element is that IFRS rely heavily on fair value accounting as opposed to concept of historical cost. Moreover, Christensen and Niklovaev (2009) stated that adoption of fair value will allow for wider use of fair value for non-financial assets. However, it has been criticized as Dimos (2011) noted that the use of fair value in financial reporting is not unanimously accepted based on the argument of unreliable numbers, especially when assets and liabilities are unique and their measurement is based on subjective assumption. Argument in favour of fair value opined by Christensen and Niklolaev (2009) is that commitment to fair value accounting does not favour returns on asset and makes holding of unproductive assets more expensive and when fair value estimates are reliable it improves performance measurement.

According to Khanagha (2011), the value and quality of accounting information are determined by how well it meets the needs of users and that value relevance study is the evaluation of the relationship between accounting information and capital market values. Value relevance of accounting information has to do with when accounting information can rightly predict the changes in share price that is value relevant information enable investors to make informed decision. The degree of value relevance is a function of the development of accounting regulation, control mechanisms, business cycle, internationalization and economic development and industry structure (Hellstrom, 2005). This accounting must follow development trends and recognise changes that could affect it relevance for decision making especially with the switch over to IFRS which is said to be of high quality.

In this regards, Ojo (2008) observed that the benefits of high quality standards which should be derived from the adoption of IFRS such as relevance, reliability and understandability will certainly ensure that users of financial information benefit from better decision making as well as restoring the confidence of investors in the aftermath of economic, capital market and financial crises, which have damaged the credibility of audits and financial reporting. Furthermore, IFRS are expected to improve the comparability of financial statements, strengthen corporate transparency and enhance the quality of financial reporting (Herbert, Tsegba, Ohaneles & Anyahara, 2013). In studying value relevance of accounting information the earnings of a firm and the book value of equity are the basic accounting numbers that are used in literature to represent accounting information. In confirmation, Talebnia, Valipour & Askari (2011) opined that earnings and book value per share are measures that different individuals, investors and financial analysts use to evaluate the performance of the enterprise. While earnings provide a measure of how the firm’s resources are currently used, book value provides a measure of the value of the firm’s resources independent of how the resources are currently used. Earnings can be said to represent income statement while book values represent the balance sheet. IFRS brought about changes in definition, measurement, recognition of income, intangibles and the use of fair value. Consequently, IFRS affects the accounting figure of earnings and book value of firm. Therefore, there is a great need to investigate if those accounting information are properly reflected in the consequent stock price.

Furthermore, Chalmers, Clinch & Godfrey (2010) are of the opinion that value relevance of book value and earnings is a natural place to look for impact of IFRS adoption on accounting information given the paramount role equity valuation plays in the IFRS conceptual framework. In line with this Aksoy (2008) opined that the relationship between stock price and the accounting variables of companies have been an interesting issue for researchers as well as managers, investors and other stakeholders of firms for several decades and the interests have focused on accounting earnings and its relationship with stock price or returns. This in turn confirms the argument of Beaver (1989) that no other figure in the financial statement receives more attention by the investment community than Earnings per Share (EPS). Therefore, the primary objective of value relevance research is to investigate whether the financial statements released by firms provide high-quality and valuable accounting information that enables users and investors to make informed decisions (Alfaraih & Alanezi, 2011).

The Nigerian banking industry is the most regulated sector in Nigeria economy. It is highly organised as corporate governance is seriously taken into consideration. The particular effect of IFRS on the banking sector is the motivation for carrying out this research in the banking sector. With IFRS financial instruments classification, impairment, recognition, hedge accounting, definition of debt versus equity have changed for banks and they all give a signal of change in the degree of value relevance of financial information presented by banks in Nigeria. This research therefore, seeks to examine the impact of IFRS adoption on the value relevance of accounting information. This involves making clear the impact of IFRS on earnings, change in earnings and book values of banks in Nigeria and how that impact promotes value relevance of information provided by listed Deposit Money Banks (DMBs) in Nigeria.

M.Sc Project Topics in Accounting and Finance

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) ADOPTION AND VALUE RELEVANCE OF FINANCIAL INFORMATION OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Department: Accounting and Finance (M.Sc)

Format: MS Word

Chapters: 1 - 5, Preliminary Pages, Abstract, References, Questionnaire.
Delivery: Email

No. of Pages: 122

NB: The Complete Thesis is well written and ready to use. 

Price: 10,000 NGN

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