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Applied Finance and Accounting

Vol. 5, No. 1, February 2019
ISSN 2374-2410 E-ISSN 2374-2429
Published by Redfame Publishing
URL: http://afa.redfame.com

The Impact of International Financial Reporting Stanadard (IFRS)

Adoption on Accounting Quality in Nigerian Listed Money Deposit Banks
Rabiu Saminu Jibril
Correspondence: Rabiu Saminu Jibril, Kano State Polytechnic, Department of Accountancy, Nigerian.

Received: December 10, 2018 Accepted: January 3, 2019 Available online: January 20, 2019
doi:10.11114/afa.v5i1.4046 URL: https://doi.org/10.11114/afa.v5i1.4046

Abstract
This study was aimed to empirically evaluate the impact of adoption of IFRS on accounting quality in Nigeria using the
money deposit banks. The study utilized the annual reports and accounts of 15 banks listed in the Nigerian Stock
Exchange for the period of 2011 to 2014 (that is two years before and two years after adoption); using liner regression
analysis was employed in analyzing the data generated for the study. Based on the data analyses, the study found that
large loss recognitions have increased in the post adoption period. Based on the research findings, the researcher
recommends that developing nations should adopt IFRS as their financial reporting standard as it is capable of
increasing their accounting quality. The researcher also recommends that research should be conducted to analyze why
IFRS improves the accounting quality based on standard by standard, not the whole package.
Keywords: IFRS, adoption, accounting reporting quality
1. Introduction
Background of the Study
The issue of accounting harmony across the globe has for long gained a considerable debate. The committee known as
international Accounting Standards Committee (IASC) which was founded in the year 1973 by a group of professional
accounting practitioners. The IASC was to formulate harmony and worldwide accounting standard aimed at reducing
the discrepancies in international accounting principles and reporting practices. In this regard, the accounting standards
have globally considered and established by the International Accounting Standards Committee (IASC).it’s established
the (IASC) has energetically been championing the homogeny and standardization of accounting principles for over two
decades (Carlson, 1997). In April 2001, the International Accounting Standards Board (IASC) took over the setting of
International Accounting Standards from the International Accounting Standards Committee (IASC). Henceforth, the
IASB updated the already existing International Accounting Standards and referred to them as International Financial
Reporting Standards (IFRS).
However, with regard to Nigeria, adopting of IFRS was launched in September 2010, and mandated all public quoted
companies to report their financial statement of the year 2012 and retrospectively report 2011 using those standards.
The adoption was organized such that all stakeholders use the IFRS by January 2014. The adoption was scheduled to
start with public listed entities and considerable public interest entities that are expressed to adopt the IFRS by January
2012. All other public interest entities are expected to mandatorily adopt the IFRS for constitutional purpose by January
2013, and small and Medium-sized entities shall mandatorily adopt IFRS by January 2014.
In the same way, in a study on adoption of IFRS at firm level, Meeks and Swann (2009), demonstrated that firms
adopting IFRS had exhibited higher accounting quality in the before adoption period than they did in the after adoption
period. In a study of financial data of firms covering 21 countries, Barth (2008), confirmed that firms applying
IAS/IFRS experienced an improvement in accounting in accounting quality between the before adoption and after
adoption periods. Latridis (2010), concluded on the basis of data collected from firms listed on the London Stock
Exchange that IFRS implementation has favorably affected the financial performance (measured by profitability and
growth potentials).
There is also growing number of studies number of studies that question the relevance of IFRS in developing and
emerging economics. Irvine and Luca (2006), also reported that development of globalized set of accounting standards
provides other benefits that are not so relevant to developing and emerging nations.

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It was approved as the effective date for convergence of accounting standards in Nigeria with International Financial
Reporting Standards (IFRS). This is to enable multinational companies operates across the global with a single
harmonized standard.
Despite this adoption but I found limited empirical studies accessed the existing quality of financial reports using IFRS.
However, to guide the achievement of the research objective the following questions were developed: Is there any
relationship between IFRS adoption and the timely loss recognition?
Aims and Objective of the Study
The main aim of this study is to assess the relationship between IFRS adoption and the accounting reporting quality in
the Nigerian money deposit bank. Other the specific objectives are:
(1) To examine the relationship between timely loss recognition and the IFRS adoption of Nigerian money deposit bank
Research Hypothesis:
The following hypotheses were raise to guide the achievement of the study’s objective:
H01: There is no positive significant relationship between IFRS adoption and the timely loss recognition in the Nigerian
money deposit banks
2. Literature Review
Introduction
This chapter reviews the relevant literature on impact of international Financial Reports Standard on accounting quality
in the Nigerian deposit banks. The study employed secondary data.
Conceptual Framework
International Financial Reporting Standards ‘IFRS’ are set of international accounting standard stating how particular
types of transactions and other events should be reported in financial statements. IFRS are issued by the International
Accounting Standard Board (Adeyemi, 2012).
IFRS are sometimes confused with International Accounting Standards (IAS), which are the older standards that IFRS
replaced. (IAS were issued from 1973 to 2000, Martins, and Akpolo, 2013)
The goal with IRFS is to make international comparison as easy as possible. This is difficult because, to a large extent,
each country has its own set of rules. For example, US GAAP is different Canadian GAAP. Synchronizing accounting
standards across the globe is an ongoing process in the international accounting community.
Financial reporting can be defined in terms of those for whom the reports are intended. At end of the spectrum are the
annual financial statements of an organization, which are the prime means of demonstrating its responsibility to its
stakeholders; while at the other end are the internal repots, aimed at providing information for decision making by
managers Nyor (2012) The integrity of an organization’s accounting records demands that all reports are compiled
using consistent principles and data (Cherry, 2008).
The main objectives of financial reporting are the production of accurate, complete, relevant, timely, and reliable
financial information to demonstrate and maintain accountability, to meet statutory reporting requirements, to account
to an organization’s stakeholders for its finance and to support decision making (Ikpefan 2012).
The Nigeria Accounting Standards Board, in its Statement of Accounting Standards, defines the objective of financial
statements as being ‘to provide information about the reporting entity’s financial performance and financial position
that is useful to a wide range of users for assessing the stewardship of the entity’s management and for making
economic decisions’. An organization’s accounting records are the principal sources of information for the preparation
of financial statements. The accounting and financial information system should provide a basis for the generation of
the management information and financial reports necessary for the day-to-day operation of the organization, and these
should be consistent and compatible with the information in the financial statements (Martins and Akpolo, 2013).
Ifrs and Financial Accounting Quality
The adoption of IFRS around the globe is persistently and rapidly led to improvement of reporting quality through
uniform set standards for financial quality. Therefore, accounting reporting quality is a function of the firm’s overall
institutional setting, including the legal and political system of the nation in which the firm resides (Adeyemi, 2012)
Iyoha (2011) document that accounting reporting quality has increased worldwide since the beginning of the 1990s, and
suggest that this could be due to factors such as globalization and anticipation of international accounting
harmony.IFRS is contingent on at least two factors; increased 0f efficiency is based upon the premise that change to
IFRS constitutes changes to a GAAP that induces higher financial reporting quality. For instant, Barth, Landsman, &

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Lang (2006) find that companies that adopting IFRS have less earnings management, more timely loss recognition, and
more value relevance for earnings, all of which they interpret as evidence of higher accounting reporting quality.
Second, the accounting system is a complementary component of the country’s overall institutional system, Irvine
(2006) and is also determined by firm’s incentives for financial reporting.
IFRS and Timely Loss Recognition
In a concurrent study, Iyoha (2011) assessed the capital market effects of mandatory IFRS adoption. They have found
evidence that is consistent with reduced information asymmetry in association with mandatory IFRS adoption. They
have argued that the impact could be driven by network impacts rather than accounting reporting quality performance.
In the same vein, Cherry (2008) argued that if IFRS matters, then organization in countries that had least disclosure
quality and dependence on equity financing before to mandatory IFRS should experience a greater effect after
mandatory adoption. As such, using implied cost of equity capital as indicator, they find no effect among such countries
even after two years under the new accounting standards. Other factors associated with financial reporting quality
include the tax system, ownership structure, the political system, capital structure, and capital market development.
3. Research Methodology
Research Design And Instrument Used
The study makes use descriptive research design using secondary data collected from annual report and fax books of the
deposit bank under study.
Population of the Study
Research populations are the total money deposit banks quoted on the floor of Nigerian stock exchange. The population
for this study consist all deposit banks plc
Sampling Technique and Sampling Size
Since it may not be possible to reach out to all investors of deposit bank plc due to time and cost of administration of
the research data, the study is limited to 30 investors of the firms.
Method of Data Collection
Two major sources of data were used that is primary and secondary sources. The primary data consist of the response
from the questionnaire collected for the study, while the secondary data consists of information from other sources.
Model Specification
Timely Loss Recognition
Many studies have document firms‟ reluctance to report large loss in a timely manner (Ball et al., 2003; Lang &Raedy,
2003; Leuz et al., 2003). Timely loss recognition will be measured using the model developed by (Basu, 1997) adopted
and modified by (Barth et al., 2008) to measure the effect of IFRS adoption on accounting quality. A positive
coefficient of large negative income (LNEG) in the following equation indicate that firms report large losses more
frequently after the adoption of IFRS as reporting standard and negative indicate otherwise.
TLR = α0 + β1LNEGit + β2SIZEit + β3GROWTHit+ β4EISSUEit + β5LEVit + β6DISSUEit + β7TURNit + β8CFit +
β9AUDit + εit………………………………………………………..(7)
Where
LNEG = dummy variable equal to 1 if net income scaled by total asset is less than - 0.20 and zero if otherwise.
SIZE = Natural logarithm of the market value of equity
GROWTH = Percentage change in sales.
EISSUE = Percentage change in ordinary shares.
LEV = Total debt divided by total book value of equity.
DISSUE = Percentage change in total liabilities.
TURN = Sales divided by total asset.
CF = Cash flow from operation divided by total asset.
AUD = Dummy variable equal to 1 variable equals 1 for observation in post adoption period and 0 for pre adoption
period.

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4. Results and Discussion

Introduction
In this chapter, the results of analysis made on the methodological approaches stated in the previous chapters are
presented, alongside interpretation and implication of the result. Descriptive was used to explain the variables and
regression analysis to test the null hypothesis.
Descriptive Statistics
Descriptive statistics being quantitative tools which are used in order to describe, examine or summarize the important
behavior of the research data with a view to organize and present them in a more logical or meaningful form. Table 4.1a
and Table 4.1b present the Minimum, Maximum, Mean and standard deviation for the whole test and control variables.
Based on the measurement of the variables, each observation for change in net income, change in cashflow from
operations, growth, change in common stock and change in total liabilities has a tendency of scoring between infinite
negative percentages to infinite positive value. Small positive profit is scored one if net income by total assets is
between 0 and 0.01 and scored zero if otherwise.
Large loss recognition is also scored one if annual income scaled to total asset is less than -0.02 and scored zero for
otherwise and the same treatment also applied to auditors. That is scored one for firm audited by Big Four audit firms
and set to zero for others.
Table 1a. Descriptive statistics for pre IFRS adoption
N Minimum Maximum Mean Std. Deviation
SIZE 12 16.56 19.58 17.5667 .74568
GROWTH 12 82.34 99.05 88.8850 4.22986
TURN 12 .00 6.60 0.2908 1.43854
CF 12 .00 .03 .0025 .00835
TLR 12 .00 1.00 .8333 .38925
Valid N (listwise) 12
Source: Generated from annual report and account, using SPSS version 21
Table 1b. Descriptive statistics for post IFRS adoption
N Minimum Maximum Mean Std. Deviation
SIZE 12 18.56 21.58 19.5667 .88113
GROWTH 12 85.34 112.05 99.8850 6.22986
TURN 12 .00 9.60 2.2908 3.43854
CF 12 .02 .04 .0283 .00866
TLR 12 .00 1.00 .8333 .38925
Valid N (listwise) 12
Source: Generated from annual report and account, using SPSS version 21
From the Table 4.1a and Table 4.1b above, the minimum, maximum, mean and standard deviation figures for post
adoption period with respect to size were 18.56, 21.58, 19.5667, and 0.88113 respectively which are greater than 16.56,
19.58, 17.5667 and 0.74568 for pre adoption period, which is a good indicator that size to Money deposit banks in
Nigeria is more in the post adoption period compared to that of pre adoption period. Similarly, with regards to the
growth measure as the percentage change in sales, the minimum, maximum, mean and standard deviation figures for
post adoption period with respect to size were 85.34, 112.05, 99.8850, and 6.22986 respectively which are greater than
82.34, 99.05, 88.8850 and 4.22986 for pre adoption period, which implies that Nigerian Money deposit banks are
growing more in the post adoption period compared to that of pre adoption period.
Furthermore, the result of the descriptive analysis show that, turn over as the proportion of sales over total assets has
minimum and maximum value of 0.00 and 9.60 respectively with mean value of 2.2908 and standard deviation of
3.43854 for the pre adoption period which greater than 0.00, 6.60, 0.2908 and 1.43854 for the pre adoption period.
Similarly, the cash flow, as measured with the cash flow from operation over total assets, the minimum, maximum,
mean and standard deviation for the post adoption period is 0.02, 0.04, 0.0283 and 0.00866 respectively which greater
that that pre adoption period with 0.00, 03, 0.0025, and 0.00835.

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Regression Analysis
Regression analysis on timely loss recognition on conducted using Barth et al., (2008) timely loss recognition model,
the model was modified and used in this study in order to ascertain the impact of IFRS adoption on timely loss
recognition. Table 4.2a and 4.2b presented the coefficient of reported large negative net income (LNEG) the timely loss
recognition predictions if IFRSs were to improve the financial reporting quality.
Table 2a. Regression analysis for the pre adoption period
Model Unstandardized Coefficients Standardized Coefficients T Sig.
B Std. Error Beta
(Constant) -1.304 4.165 -.313 .765
SIZE .178 .159 .404 1.119 .306
GROWTH -.015 .022 -.239 -.681 .521
1
TURN .060 .054 .534 1.122 .305
CF -14.278 21.365 -.318 -.668 .529
IFRS .404 .470 .299 .859 .423
R squared= 0.338
a. Dependent Variable: TLR
Source: Generated from annual report and account, using SPSS version 21
Table 2b. Regression analysis for the post adoption
Model Unstandardized Coefficients Standardized Coefficients T Sig.
B Std. Error Beta
(Constant) -4.459 3.479 -1.282 .247
SIZE .297 .133 .673 2.239 .066
GROWTH -.033 .018 -.521 -1.798 .122
1
TURN .099 .045 .877 2.227 .068
CF 41.344 17.154 .887 2.410 .053
IFRS 1.453 .661 1.078 2.199 .070
R squared=0.623
a. Dependent Variable: TLR
Source: Generated from annual report and account, using SPSS version 21
The result of linear regression using timely loss recognition as dependent variable and IFRS adoption as the test
variables with (Size, growth, turnover, and cash flow) as control variable is presented in table 4.2a. The entire predicting
variables (thus: IFRS adoption, size, growth, turnover, and cash flow) appears to be insignificantly related to timely loss
recognition. This suggests that Nigerian money deposit banks failed recognized loss provision. Although, the predicting
variables under the study are able to explain 33.8% change in the firm timely loss recognition and the remaining 66.2%
could be explained by the other variables, which are not captured during the period.
However, for post adoption period, IFRS adoption as an independent variable is found to have positive and significant
relationship with timely loss recognition of the Nigerian money deposit banks at 10% level of confidence. This implies
that IFRS adoption is highly related with timely loss recognition of the Nigerian money deposit banks.
From the side of control variables, size is found with positive and significant relationship with timely loss recognition,
this suggest that sizes of the Nigerian money deposit banks is highly related to timely loss recognition. Meanwhile, the
growth is found with negative and insignificant relationship with timely loss recognition, this implies that, the rate at
which Nigerian money deposit banks is growing is relatively small.
However, turnover is found with positive and significant relationship with timely loss recognition, suggesting that, the
more turnover is generated, the more loss will be recognized in the Nigerian money deposit banks. Similarly, cash flow
is also found with positive and significant relationship with timely loss recognition. This implies that, the higher the
cash generated from operating activities, the higher recognition of timely loss.
Finally, the predicting variables under the study are able to explain 62.3% change in the firm timely loss recognition and

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the remaining 37.7% could be explained by the other variables, which are not captured during the period.
Hypothesis Testing
The analysis was conducted in order to find out whether IFRS adoptionhas any effects on timely loss recognition. It was
found that IFRS adoption is significantly related to timely loss recognition. Therefore, this study does not support the
null hypothesis raised which state that:
H01: There is no significant relationship between IFRS adoption and timely loss recognition.
Summary of Findings
This research used empirical method in studying the impact of IFRS adoption on the timely loss recognition of Nigerian
money deposit banks. Based on the several statistical analyses conducted, interesting findings emerged from this
research.
• Timely loss recognition as the dimension of accounting quality used in the study reveal a descriptive analysis
of accounting quality.
• The results of liner regressions produced positive coefficients timely loss recognition and that proved IFRS
adoption play significant role in determining the accounting quality during the periods under review.
5. Conclusions
The aim of this study is to evaluate the impact of IFRS adoption on the accounting quality in Nigeria for the money
deposit banks of the Nigerian stock exchange. The study uses timely loss recognition as the determinants of accounting
quality. The analysis of sample study shows that IFRS adoption in Nigeria played a significant role in determining
accounting quality. Overall the results reject the null hypothesis raised.
Recommendations
Based on the above findings the present recommend thatother developing nations should adopt IFRS as their financial
reporting standard since it is capable of increasing their accounting quality.
Finally, it is of the opinion of the researcher that future researchers should try to expand the timeframe of the period of
study. research should also be conducted to assess the impact of adoption of IFRS on the financial reporting quality of
SMEs in Nigeria and the researcher is also suggested that research should be conducted to analyze why IFRS improves
the financial reporting quality based on standard by standard, not the whole package as whole.
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