Project Topic

ADOPTION OF IFRS ON AUDIT REPORT QUALITY IN NIGERIA `

Project Attributes
 Format: MS word ::   Chapters: 1-5 ::   Pages: 92 ::   Attributes: Questionnaire, Data Analysis,Abstract  ::   856 people found this useful

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CHAPTER ONE

INTRODUCTION

    1. Background to the Study

Accounting is the language of business while financial reporting is the medium through which the language is communicated. Accounting and financial reporting are regulated by Generally Accepted Accounting Principles (GAAP) comprising of accounting standards, company law, stock market regulations, and so on. GAAP for accounting and financial reporting gives answers to differences in business communication between countries. The global GAAP that is seeking to uni1 accounting and financial reporting world is the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards (IASs; International Financial Reporting Standards (IFRSs); Standing Interpretations Committee (SIC5) pronouncements; and International Financial Reporting Interpretations Committee (IFRICs) guidelines (Ikpefan and Akande, 2012).

Essien-Akpan (2011) opine that financial report apart from stating the financial position of an organization, provides other information such as the value added, changes in equity if any and cash flows of the enterprise within a defined period time to which it relates. This information is useful to a wide range of users making informed economic decisions. The quality of financial reporting is indispensable to the need of users who requires them for investment and other decision making purposes. Financial reports can only be regarded as useful if it represents the “economic substance” of an organization in terms of relevance, reliability, comparability and aids interpretation simplicity. He further stated that useful accounting information derived from qualitative financial reports help in efficient allocation of resources by reducing dissemination of information asymmetry and improving pricing of securities. To prepare and audit financial statements, some accounting convention and principles known as standards have been put in place by appropriate bodies set up for the purpose to encourage uniformity and reliability. They added that, the implementation of IFRS would reduce information irregularity and strengthens the communication link between all stakeholders. It also reduces the cost of preparing different version of financial statements where an organization is a multi-national. Accounting standards ensures that important matters regarding preparation and presentation of financial statements as well as auditing same are not left to whim of the preparers and auditors. Before IFRS adoption era, most countries had their own standards with local bodies responsible for developing and issuance.

According to Tanko (2012), international financial reporting standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. He observed that just like every other system, IFRS is a systematic approach that promotes understandability, reliability, relevance and comparability. He added that IFRS was founded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks national funding regimes, and other international and professional organizations throughout the world.

This study therefore intends to investigate the adoption of IFRS and audit report quality in Nigeria.

 

    1. Statement of Problem

The adoption of IFRS tends to enhance transparency, disclosure and comparability. It is evident that the implementation of IFRS reinforces stock market liquidity and leads to lower cost of capital and transaction costs, higher market value and better reputation. The higher disclosure requirements and financial reporting quality that stem from IFRS imply that the adoption of IFRS would give a positive signal to investors as information asymmetry and agency costs tend to diminish. It appears, therefore, that firms that adopt IFRS would tend to display lower potential for earnings management. Less subjectivity would lead to fewer opportunities to influence reported earnings and bonuses and/or mislead investors. Hence, in countries with strong investor protection mechanisms, such as the UK, the costs of IFRS adoption would tend to be lower because the level of earnings management is lower as managers are less inclined to manipulate the reported accounting figures. In contrast, in countries with weak investor protection mechanisms, the scope for earnings management would tend to be higher and the quality of financial reporting lower, implying that the costs of adopting IFRS would be higher.

    1. Research Questions

In the light of the above, the following research questions are raised:

  1. Is there positive relationship between adoption of IFRS and audit reports quality in Nigeria?
  2. Is there significant relationship between adoption of IFRS and credibility of audit report?
  3. Is there significant relationship between adoption of IFRS and credibility of financial statement?
    1. Objectives of the Study

The objective of this study is to examine the adoption of IFRS and audit report quality in Nigeria.

The specific objectives are:

1.      To determine if there is positive relationship between adoption of IFRS and audit reports quality in Nigeria.

2.      To examine if there is significant relationship between adoption of IFRS and credibility of audit report.

3.      To find out if there is significant relationship between adoption of IFRS and credibility of financial statement.

 

 

1.5   Statement of Hypotheses

The following hypotheses have been formulated to serve as a base for this research.

Hypothesis 1

Ho:   There is no positive relationship between adoption of IFRS and audit reports quality in Nigeria.

HI:     There is a positive relationship between adoption of IFRS and audit reports quality in Nigeria.

Hypothesis 2

Ho:   There is no significant relationship between adoption of IFRS and credibility of audit report.

HI:     There is a significant relationship between adoption of IFRS and credibility of audit report.

Hypothesis 3

Ho:   There is no significant relationship between adoption of IFRS and credibility of financial statement.

HI:     There is a significant relationship between adoption of IFRS and credibility of financial statement.

1.6   Significance of the Study

It is expected that this study would consolidate existing literature on the issues - surrounding the relationship between adoption of IFRS and audit report quality and thus boosting the empirical evidence from Nigeria. Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies in economic modeling and policy simulation with respect to the selected variables examined in the study.

The result of the study would be of benefits to investment analysts, investors and corporations in examining the effectiveness of IFRS on audit report quality.

It will also be useful in stimulating public discourse given the dearth of empirical researches in this area from emerging economies like Nigeria.

Finally, it would also add to the available literature on the area of study while also providing a platform for other researchers who may want to further this study.

1.7   Scope of the Study

The study is undertaken to examine adoption of IFRS and audit report quality in Nigeria. The population of the study is the entire quoted companies operating in Nigeria, while the sample size is restricted to some selected staff of five banks quoted in the Nigeria Stock Exchange.

    1. Limitation of the Study

The major constraints of this project are sourcing enough materials for this buildup. This is as a result of newness of the subject of research. Also, the uncooperative attitude of some respondent greatly affected the adequate collection of data from the fieldwork.

    1. Definition of Terms

Audit: Audit is a Latin word meaning “he hears”. It is a process carries out by qualified persons called auditors, whereby the account of business organization including charities, trust and professional firms are subjected to scrutiny in such details as to accuracy, truth and fairness.

Auditing: Auditing is an independent examination of and the expression of opinion on accounts of companies as presented by management to an appointed auditor in pursuance of that appointment, and in keeping with any reliant legislature and other requirements, whether in his opinion the account show a true and fair view and had be prepared in accordance with Law.

Financial Statement: The term “financial statement” covers the Balance Sheet, Income Statement or Profit and Loss Accounts, Statements and explanatory materials, which are identified as being part of financial statement.

Culture: Culture is defined as the collective programming of the mind that differentiates one member of a group or society from the others.

Audit Report: This is the means by which the auditors express their opinion on the truth and fairness of the company’s financial statement.

Audit Report Quality:  Audit report quality is the probability that financial statements contain no material misstatements. It is also is an increasing function of an auditor’s ability to detect accounting misstatements and auditor independence as assessed by the market.

Auditor’s Quality: Auditor’s quality is defined as the overall audit service quality of a certain audit firm.

Accounting: This is concerned with the keeping of records of daily transactions entered into in the day-to-day management of a business organization.

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