CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

As the business world becomes closer in its financial and trade ties, many countries are moving towards International Financial Reporting Standards (IFRS), common accounting rules that define how transactions should be reported and what information should be disclosed in financial statements (IASB, 2007). This unitary set of standards has solved many problems while creating others. However, this study is examining the impact of IFRS disclosures on the organizational performance.

It is important to look at the big picture and the overarching aim of IFRS. In an increasingly global marketplace, international comparability is critical to enable the effective allocation of scarce resources. To achieve international comparability the key nations around the world need to commit to one global set of accounting standards. While over 100 countries have already adopted IFRS, key countries like the United States, Japan and India are yet to require IFRS for listed companies (Bradshaw et al, 2012).

It is important to note that companies that use the same standards to prepare their financial statements can be compared to each other more accurately. This is especially important when comparing companies located in different countries, as they might otherwise be using different rules and methodologies to prepare their statements. This increase in comparability has helped investors better determine where their investment dollars should go thereby enhancing organizational performance as there will be more investors to invest in the company. Though, the United States has not yet adopted International Financial Reporting Standards and other countries continue to hold out as well (Bradshaw et al, 2012). This makes accounting by foreign-based companies that do business in America difficult as they often have to prepare financial statements using IFRS and another set using American Generally Accepted Accounting Principles (Bradshaw et al, 2012).

IFRS disclosures use a principles-based, rather than rules-based, philosophy. A principles-based philosophy means that the goal of each standard is to arrive at a reasonable valuation and that there are many ways to get there. This gives companies the freedom to adapt IFRS disclosures to their particular situation, which leads to more easily read and useful statements. There is a downside to the flexibility that IFRS disclosure allows organizations to utilize only the methods they wish to, allowing the financial statements to show only desired results. This can lead to revenue or profit manipulation, can be used to hide financial problems in the company and can even encourage fraud. For example, changing the method of inventory valuation can bring more income into the current year’s profit and loss statement, making the company appear more profitable than it really is. While IFRS requires that changes to the application of the rules must be justifiable, it is often possible for companies to “invent” reasons for making the changes. Stricter rules would ensure that all companies are valuing their statements the same way.

1.2 STATEMENT OF THE PROBLEM

Several researchers had examined the effect of the adoption of IFRS disclosure on organizations and the findings revealed both the advantages and the disadvantages of IFRS disclosure. Considering the fact that small company would be impacted by a country’s adoption of IFRS disclosure in the same way a larger one would. However, small businesses do not have as many resources at their disposal to implement the changes and train staff. This results in smaller companies bringing in accountants or other outside consultants to help make the changeover. These smaller companies will bear more of a financial burden than larger ones in this area. However, this study will examine the impact of IFRS disclosures on organizational performance.

1.3 OBJECTIVES OF THE STUDY

The following are the objectives of this study:

To examine the impact of IFRS disclosures on organizational performance

To examine the level of compliance with the IFRS disclosure principles by companies in Nigeria.

To identify the problems associated with IFRS disclosure in organizations in Nigeria.

1.4 RESEARCH QUESTIONS

What is the impact of IFRS disclosures on organizational performance?

What is the level of compliance with the IFRS disclosure principles by companies in Nigeria?

What are the problems associated with IFRS disclosure in organizations in Nigeria?

1.5 HYPOTHESIS

HO: There is no significant relationship between IFRS disclosures and organizational performance.

HA: There is significant relationship between IFRS disclosures and organizational performance.

1.6 SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

Outcome of this study will educate business managers on the impact (negative and positive) of IFRS disclosure on organizational performance in Nigeria.

This research will be a contribution to the body of literature in the area of the effect of personality trait on student’s academic performance, thereby constituting the empirical literature for future research in the subject area.

1.7 SCOPE/LIMITATIONS OF THE STUDY

This study will cover the impact (negative and positive) of IFRS disclosure on organizational performance in Nigeria.

LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

REFERENCES

Bradshaw, M., et al (2010). Response to the SEC’s Proposed Rule- Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards (IFRS) by U.S. Issuers. Accounting Horizons(24)1

International Accounting Standards Board (2007): International Financial Reporting Standards 2007 (including International Accounting Standards (IAS(tm)) and Interpretations as at 1 January 2007), LexisNexis, ISBN 1-4224-1813-8