THE IMPACT OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTION ON MANUFACTURING SECTOR IN NIGERIA
(A STUDY OF NESTLÉ NIGERIA PLC)
1.1 Background of the Study
The Internationalization and the quest for quality accounting has prompted the adoption of International Financial Reporting Standards (where-in known as IFRS) as against the Nigeria Local Generally Accepted Accounting Principles (Statement of Accounting Standards) that has been in place before now in order to fully harmonize accounting standards across the globe. Also, the crucial need for consistent quality Accounting Reporting prompts the emergency of global standardization in order to protect the interest of stakeholders or shareholders. Therefore, the local Accounting standards issued in Nigeria are known as the Statements of Accounting Standards (hereinafter known as SAS) set by the former Nigeria Accounting Standard Board Act of 2003. The International Accounting Standards are set by the International Accounting Standards Board (formerly Committee) – International Accounting Standard Committee, therein after known as IASC; an arm of the global International Financial Accounting Committee.
Again, Internationalization of economic trade and globalization of businesses is on the ascendency. Consequently, financial statements prepared according to a nation’s local accounting system may hardly meet the needs of investors, business partners, financiers and decision-makers who are conversant with international standards. Meanwhile, developing and emerging markets are the target of the world’s leading industries that are operating in the saturated western countries. Hence, foreign investment is major boost to the economies of developing countries and to better undertake their activities in developing countries of which investor may demand for vivid and comprehensible financial information – underscoring the reason why developing countries like Nigeria must comply and harmonize to make compatible our local Accounting Standards with the International Accounting Standards and specifically, manufacturing accounting standards application seems to be a specialized accounting which emphasizes the guidelines and rules on inventories and its measurements.
1.2 Statement of the Problem
The manufacturing sector of Nigeria has been the heartbeat of the Nigerian economy ever before the discovery of crude oil in the 1960s. It engages in the country’s reproduction of many several natural/mineral resources and raw materials such as cocoa, cotton, rubber, etc. into finished products for both local and foreign trade such as beverages, textiles, plastics, etc. The industry over the years has contributed to the Gross Domestic Product and National Income. However, many firms such as Cadbury, Volks Wagen, , Texlon, Tandi bottling company, etc. has gone down the drain during the era of local accounting standards and before the mandatory adoption of IFRS and as a result led into poor financial reporting and lack of adequate management of resources. Therefore, in order to enhance the financial transparency and quality financial reporting in the manufacturing sector in Nigeria, Federal Reporting Council of Nigeria had not excluded this sector from the adoption of International Financial Reporting Standards.
Also, non-adherence to full disclosure of information in published financial statements as per requirements of the applicable Statement of Accounting Standard to IFRS by the existing indigenous manufacturing firms due to various fraudulent transactions by the directors had further led to such firms’ failures as a result of poor financial performances over the years. Typical firms are the Transcorp Plc, Dunlop Nigeria Plc, etc. who presently has failed to declare dividend to the shareholders.
Another is the non-stringent penalties for non-compliance with IFRS and full disclosures. All these unethical practices by the concerned firms who prefer to pay penalty, because to pay penalty is cheaper than compliance (Oghuma & Iyoha, 2006). Besides, the gap between the IFRS and the conventional local accounting standard as regards some manufacturing accounting techniques and reporting yet to be bridged is a worrisome fact that the Financial Reporting Council of Nigeria still have to abreast with the International Accounting Standard Board.
Therefore, the study is focused towards ensuring a better compliance and full disclosures for enhanced transparency, financial reporting and growth as per the reward to shareholders wealth.
1.3 Objectives of the Study
This study is aimed at examining the financial impact of IFRS adoption having evaluated the pre, during and post first time adoption, testing the extent of compliance with International Accounting Standards in the manufacturing sector with a study of Nigeria Nestlé Plc. The followings are the objectives of the research study;
- To examine the financial impacts of adopting IFRS on the performance of a manufacturing firm listed on the Stock Exchange Market.
- To review the controls and monitoring tools and measures put in place by NASB (now FRCN) to ensure consistent compliance and the compatibility between the Nigerian Accounting Standards and International Financial Accounting Standards before and after the adoption and transition process of International Accounting Standards and International Financial Reporting standards.
- To evaluate the relationships between manufacturing accounting under the local GAAP and after IFRS adoption.
- To illustrate the compatibilities between the Nigerian local accounting standards and the international financial reporting standards
1.4 Research Questions
This research paper is embarked upon to resolve the research problems encountered in first time adoption of international accounting standards particularly in the Nigerian manufacturing industries. These research questions are as follows;
- What are the impacts of IFRS adoption on the financial performances of Nestlé Nigeria Plc.?
- Is there any significant level of compliance after the first time adoption by the manufacturing firms in Nigeria?
- Are there any significant relationships between manufacturing accounting techniques under the local GAAP and after IFRS adoption?
- To what extent is there compatibility between the Nigerian local accounting standards and the international financial reporting standards?
1.5 Research Hypothesis
The research hypotheses intended to be analyzed and tested are as follows;
- Null Hypothesis (Ho) – There is no significant impact of IFRS adoption on Nestlé Nigeria plc. Financial performances.
- Null Hypothesis (Ho) – There is no significant impact of IFRS adoption on manufacturing accounting in accordance with the preceding local accounting standards.
- Null Hypothesis (Ho) – There is no significant relationship between the Nigerian local accounting standards and the international financial reporting standards.
- Null Hypothesis (Ho) – There is no significant level of compliance to IFRS adoption among other indigenous developing manufacturing industries in Nigeria.
1.6 Justification of the Study
International Financial Reporting Standards (IFRS) are accounting principles and guidelines formulated by the International Financial Accounting Committee (IFAC) for global acceptance by countries’ local accounting bodies and institutions. In a world of global warming where international businesses and trade is on the rise, thus, a global standardized accounting method is prominent.
The findings of this research study will be significantly relevant and applicable in so many areas; first and foremost adoption of IFRS will promote transparency and accountability among in the Nigeria business environment (both public and private firms) and the economy at large. It will benefit the shareholders, investors, management, etc. of organization in ensuring credible accounting quality and overall true picture of the company’s performance for investors and general public decision making.
And equally, the findings of this study will assist Nestle Nigeria Plc appreciate the impact of IFRS on their three years financial statement and also make a difference in the loophole that pre-exists in the local techniques of manufacturing and other accounting methods as perceived by the users of accounting information such as the shareholders, investors, statutory authorities, clients, suppliers, etc. and better forestall internationalization of businesses across economic jurisdictions.
The findings will serve as a great deal of benefit to the multinational manufacturing firms and the general public at large that uses or intend to use the financial report in making investing and financing decisions for the overall development of economic growth of our country.
It will ensure facilitate easy financial reporting interpretation by other countries of the world as a result of harmonized IFRS accounting standards adopted without any bias or reservations despite different economic and socio- cultural differences.
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