Nigeria is going to adopt International Financial Reporting Standard (IFRS) from 1st January 2012. Globalization and Information and Communication Technology (ICT) has reduced the world to a global village. This has given rise to the continuous integration of the world economy and capital markets which has in turn given rise to increase in the interdependence of international financial markets. As a result of this, there is increased mobility of capital across boundaries of the globe. Therefore, in order to ensure and sustain investors confidence in the capital market, the issue of corporate governance has now been brought to the front burner because that is the only way corporate financial reporting can be seen to be transparent. However, to operate in the global financial markets there is the urgent need for a uniform global financial reporting, hence most countries have embraced IFRS either by adoption, adaptation or convergence. It is therefore, the intention of this paper to critically examine the adoption of IFRS, its challenges and to proffer solutions that would ensure seamless transition in Nigeria.
Keywords: Investors, international standards, globalization and financial statements.
The move towards developing an acceptable global high-quality financial reporting standards started in 1973 when the International Accounting Standards Committee (IASC) was formed by 16 professional accounting bodies from Canada, United States of America, United Kingdom, Germany, France, Netherlands, Australia, Mexico and Japan. The IASC was reorganized into the International Accounting Standards Boards (IASB) in 2001. To date, the IASB has developed accounting standards and related Interpretations that are collectively known as the International Financial Reporting Standards (IFRS).
According to Adam (2009) the standards set by the IASB began to gain dominance when the International Organization of Securities Commissions (IOSCO) in 2000 endorsed the then IASC standards. This was further boosted when in 2002; the European Commission approved a regulation requiring that listed companies in EU countries prepare consolidated financial statements in accordance with IFRS. The dominance of IFRS further improved in September 2002, when the United States.
Financial Accounting Standards Board (FASB) and IASB signed the Norwalk Agreement. By this agreement, the bodies undertook to work closely to develop high quality compatible accounting standards that could be used for both domestic and cross-border financial reporting. These bodies have so far met their commitment and are far advanced in the IFRS-US Generally Accepted Accounting Principles, GAAP, convergence.
Other countries especially the developing ones who do not want to be left behind took a cue from the world s major economies to either adopt, adapt or converge the IFRS. Notable among these countries are Sierra Leone, Malawi, Zambia, Kenya, and Ghana.
Countries use different approaches in adopting IFRS based on their need and ability to adopt. For example, in countries like United States, Canada, Japan and India, IFRS financial statements are not permitted for listing without reconciliation to local GAAP.
However, significant gains have been made in these countries to bring domestic standards in line with IFRS. While in the European Union (EU), listed companies are required to use IFRS in preparing consolidated financial statements. It therefore, means that a listed company that has no subsidiary is not required to use IFRS. Non-listed companies in the EU are required by law or allowed in some cases to file financial statements prepared in accordance with the local GAAP applicable in their respective jurisdictions. EU member states may however, permit non-listed companies in their jurisdiction to use IFRS. This has been the practice in EU countries like the United Kingdom, Australia, Ireland, Slovenia and France. While in countries such as Malta, Slovakia and Cyprus which are EU member states, non-listed entities are required to prepare IFRS based financial statements. Other EU member states likePoland, Lithuania and Latvia require non-listed companies to use local GAAP and prohibit them from using IFRS. This goes to show the extent to which countries are careful about adopting IFRS in its totality.
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