EVALUATING THE INFLUENCE OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTION ON ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE INTRODUCTION 1.1 Background of the Study The global shift toward the adoption of International Financial Reporting Standards (IFRS) stands as one of the most transformative developments in contemporary financial regulation. IFRS is gaining considerable global traction, with a growing number of countries either adopting these standards outright or aligning their national financial reporting frameworks with them. The intensification of globalization in capital markets has underscored the importance of a unified set of accounting standards to facilitate transparency, comparability, and credibility in financial reporting across borders. The initial movement toward creating universally accepted accounting standards began in 1973, with the establishment of the International Accounting Standards Committee (IASC) by professional accounting bodies from countries including Canada, the United States, the United Kingdom, Germany, and France. The IASC's objective was to reduce disparities in accounting principles globally through the formulation of harmonized standards. This effort laid the groundwork for international convergence in accounting practices (Carson in Madawaki, 2012). In 2001, the IASC was reorganized into the International Accounting Standards Board (IASB), which subsequently refined and expanded upon the existing standards, introducing them as IFRS—principles-based guidelines designed for general-purpose financial reporting. In Nigeria, the official launch of IFRS adoption occurred in September 2010 under the auspices of the Federal Ministry of Commerce and Industry, spearheaded by Senator Jubril Martins-Kuye (OFR). The implementation was scheduled in phases: public listed and significant public interest entities were required to comply by January 2013, while small and medium-sized enterprises (SMEs) were expected to follow by January 2014 (Jubril & Michael, 2010). As a milestone, Nigeria formally embraced IFRS as its financial reporting framework on January 1, 2012. In alignment with the IFRS Roadmap Committee’s recommendations, entities not qualifying under IFRS for SMEs were directed to utilize Tier 3 (Micro-GAAP) standards, as endorsed by the United Nations Conference on Trade and Development (UNCTAD) (Asein, 2010). The public sector, being the principal driver of Nigeria's economy, was also mandated to adopt International Public Sector Accounting Standards (IPSAS) beginning January 1, 2013. The initial delay in public sector adoption was due to the need for transitioning from cash-based accounting to a modified accrual basis. Full compliance would complete the national reporting framework, enhance Nigeria's attractiveness to foreign investors, reduce perceived risks, and present the nation as a more reliable investment destination within Africa. The institutional stakeholders in this financial reporting transformation include the Nigerian Accounting Standards Board (NASB), the Institute of Chartered Accountants of Nigeria (ICAN), the Central Bank of Nigeria (CBN), and the Securities and Exchange Commission (SEC), among others (Mackenzie Bruce et al., 2011). According to NASB (2010), the Nigerian government responded to deficiencies in accounting and financial reporting through reforms that strengthened compliance and governance. These efforts included the establishment of a NASB inspectorate unit, enactment of the Fiscal Responsibility Bill, creation of specialized audit units, and the formation of anti-corruption agencies such as the Economic and Financial Crimes Commission (EFCC), the Independent Corrupt Practices Commission (ICPC), and the Nigeria Extractive Industries Transparency Initiative (NEITI). Additionally, the Nigerian government benefited from collaboration with international development partners, including the World Bank and the Department for International Development (DFID), in driving corporate governance and accountability reforms. Given the increasing interconnectedness of global economies—further illuminated by the global financial crises—it became imperative for Nigeria to align its reporting practices with international norms. This necessitated reforms in legal and institutional frameworks as well as investments in human capital development. The Financial Reporting Council (FRC) Act of 2011 emerged as a critical step in Nigeria’s re-evaluation of its regulatory framework. The failures of corporate governance—reflected in the roles of boards, financial analysts, and regulators—during financial crises highlighted the urgent need for global benchmarks like IFRS. Despite these advancements, successful IFRS implementation remains a challenge in many countries, including Nigeria (Madawaki, 2012). Hence, this study explores the process, benefits, and challenges of IFRS adoption within the context of Nigeria’s evolving legal and regulatory environment. 1.2 Statement of the Problem The impetus for this study lies in the various challenges hindering the effective adoption and implementation of IFRS in Nigeria and their implications for economic growth. Specifically, the study aims to address the following issues: 1. The inadequate implementation of IFRS in the preparation of financial statements by numerous Nigerian firms has undermined the potential relationship between IFRS adoption and Nigeria’s gross domestic product (GDP). 2. 3. Empirical findings from prior studies indicate a low level of compliance with IFRS disclosure requirements, adversely impacting the country’s national income and undermining investor confidence. 4. 5. A widespread lack of awareness and understanding of IFRS among financial professionals in Nigeria has negatively influenced revenue generation and weakened the integrity of financial reporting systems. 6. 1.3 Objective of the study The broad objective of the study is to evaluate the Influence of International Financial Reporting Standards Adoption on Economic Growth in Nigeria. The specific objectives is as follows i.To evaluate the relationship between IFRS and growth of international business in Nigeria; ii.To evaluate the relationship between IFRS and foreign capital flow in the Nigeria; iii.To evaluate the relationship between IFRS and financial reporting quality in Nigeria; iv.To investigate the relationship between IFRS and the tax liability of multinational companies in Nigeria. v.To evaluate the relationship between IFRS and Nigeria economic growth. 1.4 Research questions The following questions have been prepared to guide the study i.Does the implementation of international financial reporting standards have any relationship with growth of international business in Nigeria? ii.Does the implementation of international financial reporting standard have any relationship with foreign capital flow in Nigeria? iii.Does implementation of IFRS has any relationship with financial reporting quality in Nigeria? iv.Does the implementation of IFRS has any relationship with tax liability of multinational companies in Nigeria? v.Does implementation of IFRS has any relationship with Nigeria economic growth? 1.5 Research hypotheses The stated hypotheses have been formulated to further guide the office Ho1: The implementation of IFRS does not have any relationship with the growth of international business in Nigeria. Ho2: The implementation of IFRS does not have any relationship with foreign capital flow in Nigeria. Ho3: The implementation of IFRS does not have any relationship with financial reporting system in Nigeria. Ho4: The implementation of IFRS does not have any relationship with the tax liability of multinational companies in Nigeria. Ho5: The implementation of IFRS does not have any relationship with Nigeria economic growth. 1.6 Significance of the study The study will be significnt to businesses in Nigeria as it will offer practical insights and recommendations for Nigerian businesses on how to navigate the challenges of IFRS adoption and implementation. It will provide guidance on best practices, potential pitfalls, and strategies for achieving compliance with international standards. The study will also be significant as it will be valuable to policymakers and regulatory bodies such as the Financial Reporting Council of Nigeria (FRC). It will provide evidence-based recommendations for improving the regulatory framework, enhancing compliance, and ensuring the successful implementation of IFRS in Nigeria. Lastly, the study will be significant to the academic community as it will contribute to the existing literature, add to library resources and serve as a guide to future researchers. 1.7 Scope of the study The study focus on the Influence of International Financial Reporting Standards Adoption on Economic Growth in Nigeria. Empirically, the study will evaluate the relationship between IFRS and growth of international business in Nigeria, evaluate the relationship between IFRS and foreign capital flow in the Nigeria, evaluate the relationship between IFRS and financial reporting quality in Nigeria, i investigate the relationship between IFRS and the tax liability of multinational companies in Nigeria and evaluate the relationship between IFRS and Nigeria economic growth. 1.8 Limitation of the study Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. The significant constraints are: Time: The researcher encountered time constraint as the researcher had to carry out this research alongside other academic activities such as attending lectures and other educational activities required of her. Finance: The researcher incurred more financial expenses in carrying out this study such as typesetting, printing, sourcing for relevant materials, literature, or information and in the data collection process. Availability of Materials: The researcher encountered challenges in sourcing for literature in this study. The scarcity of literature on the subject due to the nature of the discourse was a limitation to this study. 1.9 Definition of terms International Financial Reporting Standards (IFRS): A set of accounting standards developed by the International Accounting Standards Board (IASB) that provide guidelines for financial reporting by companies globally. IFRS aims to ensure transparency, accountability, and efficiency in financial markets. Adoption: The process of formally accepting and implementing a set of standards, practices, or policies. In the context of IFRS, it refers to the decision by an organization or country to utilize these international standards for financial reporting. Implementation: The actual execution of adopted standards in financial reporting practices. This involves integrating IFRS into existing accounting processes, training staff, and adjusting financial systems and reporting frameworks to comply with IFRS requirements. Financial Reporting: The disclosure of financial information to external parties, including investors, creditors, and regulatory agencies. This encompasses the preparation of financial statements that represent an organization’s financial position, performance, and cash flows. Challenges: Obstacles or difficulties encountered in the process of adopting and implementing IFRS. These may include lack of technical expertise, inadequate infrastructure, resistance to change, and the complexity of the standards. Economic Impact: The effects that the adoption and implementation of IFRS have on the broader economy of a country. This can include changes in investment patterns, cost of compliance for businesses, and overall financial stability. Transparency: The extent to which financial information is made available and understandable to users. IFRS aims to enhance transparency in financial reporting, allowing stakeholders to make informed decisions based on reliable financial data.