CHAPTER ONE
INTRODUCTION
1.1 Background of the Study The change from local accounting standards to International Financial Reporting Standards (IFRS) has generated a lot of attention, debates and controversies around the world, the reason been that IFRSs differ from the standards of those countries adopting it (Uwuigbe et al. 2016). For instance, Statement of Accountant Standard (SAS) in Nigeria to the Adoption of IFRS in 2012. The International Financial Reporting Standards (IFRS) adoption is an issue of global relevance among. IFRSs is a set of international accounting standards stating and reporting rules that defines how transactions in a business should be collected, recorded and reported and what information a company expected to disclose in its financial reports (Desalegn, 2020). Hence, financial reporting is a report that provide financial information that is useful to users in making decisions. Financial reporting quality represent the degree to which financial reports provide truthful, relevant, understandable, verifiable and unbiased information about core financial positions and financial performance. Financial reporting quality is helpful in making decisions regarding resource allocation in a company (Kaawaase et al. 2021). Accordingly, it is vital to provide superior financial reporting quality to protect users of financial report in making rational investments decision, and to improve the market efficiency. Thus, the frequent demand by shareholders for quality information and greater disclosures is often one of the reasons advanced for the adoption of International Financial Reporting Standards (IFRS). The financial reporting standards in the United States (US) was established by Financial Accounting standards Board (FASB). However, not all countries follow the US accounting and reporting standards. Thus, the accounting practices in the United Kingdom differ from that of the United States, and those in the United States differ from those in Japan and those in Japan differ from those in emerging market (Masoud, 2017). Today, the standard setting body responsible for this convergence effort is the International Accounting Standards Board (IASB). In a similar way, this organization functions like the FASB. In 2002, the FASB and IASB signed the Norwalk Agreement, formalizing their commitment to convergence of US and international accounting standards. The standards being developed and promoted by the IASB are called International Financial Reporting Standard (IFRS). Prior research on international accounting has focused more on developed countries, particularly Europe, America, and Middle Eastern while Nigeria (and the African region) has been neglected due to its poor economic analyses and accounting regulatory environments. Because financial reporting information is extremely important to shareholders, analysts and other interested group formal reporting standards. Therefore, the adoption of accounting standard with the aims of establishing a clear global rule within the Nigeria to draw up comparable and transparent annual reports and financial statements. In the context of Nigerian, the internationalization and globalization of trading activities, reported cases of corporate failure of some blue-chip firms and the quest by some firms to raise capital or fund internationally beyond their shore of business environment has called for its full adoption. Prior to IFRS adoption, every country has its own local reporting standards set by its local accounting body; in Nigeria, the Nigerian Accounting Standards’ Board (NASB) was responsible for the setting of local standards called ‘Statement of Accounting standards’ (SAS) used in the preparation and reporting of financial statement by companies in Nigeria. Subsequent to the adoption of IFRS in Nigeria, the NASB was renamed financial reporting council of Nigeria as the regulatory body charged with overseeing the adoption and implementation of IFRS (Sanyaolu et al. 2017). This implies that standards setting are no more done locally in Nigeria; rather the global adoption and implementation of IFRS is what is obtainable all over the world. Some countries prior to IFRS adoption have harmonized their local standards with GAAP (generally acceptable accounting principles). In line with this, the international financial reporting standard was adopted in Nigerian in the year 2012 by and all companies listed on the Nigeria exchange group and were required to compulsorily adopt these standards in the preparation of their annual reports and account. The motivation behind this study is due to the perceived benefits of the implementation and adoption of IFRS, the adoption is wrought with challenges. These benefits and challenges could lead to favorable/unfavorable implications at both the micro and macro-economic levels. It becomes an interesting source for stakeholders to determine whether the standards are achieving their primary objectives (Aderin et al. 2016). For instance, IFRS adoption is perceived to engender improvements in financial reporting quality due to increased stringency in its usage and application, and one wonders if this is really the case. It is also argued that implementing IFRS enhances earnings quality by reducing information asymmetry, decreasing earnings management, providing more value relevant financial information to shareholders. Furthermore, Nigeria is one of the largest developing countries in Africa, characterized by concentrated ownership structures, weak legal systems and highly politicized institutional structures. These peculiarities could inform a level of variance in the results obtained in the study. The fundamental objective of IASB is to develop IFRS that bring transparency, reliability, relevancy, reduce cost of capital, accountability and efficiency to financial and capital markets around the globe. In line with its fundamental objective, the stated vision of the IASB is to develop, in the interest of the general public, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world’s capital markets and other users to make economic decisions. The main objectives of general-purpose financial reporting are to provide relevant information about the reporting entity that is useful to shareholders, potential investors, lenders and other stakeholders in making informed decisions about the available resources to the entity ((International Accounting Standard Board). Thus, the quality of financial report is determined by its decision usefulness. However, it remains uncertain as to whether the objectives of IFRS adoption have been achieved, particularly about the qualitative characteristic of financial reports. Hence, this study aims to assess whether financial reporting quality in Nigeria was substantially improved after the IFRS adoption.