Examination on the Extent of Compliance to International Financial Reporting Standard (A Case Study of Wema Bank Plc)
Purpose of the study
The purpose of the study is the examination on the extent of compliance to International Financial Reporting Standard in WEMA Bank PLC. Specifically the study will;
- Examine the extent of compliance with IFRS by WEMA bank plc
- To determine the factors influencing IFRSs compliance
- To examine if there exist any differences, between types of industry with regard to their compliance with IFRSs.
REVIEW OF RELATED LITERATURE
This chapter is on the review of related literature about International Financial Reporting Standards with focus on WEMA Bank of Nigeria Plc, Uyo, Akwa Ibom State.
The researcher presents the views and opinions of various authors as follows:
According to Barth et al. (2007:2), the IASB Framework was approved by the IASC Board in April 1989 for publication in July 1989, and adopted by the IASB in April 2001. In September 2010, as part of a bigger project to revise the Framework the IASB revised the objective of general purpose financial reporting and the qualitative characteristics of useful information. The remaining of the document from 1989 remains effective, Ashbaugh and Pincus (2001:422).
This Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements for external users.
The Conceptual Framework deals with:
(a) The objective of financial reporting;
(b) The qualitative characteristics of useful financial information;
(c) The definition, recognition and measurement of the elements from which financial statements are constructed; and
(d) Concepts of capital and capital maintenance.
The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investment, lenders and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit. Many existing and potential investment, lenders and other creditors cannot require reporting entities to provide information directly to them and must rely on general purpose financial reports for much of the financial information they need. Consequently, they are the primary users to whom general purpose financial reports are directed (Barth et al. 2007:6; Chen 2010:226).
General purpose financial reports do not and cannot provide all of the information that existing and potential investment, lenders and other creditors need. Therefore those users need to consider pertinent information from other sources. Other parties, such as regulators and members of the public other than investment, lenders and other creditors, may also find general purpose financial reports useful. However, those reports are not primarily directed to these other groups.
In order to meet their objectives, financial statements are prepared on the accrual basis of accounting. Accrual accounting depicts the effects of transactions and other events and circumstances on a reporting entity’s economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period. This is important because information about a reporting entity’s economic resources and claims and changes in its economic resources and claims during a period provides a better basis for assessing the entity’s past and future performance than information solely about cash receipts and payments during that period, Daske et al. (2007:16).
The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future.
Qualitative characteristics identify the types of information that are likely to be most useful to the existing and potential investment, lenders and other creditors for making decisions about the reporting entity on the basis of information in its financial report (financial information). If financial information is to be useful, it must be relevant (i.e. must have predictive value and confirmatory value, based on the nature or magnitude, or both, of the item to which the information relates in the context of an individual entity’s financial report) and faithfully represents what it purports to represent (i.e. information must be complete, neutral and free from error). The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable. The IASB acknowledges that cost may be a constrain on preparing useful financial information Paananen (2008:17). The elements directly related to the measurement of financial position are assets, liabilities and equity. These are defined as follows:
(a) An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
(b) A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
(c) Equity is the residual interest in the assets of the entity after deducting all its liabilities.
The elements of income and expenses are defined as follows:
(a) Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
(b) Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence’s of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
An item that meets the definition of an element should be recognized if:
(a) It is probable that any future economic benefit associated with the item will flow to or from the entity; and
(b) The item has a cost or value that can be measured with reliability.
Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement. This involves the selection of the particular basis of measurement.
RESEARCH METHODOLOGY AND DESIGN PROCEDURE
This chapter is concerned with the presentation of method used in this study to accomplish its purpose on “Examination On The Extent Of Compliance To International Financial Reporting Standard (A CASE STUDY OF WEMA BANK PLC)”. The following areas were taken into consideration, design of the study, area of the study, population of the study, sample size and sampling techniques, research instrument, validation of research instrument, reliability of research instrument, administration of the instrument and method of data analysis.
Design Of The Study
This study adopted survey research design. According to Ekott & Nseyen (2006), a survey research is one in which a group of people or items is studied by collecting and analyzing data from only a few people or items considered to be representative of the entire group. Thus, in this study, the researcher collected data from the personnel of WEMA Bank of Nigeria Plc, Uyo.
AREA OF THE STUDY
The study is limited to WEMA Bank Of Nigeria Plc, Uyo and to examine examination on the extent of compliance to international financial reporting standard.
POPULATION OF THE STUDY
The population of this study comprises of all the personnel of WEMA Bank of Nigeria Plc, Uyo, which was estimated to be about 50 personnel. Emphasis was placed on staff knowledge and information concerning the subject of the study.
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
This chapter entails the presentation of data analysis and interpretation of data collected. The data collected was through the use of questionnaire while the analysis was based on research questions and research hypotheses stated earlier in chapter one of this study. Simple percentages and tables were used to analyze the research questions and Chi-square statistical tools were used for testing of research hypotheses.
PRESENTATION OF ANALYSIS OF DATA
Table 4.2.1 shows the number of questionnaire sent out and the number of questionnaire returned.
SUMMARY, CONCLUSION AND RECOMMENDATIONS
This chapter presents summary, conclusion and recommendations for further studies
This study was carried out an examination on the extent of compliance to International Financial Reporting Standard in WEMA Bank PLC. To achieve this ultimate goal, the study revealed that:
In table 4.2.2 shows that 28 of the respondents representing 93% indicated extent of compliance to International Financial Reporting Standard in WEMA Bank PLC, Uyo while 2(7%) respondents pointed “Not Sure” on the question and it discovered that international financial reporting standards aid quality financial statement in WEMA Bank Plc.
In table 4.2.3 shows that 25(83%) of the total respondents pointed” while 2 of the respondents representing 7% opted “No”. Also 3(10%) respondents asserted “Not Sure”. From the analysis, it was concluded that international financial reporting standards (IFRS) in Nigeria improve the quality of investment decision making in WEMA Bank Plc, Uyo.
Also in table 4.2.4 shows that 23(77%) of the respondents indicated “Yes” that international financial reporting standards play a very significant role in banking institutions in Nigeria and also 4 respondents representing 13% pointed “No” while 3(10%) asserted Not Sure. It was discovered that international financial reporting standards has play a very significant role in banking institutions in Nigeria.
Table 4.2.5 shows that 25(83%) of the respondents indicated “Yes” that it has been effective implementation and adoption of IFRS in WEMA Bank Plc, while 5(17%) opted on not sure on the question. From this analysis, it was concluded that there is effective implementation and adoption of IFRS in WEMA Bank Plc
Table 4.2.6 shows that 16 (53%) of the respondents that indicated “Yes” there are problems confronting the staff of WEMA Bank Plc, Uyo in enhancing quality financial statement. Also, 8 (27%) respondents pointed “No” while 6 respondents representing 20% asserted “Not Sure on the question. Therefore, it was noted that there are problems
Based on the findings and subsequent recommendation of this study, it was concluded that the adoption of IFRS is a right step in the right direction. Although there are many issues and challenges facing the implementation, the benefits outweigh the challenge. With adoption, Nigeria companies will produce a more credible financial statements that will not only be uniformed but also provide a basis for better interpretation. The invariably will boost investment confidence and attract cross border financial transactions which is the basis for economic growth.
Accordingly, these findings are not different from the results from other studies, in other parts of the world, such as Germany by Paananen and Lin (2008:26), Clarkson et al. (2009:26), Houque et al. (2010:22) and many others where they all reported that IFRS adoption does not necessarily lead to improved quality in financial reporting. Paananen. (2008:17) in a similar study in Sweden stated that IFRS adoption did not improve the quality of accounting in Sweden and went on to advise that it is dangerous to draw conclusions on using this kind of measures. These results should therefore be seen as part of the evidence vetting IFRS. Notwithstanding the mixed outcome, these results can also be used to explain that accounting quality can improve from IFRS adoption rather than changes in managerial incentives.
From the findings of this study, the researcher hereby recommends the following:
- Steps to ensure a successful adoption and implementation of IFRS in Nigeria.
- Government and the regulators should ensure that there is availability of training facilities and materials for professional accountants on the concept of IFRS and issues relating to its implementation and conversion.
- Compliance with IFRS timetable should be mandatory and failure should be marched with appropriate sanctions.
- Government should Release more fund to FRC to educate all stakeholders with special reference to the academic to staff and accounting students who will uphold the future IFRS in the country and developing a plan to help properly equip the company for upcoming changes (Lewis and Pendril (1996).
- Professional accounting bodies in Nigeria should make IFRS training a part of MCPE at a reduce cost.
- Monitoring the IFRS implementation timetable, the government, the Central Bank of Nigeria and other regulatory bodies should ensure that ethical environment and corporate transparency are observed.
It is recommended that top management, external auditors and regulators being the key players in standards, need to work together and tighten compliance so that impact of IFRS could be felt more.
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