1.1 Background of the Study
Globalization of capital markets requires a unified global accounting, reporting and
disclosure set of standards. As a result of increasing volume of cross border
capital flows and the growing number of foreign direct investments via mergers
and acquisitions in the globalization era, the need for the harmonization of
different practices in accounting and the acceptance of worldwide standards has
arisen. This worldwide standard is International financial reporting standards
(IFRS). Although, there has been series of contentions as regarding the impact
of this standard on the quality of financial statements, but this study will
provide a clear understanding of their relationship.
International Financial Reporting Standards (IFRS) is a set of principle –based issued and
established by International Accounting Standards Board (IASB) and generally
accepted by different countries around the world to ensure comparability and
transparency in accounting practice (Desoky and Mousa, 2014).The establishment
of such standards by IASB aimed at achieving harmonization and promotion of
financial practices to ensure consistency in reporting format across countries
which should minimize cost of processing financial information to investors and
improving efficiency of capital markets (Wen et al, 2011). Recently around the
world more than 120 countries and reporting jurisdictions required domestic
listed companies to prepare their financial statements in accordance with IFRS
(Mousa and Desoky, 2014). The adoption and implementation of IFRS has been one
of the most important events in accounting history of different countries
around the world which induce significant changes in the financial practices
(Kousenidis, et al, 2010). However, changes are found to vary among countries
and reported to be more serious in countries that had a code-law accounting
system (Ball et al., 2000). Before implementation of IFRS, existed accounting
system affected by severe government and legalistic influences which is in
contrast with a common-law accounting system countries like North America
(Kousenidis, et al, 2010). In a common law accounting system there is a proper
description of IFRS and accounting is mainly affected by the market
practitioners (Ball et al., 2000). With growing acceptance of IFRS by different
countries around the world, many researchers aimed to find out empirically
whether the new accounting standards has improved the quality of financial
statements that is reported to the users.
Furthermore, banks constitute one of the pillars of economic development. It intermediates
funds between the surplus and the deficit economic units, thus stimulating and
promoting investments, economic growth and development. It follows that
increase in investment in the banking sector will lead to improved performance
of the economy. However, for any meaningful investment to occur in the banking
sector, quality financial information regarding share price and other
performance indicators are essential. Investors, who are usually different from
the management of the investments, only rely on the information supplied by
management in the financial statements, in assessing the risk and value of a
firm before deciding either to invest or to disinvest. The ability of the
financial statement to effectively and satisfactorily guide investors on their
investment decisions depends on the quality of such financial statements.
According to Vishnani and Shah (2008), quality of financial statements implies the ability
of the financial information contained in the financial statements to explain
the stock market measures. The quality variable implies that data or amounts in
the financial statement are very correct and can form a useful guide for investors
in their pricing of shares. Investment decision, therefore, centres on the
association between stock returns or share price and accounting related
information such as earnings, cash flows, book quality of equity, firm’s size,
1.2 Statement of the Problem
Considering the critical importance of banks to strategic economic development plans in
Nigeria, because this accounts for about 31% of the total market
capitalization, according to NSE (2014), and the truth that banking sector was
the first among the listed public entities in Nigeria to fully accept IFRS, a
study on the impact of IFRS on the quality of financial statements of a major
bank in Nigeria (First bank Plc) becomes important in order to ascertain the
effects of the mandatory acceptance of IFRS on the quality of financial
information of banks in Nigeria. Besides, a set of financial statements are
meant for diverse users; ranging from management, owners, creditors, respondents,
government agencies, regulatory authorities, investors, analysts, etc.
Particularly, investors wish to know which items in the financial information
are useful for investment decisions. Based on the need for the provision of
feedback on whether the change to IFRS has improved accounting quality, this
study will examine the impact of IFRS on the quality of financial statements in
First Bank Nig. Plc.
1.3 Objectives of the Study
The following are the objectives of this study:
1) To examine the impact of International Financial Reporting Standards IFRS o the
quality of financial statements of First Bank Plc Nigeria.
2) To examine the benefits ofInternational Financial Reporting Standards IFRS in
First Bank Plc Nig.
3) To analyze the relationship between International Financial Reporting Standards
IFRS and the quality of financial statements of First Bank Plc Nigeria.
1.4 Research Questions
1. What is the impact of International Financial Reporting Standards IFRS o the quality
of financial statements of First Bank Plc Nigeria?
2. What are the benefits of International Financial Reporting Standards IFRS in First
Bank Plc Nig?
3. What is the relationship between International Financial Reporting Standards IFRS
and the quality of financial statements of First Bank Plc Nigeria?
1.5 Hypothesis of the Study
HO: There is no significant relationship between International Financial Reporting
Standards IFRS and the quality of financial statements of first bank Plcin
1.6 Significance of the study
The following provided a functional significance for this study:
1) The findings from this study will be very useful for business managers particularly
banks in the understanding of the relationship between international financial
reporting standards IFRS and the quality of financial statements of bank in
2) This research will be a contribution to the body of literature in the area of
international financial reporting standards IFRS and the quality of financial statements
in Nigeria banks, thereby constituting the empirical literature for future
research in the subject area.
1.7 Scope and Limitation of the Study
This study is limited to First Banks Plc in Nigeria. It will also cover the
relationship between international financial reporting standards IFRS and the
quality of financial statements in First Bank Plc in Nigeria.
Definition of Terms
Financial statements: A financial information (or financial report) is a formal record of
the financial activities and position of a business, person, or other entity.
Relevant financial information is presented in a structured manner and in a
form easy to understand.
Quality: the standard of something as measured against other things of a similar kind;
the degree of excellence of something.
Standards: an idea or thing used as a measure, norm, or model in comparative evaluations
Investment: the action or process of investing money for profit or material result
Ball, R., & Brown, P. (1968).An empirical evaluation of accounting income
numbers. Journal of Accounting Research, 6(2), 159-178.
Desoky, A.M., and Mousa, G.A. (2014).The value relevance and predictability of IFRS
accounting information: The case of GCC stock markets. International Journal of
Accounting and Financial Reporting,4 (2)
Kousenidis, D., Ladas, A. and Negakis, C. (2010).Value relevance of accounting Information
in the preand post-IFRS accounting periods. European Research Studies,VIII (1)
NSE (2014).Market Capitalization. [Online] Available: http://www.nse.com.ng/Pages/default.aspx?c=MARKCAP.
Vishnani S., and Shah B. K.,2008, Value relevance of published financial statements-
With special Emphasis on Impact of cash flow reporting”, International Research
Journal of Finance and Economics, 17, 84-90.
Wen Q, Fong,M and Oliver,J.(2012). Does IFRS convergence improve quality of
accounting information?. – Evidence from the Chinese stock market. Corporate
Ownership & Control,9(4).
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