This study arose out of the need to justify the adoption of International Financial Reporting Standards (IFRS) in Nigeria.  The thesis is that the adoption of IFRS should improve accounting quality and hence, investors should make qualitative decisions. Financial ratios that addressed profitability, liquidity, solvency and growth in investments were calculated from the financial statements of companies that were into the production of consumption and industrial goods. The structural hypothesis under confirmation is that financial ratios under Nigerian Statements of Accounting Standards (SAS) and IFRS do not differ on grounds that Nigeria has long adapted accounting standards issued by the International Accounting Standards Boards. Each participatory financial ratio was calculated from financial statements prepared under IFRS and SAS regimes in the same year. Exploratory analysis and Wilcoxon tests for differences in the distribution of each financial ratio was conducted using SPSS facilities Version 20 to detect whether a financial ratio increased or decreased under IFRS regime. The study finds no significant increase/decrease in the participatory financial ratio under the IFRS regime. It was recommended that a further study be conducted to address other metrics of accounting quality.


In the last quarter of the previous century, the world economies moved speedily towards globalisation. Multinational companies are manufacturing and selling across the world and many of these firms are listed at foreign stock exchanges. Globalisation of markets and establishment of multinationals led to increased desire and awareness about international markets. This was soon followed by globalisation of financial markets which increased the value of understanding of international financial results and reporting formats. Rapid improvement in communication technologies and easy access through internet has further spread the profile of international investor. Nowadays international investors are not limited to some portfolio managers in big banks. International investors are now as diverse as sophisticated equity manager to a small investor in a remote town. Investors too have diversified their portfolio by international equities and bonds. This rapid globalisationfuelled the desire to have common global standards that could be understood, applied and followed across nations.
Nigeria’s Statements of Accounting Standards (SAS) align substantially with the pronouncements of the International Accounting Standards Board (IASB) but maintained its own unique structure and peculiarities until January 1, 2012. The International Accounting Standards (IASs) are principles based, and the Nigerian Accounting Standard Board (NASB) implementsthe (IASs) in specific contextsin the formulation of its standards. When there is no NASB SAS on the treatment and disclosure of information, the relevant IAS is invoked. This suggests thatNigeria adopted IFRS since its inception. On the premise that the International Financial Reporting Standards (IFRSs)are off shoot of IAS, it becomes an issue whether the formal move of Nigeria to adopt IFRSs in January 1, 2012 is anything extraordinary.
IFRS permits considerable discretion or flexibility in disclosure of financial information regarding certain transactions. They also debar certain alternatives which eliminates accounting information distortions. In a sense, the availability of alternatives guided by principles can lower the quality of accounting information. IASB provides broad guidelines as principles for member countries to adopt or adapt and, in consonance, Nigeria adapted the IFRS by making them specific for reporting entities. This approach permits generalisation of uniformities of accounting information within the Nigeria context. The adoption of IFRS, then, suggests that reporting entities are accorded freedom of discretion to choose from options allowed by a standard which hitherto was not available in a rule-based jurisdiction like Nigeria.If this is correct, then, the adoption of IFRSs should lower quality of accounting information.The adoption of IFRS suggests that where alternative treatments of transactions are permitted, all reporting entities would exercise discretions and disclose the choice of alternative for users of accounting information. In blunter terms, this increases information asymmetry and, hence, lowers quality of accounting information. Leuz, C., Nanda, D and Wysocki, P. D (2003), and Langmead and Soroosh (2009) also subscribe to this argument when they assert that IFRSs lack detailed implementation guidance which affords managers greater flexibility to exploit accounting discretion to their advantage.
The argument advanced in the literature for the adoption of IFRS is that it reduces the opportunity to overstate earnings or delay recognition of losses (Ewert and Wagenhafer, 2005; Barth, M, Landsman, W and Lang M. (2008). Ahmed, A. S., Neel, M. and Wang, D (2013) argued that IFRSs are principles based and as such difficult to structure transactions to avoid recognition of a liability, but they lack implementation guidance (Langmead &Soroosh, 2009); as an example, IFRS is broad in revenue recognition for multiple deliverables, and this can afford managers discretionary interpretation which can lead to distortion of accounting information. Irrespective of the direction of the argument—for or against—the fact remains that Nigeria has since adopted IFRS in disguise, but for better rather than worse—“Better” in the sense that Nigeria tailored IASs to limit flexibility accorded managers of firms, and hence limits opportunity to game on information disclosure.
Every country is unique in terms of culture and controls, and Nigeria is no exception. NASB took into cognisance weaknesses in financial controls to address culture when it adapted IASs foruse. Therefore, the formal adoption of IFRS suggests that managers of reporting entities have been awarded a licence to exercise discretion inadjusting and mal-adjusting the Nigerianisation in financial controls. Obazee, the Executive Secretary and Chief Executive Officer of Financial Reporting Council of Nigeria (FRCN), aligned himself with this statement when he stated that“… [C]ouncil will require management assessment of internal controls including information systems controls with independent attestations… and Council is to exercise strict oversight of professional practice” (Obazee, 2012, pp. 23-25).
Nigerian Statements of Accounting Standards offer little opportunity to manage earnings as there are tighter restrictions in terms of guide and rules. This restriction, perhaps, explains the refusal of multinational companies operating in Nigeria to adopt SASs (cf. “Nigeria’s Financial Hub”, 2011).Prior to the enactment of NASB Act No. 22 of 2003, the SASs were not accorded the status of law, and hence Nigerian Standards were not wholeheartedly observed by reporting entities.The main legislation that guides information disclosure then is the Companies and Allied Matter Act (CAMA, 2004) though it makes provisions on the role of the NASB in relation to accounting matters (see Section 335 and 356).Where SAS is in conflict with CAMA requirements, the former prevails. Such was the case when SAS 18 on Statement of Cash Flows was issued. This is in line with Section 356 of CAMA.
The fundamental problem is  that management could manipulate accounting ratios to influence share prices but proper disclosure is expected to guide against this. The extent to which transition to IFRS can effectively do this which is the problem being investigated. This question is important because NASB has consistently adapted the International Accounting Standards (IAS) under the International Accounting Standards Committee (IASC) to suit the peculiarities of the Nigerian economy and any new form of transaction that may emerge.  The thesis is thatif the IFRS are offshoots of the IAS, then the transition to IFRS should not affect the financial statement ratios. Consequently, the study addresses four broad brush issues that border on performance appraisal by existing and potential investors.
The first issue addresses profitability performance. Market prices capture the profitability of firms; for example, the return on capital (ROCE)is a good predictor of share prices (O’Connor, 1973). Thus, it ought to be detected whether the transition affected profitability assessment. The second issue addresses liquidity assessment. The general notion among investors is that profitability is not liquidity, and this is plausible because many profitable firms have gone out of operation for lack of liquidity. Thus, it ought to be detected whether the proper disclosure through IFRS.        S The third issue borders on indebtedness, which extends the concept of liquidity to assess long term solvency. Managers may manipulate components of working capital to improve on the liquidity ratios but the increased disclosures under IFRS should disclose management intentions. Thus, it ought to be detected whether the transition increases or decreases indebtedness. The fourth, final issue addresses the share-based ratios (e.g. earnings per share, net assets per share). Share-based ratios are direct inputs into market prices (Barnes, 1987). If this inclination is correct, then it ought to be detected whether the transition affected the market price of shares via the share-based ratio.
The four issues under investigations prop up four objectives that directed the planning and conduct of this study. The specific objectives of the research are to:

  1. determine the extent to which the profitability ratios differ under Nigerian GAAP and IFRS.
  2. ascertain the extent to which liquidity ratios differ under Nigerian GAAP and IFRS.
  3. determine the extent to which indebtedness ratios differ under Nigerian GAAP and IFRS.
  4. ascertain the extent to which share-based ratios differ under Nigerian GAAP and IFRS.

The research questions that guide the data analysis are as stated under.

  1. To what extent do profitability ratios differ under Nigerian GAAP and IFRS?
  2. What extent do liquidity ratios differ under Nigerian GAAP and IFRS?
  3. What magnitude indebtedness ratios differ under Nigerian GAAP and IFRS?
  4. To what extent do the share-based ratios differ under Nigerian GAAP and IFRS?

In a Popperian manner, the research questions or the objectives are re-stated as under:

  1. Ho: There is no significant difference between the profitability ratios under Nigerian GAAP and IFRS.
  2. Ho: There is no significant difference between liquidity ratios under Nigerian GAAP and


  1. Ho: There is no significant difference between indebtedness ratios under Nigerian GAAP and IFRS.
  2. Ho: There is no significant difference between the share-based ratios under Nigerian GAAP and IFRS.

The study addressed performance in terms of profitability, liquidity, solvency and growth in shareholder investments. In profitability, only the primary ratio (return on capital employed) is considered an appropriate variable, and in liquidity, the cash flow per share is drawn for analysis. Growth in shareholder’s investment is assessed in terms of market value to book value, and solvency in terms of total liabilities to shareholders fund. Apparently the year of transition provided the only opportunity whereby dual reporting (reporting based both the local GAAP and IFRS) occurred. In the case of Nigeria, December 2011 was the transition year for significant public interest entities as specified in the report of committee on the roadmap for adoption of IFRS in Nigeria.
However, as a result of insufficient data, only a cross-sectional analysis was embarked upon: Financial ratios of a single year were calculated across records of firms but within an industry. The restriction to intra-industry analysis is supported because financial ratios calculated from records of firms within an industry follow a normal distribution (Avwokeni, 2006).The financial ratios that are the subjects of analysis were calculated for 2011 and 2012 financial years, and designated as ‘before adoption’ and ‘after adoption’.  Intra-firm analysis was not undertaken for uneven time series data set.
This project is significant for a number of reasons. Ahmed, Neel, and Wang (2013) point out that understanding the effects of mandatory adoption on properties of accounting numbers is of potential interest to standard setters and securities regulators in countries that are considering IFRS adoption as well as in countries that have adopted IFRS. Thus, this study is of immense benefit to the Financial Reporting Council of Nigeria (FRCN), and Securities and Exchange Commission (SEC). Furthermore, Barth (2008) asserted that evidence on the question of the effect of adoption of IFRS on accounting quality is of particular importance to the International Accounting Standard Board (IASB) because it can help the Board evaluate whether its stated objective of improving accounting quality is being accomplished. Thus, this study provides evidence to IASB on Nigeria decision to adopt IFRS. Finally, analysts, investors, and other users may also find this study useful to understand the effects of IFRSs adoption on accounting quality to potentially reassess how they use accounting numbers.
For the study, the following definitions are relevant:
CAMA: This is known as Companies and Allied Matters Act.
Earnings Per Share (EPS)represents the portion of a company’s earnings, net of taxes and preferred stock dividends, that is allocated to each share of common stock. The figure can be calculated simply by dividing net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used.
Financial Ratios: These are relationships determined from a company’s financial information and used for comparison purposes.
FRC: This means Financial Reporting Council of Nigeria. This was established by the Federal Government of Nigeria vide the Financial Reporting Council Act No 6 of 2011.
IASB: This stands for International Accounting Standards Board. This is organisation is the successor of International Accounting Standards Committee responsible for the developing and issuing global accounting standards.
IAS: This means International Accounting Standards
IFRS: This means International Financial Reporting Standards
Liquidity Ratio: This refers to an entity’s capacity to pay short-term obligations. Some of the ratios usually calculated under the liquidity ratio include: current ratio, acid ratio, quick ratio.
NASB: This simply means Nigerian Accounting Standards Board. This was the government agency responsible for the issuance of statement of accounting standards and ensuring compliance with accounting standards. It came into existence in 1982 and became statutorily established in 2003 vide NASB Act No 22 of 2003.
Profitability Ratio:A class of financial metrics that are used to assess a business’s ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor’s ratio or the same ratio from a previous period is indicative that the company is doing well.
This gives users a good understanding of how well the company utilized its resources in generating profit and shareholder value. The following are profitability indicator ratios: profit margin, return on assets, return on equity and return on capital employed.
SAS: This stands for Statements of Accounting Standards. These statements accounting standards that were issued by the Nigerian Accounting Standards Board.
Solvency Ratio:A key metric used to measure an entity’s ability to meet its debt and other obligations. The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities. The lower a company’s solvency ratio is, the greater the probability that it will default on its debt obligations.
There are battery of ratios computed under solvency ratio, they include: debt to equity ratio, debt to assets and interest coverage ratio.


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