Investigation of the Effect of FIRS Adoption

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The FIRS adoption is already an issue of global relevance among various countries of the world due to the quest for uniformity, reliability and comparability of financial statements of companies.

This research paper Investigated the effect of FIRS adoption on Foreign Direct Investment and Nigeria economy. The population consists of quoted companies In Nigeria Stock Exchange (Preparers) and Investment Analysts (Users). Stratified Random sampling method was adopted and primary data used to elicit responses with 123 structured questionnaires administered. Findings showed that FIRS has been adopted in Nigeria but only fraction of companies has implemented with deadline for the others to comply. It is perceived that FIRS implementation will promote FDA inflows and economic growth.

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It was recommended hat all stakeholders should endeavourer to have full implementation to reap benefits of the global GAP and principle – based standards Key-words: International Financial Reporting Standards, Financial Statements, Foreign Direct Investment, Economy 1. 0 INTRODUCTION Financial statements apart from stating the financial position of an organization, provides other information such as the value added, changes In equity If any and cash flows of the enterprise wealth a defined period time to which It relates (aloha and Buoyed, 2011). This information is useful to a wide range of users making informed economic decisions.

The quality of financial reporting is indispensable to the need of users who requires them for investment and other decision making purposes. Financial reports can only be regarded as useful if it represents the “economic substance” of an organization in terms of relevance, reliability, comparability and aids interpretation simplicity (Penman, 1984). Aimed (2003), stated that useful accounting information derived from qualitative financial reports help in efficient allocation of resources by reducing dissemination of information asymmetry and improving pricing of securities (Spindled et al. 001). To prepare and audit financial statements, some accounting convention and principles known as standards have been put In place by appropriate bodies set up for the purpose to encourage uniformity and reliability (Stalking and Peels, 2006). The implementation of FIRS would reduce information irregularity and strengthens the reduces the cost of preparing different version of financial statements where an organization is a multi-national (Healy and Pale, 2001).

Accounting standards ensures that important matters regarding preparation and presentation of financial tenements as well as auditing same are not left to whim of the preparers and auditors. Before FIRS adoption era, most countries had their own standards with local bodies responsible for developing and issuance. The Nigerian Accounting Standards Board (NASA) was responsible for developing and issuing standards known as Statements of Accounting Standards (ASS) and in the new dispensation, the body was renamed Financial Reporting Council (FRR) of Nigeria as the regulatory body overseeing the adoption and implementation FIRS.

The general objective of this research is to examine the effect of FIRS adoption on FDA and Nigeria economy. The main research questions upon which an attempt is meant to provide answers in the course of the study includes (I) is there any significant relationship between the adoption of FIRS and FDA? (ii) To what extent will FIRS adoption enhanced the uniformity, comparability, transparency and reliability of the financial statements of companies in Nigeria? And (iii) how does FDA inflow affect economic growth in Nigeria? . 0 LITERATURE OVERVIEW Recently there has been a push towards the adoption of FIRS developed and issued by the International Accounting Standards Board (SAAB). The increasing growth in international trade, cross border financial orientations and investments which unavoidably involves the preparation and presentation of accounting reports that is useful across various national borders, has brought about the adoption of FIRS by both the developed and 76 Volvo. 2 NO. 5 [76-83] | August-2012 SINS: 1839- 0846 developing countries (Armstrong et al. , 2007). The process of adoption received a significant boost in 2002 when the European Union adopted a regulation 1606/2002 requiring all public companies in the territory to convert to Firms beginning in 2005 Loyola and Buoyed, 2011). A number of African countries including Nigeria, Ghana, Sierra Leone, South Africa, Kenya, Zombie and Tunisia among others have adopted or declared intentions to adopt the standards.

In particular, Nigeria adoption of FIRS Nas launched in September, 2010 by the Honorable Minister, Federal Ministry of Commerce and Industry – Senator Gabriel Martins-Key (FOR) (Midway, 2012). The adoption was planned to commence with Public Listed Companies in 2012 and by end 2014 all stakeholders would have complied. As at today, banking sector has fully implemented. This is considered a welcome progress for developing countries especially some of those that had no resources to establish own standards. There are proponents as well as opponents who have arguments for and against the global adoption of FIRS.

According to Birth (2007), the adoption of a common body of International standards is expected to have the following benefits: lower the cost of familiarity with one common set of international accounting standards instead of ‘arioso local accounting standards by Accountants and Auditors of financial reports, comparability and uniformity of financial statements among companies and countries making the work of investment analysts easy, attraction of foreign investors in addition to general capital market liberalizing.

Ball (2006) stated that many developing countries where the quality of local governance institutions is low, the decision to adopt FIRS will be beneficial. Ellipse and Crystal (2003) noted that FDA often generates somewhat higher-paying Jobs than might otherwise be available to local citizens, it generates investment that may not be possible with the local resources only, it links the recipient economy into the world economy in manners that would be hard to achieve by new firms of a purely local origin.

According to Ellipse and Crystal (2003) the FDA alters country’s comparative advantages and improves its competitiveness through technology transfer and effects myriad externalities, domestic investment which can alter a country’s volume and pattern of trade in many income enhancing directions. Countries that suffer from corruption, slow-moving, or ineffectual government are likely to resistant the change (La Porto et al. , 1999) but in such countries, the opportunity and switching costs are lower which makes the possibility of adopting FIRS advantageous.

Kumar (2007) the foreign capital has the potential to deliver enormous benefits to developing nations. In addition to eloping bridge the gap between savings and investment in capital-scarce economies, capital often brings with it modern technology and encourages development of more mature financial sectors. Capital flows have proven effective in promoting growth and productivity in countries that have enough skilled workers and infrastructure.

Some economists believe capital flows also help discipline governments’ macroeconomic policies GAB (2012) stated that one of the demerits that will be experienced by countries adopting of FIRS include: forgoing the benefits of any past and potential true innovations in local reporting standards specific to their economies. Single set of accounting standards cannot reflect the differences in national business practices arising from differences in institutions and cultures (Armstrong et al. 2007). The Nigeria accounting regulatory includes: the Companies and Allied Matters Act 1990 Inch stipulate the format, content and scope of the financial statements, disclosure requirement and auditing. It also requires that financial statements of companies comply with statements of accounting standards (ASS) issued from time to time by NASA and audit carried out in accordance with generally accepted auditing standards. Secondly, Nigerian Accounting Standards Board (NASA) Act No. 2 of 2003 as the only independent body responsible for developing and issuing ASS for preparers and auditors of financial statements of business concern and government agencies (Midway, 2012). Although many countries have faced challenges in their decisions to adopt FIRS, its wide spread adoption has been promoted by the argument that the benefits outweigh the costs (aloha and Buoyed, 2011). The existing theoretical models imply that FDA is beneficial for host country’s economic growth.

According to traditional economic theory (law of diminishing returns), FDA will tend to concentrate in less developed countries, where there exist greater opportunities to achieve higher returns. In order for FDA to become productive in minimum threshold level of human capital (Bernstein et al, 1998), improved domestic infrastructures (De Mellon, 1999), and a developed local financial systems Alfalfa et al, 2006). Out of all, the last prerequisite seems to have more weight in order for FDA to flow into any developing country and have a measurable impact on economic growth.

Lack of these requirements has resulted in imbalanced in the FDA striation across many developing countries. Some of the countries are facing difficulties in attracting foreign investors. FDA is considered as an important channel for direct technology distribution and may be the major vital conduit for technology transfer because of the scarcity of financial resources and the urgent need for reconstruction in many developing countries (Hussein & Hazard, 2012).

Within this framework it is expected that FDA will contribute to economic growth, indirectly by accelerating the diffusion of general purpose technologies (Hussein & Hazard, 2012). 2. Issues and Implications of FIRS on FDA and the Economy The FIRS is a global GAP, setting principles-based and globally accepted standard published by the SAAB to support those who adopted in the preparation and presentation a high quality, transparent and comparable financial statements that will aid easy interpretation.

Kooky & Awakener (2012), the perceived challenges to be presented by FIRS adoption and implementation includes: the intrinsic problems of aligning with FIRS pointed out that international accounting clearly has a language problem (Kappa, 2002), Adams (2004) claimed that where an accounting standard conflicts with government logic, the standard is revised such as the LIFO method of stock valuation not allowable for tax purpose in Nigeria, Another problem inherent with the adoption of FIRS is the universal tendency to resist change (NASA 2010).

Gambia (2010) noted that the successful adoption of FIRS entails assessing technical accounting, tax implications, internal processes, and statutory reporting, technology infrastructure, and organizational issues. FDA has been defined in several ways. According to Kumar 2007 Kumar (2007) FDA which involves building long-term relationships with enterprises in foreign countries can be made in several ways. First, and most likely, it may involve parent enterprises injecting equity capital by purchasing shares in foreign affiliates.

Second, it may take the form of reinvesting the affiliates earnings. Rehired, it may entail short- or long-term lending between parents and affiliates. To be categorized as a multinational enterprise for inclusion in FDA data, the parent must hold a minimum equity stake of 10 percent in the affiliate (Kumar, 2007). Carbolic and Alvin (2002), noted that economic rationale for offering special incentive to attract FDA frequently is derives from the belief that foreign investment produces externalities in the form of technology transfer and spillovers.

Didgeridoo (2003), Nile contributing to the importance of FDA noted that it allows a country to bring in increases productivity throughout the economy (Toyed et al. , 2011). Jeffrey and Spaulding (2005) also stated that FDA advantage includes; circumventing trade barriers, hidden and otherwise making the move from domestic export sales to a locally-based national sales office and capability to increase total production capacity Opportunities for co-production, Joint ventures with local partners, Joint marketing arrangements.

In recent times, it was revealed that FDA in Nigeria have been declining (NASA, 2010). According to NEFF (2011) the trend shows that the value declined from $6. 9 billion in 2007 to about $4. 602 billion in 2008 and $3. 94 billion in 2009 and $6. B in 2010. The decline in 2010 was due to ongoing uncertainty related to the proposed Petroleum Industry Bill (BIB) as well as political unrest in the some section of the country. The new FDA was estimated at $6. Bin 2011.

Nigeria is the third largest recipient of FDA in Africa after Angola and Egypt. 3. 0 METHODOLOGY The population of this study consist preparers and users of financial reports. The preparers are (183) active quoted companies in Nigeria Stock Exchange between 2002 and 2011 represented by Directors / Finance Managers responsible for the preparation of financial statements who are selected as respondents due to their Involvement and knowledge of FIRS and can speak on behalf of the shareholders.

The users of financial reports are investors represented by (225) Investment analysts firms identified from the list Capital market operators compiled by the Nigerian Stock Exchange (aloha and Buoyed, 2011). Investment Analyst are selected as exponents for the fact that they are principal users of financial reports (Clement and TTS, 2003 and Mange, 2004), they have good investment knowledge which aids analysis of financial reports and decision making (Baker, 1998) and lastly they provide analytical information that meets the needs of their clients (Gephardt et al. 2004). Rhea Analyst’s financial report usage rate is higher than that of all other users.

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