IFRS IN NIGERIA AND TAX IMPLICATIONS FOR LISTED COMPANIES

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IFRS IN NIGERIA AND TAX IMPLICATIONS FOR LISTED COMPANIES

ABSTRACT

This research discusses ifrs in nigeria and tax implications for listed companies. The results of the study indicate that IFRS adoption in Nigeria will have the potential to be beneficial to a wide range of stakeholders. The benefits notwithstanding, there are however, a number of challenges to be faced in the process of adoption of the new standard including the ethical environment in Nigeria. The study recommends among others that a rigorous IFRS capacity building programme should be embarked upon by all regulatory bodies, firms and training institutions in order to provide the needed manpower for IFRS implementation, monitoring and compliance

BACKGROUND OF THE STUDY

The introduction of an acceptable global high – quality financial reporting standards was initiated in 1973 when the international accounting standard committee (IASC) was formed by 16 professional bodies from different countries (such as United States of America, United Kingdom, France, Canada, Germany, Australia, Japan, Netherlands and Mexico) all over the world (Garuba and Donwa, 2011). This body was properly recognized in 2001 into the International Accounting Standards Board (IASB), and as well has developed accounting standards and related interpretations jointly referred to as the International Financial Reporting Standards (IFRS) (Ezeani and Oladele, 2012).

The dominance of IFRS further improved in September 2002, when the United States Financial Accounting Standard Board (FASB) and IASC under took to work closely based on their agreement to develop high quality compatible accounting standards that could be adopted for both domestic and cross border financial reporting. These bodies so far achieved their objectives and are far advanced in the IFRS – US Generally Accepted Accounting Principles (GAAP), convergence. Although, many developing countries who do not want to be left behind took a cue from the world major economics to either adapt, adopt or converge the IFRS. Different countries on the other hand use different approaches in adopting IFRS based on their need and ability to adopt (Azobi, 2010).

As part of plans to meet international standards, the Federal Government has disclosed that new accounting system, the international financial reporting standard (IFRS) will (Umoru and Ismail, 2010) take off in Nigeria on 1st January, 2012. In Nigeria, the government has taken its stand to involve all stake holders including institutions before it finally decided to adopt the IFRS on a gradual basis. According to Ezeokoli (2001) as cited by Ejike (2012), financial reporting has involved the full set of relationship between the company’s board, its management, its shareholders, and other stakeholders, including institutions (Universities) and the community in which it is located.

The first move towards accounting standards convergence was the proposal to create the Accountants International Study Group (AISG) by the professional accountancy bodies in Canada, the United Kingdom and the United States in 1966. This was formed in order to develop comparative studies of accounting and auditing practices in the three nations. The AISG was eventually created in 1967. It published 20 studies until it was disbanded in 1977. Sir Henry Benson put forward the proposal for the setting up of the International Accounting Standard Committee (IASC) at the 40th World Congress of Accountants in Sydney in 1972. After discussions and signature of approval by the three AISG countries and representatives of the professional accountancy bodies in Australia, France, Germany, Japan, Mexico and the Netherlands, the IASC was established in 1973. Sir Henry Benson was the first elected Chairman while Paul Rosenfield was the first secretary of the IASC. By the beginning of the 21st century in only one of the nine original IASC countries (Germany) did even a relatively small number of listed companies used IASs to report to domestic Investors.

The primary goal of IASC formation was to develop a single set of high quality International Accounting Standards (IASs) to replace national standards. Between 1973 and 2001, the IASC issued 41 standards or IASs before it was replaced by the International Accounting Standards Board (IASB). All listed companies in France, Germany, the Netherlands and the UK and other 21 countries were mandated by the European commission to adopt IASs or the International Financial Reporting Standards (IFRS) from 2005.The Australian government and standard setter had put up an adoption policy of IAS by 2005.The US roadmap for adoption is 2014-2016. Canada and Japan are also considering convergence with IFRS.

A Memorandum of Understanding (MOU) was agreed between the United States Financial Accounting Standard Board (FASB) and the International Accounting Standard Board (IASB), towards the convergence of US GAAP and the IFRS in 2002. In the Norwalk Agreement, both the FASB and IASB pledged their joint commitment towards the development of high quality, compatible accounting standards for both domestic and cross border financial reporting. It is argued that changes made in the US GAAP can be expected to influence the international environment (Tarca, 2004). Gannon & Ashwal (2004) argue that the convergence efforts of the FASB and the IASB already have changed U.S. GAAP and more effects are expected as the efforts to narrow the differences between the IFRS and US GAAP continue.

Ajibade (2011) disclosed that in1973, the International Accounting Standard Committee (IASC), the professional accounting bodies of major countries comprising UK, Ireland, United States (US), Australia, Canada, France, Germany, Japan, Mexico, Netherlands agreed to develop a uniform set of accounting principles that would be applicable globally and supersede the International Accounting Standards (IAS) which allowed for different treatments of transactions and events making comparative analysis difficult. Membership of IASC expanded to 140 professional bodies including the International Federation of Accountants (IFAC) under which Nigeria belongs. Because of globalization and to address comparability issues, IASC was restructured leading to the creation of International Accounting Standard Board (IASB) that issues IFRS.

STATEMENT OF THE PROBLEM

Presently, GAAPs are significantly wearing out and becoming obsolete therefore making financial reports difficult to be compared with Nigeria in adopting IFRS, Fowokan (2011). The reasons for this include:

Difficulties in comparing financial statements globally.
Difficulties in consolidating financial statement of a group companies.
High cost of preparing and presenting group financial statements.
High cost of accessing capital in the foreign capital market
Inability of the users of financial statements to comprehend very well, the information in multinational company’s financial reports.
Decline in the inflow of the foreign direct investment in Nigeria.
Unattractive and Uncompetitive capital market because of lack of quality financial information due to poor local standards in reporting financial statement.

On the international front, the World Bank, the International Monetary Fund (IMF), the G8, the G7 Finance Ministers and Central Bank Governors, International Organization of Securities Commissions (IOSCO), Basel Committee on Banking Supervision, the United Nations (UN) and the Organization for Economic Co-operation and Development (OECD) have publicly recommended the adoption of a single set of global accounting standards or the IAS. The US SEC Concept released in 2000 on the International Accounting Standards also encouraged the convergence towards a high quality global financial reporting framework internationally that will enhance the vitality of capital markets. The European Commission saw in 2002 a common set of accounting standards as a critical pillar in building a united capital market in Europe (Mc Creevy, 2006). On the national level many government and tax authorities want a global accounting standards to regulate and tax businesses that operate within their countries. In Nigeria, besides the government’s readiness, the Nigerian Accounting Standards Board (NASB) now the Financial Reporting Council (FRC), Nigerian Stock Exchange, (NSE) and Central Bank of Nigeria (CBN) were among the major agents for IFRS adoption in 2012.

JUSTIFICATION OF THE STUDY

According to Nyor, T. (2012) the challenges of implementing IFRS in Nigeria includes:
The experiences of deposit money banks in Nigeria that were mandated to adopt IFRS in 2010 show that there are a lot of difficulties in converging to IFRS. They include cost, training and education, differences between local standards (Statement of Accounting Standards; SAS) and IFRS, software problems etc.

Converging to IFRS has a huge cost outlay which include the cost of training personnel to understand the new global standards, cost of acquiring new accounting packages that are needed for the implementation, cost of discarding former accounting packages that are not compatible with IFRS. Cost is the price tag of the forgone SAS to adopt the new IFRS. In this case, it includes the cost of starting new invention (IFRS) and abandonment of the former (SASs).

Training and educating personnel and management saddled with the responsibility of preparing financial statement compliant to IFRS implementation is another problem that is not only costing the banks but also taking away huge man hours. The banks have to organize in-house training, sponsor staff to attend conferences and seminars, both for the purpose of understanding the new global standards.

Another challenge faced by banks in adopting IFRS is that of changing accounting packages that are not compatible with IFRS and acquiring new ones that can enable IFRS implementation. The challenge faced here is not only in terms of cost but training personnel to use new packages.

Differences exist between local standards (SAS) and IFRS, which constitute another challenge that is being faced in the process of converging to IFRS by Nigerian banks. IFRS is less prescriptive than SAS. An example is SAS 10- Accounting by Banks. Some standards in IFRS differ considerably from the local GAAP. Besides, IFRS has more accounting policy choices and may be inconsistent with local legislations of Companies and Allied Matters Act (CAMA) 1990 and Banks and Other Financial Institutions Act (BOFIA) 1991. In addition, IFRS demands more disclosure requirements than SAS and also differ in application and interpretation. Implementation of IFRS has increased the need within the organization to gather analyze and report more data for compliance.

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