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2.1 Introduction - LITERATURE REVIEW

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The IFRS and IASB are the accounting standards that are used in making financial decisions for the company. IFRS stands for “International Financial Reporting Standards” and IASB stands for “International Accounting Standards Board”. The main aim of this research study is to ascertain the accounting standards of the country Nigeria. IFRS is a set of financial and accounting standards that hold the power to govern the financial events and transactions that are used in reporting the events in the accounting books

The dependent variables in this research study reflect the accuracy of the accounting methods. As per the author Eluyela et al. (2019), that can increase the capacity of the firm by enabling accurate methods of maintaining records. The “total of a mixed cost that will change as the result of several factors” is shown by the dependent variables in the accounting. The main concept of the dependent variable is to analyse the experiment of the research where the application of the IFRS in the country has shown a remarkable change. These changes are occupied in the firm where the companies operating in Nigeria have to maintain their records. As stated by Heningtyas and Widagdo (2019), they mainly keep their records according to the norms stated by the IFRS or IASB. These predictive variables predicted the data and sources to a great extent.

The Cogent Business and Management refer to the research reports that cover all the areas of the business from operation to corporate governance. As per the author Reid et al. (2019), in the context of Nigerian companies and their connection with IFRS shows that the “listed firms have highly concentrated ownership structures”. They are dominated by those “families followed by financial institutions” than the foreign investors. This setup needs to be changed to develop the business sector of the country. This shows less ownership in the existing business cycle. Moreover, the company is aligned with their own culture and assimilates less cooperation with the IFRS. As per the view of Flower and Ebbers (2018), later the government has decided to take over the standards and made them compulsory for use. Therefore,the investment decisions are also taken according to the standards mentioned in the IFRS. The impact of IASB is also determined along with the stated IFRS where the accounting standards need to be adjusted as per the company requirements (Okoye and Nwoye, 2018).

. In this chapter, the concepts of dependent and independent variables of IASB and IFRS are explained in brief. The theories, approaches and models related to the accounting system that enables accounting standards are reflected in this section of the study. The conceptual framework is also provided with all the required measures and variables for this report. As stated in the companies act that the business transaction must be recorded as per the rules mentioned in the accounting theories and books. Through the implementation of IFRS, the new system was launched in the country where they manage their accounting principles largely (Nangi and Anichebe 2021). It mainly allows the company's manager to discrete their specific treatment to analyse the business channels. The dynamic nature of accounting standards enables the financial reporto be more useful to its users as it contains all the changing events. These independent variables make sure that the researcher can take all the exact information related to the IFRS standards and their application in the country of Nigeria. One of the main or basic examples of the independent variables is that age of any person can be stated as an independent variable. As the age is not fixed it changes from time to time.

2.2 Concept of Independent variable

The Independent variable (IV) refers to the manipulation and control over the variables that are used for the research purpose. As opined by Abdulrahman and David (2018), these variables are not influenced by other variables as they can be changed or altered due to any additional element. IV is a variable through which the concept of each variable can be analysed by the changing responses of the research. IV in accounting standards can be stated as the impact of IASB which is a accounting advisory body and IFRS which is financial reporting guidelines (Abiahu et al. 2020). This accounting concept shows its efficiency in maintaining all the records of any business event in a systematic manner.

The accounting standards help in maintain accounts according to legal and accounting governing body requirements. As per the view of Abiodun and Asamu (2018), the set of accounting standards can be useful in Nigerian companies. The public companies as well as the quoted companies in Nigeria use these standards to maintain their accounting records. Keeping exact records makes the firm more efficient in the business market. The independent variable in these accounting terms improves the recording segment of all the accounting transactions. It enables the firm to adopt any changes in the budgets or the expenses that are easily rectified or replaced by using the accounting standards. As per the author Ajibade et al. (2019), mainly IFRS is used in the country Nigeria as the GAAP is not viable for other countries due to its complex nature of recording transactions.

2.3 Concept of dependent variable

The dependent variable is also known as the outcome variable. It basically depends on the values of the independent variables. As mentioned by Ejoh et al. (2019), this is a variable whose whole magnitude is represented by the number, that is, it can be measured in quantity. The dependent variable is also known as the predicted variable. The dependent variables are basically used to determine the fixed factor of the elements which is ascertained for presenting the research report. Dependent variables can be used to measure the quantitative results that are acquired for the findings of the research topics. The dependent variable in this research study is the importance and aspects of IASB and IFRS though it can also be used as independent variable also in research (Elaigwu et al. 2020). This is because of the value of the accounting standards and the authority that acquaints the reports that are made under these standards.

2.4 Theoretical approach

There are various theories and approaches that are used in the accounting standards theory to make them effective in use. As opined by Ibidunni and Okere (2019), the theories related to the accounting standards are process theory, accounting theory, agency theory and “positive accounting theory”. In these theories, the implications, implementations and assumptions of IFRS are defined in a brief way. The adoption of IFRS in different countries and different places and the countries' experiences are also reflected in the above theories. The four principles of IFRS in setting up the financial strategic theory or standards are “clarity, relevance, reliability, and comparability”. These principles are set by the recording concepts including the financial events and transactions (Mohammed et al. 2021). The theoretical approach makes the research reports useful for its users and other researchers.

Figure 2.4: theories and approaches

(Source: self-created)

Accounting process theory or accounting theory can be used in this research because it can guide researcher to prepare effective accounting and financial reporting. Accounting standard and accounting theory can help researcher to explore effective method to represent accounting transaction in legal manner and calculation based on this theory can make effective reporting practice. On other hand, agency theory can solve the problem that arise between principle and agent or management and accountant of organization. Legalized method for reporting can arise conflict between management and accountant on recognition of various transaction such as revenue, acquisition cost, expenses and so on. Agency theory can solve this conflict by provide effective solution. Based agency theory and accounting process theory positive accounting approach can be implement in research. The theory can readily help in providing benefits to the accountants in creating a better decision making with increasing efficiency in a large extent. Weakness of the theory is that it is unable to measure things and events in terms of monetary value at a large extent.

2.5 Importance of IFRS and IASB

The importance of IASB and IFRS can be shown through their application and implementation in the organisation. As mentioned by Moses et al. (2020), in the context of the Nigerian companies, the IFRS was adopted in the year 2013. It helps the firm to manage its organisation with the help of certain standards and rules. In the companies, IFRS leads to providing “higher earnings value relevance”. As per the author Ofoegbu and Odoemelam (2018), under these, the accounting standards review the financial statements of foreign companies. It also establishes formal relationships with the international companies as both are operated under the same set of accounting standards. As opined by Ogbodo and Nweze (2021)The main importance of the accounting standards of IFRS and IASB are as follows.

  • Transparency
  • Comprehensive reporting standards (Ogbodo and Nweze, 2021)
  • Uniformity
  • Accountability (Ogbodo and Nweze, 2021)
  • Security and informational flow

Figure 2.5: Importance of the accounting standards

(Source: self-created)

The importance of IASB can be stated by ascertaining the company's values or connection with the other companies including the foreign firms. The importance of IASB and IFRS can be shown through their application and implementation in the organization. As stated in the companies act that the business transaction must be recorded as per the rules mentioned in the accounting theories and books (Osen et al. 2018). By enhancing the data and information that are daily collected, the implementation of accounting standards reflects the quality of reporting the financial statements. Through the implementation of IFRS, the new system was launched in the country where they manage their accounting principles largely. The company has its branches or subsidiaries that are supposed to follow the same accounting principles that are followed by the parent company in different nations. Only the informal perspective of an organization is changed in the foreign companies. The parent company managers to ascertain the profit segment from one company to another explore the financial data. From the financial reviews, the company can get the investment opportunities from the company to enhance its business activities. The company and financial activities can show the accountability of the IFRS system in maintaining the accounting records. It fills in the gaps left by the inaccurate financial transaction reports (Suryanto and Komalasari, 2019). The organization may experience consequences and may be penalized by the authorized institution if the records do not adhere to the specified standards and norms of the IFRS.

The standards outlined in the IFRS are often used to guide the investment decisions. When the accounting standards need to be modified to meet the needs of the company, the impact of IASB is also considered along with the stated IFRS. An accounting model recognizes monetary operations and depicts the performance of a business in financial statements. Due to its critical position in accounting systems, financial statements have a significant influence and benefits both investors and individual creditors (Rosli and Jamil 2021). As per opinion of Okedie et al. (2021) the goal of the IFRS is to categories and quantify financial assets and liabilities according to business models. Individual risk was forbidden by the financial position accounting model in order to reduce its challenges while simultaneously identifying new opportunities. As mentioned by Onodi et al. (2018) adoption of IFRS is being said to as the advantageous aspect of future financial assessment of any company concern. The IFRS's goal is to define and measure financial assets and liabilities in accordance with the business models.

2.6 Impact on accounting model

The impacts of IASB and IFRS on the Nigerian companies are disclosed in this part of this study. As the companies operated in the country are segmented as small scale as it is not an industrial place where large firms are set to be opened (emerald.com, 2022). Therefore, the small companies and the big firms have set up their institutions by adopting the IFRS accounting standards. The adoption of accounting standards reflects the quality of reporting the financial statements by improving the data and information that are collected on a daily basis. In the banking sector of Nigeria, the questions are raised about the adoption of financial standards to make uniformity among all the companies that are operated in the country line. The Chi-Square techniqueis followed to conduct a survey between the stakeholders and the managers of different firms (ifrs.org, 2022). This is to ascertain the relevance of the IFRS.

The test that is done with the techniques has resulted in a positive note where it can be seen that the impact of the accounting standards is clearly visible. The banking sector comprises the results at “14.96 that is greater than the X2-critical or table value of 5.99 at 0.05 LOS ''. as per the view of Osadchy et al. (2018), this shows the impact of financial standards has significantly increased the quality of reporting. Although, the country is facing compliance issues that are hindering the profits segment of all the firms. The industrial structural changes that abound in the companies state the positive aspects of IFRS (Odo, 2018). However, the country manages to adopt the IFRS due to its management system and its flexibility.

The major impacts of IFRS are stated below.

  • Increases business combinations
  • Creates a negative impact on profit and loss of companies
  • A Global harmonised financially system (Dang et al. 2020)
  • Comparable and visibility of ratings
  • Better communication among all the levels of a company (Dang et al. 2020)

Figure 2.6: Impact of accounting standards

(Source: Dang et al. 2020)

The major impacts that are listed above show the accuracy of the accounting standards that are stated in the IFRS that is authorised under IASB. One of the drawbacks that IFRS has is that it cannot create a proper profit and loss account as it is totally based on the static concept. In a simple manner, the income statement holds the balances that are obtained from the assets and liabilities. As opined by La Torre et al. (2018), these amounts change their origin for a few reasons. Therefore,the fluctuating values cannot be easily ascertained in this accounting system. However, the firms manage to bring accurate results by managing the expense over profits.

2.7 Challenges faced by IFRS and IASB

Challenges of IFRS

Increased cost

The basic difference can be seen between training and educational systems and find out revolutions during the difficulties. In order to global consistency in auditing, systems are necessary and involve more flexibility during the difficulties. In order to use the fair value of financial statements accounting can bring workability to ensure better financial pieces of information for the shareholders (Ofoegbu and Odoemelam, 2018). The standard financial information process is necessary for the individual firm that creates basic difficulties at the global level. Lack of details as well as standard manipulation is the other biggest difficulty for IFRS. IFRS policy is not globally accepted and required flexible information processes in the business or firms.

Cost adoption strategy is necessary for individual business organizations and that can mitigate numerous changes. But sometimes lower-cost strategy does not involve IFRS due to poor measurement of fair value. The major disadvantages of IFRS are inflexibility and restriction. Poor abilities of unique solutions is another difficulty for IFRS and that can puts a negative impact on the financial transactions (Ofoegbu et al. 2018). The advantages of IFRS depend on the standardization systems but that required appropriate knowledge as well as experience. In order to improve major financial statements times and proper knowledge is necessary to measure long-term difficulties. IFRS is a complex system and difficult to track and can only monitor with expertise. Identifying the challenges of IFRS is necessary to minimize business threats. An income statement is a comparative advantage, and at the same time, it requires too many information. The IFRS required, identifying the monetary capacity. However, it takes significantly longer to pinpoint the fundamental issues that can be regarded as the accounting language's limitations, comparative information processing is required. Accounting can bring workability to assure better financial pieces of information for the shareholders by allowing for the usage of fair value of financial statements. Due to inaccurate estimation of fair value, lower-cost strategies occasionally do not use IFRS. Inflexibility and restriction are the main drawbacks of IFRS. Another issue with IFRS is its limited capacity for novel solutions, which might have a detrimental effect on financial transactions.

Lack of proper details

Investors are really on the financial statements and that can be adopted as an accurate way to enhance company worth. A standard manipulation can be considered by the IASB but that sometimes involves basic difficulties. Financial reporting is more powerful by the IFRS as well as IASB policy and that need more accurate knowledge. Financial Reporting Council of Nigeria (FRCN) announced to adopt IFRS for SME organization from 2012 (eajournals, 2022). Both processes are much more time-consuming and small business organizations do not afford them. The comparative information process is indicated by the IASB policy and can be compared to the overall information process of business (Ofoegbu and Odoemelam, 2018). An income statement is a comparative advantage but that required too much knowledge during the same time. Identifying the financial resources is involved by the IFRS but that much more time-consuming. The comparative information process is necessary to identify the basic challenges that can be considered the difficulties of accounting language.

The IFRS regulation requires flexible information procedures in the business or organisations but is not universally adopted. For each corporate organization, a cost adoption strategy is essential since it can reduce the impact of many changes. However, IFRS may not always be used because of inaccurate estimation of fair value. Inflexibility and restriction are the main drawbacks of IFRS. Another issue with IFRS is its limited capacity for novel solutions, which might have a detrimental effect on financial transactions.

Having little or no knowledge

Poor knowledge is the biggest difficulty of IFRS and IASB and both need much experience to consider appropriate research. The poor knowledge as well as having no knowledge does not describe the experience. Sometimes financial performance can be failed due to increased transparency of IASB and that efficiently presents accounting language to identify basic requirements. Sometimes poor accounting systems are another difficulty for IASB and that puts a negative impact on the business performance (Pacheco et al. 2021). The financial reporting system is adopted by the IFRS policy and that can describe the basic compatibility of accounting positions. IFRS generally adopts substantive charges to identify the basic practices. A required IFRS policy is necessary and that can involve basic performance. While identifying the fundamental IFSB criteria is important for the organization, doing so takes a lot of time and money. Standard accounting systems must adhere to IFSB's basic values in order for a business to implement them. It is crucial to identify financial activities that fall under IFRS, but doing so requires extensive knowledge and experience. To increase investment efficiency, IFRS laws must be improved in terms of their qualitative attributes.

Significant adoption of cost

Significant adoption of cost is the alternative strategy that involves the consolidated financial statements. In order to disclose financial pieces of information IFRS policy is required but having poor knowledge is the biggest challenge for IASB. Identifying the basic requirements of IFSB is necessary but much time consuming and a lack of financial resources are necessary for the business. The basic requirements of IFSB are involved in the standard accounting systems to adopt the standard policy for the business. Accounting policies are necessary and that can minimize the basic opportunities. Generally, IFRS adopts a standard way of practicing to involve a reliable business framework. Lack of technical skills, as well as cost regulations issues, are other difficulties that have been faced by the IASB. The long-term approvals are necessary and that can be identified by both policies. Due to IASB's improved transparency and its effective use of financial statement to indicate underlying principles, financial performance can occasionally fail. Sometimes IASB has problems with weak accounting systems, which has an adverse effect on how well businesses perform. 

2.7 Challenges faced by IFRS and IASB

Taxation effect

Through the adoption of the “International financial reporting standard” various accounting elements are significantly changed that uncertainly affecting tax regulations. The accounting treatments are depending on the income taxes of domestic as well as foreign countries. The effect of IFRS depends on the consistent evidence that trigger greater interest from foreign investors (Kabir and Rahman, 2018). The mandatory disclosures are efficiently correlating with the market share price. Apart from that, develop high-quality enforcement of IFRS that compares the overall information process (Kruglyak and Shvyreva, 2018). Some basic rules are followed by the "revenue from contracts, insurance contract" and 'leases'.

2.8 Interconnection between IFRS and IASB in Nigeria

The preparation and issuing of draft

The approvals, as well as issuing of drafts, are stipulated in the constitution which is approved by the interpretation committee. The IFRS is organized under an individual foundation that is based on some rules and regulations (Gornik-Tomaszewski and Choi, 2018). The IASB is replaced with the IASC (International Accounting Standards Committee) and a maximum of 14 members are set for the technical agenda. Apart from that, IFRS is also issuing of 14 members to develop technical fundamentals. The major agenda of the project is necessary that provides standard saturated into the different types of technical projects. In order to analyze the representative groups between the overall structure of the particular research IFRS and IASB played a major role. The financial statements can be assumed as financial activities of the research and both are focusing on the specific activities. On the other hand, the global accounting standard is the ultimate aim of IASB to setting up understandable as well as high-quality enforcement.

Some financial activities are involved by the IASB that are able to meet the high quality and transparent foundation of IASB. During the preparation of the draft, the statements of IASB assumed accounting standards to develop public interest. In order to, meet high-quality objectives of IASB accounting pieces of information are necessary and that can be similar to things that have been used by economic committees. In order to, prepare the draft the relationship between IASB and IFRS is necessary to rebuild and maintain cooperation between the accounting standard. IASB needs to designate strong communication to fulfill and communicate promotional activities (Crawford et al. 2018).

The IASB can uphold the organization's strong standards and transparent foundation. The IASB's statements were used in the draft's production to establish accounting rules and foster public interest. Financial activities related to research can be inferred from the accounting records, which both concentrate on the distinct activities. On the other hand, the worldwide accounting standard is the IASB's ultimate goal for establishing clear and excellent enforcement. Through the creation process, various cultural issues were discovered as a result of the application of the IASB techniques financial reporting standard. Although there is sufficient time to compile financial documentation using the IASB, other accounting standards.

Monitor financial reports by analyzing

Financial statement analysis is continuously monitoring financial reports to update capital statements and other financial transactions. Financial reporting analysis is involved by the IASB and that can identify the financial health. The financial resources are efficiently generated with the company's financial health by horizontal and vertically analyzing the financial reports. In order to, identify financial techniques are necessary to analyze financial statements and that can depend on the process of IASB. IASB is the process of consultation and that can be appropriate for communicating efficient ideas. Direct ideas are involved by the IFRS and consistently provide accurate financial transactions by local knowledge (Segal and Naik, 2019). During an increasing incompatibility between the firm and ideas, investors' risks are identified by the financial statements, and that review financial documents to understand capital allocation techniques.

Through the IASB monitoring and developing exposure draft to facilitate contextual material is analyzing devote resources. "Financial statement analysis" is the process of analyzing companies' financial activities (Al-Adeem, 2020). The accounting standard in Nigeria depends on the federal ministry of commerce to identify the expected returns. There are some benefits of IFRS such as involving efficient accounting principles, and identifying the important scope of accounting by establishing an "IASB". There are more benefits of IASB such as facilitating ethics compliance and operating standard behavior of the company owners.

Develop international investment

Figure 2.8: International outbound investment strategy

(Source: Al-Adeem, 2020)

The benefits of accounting standards are involved in the investment strategy which is more convenient to compare basic performance. Individual investors compare the basic performance by reviewing financial documents. Individual foreign countries are more familiar with the accounting principles of IASB. Sometimes international investment strategies are based on accounting principles which permit a more important scope for reliable accounting pieces of information (Hasan and Rahman, 2019). Apart from that, IASB allows reviewing of individual financial documents to establish the important relations by setting up accounting principles.

2.9 Conceptual framework

Figure 2.9: Conceptual framework

(Source: Self created)

2.10 Literature gap

There is not enough availability of information regarding the sustainable business process in Nigeria. Implementation, as well as innovation, is essential for long-term development and there are no reliable documents to identify the future scope. The theories regarding the sustainable financial pieces of information are effectively collected from secondary resources such as journals, books, and “Nigeria stock exchange corporate disclosure” (Shkulipa, 2021). Sometimes most of the positive pieces of information are involved in the accounting information process but that is interrelated with the accounting applications.

It has been observed from the study that certain gaps have been integrated from the study as the researcher has not able to meet the objective of the study at a large extent. The theoretical approach that has been presented for the study was not up to the mark and has not drawn accordance to the integration of International financial reporting standards. Another gap that has been integrated from the study is quality which has not maintained by the research as the facts does not depicts the true scenario of the Nigerian financial standards in a huge manner. Due to shortage of time the researcher was unable to collect standard information and correct relevance of the standards presenting the framework of Nigeria. The theories, approaches and models related to the accounting system that enables accounting standards are reflected in this section of the study but it does not truly meet the objective of the research. Research questions are also among the gaps that has been also identified by the researcher in this study which was not relevant to the topic and aim of the study. It is contributing to the existing body of knowledge as it is presenting the framework of financial reporting standards that has been maintained by Nigerian government with accordance to the rules and procedures implemented for further process in a large manner. Hence it is largely different from that of other study as it is creating a knowledge for the users about the basis of reporting standards which could be useful in presenting a future scope for dealing with issues and problems that creates inconsistency in the work process.

2.11 Summary

Based on the above discussion it can be summarized that financial strategy and planning plays a significant role in the adoption of IASB conceptual framework. IFRS is setting up global environments' respective scope and enhancing the basic importance of accounting standards (Baksaas and Stenheim, 2019). The financial information systems are necessary for SMEs in Nigeria and IASB does recommend preparing financial statements. The accommodative of minimal IASB gives business owners to choose the appropriate financing format. The financial information process is automatically accepted by the alternative solutions of financial statements. The international accounting standard is necessary to identify those cases in accounting standards. 


Ifrs, 2022 Why global accounting standards? Available at: https://www.ifrs.org/use-around-the-world/why-global-accounting-standards/ (Accessed on 24th June, 2022)

Eajournals, 2022 INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) FOR SMESIFRS-For-SMEs-Adoption-Process-in-Nigeria.pdf Available at: https://www.eajournals.org/wp-content/uploads/International-Financial-Reporting-Standards- (Accessed on 24th June, 2022)

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