CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY
Nigeria adopted international Financial Reporting standards (IFRS) in September, 2010 but the implementation in 2012. The IFRs are standards set by the International Accounting Standards Board (IASB) which is the international body responsible for monitoring the preparation of financial statements worldwide.
Before the advent of IFRs, most countries had their own accounting standards which were issued by national accounting bodies. For instance, the Nigerian Accounting Standards Board (NASB) was responsible for developing and issuing standards known as Statement of Account Standards (SAS) up to 2012 in Nigeria. This adoption is expected to improve corporate transparency especially in financial terms which in turn should lead to an increase in foreign direct investment (FDI).
Okpala (2012) in his journal “adoption of IFRs and financial statement effects” claimed that the preparation of financial statement in accordance with IFRs increase transparency in the statements, thus boosting the investment potential of the corporation because of reduction of rivalry in international markets. In addition, he said FDI allowed firms to better exploit their monopolistic advantages and diversify risk.
In a time, coastal or littoral national as Nigeria, there is an unending growth in international trade, cross border financial transactions and investments which unavoidably involves the preparation and presentation of accounting reports that are useful across various national borders. This has brought about the adoption of IFRs in the country.
In the light of the globalization and changes in financial reporting process in the capital markets, many foreign and local investors invest in the Nigerian capital market, some opted out, because the financial crisis that made investors loose confidence in the capital market.
However, the successful adoption of IFRs will remain indispensable in Nigeria. It is in this spirit that assessing the impact of the adoption of IFRs on FDI in Nigeria becomes necessary.
1.2 STATEMENT OF THE PROBLEM
In Nigeria, the greatest challenge facing firms is access to finance. Firms as the engine of the economy have full potential to turn the economy around for the better, but their greatest challenge still remain under finance.
With the introduction of IFRs, firms in Nigeria are mandated to adopt the new reporting standards. The awareness, acceptance and implementation of the IFRs guidelines for firms are challenges for many African countries (Fortuin 2011). This is an indication of the lack of awareness of benefits accruable through the use of IFRs for firms which may inturn benefit the country for adopting them.
Poor financial management and book-keeping are two major barriers confronting firms in Nigeria when it comes to accessing funds from financial institutions and government agencies. A study conducted by Gono (2013) showed that poor financial management and reporting are the most reasons why firms fail. To this end, it is important for firms in Nigeria to follow the current trend of financial reporting and enjoy full benefits that are associated which can intern transfer to Nigeria as nation.
1.3 OBJECTIVES OF THE STUDY
The main objective of this research work is to ascertain or to know if there is any relation between IFRs and FDI in Nigeria. Specific objectives include;
To ascertain in the degree of IFRs adoption and implementation in Nigeria.
To find out if the adoption of IFRs is beneficial or not.
To evaluate the impact of IFRs adoption on foreign direct investment in Nigeria.
1.4 RESEARCH QUESTIONS
This study will examine the following areas with respect to the impact of international financial reporting standard (IFRs) on foreign direct investment (RDI) in Nigeria.
To the end the following research question will be asked:
What is the level of IFRs adoption in Nigeria?
Is the adoption of IFRs in Nigeria beneficial?
What are the benefits of IFRs adoption?
Does IFRs adoption enhance foreign direct investment in Nigeria?
What are the demerits of IFRs adoption in Nigeria?
1.5 RESEARCH HYPOTHESIS
Ho: There is no significant relationship between adoption and implementation of IFRs and FDI inflows in Nigeria
Hi: There is significant relationship between adoption and implementation of IFRs and FDI inflows in Nigeria.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
With a large member of business and firms failing with the country, the need to clearly define the scope of this study becomes imperative.
The study is therefore confined to firms operating in Port Harcourt area of Rivers State, Nigeria, and yet it is easy to use the result of this research to gain insight into the entire firms operating in Nigeria.
A study of this nature could not have been carried out without any hitch. Notable among the constraints was the pacify of relevant empirical literature on this area of research. Other constraints include time frame for the research and lack of finance to carry out a proper research.
1.7 SIGNIFICANCE OF THE STUDY
The significance of this study lies in the attempt to establish the relationship between international financial reporting standards (IFRs) and foreign direct investment in Nigeria.
In addition, this study will equip owners of firms in Nigeria by encouraging them to adhere to the principle of IFRs in order to increase their chances of getting or attracting both foreign and local investors.
Lastly, the study will add to my knowledge in this field of study. In this vain, other researchers will gain immense knowledge from this research work.
1.8 DEFINITION OF TERMS
International financial reporting standards (IFRs): This is a set of accounting standards developed by an independent, non-profit organization call the international accounting standards board (IASB).
Foreign direct investment (FDI): This is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets.
Capital market: The part of a country’s financial system that is concerned with raising capital by dealing in shares, bonds and other long term investments.