International Financial Reporting Standards (IFRS) represent a major change for the organisation. Change in not only the reporting of the financial results, but also changes in internal systems, business processes, performance management, external communication and more. Nigerian companies will begin reporting under IFRS standards as of January 1, 2012.
The transition from existing accounting standards to a set of new standards is more than just a technical accounting exercise with quantitative/financial impacts.
Stakeholders in the nation’s capital market believe that the situation of the market will change by the time the quoted companies comply with the IFRS.
In a recent times, the Securities and Exchange Commission (Sec) has asked all quoted companies to ensure compliance with the International Financial Reporting Standard (IFRS) before the 2012 deadline.
Ms. Arunma Oteh, the director general of Sec represented by Adeleke Omolayo at a seminar organized by SAP Business Objects said it was mandatory for quoted companies on the floor of the Nigerian Stock Exchange (NSE) to comply with the new international accounting rules in order to attract foreign investors into the country.
Adeleke said various regulators in the financial industry would employ other tools and platforms to enforce compliance; there was need for collective commitment to ensure compliance.
He said the application of local accounting techniques in preparing financial statement does not always result in building of proper accounting standards, simply because similar transactions and events are not similarly reported or treated in like manner, this necessitated the idea of preparing financial statement in a modernized way.
Adeleke noted that the provision of transparent and useful information for market participants and their transactions are essential for an orderly administration of the market and it is one of the most important aspects of the market for improving the market inputs. So the adoption of IFRS is critical to the up-liftment of the market.
 
Matter Arising
Disclosures- The principles-based nature of IFRS can trigger the need for enhanced explanations to provide readers’ with sufficient information to effectively understanding the company’s financial statements. This is particularly acute in the 2011 year of transition from GAAP to IFRS as the notes will need to be increased to discuss adjustments between the two different accounting standards. The legal implications of greater notes disclosure will also be an important consideration in the move to IFRS.
Financial Compliance- Whenever there is a change of accounting policies, and a ripple through to supporting processes and systems; there is a need to evaluate the impact on financial compliance and control activities. IFRS will bring significant changes in some sub-system areas, new financial reporting formats, new chart of account considerations, new accounting concepts that will need to be implemented in the field, and so on. In addition, the need to provide comparative reporting with dual IFRS and GAAP reporting for a one year look-back period will require additional controls to ensure that accuracy of transactions.
Business Metrics- Changes in accounting policies and resulting financial metrics may have a significant impact on various contractual obligations both internally and externally. Business and financial metrics may change under IFRS and management and staff compensation plans should be examined for any adverse effects. External obligations, such as banking debt covenants, may also be impacted by IFRS and need to be managed proactively.
Systems and Data- The lead times required to change Enterprise Resource Planning (ERP) systems can range from months to years. The adoption of IFRS is likely to impact not only reporting structures but how individual transactions are captured and processed. Typical areas of IT impact include as fixed asset sub-ledgers, contract management and lease tracking systems, treasury systems, tracking of engineering and developments costs, and corporate and segment reporting. In addition, because of the need to provide comparative reporting between Nigerian GAAP and IFRS, accounting and reporting systems will need to provide parallel reporting capabilities during the 2011 transition period.
 
Big Issues that Will Trigger  the Adoption of IFRS in Nigeria
IFRS are complex and can be fairly difficult in application. Even where the local standards apply a similar principle as IFRS, there can be differences in the detailed application, which could have a material impact on the financial statements.
Obviously, the extent of changes will vary from entity to entity. They are clear differences between IFRS and our local standards in the measurement and presentation of financial instruments, employee benefits, deferred tax, provisions, intangible assets and impairment of assets in the financial statements. Certainly, the application of IFRSs will also result in increased disclosures in the financial statements.
 
Can Adoption of IFRS by 2012 Boost Investors’ confidence?
Many analysts have said that the adoption of the IFRS by companies operating in both the public and private sectors would boost the investment climate in Nigeria particularly the capital market.
They noted that the adoption of the accounting standards would also reduce information asymmetry which would in turn lead to lower costs of equity and financing.
IFRS is a globally-accepted set of accounting standards and interpretations established by the International Accounting Standards Board and its interpretative body, the International Financial Reporting Interpretations Committee, for the preparations and presentation of financial statements.
Countries like China, Hong Kong, Russia, Kenya, Zimbabwe Zambia, South Africa. Ghana. Sierra Leone and all European countries have adopted the standards; Nigeria is yet to adopt the accounting framework.
But the Sec had set a deadline of 2012 for banks and quoted companies to adopt the policy.
Foreign investors want financial statements that are comparable with those of similar businesses in other parts of the world, for strategic decision making in relation to mergers and acquisitions.
Many foreign investors will require their subsidiaries in Nigeria to report in accordance with IFRS so that the parent company can comply with its reporting requirements in its home territory. Should Nigeria adopt IFRS this would reduce the complication of such subsidiaries having to prepare different sets of records for reporting for local purposes as well as internally, thus facilitating business compliance and adding to the attractiveness for such an investor to start or continue operations in the country.