Understanding IFRS

Recently, Alistair Impey, a partner at PwC spoke to Business Day Newspapers on issues relating to International Financial Reporting Standards (IFRS) and the NASB.

So far, many Nigerians do not understand the meaning of International Financial Reporting Standards (IFRS). As a top practicing professional accountant could you shed some light on the meaning of IFRS and the implication for its adoption in Nigeria ?

International Financial Reporting Standards (IFRSs) refers to a series of accounting pronouncements published by the International Accounting Standards Board (IASB) to help preparers of financial statements, throughout the world, produce and present high quality, transparent and comparable financial information. The term “International Financial Reporting Standards (IFRSs) and interpretations approved by IASB and International Accounting Standards (IASs) and interpretations issued by IASB's predecessor, the Board of International Accounting Standards Committee (IASC). Currently, financial statements prepared for reporting in Nigeria are drawn up in accordance with requirements laid down by CAMA and pronouncements issued by the Nigerian Accounting Standards Board. These Nigerian requirements are, in most cases based on pronouncements issued in the past by the IASB, but are not necessarily fully aligned with the current pronouncements of the IASB (for example certain financial instruments are required to be measured and reported at their fair value under IASB guidelines, whereas under Nigerian requirements these might be measured at historic cost, if any). If IFRS were to be adopted in Nigeria , Nigerian reporting entities would be using the same reporting framework as their peers worldwide which would enhance the relevance of their reports in the international arena. In addition the greater precision of IFRS would improve the comparability of reports between different entities in Nigeria and could act as a catalyst to further develop the quality and transparence of financial reporting in the country.

Many Nigerians think we should adopt IFRS. What is your opinion and how would its adoption positively or negatively affect the Nigerian economy?

Our national accounting standards (SASs) are partly based on old IAS, some of which have since been amended or withdrawn by IASB. Furthermore, the local standards do not cover all the aspects of financial reporting encountered by preparers of financial statements. I think, it is fair, to admit that our standards are partly out of date and are not sufficiently comprehensive to form a basis for preparation of high quality financial statements.

We, PricewaterhouseCoppers network of firms, have been long proponents of a single set of high quality, global accounting standards – for one simple reason – our markets are global and it is important for those markets to operate under a single, principle-based language.

In the recent past, we have seen many countries in Africa , as well as the European Union countries adopting IFRS as the financial reporting framework for their public interest companies. The Financial Accounting Standards Board (FASB) of the US has already agreed a roadmap with the IASB on the convergence of US standards and IFRS. This is recognition by large economies of the need to have high quality standards that are used consistently around the world to improve the efficiency with which capital is allocated.

I believe that there is an urgent need for NASB to start a debate on the convergence of our local standards with IFRS. The convergence could be in the form of a comprehensive review and revamping of the SASs to fully comply with IFRSs, or a full adoption of IFRS as the financial reporting framework for Nigeria . This process has already started as the NASB has issued a number of Exposure Drafts in recent months to update and improve Nigerian reporting requirements. This effort must continue, we cannot afford to be left behind!

There are varying resource requirements for each of the options both in the short and long-term. Consideration must also be given to the sustainability of the option selected. We are lucky that we can learn from the experiences of several major markets that have already embraced IFRS in their local financial reporting frameworks.

In other economies, accounting/ audit firms have been in the vanguard of the struggle for adoption of IFRS. What is your position on IFRS in Nigeria ?

I cannot speak for all accountants and firms in Nigeria . But what I know is that the adoption or convergence with IFRS will require significant re-training of local accountants and a change in the general financial reporting culture of businesses in the country. I believe that this is a small price compared to the resultant benefits.

Convergence with IFRS will result in high quality, transparent and comparable financial statements that are based on modern accounting principles and concepts that are being applied in global markets. Transparent financial statements will also assist local investors make better investment decisions.

Could you trace the history of the emergence of the IFRS and the framework for standard-setting for it?

The genesis of IFRS is the formation of the International Accounting Standards Committee (IASC) back in 1973 as a result of an agreement by professional accountancy bodies of major markets ( United Kingdom and Ireland , United States , Australia , Canada , France , Germany , Japan , The Netherlands and Mexico ) to develop a set of accounting principles across the globe. In early days, the IAS were aimed at promoting best practice in the preparation of financial statements whilst permitting different treatments for given transactions and events.

Obviously, the application of IAS in preparing financial statements did not always result into uniform and comparable financial information simply because similar transactions and events were not necessarily reported in a like way.

With the dawn of globalization and increasing demand for transparent, comparable financial information in the markets, the IASC was restructured in 2001 by creating the International Accounting Standards Board (IASB), among other changes. The IASB is responsible for developing, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements and other financial reporting to help participants in the various capital markets of the world and other users of the information to make economic decisions.

The IASB objective is to require like transactions and events to be accounted for and reported in a like way and unlike transactions and events to be accounted for and reported differently, both within an entity over time and among entities throughout the world. The choices in accounting treatment are continuously being reduced!

Consequently the IASB has, since its inception, issued a number of IFRSs and interpretations, and amended several IASs including interpretations issued under the previous Constitutions of IASC.

In pursuit of its objectives, the IASB co-operates with national accounting standards-setters to achieve convergence in accounting standards around the world.

IFRSs are developed through an international due process that involves accountants, financial analysts and other users of financial statements, the business community, stock exchanges, regulatory and legal authorities, academics and other interested individuals and organizations from around the world.

This due process is conducted by the IASB, which has complete responsibility for all technical matters including the publication and issuing of standards and interpretations.

There are indications that the NASB has a mandate that is not consistent with the adoption of IFRS. In your understanding as a professional, do you think this is the correct reading of the NASB's mandate?

I do not believe this is the case. The NASB, similar to the IASB, is charged with promoting the use of the highest standards of financial reporting. The professionals staff of the NASB, working alongside its Council are alert to the best international practice, typically exemplified by IRFS, to guide them in the establishment of improved reporting practices in Nigeria . However, I think that the NASB in performing its duties should not only guide the local profession towards best practice, but also ensure that we develop a solid financial reporting framework that is acceptable to the global markets. That is the only way the performance of our businesses can be readily compared and evaluated against similar businesses around the world.

I know that the NASB is doing great work in enforcing compliance with the current Nigerian Statements of Accounting (SASa). But I think that similar or much more effort should also be channeled towards updating our financial reporting framework in line with global developments in our profession and capital markets. The NASB should certainly start the debate on convergence with IFRS!

How would the adoption of IFRS in Nigeria affect the inflow of foreign investment?

As explained, convergence with IFRS will result in local financial statements that are readily understandable and acceptable in global markets. Capital is a global commodity!

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.

What are the big issues that you believe will be triggered off by the adoption of IFRS in Nigeria ?

International Financial Reporting Standards 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. Having said that, the 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.

What do you see as the scope of IFRS when introduced as the reporting standard in Nigeria ?

These are some of the issues that should be considered in the adoption or convergence with IFRS. Currently, IFRSs are applicable to the general purpose financial statements of all profit-oriented entities, whether organised in corporate or other forms.

But we could, for instance, adopt IFRS as the financial reporting framework for all public interest entities whilst leaving it optional for small and medium size entities (SMEs).

Whereas ten years ago IAS were simple set of standards that could easily be applied by SMEs, IFRS have been transformed to a complex set of standards targeting public interest entities. As a result of this, the IAS Board is developing a simpler, parallel set of standards for non-publicly accountable entiies. This will reduce the burden to SMEs in complying with IFRS.

Is there a likely convergence in the activities and thrust of the NASB and IASB?

Nigeria , both through ICAN and the NASB, is already involved with the development of accounting and repoting practices through membership of IFAC and attendance at appropriate international conferences and seminars. Clearly practioners in Nigeria are aware of international developments in financial reporting and the requirements of major businesses in the country, both in terms of their trading relationships with foreign partners and their own plans to expand outside the borders of Nigeria , will encourage the convergence of Nigerian practice with international norms.

What impact do you think the adoption of IFRS in the European Union, HongKong, Australia and South Africa, major trading partners of Nigeria, will have on multinationals with Nigeria operations.

Subsidiairies of such multinationals operating in Nigeria will be required to, under current circumstances, to retain records under two different frameworks, which will lead to increased costs of doing business compared to that which would arise were Nigerian reporting requirements to align with IFRS. As such entities become more familiar with IFRS, in particular enhanced disclosures as to the details and risks of the operation of a business as required by IFRS, they will commence to have less confidence in reported information coming from a non IFRS reporting environment. This will, inevitably, lead to such organizations adding a further risk premium to operations in Nigeria , compared to those that report in accordance with IFRS, and thus reduce the attractiveness for such organizations to do business in Nigeria , either through their own subsidiaries or in partnership with other Nigerian ventures.


Mr Impey is the partner in charge of our Consumer, Industrial Products and Services group. He has a BSc in Mechanical Engineering from the University of Bristol UK . He has in-depth experience of Africa and transitional economies, having worked in Europe and West Africa . He has worked and resided in the United Kingdom , France , Cote d'Ivoire , Cameroon , Liberia and Luxembourg and Hungary prior to moving to Nigeria seven years ago.

Mr Impey has extensive experience of providing audit services and non-attest assurance services in Nigeria and West Africa to large public and private companies in many sectors including utilities, banking, insurance, financial services, pharmaceutical, mining, agro-industrial, airlines, shipping, commercial and trading sectors. As well as experience in reporting in accordance with the regulatory requirements of the territories within which he has resided, he has also assisted clients in preparing statements in full compliance with US GAAP and full IRFS/IAS statements.

He is a fellow of the Institute of Chartered Accountants in England and Wales and a member of the Institute of Chartered Accountants in Nigeria . Mr. Impey is also a member of the Technical and Research committee of ICAN and has recently chaired a committee established by the NASB to prepare exposure drafts for Statements of Accounting Standards for Business Combinations and Consolidations in Nigeria .

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