THE IMPACT OF IFRS ON THE SERVICE DELIVERED BY PRICE WATER HOUSE COOPERS (PWC) LAGOS, NIGERIA

Abstract

The study examined the impact of International Financial Reporting Standard (IFRS) on the service delivered by price water house coopers (PWC) in Nigeria. Data were collected from 300 employees of price water house coopers (PWC) (a leading professional financial services provider) through the use of structured questionnaire and analyzed using the simple percentage and the chi-square statistics. The finding further showed that IFRS directly affects how earnings and other key aspect of the business are accounted and reported for. However, the results of the study showed that changes in business processes and operations, financial position of companies and reduction in cost of finance were the least contributions of IFRS to financial reporting practices of PWC.

CHAPTER ONE

INTRODUCTION

• Background of the study

Accounting is the language of business while financial reporting is the medium through which the language is communicated. Accounting and financial reporting are regulated by Generally Accepted Accounting Principles (GAAP) comprising of accounting standards, company law, stock market regulations, and so on. As one would expect, different countries have different GAAPs which makes business communication with other countries difficult. To solve this problem, some decades ago the world started a gradual movement towards adopting a uniform GAAP for accounting and financial reporting which in no small measure is a good thing. But to every good thing in life there is always a side effect and sometimes a good thing can have a negative impact depending on how it is handled. The global GAAP that is seeking to unify accounting and financial reporting worldwide is the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Essentially, IFRS comprises of four types of documents (1) International Accounting Standards (IASs); (2) International Financial Reporting Standards (IFRSs); (3) Standing Interpretations Committee (SICs) pronouncements; and (4) International Financial Reporting Interpretations Committee (IFRICs) guidelines. The major difference between IFRS and the local Statement of Accounting Standards (SAS) is that the former is a more robust and principle based set of accounting standards with detailed disclosure requirements. For instance, the IASB Framework states that the objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. In order to meet the objective, the Framework requires financial statements to possess certain qualities which are understandability, relevance, reliability, and comparability. Other key areas of differences include extensive use of fair values for financial instruments, more prescriptive and comprehensive guide for revenue recognition, a more rigorous process for determining goodwill in a business combination, change in format, components and nomenclature of certain items of financial statements. For instance, there are no value added statements or five-year financial summary under IFRS while statement of changes in equity is required. Increasing demand for public accountability, comparability, improved transparency, ability to analyze impact on tax-related issues, reduced cost of financial reporting, more efficient access to global capital market and easy consolidation of financial statements are some of the key drivers of IFRS conversion the world over. Notwithstanding the enormous benefits, compliance with IFRS for accounting and financial reporting cannot be enforced in Nigeria without a formal adoption within appropriate regulatory framework. This implies that IFRS financial statements cannot be used for statutory purposes including filing of tax returns, Corporate Affairs Commission annual returns, filing with the Nigerian Stock Exchange / Securities and Exchange Commission, returns to the Central Bank of Nigeria and other regulators. However, with the recent approval of IFRS conversion for Nigeria by the Federal Executive Council (FEC), Nigeria has joined the over 100 countries that require, permit, or are converging with the goal of adopting IFRS. Following the FEC approval, the IFRS implementation roadmap was unveiled by the Minister for Commerce. More than 100 countries around the world have already adopted International Financial Reporting Standards (IFRS) or are in the process of doing so (Ball, 2006; Barth, 2008; Daske et al, 2008). Nigerian regulatory bodies in the 2005 stated that Nigerian listed companies were to adopt IFRS from 1 January 2010. For companies the adoption of new accounting standards is likely a huge step; under these new conditions the need for sufficient resources, training, dedication, communication and preparation by local authorities, managers and auditors is required. For auditors the complexity of the transition and a client’s potential insufficient preparations can result in risks in their audit assignment. Increased accounting regulation can, in turn, cause extra client risk and more time consuming work for the auditor. Logically, higher client risk and work will be associated with higher audit fees. Prior research supports this kind of conclusion (Hay et al., 2006). The accounting profession and academic researchers have paid great attention to the Informational and other economic consequence of IFRS adoption. Proponents of IFRS claim that the IFRS adoption leads to greater and higher-quality disclosures. The adoption of IFRS therefore increases the complexity of financial reporting environment in Nigeria. The opportunity for management misreporting will be increased if financial statements preparers or auditors do not have sufficient expertise in IFRS. Furthermore, IFRSs require testing for goodwill impairment at least annually and write-down the goodwill against income if it is impaired. Applying the impairment testing regime requires extensive professional judgment and discretion to be exercised by preparers, thereby introducing opportunities for managerial interpretation, judgment and bias, so we argued that this needs for more audit efforts and so will resulted in incremental audit fees. As Ball (2009) indicates, auditor status, independence, training, and compensation are all important factors affecting the quality of financial reporting after the adopting IFRS. In this study, we investigate the impact of IFRS adoption on the Jordan audit market; in terms of charged audit fees. We conduct our analysis by examining the impact of IFRS adoption on audit fees for Nigerian industrial companies listed in Nigerian Stock Exchange during (1998-2011).

• STATEMENT OF THE PROBLEM

The adoption of IFRS therefore increases  the complexity of financial reporting environment in Nigeria. The opportunity for management misreporting will be increased if financial statements preparers or auditors do not have sufficient expertise in IFRS. The introduction of a single set of global accounting standards has received much attention from both academics and practitioners. As Ball (2009) indicates, auditor status, independence, training, and compensation are all important factors affecting the quality of financial reporting after the convergence of local accounting standards in different jurisdictions with IFRS. It is in view of this that the researcher intends to investigate the impact of IFRS on the services delivered by PWC.

• OBJECTIVE OF THE STUDY

The main objective of the study is to ascertain the impact of IFRS on the service delivered by price water house coopers. But for the successful completion of the study the researcher intends to achieve the following sub-objectives

1. To ascertain the impact of IFRS on the services delivered by PWC
2. To ascertain the relationship between the adoption of IFRS and the quality of audit service delivered by PWC

• To ascertain the effect of IFRS on financial reporting

1. To proffer solution to the problem identified
   • RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses was formulated by the researcher

H₀: IFRS does not have any significant impact on the quality of service delivered by PWC

H₁: IFRS does have a significant impact on the quality of service delivered by PWC

H₀: there is no significant relationship between the adoption of IFRS in reporting and the quality of audit service delivered by PEC

H₂: there is a significant relationship between the adoption of IFRS in reporting and the quality of audit service delivered by PWC.

• SIGNIFICANCE OF THE STUDY

This research study aims to contribute both theoretically to the literature, and practically to the auditing profession, it shall seeks to provide ordinary insight on area concerned with auditor independence, and explored the possibility of relationship between the levels of auditors’ reputation awareness and their independence. It also aim to contribute to the extant literature on auditor independence by increasing the understanding of situations that potentially threaten auditor independence including social pressures, self-interest, familiarity, and intimidation. In addition, this research study offers factors that may theoretically and practically enhance and protect auditor independence. The study has the potential of encouraging auditors and users of financial information to see the need for audit independence.  It will enable clients appreciate the enormity of the auditor’s job and factors that can affect his job.  The outcome of the study will assist audit firms and management or directors of companies to further appreciate the need to comply with the relevant Statement of Accounting Standard (SAS) and the International Financial Reporting Standards (IFRS). This study hopes to provide relevant literature on audit independence.

Finally, this study is also expected to serve as input to regulators and other stakeholders of corporate financial reporting to establish policies relating to corporate financial reporting, particularly in the Nigerian context, since empirical evidence on this issue is limited in the country. It would also be useful to student of tertiary institution writing their final year project as well as lecturers.

• SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the impact of IFRS on the service delivered by price water house coopers (PWC).in the cause of the study the researcher encounters some limitation which limited the scope of the

Studies;

Time: – This is the first limitation that affected the research study badly because carrying out the study requires time and one can’t afford to miss lecture and embark on a journey to the cost study.

Finance: – It is another limitation because the study requires enough funds to carry out the research and without the funds the study will not be fruition.

Uncooperative staff: – Some of the staff was very uncooperative and some even refused to accept my questionnaire and those that accepted, some of them did not summit back their questionnaire.

• DEFINITION OF TERMS

Audit independence is defined as an auditor’ unbiased mental attitude in making decisions throughout the audit and financial reporting.

Auditor:  Auditor is a qualified accountant who also passed a professional examination. Such a person must be of good conduct and have a vast knowledge and able to understand a practical business, endeavor always to grasp the technicalities and business, methods of any concern whose account he undertakes to audit.

External Audit: This is an audit carried out by an independent person who is not an employee of the enterprise.

Audit quality means how well an audit detects and report material misstatements in financial statements, the detection aspects are a reflection of auditor competence, while reporting is a reflection of ethics or auditor integrity, particularly independence.

Financial statements (or financial report) are the formal records of the financial activities of a business, person, or other entity. This is a generic term for profit and loss account, balance sheets, cash flow statement, five year financial summary, value added statement, income and expenditure account, statement of accounting policy etc

Audit Committees: An audit committee is a selected number of members of a company’s board of directors whose responsibilities include helping the auditors remain independent of management.

Investigative independence protects the auditor’s ability to implement the strategies in whatever manner they consider necessary. Basically, auditors must have unlimited access to all company information.

IFRS: International Financial Reporting Standards (IFRS) are a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements

• ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.

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