1. INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) AS
BASIS FOR PREPARATION OF
FINANCIAL STATEMENTS
Dr. Malami Muhammad Maishanu
Department of Business
Administration
UDU. Sokoto 1

2. INTRODUCTION
Accounting standards are ‘policy
documents’ issued by professional
accountancy bodies at national and
international levels, in relation to
different aspects:
Measurement;
Treatment;
Disclosure; and
Presentation of accounting information.
2

3. INTRODUCTION
The use of International Financial
Reporting Standards (IFRS) as a
universal financial reporting
language is gaining momentum
across the globe.
This is especially as compared to a
few years ago when a number of
different national accounting
standards existed. 3

4. INTRODUCTION
The primary focus of IFRS is on
facilitating investors’ decision-making
by enhancing
transparency,
governance,
uniformity and
understandability - through
imposing a common accounting
4

5. INTRODUCTION
Once the IFRS has been adopted,
financial statements should be
prepared in compliance with those
standards.
The financial statements should be
prepared on the historical cost basis,
except for certain financial
instruments that are measured at fair
value. 5

6. INTRODUCTION
This paper examines IFRS as basis for
the preparation of financial statements
for the purpose of reporting to relevant
stakeholders. The paper answers the
following questions:
What is the meaning and importance of
IFRS?
What are the benefits of adopting IFRS?
6

7. INTRODUCTION
What is the relationship
between IFRS and Nigerian
accounting standard?
And what needs to be done in
applying IFRS in the
preparation of financial
statements?
7

8. MEANING AND
IMPORTANCE OF IFRS
IFRS are defined as Standards and Interpretations
adopted by the International Accounting Standards
Board (IASB). They comprise:
International Financial Reporting Standards (IFRS);
International Accounting Standards (IAS);
Interpretations originated by the International
Financial Reporting;
Standards Interpretations Committee (IFRSIC) or the
former Standing; and
Interpretations Committee (SIC).
8

9. MEANING AND
IMPORTANCE OF IFRS
IFRS are considered "principles based" set of
standards in that they establish broad rules as
well as dictate specific treatments.
There is an increasing acceptance and use of
IFRS in major capital markets all over the world.
Since 2001 more than 100 countries have
required or permitted the use of IFRS while the
remaining major economies have established
timelines for convergence with, or adoption of,
IFRS.
9

10. MEANING AND
IMPORTANCE OF IFRS
IFRS are important because globalization of
financial markets and indeed capital market is an
irreversible process, and there are many
potential benefits abound from mutually
recognized and respected international
accounting standards.
It has been argued that common standards cut
the costs of doing business across borders by
reducing the need for supplementary
information.
10

11. MEANING AND
IMPORTANCE OF IFRS
Common standards also make
information more comparable, thereby
enhancing evaluation and analysis by
users of financial statements.
Consequently, users become more
confident of the information they are
provided, and presumably this reduced
uncertainty, promotes efficient allocation
of resources and reduces capital costs.
11

12. MEANING AND
IMPORTANCE OF IFRS
There are several approaches to embracing IFRS in a
jurisdiction. These include situations where:
IFRS are, by definition, domestic accounting
principles;
IFRS are integrated into domestic accounting
standards, using the exact words in the IFRS, but
with the possibility of local jurisdiction restricting
accounting alternatives provided in the IFRS and the
provision of additional commentary to assist
implementation;
12

13. MEANING AND
IMPORTANCE OF IFRS
IFRS are incorporated into local
legislation without amendments after
a formal review;
IFRS are the benchmark towards
which domestic accounting domestic
accounting standards are moving,
through a gradual process of
convergence or harmonization.
13

14. MEANING AND
IMPORTANCE OF IFRS
IFRS have been hailed as a leap forward in the
convergence of global financial reporting.
However, the content of IFRS appears to have
essentially been designed to benefit public listed
companies – particularly multinationals
operating in multiple markets – and their
shareholders.
14

15. BENEFITS OF IFRS
The benefits of IFRS adoption are
numerous. In general, it offers
organizations opportunity for a fresh
look at their processes and policies.
It also gives room for one basis of
accounting (simplify local statutory
reporting, cross-border transactions,
strengthening of controls and
efficiencies in future reporting).
15

16. BENEFITS OF IFRS
It leads to standardization of practices
across countries (that is, consistency of
global accounting policies and procedures,
shared service center deployment and
streamlined merger and acquisition
activities).
Finally, it can lead to improved
comparability across borders and within
global industries, with worldwide peers and
competitors.
16

17. BENEFITS OF IFRS
A more specific consideration may
reveal individual benefits as
hereunder:
International Investors
Ability to make useful and
meaningful comparisons of
investments portfolios in different
countries. 17

18. BENEFITS OF IFRS
Multi-national companies
Easy consolidation of financial
statements;
Better management control; as
harmonization would aid internal
communication of financial
information; and
Easier to comply with the reporting
requirements of overseas stock
exchanges. 18

19. BENEFITS OF IFRS
Local and domestic
companies
Easier access to external
capital;
Global comparability of
financial statements; and
Transparency and enhanced
disclosures and seal of quality.19

20. BENEFITS OF FIRS
Governments and National
standard setting bodies
Assist governments in attracting
international investors as adoption
of IFRS enables international
investors easy monitoring of
overseas investments.
20

21. BENEFITS OF FIRS
Even though the standards are subject to
change and the propagation of best
practice of IFRS is still evolving, there are
some far-reaching gains in adopting it.
Adopting IFRS reduces information
asymmetry which would lower costs of
equity and debt financing; It smoothens
the communication between operators,
shareholders, lenders and other interested
parties resulting in lower costs.
21

22. THE IFRS AND NIGERIAN
ACCOUNTING STANDARD
Nigeria like many countries currently
has its own set of national accounting
standards, i.e. about thirty (30)
Statement of Accounting Standards
(SASs).
These standards cover some IFRS
topics and include pronouncements on
a few issues not yet addressed in the
IFRS but relevant to Nigeria.
22

23. THE IFRS AND NIGERIAN
ACCOUNTING STANDARD
Most SASs seek to comply with IFRS
(or IAS) and include references to this
fact.
However, there are still some critical
gaps in the SASs, as noted in the
Nigeria Accounting and Auditing
ROSC conducted by the World Bank in
2004.
23

24. THE IFRS AND NIGERIAN
ACCOUNTING STANDARD
However, Nigeria takes
pride in its SASs – a
significant achievement
considering that most
developing countries do not
actively set national
accounting standards.
24

25. THE IFRS AND NIGERIAN
ACCOUNTING STANDARD
Therefore the Nigeria Accounting Standard
Board (NASB), the national standards setter,
needs to encourage the adoption of IFRS and
guide preparers, auditors and users of
financial statements to implement IFRS
properly in Nigeria.
This is also where professional accounting
bodies such as ICPAN, ICAN and ANAN,
can play major roles in promoting the use of
IFRS.
25

26. THE IFRS AND NIGERIAN
ACCOUNTING STANDARD
According to NASB, a sovereign state as Nigeria
cannot afford to adopt wholesale accounting
standards that are not in tune with its own
peculiarities and political circumstances, but it is
not against convergence.
Nigerian organizations have therefore been urged
to embrace wholesale IFRS adoption with caution
in order not to hurt the local environment.
It allows companies to follow international
standards whenever there are no local standards
but believes that Nigeria should work toward
adaptation of IFRS rather than adoption. 26

27. THE IFRS AND NIGERIAN
ACCOUNTING STANDARD
On 28 July 2010 however, the
Nigerian Federal Executive
Council approved 1 January 2012
as the effective date for
convergence of accounting
standards in Nigeria with
International Financial Reporting
Standards (IFRS). 27

28. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
The International Accounting Standards
Board (IASB or the Board) published
IFRS 1 to provide guidance for all
entities to follow on their initial
adoption of IFRS.
IFRS 1 prescribes the methodology to be
followed in preparation of an entity’s
first set of IFRS financial statements,
beginning with its opening IFRS balance
sheet. 28

29. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
The opening IFRS balance sheet then serves
as the starting point for an entity’s future
accounting under IFRS.
While full retrospective application of IFRS
is required upon adoption, the IASB
recognized there were certain situations in
which the cost of a full retrospective
application of IFRS would exceed the
potential benefit to investors and other users
of the financial statements.
29

30. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
In other situations, it was noted that
retrospective application would require
judgments by management about past
conditions after the outcome of a particular
transaction is already known.
As a result, IFRS 1 contains a number of
exemptions from the requirements of certain
IFRS and mandatory exceptions from full
retrospective application of IFRS.
30

31. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
Although it will be beyond
the scope of this paper to
discuss the whole contents of
IFRS 1, it only presents some
excerpt from the document
worth noting in the following
bullets:
31

32. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
The objective of IFRS 1 is to ensure that an entity's
first IFRS financial statements, and its interim
financial reports for part of the period covered by
those financial statements, contain high quality
information that:
is transparent for users and comparable over all
periods presented;
provides a suitable starting point for accounting in
accordance with International Financial Reporting
Standards (IFRSs); and
can be generated at a cost that does not exceed the
benefits.
32

33. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
An entity that presents financial statements
in accordance with IFRS for the first time is a
“first-time adopter” as that term is used in
IFRS 1, and it should apply IFRS 1 in
preparing its financial statements.
IFRS 1 defines an entity’s first IFRS financial
statements as being the first annual financial
statements in which an entity adopts IFRS
by making an “explicit and unreserved
statement” of compliance with IFRS in those
financial statements. 33

34. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
In the Board’s view, an entity should not
be regarded as having adopted IFRS if it
does not provide all disclosures required
by IFRS.
Therefore, IFRS 1 contains a simple test
that gives a clear answer: an entity has
adopted IFRS if, and only if, its financial
statements contain an explicit and
unreserved statement of compliance with
IFRS. 34

35. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
Entities that adopt a new set of local
accounting standards that are identical to
IFRS should consider including a statement
of compliance with both the local accounting
standards and IFRS.
In such situations, failure to make such a
dual statement of compliance may subject
the entity to the application of IFRS 1
whenever it decides to state compliance
with IFRS.
35

36. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
The first IFRS reporting period is the
latest period covered by the first-time
adopter’s first IFRS financial
statements.
For example, fiscal year ending 31
December 2014 would be the first IFRS
reporting period for a calendar year-
end entity that begins reporting under
IFRS in its 2014 financial statements.
36

37. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
At the date of transition to IFRS a first-time
adopter must prepare, and present as part of
its first IFRS financial statements, an
opening IFRS statement of financial position
(that is, the opening balance sheet).
For example, 1 January 2012 is the date of
transition to IFRS for a first-time adopter
that presents two years of comparative
figures with a first IFRS reporting period
ended 31 December 2014.
37

38. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
When a first-time adopter is preparing its
first IFRS financial statements, there may be
standards at the reporting date that have
been issued by the IASB but that are not yet
effective.
If those standards have transitional
provisions that allow early application, the
first-time adopter may — but is not required
to — apply them in its first IFRS financial
statements.
38

39. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
In addition to IFRS 1, Conceptual
Framework for Financial Reporting
2010 describes the basic concepts that
underlie the preparation and
presentation of financial statements for
external users.
Some of these concepts cover the
following issues:
39

40. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
That the primary users of general purpose
financial reporting are present and potential
investors, lenders and other creditors, who use that
information to make decisions about buying,
selling or holding equity or debt instruments and
providing or settling loans or other forms of credit.
The primary users need information about the
resources of the entity not only to assess an entity's
prospects for future net cash inflows but also how
effectively and efficiently management has
discharged their responsibilities to use the entity's
existing resources (i.e., stewardship).
40

41. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
The IFRS Framework notes that general purpose
financial reports cannot provide all the information
that users may need to make economic decisions.
They will need to consider pertinent information
from other sources as well.
The IFRS Framework notes that other parties,
including prudential and market regulators, may
find general purpose financial reports useful.
However, the regulators are not considered a
primary users and general purpose financial
reports are not primarily directed to regulators or
other parties.
41

42. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
Financial statements are
generally to be prepared
annually.
If the date of the year end
changes and financial statements
are presented for a period other
than one year, disclosure thereof
is required. 42

43. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
IFRS recognises the fundamental
principles underlying the
preparation of financial statements
such as:
going concern assumption,
consistency in presentation and
classification,
accrual basis of accounting, and
materiality. 43

44. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
IAS 1 specifies minimum note disclosures. These
must include information about:
accounting policies followed; – the judgements
that management has made in the process of
applying the entity’s accounting policies that have
the most significant effect on the amounts
recognised in the financial statements; and
the key assumptions concerning the future, and
other key sources of estimation uncertainty, that
have a significant risk of causing a material
adjustment to the carrying amounts of assets and
liabilities within the next financial year. 44

45. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
Financial statements should portray the
financial effects of transactions and other
events by grouping them into broad classes
according to their economic characteristics.
These broad classes are termed the elements
of financial statements.
The elements directly related to financial
position (balance sheet) are: Assets; Liabilities;
Equity.
The elements directly related to performance
(income statement) are: Income; and Expenses. 45

46. APPLYING IFRS IN THE PREPARATION
OF FINANCIAL STATEMENTS
The cash flow statement reflects both
income statement elements and some
changes in balance sheet elements.
Thus a complete set of financial
statements should include a balance
sheet, income statement, statement of
changes in equity, cash flow statement,
accounting policies and explanatory
notes.
46

47. CONCLUSIONS
Nigeria is set to comply with IFRS in
the preparation of financial statements
and reporting thereof this year (2012).
It is important beyond these types of
Mandatory Training Programmes,
other more intensive training exercises
are instituted for in-depth knowledge
acquisition on the various aspects of
IFRS.
47

48. CONCLUSIONS
This undoubtedly makes implementation
hitch-free. This also makes Nigeria become
part and parcel of the global community in
terms of standard preparation and
dissemination of accounting information
amongst users both domestic and
international.
This paper is therefore intended to serve as a
motivation to push accountants increase their
desire to acquire more knowledge in the area
and be ready for smooth implementation.
48