The Effects of Organisational Culture on IFRS Adoption: Evidence from Nigerian’ Companies

Abstract

This study investigates the underlying factors contributing to the International Financial Reporting Standards (IFRS) adoption in Nigeria. The diversity of responses to IFRS adoption is a phenomenon that requires empirical investigation to understand the reasons why some companies adopt IFRS other do not. Previous studies have investigated preparers of financial statements’ compliance with IFRS. However, there is a dearth of research on the influence of cultural factors on IFRS adoption. Little has heretofore has been done to examine cultural variables as determinants of IFRS adoption. This study applies a self-administered survey instrument to elicit data from four major cities in Nigeria. The analysis involves applied logistic regression to estimate the relationship between the covariates and the companies’ decisions to adopt IFRS. The results indicate companies’ professionalism, transparency, flexibility, secrecy, uniformity and statutory control are significant factors impacting IFRS adoption at different magnitudes. For example, a company that considers IFRS will increase the level of financial statements transparency is more likely to maintain some levels of secrecy. The study identifies that IFRS adoption can only be successful when accountants develop the relevant technical expertise in IFRS requirements prior to the implementation. Consequently, there is a need for more practical training in IFRS accounting valuation, recognition, measurement and disclosure of financial information to users of financial statements. The diversity in responses to IFRS adoption, where some companies adopt and others show resistance to IFRS requirements has been a phenomenon that requires empirical investigation to understand the rationale. Though some studies have investigated companies’ compliance with accounting regulations in Nigeria, there is limited research on factors influencing IFRS adoption. A consequence is that efforts to come up with effective policies to enhance IFRS adoption and obtain compliance status for Nigerian companies are constrained. The objective is to contribute to initiatives aimed at assuring foreign investors of reliability of IFRS financial statements prepared by Nigerian companies.

Analyses of unintended consequences of IAS 12 on deferred income taxes

“…Therefore, in this study, we examine whether the improvement in accounting standards following IAS 12 adoption has reduced the gap between the taxes calculated on the basis of accounting standards and those calculated according to tax rules. Prior studies have noted that IFRS is an improvement in the accounting standards setting, which enhances the value relevance of accounting information to capital market participants Scott, 2021 andEdeigba &Amenkhienan, 2017). Given that IAS 12 prescribes the recognition, measurement and disclosure of deferred tax assets and deferred tax liabilities, our first hypothesis examines the effects of its adoption on deferred taxes: H1.…”

“…The objective of financial reporting is to provide investors and regulatory authorities with financial information that will support their decisions. Hence, the development of accounting IAS 12 on deferred income taxes standards is expected to create comparability and enhance the substance of financial information such that investors can understand and rely on the contents of the financial report (Edeigba, 2017;Edeigba &Amenkhienan, 2017 andEdeigba et al, 2020). Meanwhile, the reporting firms have the responsibility to recognize, measure and disclose income and expenses, according to tax regulations (Bank, 2001 andXiao &Shao, 2020).…”

“…Accounting standard setters and tax authorities both aim to enhance the recognition, measurement and disclosure of accounting income and expenses in order to bring about the fair representation of the economic value of the entity (Edeigba &Amenkhienan, 2017 andShackelford &Shevlin, 2001). Therefore, accounting standard setters and tax authorities both have similar objectives, which include consistency in the recognition and measurement of income tax.…”

“…In sum, we used data on 144 firms across 26 years. 2017193,338,668.639 56,320,981.229 183,648,684.539 190,046,479.035 237,275,607.771 1337190,243,162.513 96,175,884.725 179,849,940.632 203,747,831.617 215,152,498.069 CURAS 2017217,630,104.806 33,655,780.740 188,447,030.411 213,661,043.403 242,844,117.798 1337227,144,745.623 57,051,633.019 197,773,358.871 209,450,164.843 238,821,551.595 NCURAS 2017211,081,603.817 35,497,894.968 186,847,581.787 190,046,479.035 224,798,063.456 1337231,142,161.474 69,184,226.846 191,798,886.124 203,747,831.617 256,788,271.896 CURLIA 2017186,847,581.787 4,927,238.555 185,248,133.163 186,847,581.787 188,447,030.411 1337191,798,886.124 16,898,360.772 185,824,413.378 191,798,886.124 197,773,358.871 NCURLIA 2017190,046,479.035 2,327,929.594 190,046,479.035 190,046,479.035 190,046,479.035 1337…”

“…In this context, the aim underlying the introduction of International Accounting Standard 12 (IAS 12)-Income tax is to provide an improved accounting framework for deferred taxes that will present value-relevant information to investors and other users. Despite this laudable objective, as with other International Financial Reporting Standards (IFRS), IAS 12 provides a variety of optimistic accounting policies for preparers of financial statements (Edeigba, 2017 andEdeigba, Gan, &Amenkhienan, 2020), which could lead to unintended consequences. For instance, a fundamental aim in standard setting is to make accounting information value relevant for investors (Laux, 2013).…”