Test Bank for Applying IFRS Standards 4th Edition By Ruth Picker Kerry Clark John Dunn David Kolitz Gilad Livne Janice Loftus Leo van der Tas (All Chapters, 100 Original Verified, A+ Grade) 3

THEbIMPACTbOFbIFRSbONbEARNINGSbMANAGEMENT

Abstractb

Accountingbmanipulationsbinbthebbankingbindustrybhasbbroughtbaboutbthebdebatebonbthebneedbfo

rbbetterbaccountingbstandardsbthatbarebinternationallybcomparablebandbcanbensurebtransparencybi

nbfinancialbreportingbsobasbtobreflectbthebtruebpicturebofbthebperformancesbofbbanksbandbthusbrefo

rmbglobalbeconomies.bThisbstudybexaminesbthebeffectbofbmandatorybIFRSbadoptionbthatbstartedbi

nbNigeriabinbyearb2012,bonbthebvaluebrelevancebofbfinancialbreportsbandbpro-

cyclicalitybofb14bselectedbdepositbmoneybbanksbinbNigeria.bThebstudybformulatesbthreebhypothe

sesbandbappliesbcorrelationalbdesign,busingbpanelbdatabsetbtobanalyzebthebrelationshipbbetweenbv

aluebrelevancebandbIFRS,bandbthebrelationshipbbetweenbpro-

cyclicalitybandbIFRS.bThebstudybutilizedbsecondarybdatabextractedbfrombthebfinancialbstatement

sbofbthebbanksbandbthebWorldbBankbdatabaseboverbthebperiodb2006bthroughb2016.bThebresultbofbt

hebfixedbeffectbGLSbprovidesbevidencebthatbbothbthebvaluebrelevancebofbearningsbandbbookbvalu

ebimprovedbafterbIFRSbwasbmandatorilybadoptedbbybthebselectedbDMBs,bandbthebresultbofbthebra

ndombeffectbGLSbforbpro-

cyclicalitybprovidesbevidencebthatbtheblendingbbehaviorbofbthebselectedbbanksbdidbnotbbecomebm

orebpro-

cyclicalbafterbIFRSbadoption.bThebstudybconcludesbthatbadequatebinformationbdobactuallybboostb

investors‟bconfidencebinbthebfinancialbreportingbofbDMBsbafterbmandatorybadoptionbofbIFRS.bB

asedbonbthebfindings,bthebstudybrecommendsbamongbothersbthatbtherebisbneedbforbthebmanagersbo

fbDepositbMoneybBanksbinbNigeriabtobfurtherbimplementbmonetarybpoliciesbthatbaimsbatbenhanci

ngbinvestors‟bconfidencebinbtheirbreportedbearningsbandbbookbvalue.b




ib
b

,
,.b



CHAPTERbONEb

INTRODUCTIONb

1.1b BackgroundbtobthebStudyb

InternationalbFinancialbReportingbStandardsb(IFRS)bhasbbeenbthebfocusbofbmanybfinancialbacco

untingbstudiesbinbrecentbtimes.bThebglobalbconvergencebtobthebusebofbabcommonbsetbofbinternatio

nalbaccountingbstandardsbinbbusinessbentitiesbtobimprovebfinancialbdisclosurebhasbredirectedbres

earchesbtowardsbanalyzingbthebvaluebrelevancebofbfinancialbreportsbandbthebchangebofbthebstanda

rdbforbthebrecognitionbandbmeasurementbofbloanblossbprovisionbwhichbhasbreceivedbconsiderable

b attentionbandbdebatebworldwide,bespeciallybinbdevelopedbeconomies.b

Financialbreportingbisbthebrecordbofbthebbusinessbeconomicbactivitiesbwhichbaimsbatbmakingbavai

lablebaccountingbinformationbtobinvestors,banalystbandbstakeholdersbforbinvestmentbdecisions.bb

Priorbtob2012,bNigerianbbanksbusedbNigerianbGenerallybAcceptedbAccountingbPrinciplesb(GAA

P)binbpreparingbtheirbfinancialbreports.bValuebrelevancebofbfinancialbreportingbisbfundamentalbas

b accountingbinformationbshowsbthebfinancialbhealthbofbthebbusinessbentitybthatbaffectsbtheirbinve

stmentbefficiency.bThebkeybobjectivebofbempiricalbresearchbonbvaluebrelevancebisbtobexaminebth

ebstatisticalbrelationshipbbetweenbfinancialbreportbvariablesbandbmarketbvariables.bInvestors,bana

lystbandbotherbusersbofbfinancialbstatementsbrelybonbabvarietybofbinformationbincludingbearnings,b

productsbandbdatabinbthebeconomy.b


However,bfraudulentbaccountingbmanipulationbthreatensbthebcredibilitybandbreliabilitybofbfinanc

ialbreportingbwhichbaffectbinvestors‟bconfidencebinbaccountingbnumbers.bGlobalbfinancialbcrisis

b likebthatbofbEnronbCorporationbinb2001,btheblargestbcorporatebfailuresbinbhistorybthatbledbtobthebd

issolutionbofbAuthorbAndersonbauditbandbaccountancybpartnershipsbinbthebworldbhavebputbaccou

ntingbpracticesbandbthebprofessionbunderbinspection,basbthesebscandalsbhasbmadebthebreliabilityba

ndbeffectivenessbofbaccountingbstandardsbquestionable.bSuchbtrendbofbmajorbaccountingbscandal

sbalsobshowedbitsbuglybfacebinbNigeriabwithbthebfalsificationbofbthebfinancialbreportsbinb2006bbyb


1b
b

, CadburybNigeriabPlcbandbinbthebbankingbsector,bthebliquidationbofb26bbanksbinb1997bdespitebtheb

effortsbofbthebCentralbBankbofbNigeriab(CBN)binbenhancingbthebfinancialbdisclosurebofbDepositb

MoneybBanksb(DMBs)bbybissuingbprudentialbguidelinesbforbsupervisionbandbspecificbdirectives.

b ItbisbbasedbonbthisbpremisebthatthebWorldbBankb(2006)bopinesbthatbNigerianbbanksbfinancialbrep

ortingbisbverybpoorbandbsomebbanksbarebknownbtobfalsifybtheirbaccounts.bInbadditionbtobthebforeg

oing,bAshamubandbAbiolab(2012),bstatebthatbtheb2007beconomicbcrisisbonbthebbankingbindustrybo

fbNigeriabhasbcausedbdepressionbofbthebcountry‟sbcapitalbmarket,bdecreasedbthebqualitybofbsomeb

partbofbthebcreditbgivenbbybbanksbforbtradingbinbthebcapitalbmarket.bAllbofbthebaforementionedbev

entsbasbwellbasbthebpostbconsolidationbbankingbcrisisbofb2009binbNigeriabfurtherbincreasedbinvest

mentbriskinessbinbthebmindsbofbstakeholdersbandbhasbincreasedbthebcallbforbimprovingbfinancialbd

isclosures.b


Whereas,bBanksbprovidebfinancingbinbeconomiesbacrossbthebglobebasbpartbofbtheirboperationalbac

tivitiesbbybgivingbcreditbtobcustomersbhence,bhelpingbinbtheballocationbofbresourcesbandbThusbact

b asbcatalystbtobeconomicbgrowth.bHowever,bbanksbarebfacedbwithbcreditbriskbarisingbfrombdefault

b frombcustomersbinbpayingbinterestbonbloanbasbwellbasbthebprincipal.bDuebtobthis,bcreditbriskbmana

gementbisbcrucialbtobbanksbbecausebloanbdefaultsbcouldbaffectbtheirbsolvencybandbleadbtobliquidat

ion.bConsequently,bBanksbarebthereforebrequiredbbyblawbtobmakebLoanbLossbprovisionsb(LLP)bt

obcoverbforbloanbdefaults.bThebStatementbofbAccountingbStandardb(SAS),bspecificallybSASb10bu

nderbNigerianbGAAP,bprovidesbthatbNigerianbdepositbmoneybbanksbrecognizebandbmeasurebrep

ortedbLLPbusingbexpectedblossbapproach,busingbhistoricalbcostbaccounting.bThisbapproachbisbfor

wardblookingbandbgivesbbankbmanagersbthebdiscretionbtobmakebloanblossbprovisionsbbasedbonbth

ebexpectationbthatbborrowersbwillbdefault.b


Itbisbhoweverbarguedbthatbthebexpectedblossbmodelsballowbbankbmanagersbtobusebtheirbdiscretionb

tobmanipulatebbanksbLLP,bbybincreasingbtheirbLLPsbinbgoodbyearsbwhenbprofitsbarebhighbsobasbto

b coverbupbforbbadbyearsbwhenbprofitsbareblow,bmakingbstakeholdersbbelievebthebbanksbarebdoingb

2b
b