1.1 Background to the Study

Accounting standards have changed greatly over the past decades with regard to the consistently increasing emphasis placed on measurement of assets base on fair valuation and pressing need for harmonization. However, in order to address the need of various users of financial information, locally formulated standards limit the ability to undertake cross boarder comparison. Therefore, the need for harmonizing of global financial accounting increased. The journey for the international harmonization toward a unique and global set of accounting standards started in 1973 when 16 professional accounting bodies agree to form the International Accounting Standard Committee (IASC).

The rationale behind the formation of the Committee was to produce and issue the International Accounting Standards (IAS) which came out of necessity to encourage growth in trade and investment between countries around the globe. The Committee was reorganized in 2001 to become International accounting Standard Board (IASB) which develops and issues International Financial Reporting Standards (IFRSs). Consensus has been reached that quality of accounting reporting is paramount to the information users for various decisions making purposes. IFRSs are increasingly becoming more acceptable set of regulations followed by many countries. In an effort to increase comparability, European Union mandated the adoption of IFRS to all its public entities in 2005. It is reported that more than 130 countries conformed to IFRSs as domestic reporting standards with 90 countries fully adopted (PWC, 2016).

Prior to international financial reporting standards, different countries develop their own standards locally and also to a certain extent adopt or adapt that of the other countries. In Nigeria, National Accounting Standard Board (NASB) develop and issue Statements of Accounting Standards (SAS) which are popularly known as Generally Accepted Accounting Principles (GAAP). These standards cut across various aspect of accounting activities such as recognition, measurements, and reporting of accounting transactions of various form of business activities. Therefore, SAS play a vital role in regulating the activities of accounting locallydue to the fact that financial reporting practicebefore IFRS depend on legal, economic, cultural and historical background of any country.

However, the major concern about the GAAP in several countries is that they are designed to reflect specific countries accounting needs, taken in to consideration different countries‟ regulatory and legal framework. Therefore, the need for globalization and growth of businesses brought difficulties in comparability and understandability of the local standards internationally. Also, the need to attract funds from the investors, creditors and financial institutions externally ignite the idea of accepting a common language for financial reporting in Nigeria so as to encourage international comparability. These and other issues pave the way toward harmonization of accounting standards and necessitate the need for a single set of high quality internationally generally accepted accounting standards (Ocansey, and Enahoro, 2014).

It is expected that adoption of IFRS would result in high quality reporting practice in Nigeria (Abiodun, 2012). The adoption of IFRS in Nigeria will lower the cost of capital and improve market liquidity (Leuz&Verrecchiia, 2010). Furthermore, IFRS adoption may encourage comparability and lower the cost of producing multiple financial reports to cater the need of cross-border investors in Nigeria (Okere, 2009). Similarly, the demands for functional financial institutions that would facilitate the development of stock market also encourage harmonization of financial reporting system. Financial sector is a driving sector of the economy; it contributes tremendously to the overall growth and development of stock markets (Mohammed & Lode, 2015).

Report on the Observance of Standard Codes (ROSC) in 2011 states that financial institutions in Nigeria do not provide full disclosure of accounting information as stipulated by the standards in their financial reports which was attributed to downturn in the Nigeria stock market and serve as a remote cause of the crises in the sector. As a result of this report and other reasons mentioned earlier, Nigerian government started IFRS adoption process by signing in to law, Financial Reporting Council (FRC) Act 2011 to replace the NASB Act 2004.