Compliance and value relevance of international financial reporting standards (IFRS) mandatory adoption in Nigeria

With regards to the disclosures of International Financial Reporting Standard (IFRS) in Nigeria, this study is embarked to investigate how companies’ internal governance mechanisms and the complexity of the IFRS affect its compliance. Additionally, the study compares the value relevance between the IFRS accounting number and Nigerian SAS accounting number. Furthermore, the study also examines the information contents of the IFRS accounting numbers and how it is affected by the compliance with the IFRS disclosures. Through multiple regression analysis, this study uses a self-constructed index based on all applicable mandatory IFRS disclosures as at 31 December 2012 to determine the extent of compliance with the IFRS of 154 Nigerian listed companies. The result shows an average 84% of compliance of IFRS disclosures similar to the Nigerian SAS disclosures, 66% for the new disclosures introduced by the IFRS, and 74% of overall total compliance. Findings of this study reveal that the governance mechanisms through board independence, audit committee members accounting expertise and size, compliance risk framework and audit quality have a positive impact on the IFRS compliance. Moreover, the complexity of the IFRS is significantly and negatively affected its compliance. On the value relevance, the study employs Ohlson (1995) Price Model and Easton and Harris (1991) Return Model in examining the information content of accounting numbers for the period 2009-2014 across 114 Nigerian listed companies. The study discovers that the IFRS accounting numbers are superior to the Nigerian SAS accounting numbers. Additionally, the finding of the study suggests that the compliance with IFRS disclosures improves the information contents of accounting numbers. This study adds to the literature by examining empirically how the complexity of IFRS affects its compliance, and the value relevance of the new disclosures introduced by the IFRS, which prior literature fails to consider. The study contributes to the theory by
examining the application of Festinger’s (1957) Cognitive Dissonance Theory into financial reporting. Practically, the study provides empirical evidence on the weaknesses of the monitoring mechanisms through the regulatory bodies and the local audit firms and the need to strengthen their capacity to improve compliance with IFRS and quality of financial reporting in Nigeria.