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IMPACT OF THE ADOPTION OF IFRS ON VALUE RELEVANCE AND ACCOUNTING INFORMATION IN THE INSURANCE - SECTOR

CHAPTER ONE

INTRODUCTION

1.1Background to the Study

Accounting literatures on value relevance research dates back to early 1960s with the

remarkable seminal work of Ball and Brown (1968) being the center stage.  The work provided an extensive analysis on the value relevance of accounting information and equity valuation and found that accounting information contained in financial statement have an effect on share price. This perhaps laid the foundation for numerous empirical studies seeking to measure association between accounting numbers and equity values in both the developing and developed world. Recent studies however, have taken a different dimension by measuring the association between value relevance of accounting information under different regimes of accounting standards that is local standards (GAAP) and the International Financial Reporting Standard (IFRS). IFRS is in the fore front of accounting standards used in the world today with over 120 countries fully adopting it.

Nigeria is a signatory to the International Financial Reporting Standard (IFRS) which

compels its public and special entities to adopt the new accounting standard. This is following the approval of the Federal Executive Council in December 2010, the then Nigerian Accounting Standards Board (NASB), now designated as Financial Reporting Council of Nigeria (FRCN)) issued an implementation roadmap for Nigerian‟s adoption of IFRS which set a January 2012 date for compliance of publicly quoted companies, banks and insurance firms in Nigeria. The Central Bank of Nigeria (CBN) and the Securities and Exchange Commission also adopted this date for compliance and issued guidance compliance circulars to ensure full implementation of

IFRS in Nigeria.

Several studies such as: Laurenco and Curlo (2008), Hung and Subramanyam (2007), Bartov, Goldberg & Kim (2005), Barth, Landsman & Lang (2008), have compared the value relevance of accounting information under IFRS and domestic standard in various countries.

IFRS was adopted in Nigeria to overcome the weaknesses of Statement of Accounting Standard

(SAS) and improve the quality of financial reporting (Bagudo, Abdul Manaf and Ishak,2015).

The country‟s vision 20:20:20 envisioned the country‟s insurance sector to be among the highly placed emerging markets famous for high market capacity and transparency to  achieve a position in  the 20 largest insurance markets in the world by the year 2020Badejo (2014).

The Nigerian insurance industry is ranked 65th globally in terms of size and 6th in Africa out of 8 largest markets; nevertheless the operational scope of the operators is still vague thereby reducing its strategic role in the domestic economy (National Technical Working Group report, 2009).For these strategic roles to be achieved researchers have advocated the increasing need for more relevant and timely accounting information due to the increased sophistication of investors, hence an increased focus on this issue would perhaps reduce investors‟ reliance on non-accounting sources of information. Therefore, the need for value relevance of accounting information became eminent to achieve the vision. This makes the early adoption of IFRS in the insurance industry to be seen as a move in the same direction considering that the industry has recorded a considerable growth. For foreign investors, the adoption of IFRS will provide them with better understanding of the company's financial statements so that they can take better decisions based on such information.

 In 1997, the National Insurance Commission (NAICOM) was established with the

aim of

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