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THE VALUE RELEVANCE OF RECONCILIATION ADJUSTMENTS OF FIRST-TIME IFR ADOPTERS: EVIDENCE FROM THE NIGERIAN DEPOSIT MONEY BANKS.

CHAPTER ONE

INTRODUCTION

1.1 INTRODUCTION

Following increasing worldwide movement towards adoption of International Financial Reporting Standards (IFRS) as the preferred accounting regime, the Federal Executive Council of Nigeria on 28th October, 2010 approved the adoption of IFRS in Nigeria. The approved Roadmap for the adoption of IFRS mandates the implementation of IFRS in three phases viz:

(i)               publicly listed entities and significant public interest entities, 1 January 2012,

(ii)             other public interest entities, 1 January 2013, and

(iii)          small and medium sized entities,1 January 2014.

Thus, listed deposit money banks (DMBs) were mandated to prepare their financial statements for the year ended 31st December, 2012 based on IFRS.

To prepare the first IFRS financial statements, the DMBs must comply with the requirements of IFRS 1(First Time Adoption of International Financial Reporting Standards). IFRS 1 requires, amongst other things, that the first time adopters prepare opening IFRS Statement of Financial Position and perform IFRS reconciliation [reconcile accounting numbers based on local GAAP, i.e from Statement of Accounting Standards(SAS) issued by the Nigerian Accounting Standards Board (NASB) to IFRS] so as to provide comparative data for the first IFRS financial statement. SAS/IFRS reconciliation involves restating the last financial statement prepared on the basis of Statement of Accounting Standards (SAS) to IFRS principles which essentially entails

(i)               recognizing all assets and liabilities whose recognition is required under IFRS;

(ii)             unrecognizing items as assets or liabilities if IFRS do not permit such recognition,

(iii)           reclassifying items that it recognized under SAS as one type of asset or liability or components of equity but are different types of asset, liability or component of equity under IFRS, and

(iv)           measuring all recognized assets and liabilities according to IFRS principles (IASB, 2004).

1.2     Objective of the Study

The objective of financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders and other creditors in making investment decisions. To be decision useful, the financial information must, in addition to other characteristics, be relevant. The IASB Conceptual Framework states that information is relevant if it influences the economic decisions of users by helping them to evaluate past, present and future events or confirming or correcting their past evaluations. In view of this, this paper seeks to assess whether or not the reconciliation adjustments performed by the Nigerian DMBs who are first time adopters of IFRS are the value relevant. If value relevant, to what extent are the reconciliation adjustments incrementally value relevant?

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