The Changes In Accounting Standards And Its Impact On Financial Statement

The Changes In Accounting Standards And Its Impact On Financial Statement

Abstract

This undertaking is a comprehensive analysis of the changes in accounting standards, their effect on financial statements, and the Benin Branch of Guinness Nigeria Plc in Edo state. This initiative aims to determine the impact of Accounting standard on users of financial statements, as well as Accounting standard’s requirements. Using both primary and secondary sources, information was collected. The discovery demonstrated that Accounting standard changes play a significant role in the financial statements of companies that adopted the change. Consequently, the significance of accounting standards cannot be overstated, as it is contingent on the nature of a given organization’s structure. Based on the findings of the study, it can be concluded that information based on a mix of conflicting accounting policies carries significant misinterpretation and suspicion risks. Since the international financial reporting standard has become a permanent fixture with thirteen standards already to its credit, it is recommended that this standard be utilized. Therefore, the standard should be applied to small businesses that are not publicly traded, and noncompliance with accounting standards should be viewed not only as a statutory offense, but also as a criminal offense that will likely result in the closure of such businesses.

First Part

Introduction

1.1 Introduction To The Study

In recent years, there has been a great deal of criticism regarding accounting standards and the influence of recent changes in financial report preparation. Numerous individuals have cast doubt on the accuracy of the profit measurement procedures utilized in arriving at the profit reported in published accounting. Numerous proposals have been made in an effort to reform the commonly used methods.

This has led to the joining together of various nations for the purpose of establishing procedures for the standardization of these profit measurement and reporting procedures.

Nigeria is a member country of the international accounting standard committee (IASC), which generates international accounting standards (IAS) to be followed by all member nations. With the aid of globalization and rising demand for transparency, they also produce additional accounting standards (SAS) in an effort to adapt international accounting standards to local conditions. Among other alterations, the (IASC) was restructured in 2001 by the establishment of the international accounting standard board (IASB).

In May of 2011, a new set of rules, known as international financial reporting standards (IFRS), was created to align Nigeria with other nations and boost investor confidence. These rules were issued by international accounting standard boards, which are globally accepted.

IASB issued 13 issues of the international financial reporting standard (IFRS) beginning in 2001.

The international accounting standard (IAS) issue 29 was published by IAS prior to April 2001.

15 interpretations issued by the international committee on international financial reporting standards (IFRS IC).

Before April 2001, there were 11 issues of the standard interpretation committee (SIC) statement.

The thirteen IFRS at issue are:

IFRS 1 – Adoption of IFRS for the First Time

IFRS 2 – Stock-based compensation

Business combination under IFRS 3

IFRS 4 – Insurance contract

IFRS 5 – Noncurrent assets held for sale and discontinued operations.

IFRS 6 – Mineral Resource Exploration and Evaluation

IFRS 7 – Financial instruments disclosure

Operating segment accounting under IFRS 8

IFRS 9 – Financial instrument

IFRS 10 – Consolidated financial statement

IFRS 11 – Joint arrangements

Disclosure of interests in other entities under IFRS 12

IFRS 13 – Fair value measurement.

The purpose of this paper is to analyze and examine the impact of these standards on the financial statements of Guinness Nigeria Plc in Benin, Edo state.

1.2 Description Of The Problem

The account must comply with the international financial reporting standard (IFRS) and the international accounting standard (IAS) to constitute good accounting practice. The significance of accounting standards in a company’s financial statement cannot be overstated.

In addition, the issue can be summed up as follows:

A lack of personnel with sufficient knowledge of accounting standards is a significant factor influencing the changes.

b Lack of infrastructures and apparatus that aid in obtaining the most accurate data and report.

c Inadequate application of accounting standards to financial statements in order to provide information to users.

d The issue of an organization’s inadequately designed accounting system

e The impact of inaccurate financial statements, reports, and management analysis on the achievement of the organization’s objectives.

f The impact of financial statements and reports that are not prepared at the correct time.

g Inefficacy of the financial statement as a result of its improper application.

1.3 Objective Of The Research

The purpose of this investigation is to accomplish the following:

A To revealed that accounting standard changes have a significant impact on the financial statements of companies that adopted the changes.

B To ascertain information about the changes in a business organization’s net resources

C Determine whether accounting standards are burdensome and problematic.

D Determine whether accounting and financial statements enhance the organization’s accountability, transparency, and financial results quality.

1.4 Research Question

The following are hypotheses for research questions that will direct the investigation.

What effect has this standard had on the economy of Nigeria?

How effectively does this accounting standard applied to the financial statement provide information to its users?

How important is the adoption of accounting standards for the preparation of financial statements?

What is the significance of compliance in the financial statement compilation of an organization?

How has the change in the accounting standard contributed to its harmonization and improvement?

1.5 Research Hypothesis

The following hypotheses were developed to ascertain the study’s validity and reliability.

a HO: The accounting modifications have no effect on the financial statement.

The accounting modifications have an effect on the financial statement.

b Ho: The adoption of accounting standards does not contribute to the harmonization or standardization of financial statements.

Adoption of accounting standards facilitates the harmonization and standardization of financial statements.

c Ho: determining the extent of compliance of an organization’s financial statement preparation is of no consequence.

1.6 Significance Of The Evaluation

Accounting standards are developed to assure a higher degree of uniformity in financial statements that are made public. They provide the necessary information on how accounting information should be presented to maximize the content’s value and facilitate comprehension.

This study’s significance to the academic community cannot be overstated. It is advantageous for all users of accounting information who must interpret and use a proper comprehension of the financial standard and the information derived from it to make management decisions in the organization’s best interest.

Another major objective of the study is to inform the management of (Guinness Nigeria Plc Benin, Edo state) about the financial statement standards and to provide accounting guidelines to the organization’s employees.

This study would also serve as a resource for future researchers investigating the evolution and influence of accounting standards.

1.7 Scope / Delimitation Of The Study

Despite the fact that the study is predicated on the impact of accounting standards on financial statements, the results are not conclusive. It also discusses the significance of the standard, its application, and compliance, as well as the need for standards and the primary objective of this standardization.

The limitation is a result of the researcher’s limited time, insufficient funds, and limited material sources. A response to a confidential matter that restricts access to certain crucial company information.

1.8 Definition Of Terms

The term Standards refers to the regulations that govern the use of financial statements.

This merely refers to the process of becoming different from the previous state.

C Fair values: The price received to see an asset or paid to transmit a liability in an orderly transaction between market participants at the measurement date.

D Financial statements: These are the statements used to record the financial transactions of a company’s balance sheet.

E Joint Arrangement: A contractual arrangement in which two or more parties share control.

F Financial instrument: A document that has monetary value or represents a legally binding agreement between two parties, such as stocks.

G Accounting: The creation and application of a system for recording and analyzing the financial transactions and financial status of a business or other entity.

Second Chapter

Review Of Related Literature

2.1 Introduction

Prior to the information of the international accounting standards committee (IASC) on 29thJune, 1993, a group of pioneer accounting bodies from the United Kingdom, the United States, Australia, Canada, France, Germany, Japan, Mexico, the British Virgin Islands, and the Neither land and Island had developed a set of accounting standards.

According to Merge (1979), there were disparities between these two accounting standards. In light of these disparities, the international accounting standards committee (IASC) decided to harmonize these standards and apply them globally.

Amore (1986:16) states that the standards issued by the (IASC) do not satisfy our local conditions environment, thereby necessitating the need for Nigeria to have a local accounting setting body that takes into account the economic environment when setting these standards.

Further, Falyse (1984:22) emphasized that accounting standards must be applied to our social, legal, and business environment if they are to effectively contribute to accounting development and business environment efforts.

With the global trend toward a single financial reporting standard, the previous initiative of the Nigeria Accounting Standards Board (NASB) has been replaced by the financial Reporting Council (FRC) of Nigeria, which adapts the international financial reporting standard (IFRS). The Nigeria IFRS road map was published in 2010 and recommended that the country implement IFRS in 2012

2.2 Theory Of Composition

It is obvious that accounting standards are essential to all users of the statement of accounting and allied courses, as they are frequently examined. It is also obvious that accounting standards are important to all users of the statement of accounting and allied courses.

A PREPARES ACCOUNTING DATA The preparation of accounting data consists of:

a. The financial report

b. The examiner

The financial accountant, who may also serve as the organization’s principal accountant, attempts to comply with accounting standards when preparing the annual financial statements.

The auditor must audit the financial statement prepared by the financial accountant, determine if the statement complies with specific requirements of the accounting standards, and then express his opinion as to whether or not the financial statement presents a true and fair view of the financial situation.

B. USE OF ACCOUNTING INFORMATION: financial statement accounting information is utilized by a variety of parties. This group of consumers requires an understanding of accounting standards in order to comprehend the financial statements.

i. Management: They use the standard to gain a better comprehension of the financial statement in order to analyze the performance and position of the organization and to take the appropriate steps to improve the company’s results.

ii. Creditors: Both current and potential creditors are considered when determining the creditworthiness of an organization. Creditors determine the terms of credit based on an evaluation of their customers’ financial health. Creditors include both suppliers and financial institutions such as banks.

iii. Investors: To evaluate the viability of investing in the business. Before committing financial resources to a company, investors seek assurance that they will earn a satisfactory return on their investment. Example financiers and debentures holders.

The financial statement is also utilized by banks, financial analysts, economists, and statisticians.

2.3 Review Of Current Literature

In preparing accounting standards, the IASB (International accounting standards Board) is a group of 14 experts with an appropriate blend of recent practical experience in establishing accounting standards. Auditing, financial report utilization, and accounting education.

The members of the international accounting standard Board IASB are responsible for the creation and publication of IFRS, including IFRS for SMEs. Additionally, the IAS is responsible for authorizing IFRS interpretations developed by the IFRS interpretations committee (formerly IFRIC).

The publication of consultative documents for public comment, such as discussion papers and exposure drafts, is an integral part of the (IASB)’s open and transparent meeting procedures, which are adhered to at every meeting.

The IFRS interpretation committee consists of 14 voting members appointed by the trustees and drawn from a variety of countries and progression backgrounds.

The financial reporting council has been engaged with exposure proposals and international facilities, reporting standard issues. Nigeria has thirteen accounting standards that have been tailored to its economic environment.

IFRS – 1 IFRS Adoption For The First Time

A first-time adoption of international financial reporting standards (IFRS) is intended to ensure that an entity’s first (IFRS) financial statements provide high-quality information that is transparent and comparable across all periods presented, serve as a suitable starting point for accounting under IFRS, and can be generated at a cost that does not exceed its benefit to users.

Disclosures in a first-time adopter’s financial statement:

IFRS I mandates disclosures explaining how the transition from previous GAAP to IFRS impacted the entities’ financial position, financial performance, and cashflows (IFRS).

1 The classification of the merger as a procurement of a uniting of interests remains unaltered.

an According to the details of the open IFRS balance sheet

b The end of the last annual period reported under the previous GAP (for an entity adopting IFRS for the first time in its 31 December 2009 financial statement, the combination dates would be 1 January 2008 and 31 December 2008).

2 The assets and liabilities acquired or assumed in the combination that were recognized under previous GAAP are recognized in the acquirer’s open IFRS balance sheet, unless such recognition is prohibited by IFRS.

3 On the opening IFRS balance sheet, assets acquired and liabilities assumed in the combination that are measured at fair value under IFRS are restated to fair value.

4 The deemed cost of assets acquired and liabilities assumed in the merger is the carrying values under the previous GAAP immediately following the merger.

5 Assets and liabilities that were not recognized following the business combination under the previous GAAP are only recognized on the opening IFRS balance sheet if they would have been recognized on the opening IFRS balance sheet of the acquired entity.

6 Goodwill written off directly to equity in accordance with prior GAAP is not reinstated as an asset upon transition to IFRS. Additionally, it is not included in any subsequent gain or loss on the disposal of the subsidiary.

7 Goodwill recognized as an asset under previous GAAP is only adjusted on transition in certain circumstances, such as the recognition of an intangible under IFRS that was not recognized under previous GAAP, the reclassification of an intangible to goodwill that was recognized under previous GAAP but does not qualify for recognition under IFRS, or an impairment loss at the date of transition.

IFRS 2 – Share-based Compensation

This standard applies when an organization purchases or receives products and services. For remuneration based on equity. These non-financial assets may include inventories, property, plant and equipment, intangible assets, and other non-monetary assets. Included in the arrangements that would be accounted for under IFRS 2 are call options, share appreciation rights, share ownership schemes, and payments to external consultants based on the equity capital of the company.

IFRS 2 Disclosure Requirements

Various disclosure requirements are mandated by this standard so that consumers of financial statements can comprehend:

At the time the options are granted, their fair value will be determined.

This fair value will be amortized over the vesting period, with adjustments made at each accounting date to reflect the best estimate of the number of options that will ultimately vest.

Equal to the amount charged to profit or loss, shareholders’ equity will increase. The income statement charge reflects the number of options that have vested.

IFRS 3 — Combination Of Businesses

A business combination is a transaction or event involving the acquisition of control over a company. IFRS 3 establishes definitions and requirements for the disclosure of information by entities regarding business combinations and their effects. Accounting for the business combination requires the application of acquisition methodologies.

PHASE 1: Determine the acquirer

Determine the date of acquisition

Recognition and measurement of assets, liabilities, and noncontrolling interests (NC1) is the third step.

Recognition and measurement of goodwill or gain on purchase transaction constitutes the fourth step.

IFRS 3 is not applicable to

Establishment of a cooperative venture

Acquisition of non-business-related assets

A collection of businesses or entities under the same control.

IFRS 4 – Contracts For Insurance

Under an insurance contract, one party (the insurer) agrees to compensate the policyholder if a specified uncertain future event (the assured event) adversely affects the policyholder.

It does not apply to other assets and liabilities of an insurer, such as financial assets and liabilities within the scope of IAS 39 financial instruments, recognition, and measurement.

DISCLOSURE:

The standard specifies the disclosures of information that enable users to comprehend the amount in an insurer’s financial statement that results from insurance contracts.

i The effect of alterations to assumptions

ii Accounting policies for insurance contracts and the assets, liabilities, income, and expenses associated with them.

iii. If the insurer is new, additional disclosures are necessary.

b Data that assists users in assessing the nature and extent of risk deriving from insurance contracts.

c The degree of sensitivity to insurance risk concentrations.

d Actual claims versus prior estimates IFRS S – Non-current Assets Held For Sale And Ceases Operations.

If a non-current asset is held for sale, the economic benefit of the asset is derived from the asset itself rather than from the asset’s continued use in the business (future economic benefit). Such assets cease to be depreciated as they are no longer consumed by the business.

Certain conditions must be met for the asset carrying cost or the asset’s fair value less the cost of selling this asset to be determined.

A component of an enterprise that has been sold or classified as held for sale in which operations have been discontinued.

The purpose of IFRS 5 is to specify the accounting for assets held for sale as well as the presentation and disclosure of discontinued operations.

Disclosures (IFRS 5.41)

Description of the gathering of noncurrent assets or sales

Description of the sale’s (disposition’s) circumstances and expected timing.

Losses and reversals due to impairment, if any, and where on the statement of comprehensive income they are recorded

The reportable segment in which the noncurrent asset (or disposal group) presented in accordance with IFRS 8 operating segments is located, if applicable.

IFRS 6 – Exploration For And Evaluaton Of Mineral Resource

Exploration for and evaluation of mineral resources refers to the search for mineral resources, such as mineral oil, natural gas, and other non-regulatory resources, after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical and commercial viability of extracting the mineral resources.

Exploration and evaluation expenses are expenses incurred for the purpose of mineral resource exploration and evaluation.

IFRS 6 allows an entity to develop an accounting policy for the recognition, exploration, and evaluation of expenditures as assets without contemplating the requirements of paragraphs II and 12 of IAS 8: accounting policies, changes in accounting estimates, and errors.

Disclosures:

IFRS 6 paragraphs 23-25 on exploration for and evaluation of mineral resources stipulate a number of specific disclosure requirements.

To disclose information that identifies and explains the amount attributed to the exploration of mineral resources in its financial statement.

Exploration and evaluation expenditure accounting policies that include the recognition of exploration and evaluation assets.

The revenues and expenses, as well as operating and investing cashflows, resulting from the evaluation and exploration of mineral resources.

IFRS 7:FINANCIAL INSTRUMENTS: DISCLOSURES

IAS 32 financial instrument recognition and measurement addresses the presentation, recognition, and measurement of financial instruments. IFRS 7 specifies financial statement disclosures.

Disclosure principles

Information that enables users to assess the significance of financial instruments for the financial position and performance of the entity.

i Information that allows users to assess the significant instrument.

ii The nature and extent of the entity’s exposure to state-related risk at the end of the reporting period.

iii Including information about the entity manager’s current financial risk exposures.

Disclosure Requirements

1 Information regarding exposures to risks arising from financial instruments, including specified credit risk, liquidity risk, and market risk.

Based on information supplied internally to the entity’s key management, these disclosures reveal the extent to which the entity is exposed to risk.

IFRS 8 – Operating Segments

According to IFRS 8, an operating segment is a component of an entity that:

i Participates in commercial activities from which it may generate revenues and incur expenses.

ii Its operating results are routinely reviewed by the entity’s chief operating decision maker in order to determine the assets and resources to be allocated to the segment based on its performance.

IFRS 8 pertains to the separate or individual financial statements of an entity (as well as the consolidated financial statements of a group with apparent relationships).

iii Whose obligations or entity instruments are transacted on the public market.

iv That files are in the process of falling, it has submitted consolidated financial statements to the Securities and Exchange Commission.

Disclosures Requirements

1 General information regarding how the entity identified its operating segments and the categories of products and services from which each segment derives revenues.

Information regarding the reported segment profit or loss, including certain specified revenues and expenses included in segment profit or loss, segment assets, segment liabilities, and the measurement basis.

Information regarding transactions with important clients

Financial Instruments (IFRS 9)

IFRS 9 defines the recognition and measurement requirements for financial instruments and certain contracts to purchase or sell non-financial instruments.

Initially, all financial instruments are measured at fair value phis or minus, in the case of a financial asset or liability, and not at fair value through profit or loss transaction costs.

Consequently, IFRS 9 classifies all financial assets currently covered by ISS 39 into two categories: those measured at amortized costa and those measured at fair value.

DISCLOSURES

IFRS 9 modifies certain IFRS financial instrument requirements. Disclosures include additional information regarding investments in equity instruments.

IFRS 10 – Financial Statement Consolidated

A consolidated financial statement is a group’s financial statement that includes the following: