1. : ROADMAP TO IFRS ADOPTION IN
NIGERIA, CONVERSION FROM SAS
TO IFRS AND THE CONCEPTUAL
FRAMEWORK/FOUNDATION OF
IFRSs STANDARDS
Titus E. Osawe
Assistant Director, Monitoring, Enforcement and Notifications Dept.
Financial Reporting Council of Nigeria
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2. Content
1. Background Information on Global
Convergence
2. Conceptual Framework for Financial
Reporting
3. Nigerian Roadmap to IFRS
4. Briefs on First-Time Adoption
5. Highlights of Steps involved in Conversion
6. Over all Implications of IFRS Adoption
7. Pitfalls to avoid.
3. BACKGROUND INFORMATION
• What is IFRS?
A series of single set of high quality , understandable
and enforceable global accounting standards
developed and published by the IASB to be used by
entities in preparing general purpose financial
statements and other financial reporting.
International Standards
• Standards
+ IAS 1-41 (29 still applicable)
+ IFRS 1 – 9
• Interpretations
+ SIC 1-32 (11 still applicable)
+ IFRIC 1-19 (three withdrawn)
IAS
& SIC
IFRS &
IFRIC
IASC; 1973-2000
IASB; 2001 - DATE
Generally IFRS = IASs + IFRSs
with their interpretations
4. A Changing Global Financial
Reporting Environment
•Globally there is a remarkable movement towards a single
financial reporting language – International Financial Reporting
Standards (IFRS)
•Currently (by the end of 2011), about 150 jurisdictions permit or
require the use of IFRS
•In Africa – Ghana, South Africa, Egypt, Kenya, Morocco(Banks;p),
Namibia, Togo (p), Niger (p), Nigeria (Re: 2012)
•Regulatory trend
• International Accounting Standards Board (IASB) and the Financial Accounting
Standards Board (FASB) have reaffirmed convergence efforts
• Greater cooperation amongst regulators on IFRS application issues
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5. Benefits and Drivers of IFRS
IFRS:
Uniform
Global
Accounting
Language
More room for
management’s
judgment and truer
reflection of economic
reality with principles-based
Reduced cost of
financial reporting
for global
companies
GAAP
Industry
perception of
market
leadership
Improved
transparency and
comparability
for investors and
rating agencies
international investors
and to enable easy
monitoring of overseas
Ability to understand
interaction with
strategic initiatives
to generate value
from synergies
Streamlined
M&A activity
Increasing
demand for public
accountability and
transparency by all
stakeholders
Need to attract
investments.
Facilitate
comparison
between public
entities
More efficient
access to capital
for global
corporations
Ability to analyse
impact on
tax-related issues
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6. THE IASB’S CONCEPTUAL FRAMEWORK
• The conceptual framework aims at providing a sound foundation for future
accounting standards that are principles –based, internally consistent and
internationally converged.
• The Framework sets out the concepts that underlie the preparation and
presentation of financial statements for external users. Its purpose is to:
– Assist IASB in developing accounting standards and assist preparers of
financial statements in applying IFRSs and in dealing with topics that have
yet to form the subject of an IFRS
– Assist users of financial statements in interpreting the information
contained in financial statements prepared in conformity with IFRSs
– Provide those who are interested in the work of IASB with information
about its approach to the formulation of IFRSs
• The framework was first published in July 1989 and adopted in April 2001.
7. • In July 2006 IASB produced a discussion paper-preliminary
views on an improved conceptual
framework for financial reporting.
– The paper covers the first two chapters of a proposed
conceptual framework:
• Chapter 1: The objective of financial reporting
• Chapter 2: Qualitative characteristics of decision-useful financial
reporting information
• In September 2010 the IASB approved the Conceptual
Framework for Financial Reporting 2010 (the IFRS
Framework), dealing with these first two chapters.
8. Project set-up
The Council are conducting the project in 8 phases. Phase A was
completed in September 2010. Phases B, C, and B the project
are currently active
Phases Topics
A. Objectives and qualitative characteristics – Project completed 28/09/2010 as announced by the joint working group of IASB and FASB;
B. Definitions of elements, recognition and derecognition - Last worked by joint group in October in October 2008;
C. Measurement – Still developing Preliminary views as at July 2010
D. Reporting entity concept – ED published 11/03/2010, exposed till 16/07/2010;
E. Boundaries of financial reporting, and presentation and disclosure – last revisions was, February 2008;
F. Purposes and Status of the framework – last revisions February, 2008;
G. Application of the framework to not-for-profit - last revisions February, 2008;
H. Remaining issues, if any - last revisions February, 2008;
9. • In the absence of a Standard or an Interpretation that
applies specifically to a transaction, management must
use its judgement in developing and applying an
accounting policy that results in information that is
relevant and reliable.
– In doing this, IAS 8 (Accounting Polices, changes and
Accounting Estimates and Errorsrequires management to
consider the definitions, recognition criteria, and
measurement concepts for assets, liabilities, income, and
expenses as contained in the IFRS Framework.
10. • The Framework consists of several sections or
chapters, following on after a preface and
introduction. These chapters are as follows:
– The objective of financial statements
– Underlying assumptions
– The qualitative characteristics of financial statements
– The elements of financial statements
– Recognition of elements of financial statements
– Measurements of the elements of the financial
statements
– Concepts of capital and capital maintenance
11. Objectives of General Purpose
Financial Reporting
• To provide financial information about the
reporting entity that is useful to existing and
potential investors, lenders and other
creditors in making decisions about providing
resources to the entity, which includes
decisions about the accountability of the
entity’s management
12. Users Of General Purpose Financial
Reporting
The Conceptual framework groups these into
primary and other users
• Primary users are present and potential
investors, lenders and other creditors.
• Other parties include prudential and market
regulators.
13. Users Information Needs
• Primary users use the information to make
decisions about buying, selling or holding equity
or debt instruments and providing or settling
loans or other forms of credit.
• The primary users use the information to assess
an entity’s prospects for future net cash inflows
and to judge how effective and efficient
management has discharged their responsibilities
of using the entity’s existing resources.
• Other parties, including prudential and market
regulators, may find general purpose financial
reports useful, but the reports are not primarily
directed to regulators or other parties
14. Economic Resources And Claims
• A reporting entity’s economic resources and claims are
reported in the statement of financial position
• Information about the nature and amounts assists
users to assess an entity’s
– financial strengths and weaknesses;
– liquidity and solvency, and
– its need and ability to obtain financing.
• Information about the claims and payment
requirements assists users to predict how future cash
flows will be distributed among those with a claim on
the reporting entity.
15. Qualitative Characteristics of Financial
Statements
Qualitative characteristics are the attributes that
make the information provided in financial
statements useful to users. They are majorly
categorised as:
• - Fundamental qualitative characteristics-relevance
and faithful representation and
• The enhancing qualitative characteristics that
distinguish more useful information from less
useful information -comparability, timeliness,
verifiability and understandability.
16. Relevance
• Relevant financial information is capable of making a
difference in the decisions made by users. Financial
information is capable of making a difference in decisions if
it has predictive value, confirmatory value, or both. The
predictive value and confirmatory value of financial
information are interrelated
• Materiality is an entity-specific aspect of relevance based
on the nature or magnitude (or both) of the items to which
the information relates in the context of an individual
entity’s financial report
• Information is material if its omission or misstatement
could influence the economic decisions of users taken on
the basis of the financial statements
17. Faithful Representation
• General purpose financial reports represent
economic phenomena in words and numbers, To
be useful, financial information must not only be
relevant, it must also represent faithfully the
phenomena it purports to represent.
• This fundamental characteristic seeks to
maximise the underlying characteristics of
completeness, neutrality and freedom from error.
• Information must be both relevant and faithfully
represented if it is to be useful
18. Comparability
• Information about a reporting entity is more
useful if it can be compared with a similar
information about other entities and with
similar information about the same entity for
another period or another date.
• Comparability enables users to identify and
understand similarities in, and differences
among, items
19. Verifiability
• Verifiability helps to assure users that
information represents faithfully the economic
phenomena it purports to represent.
• Verifiability means that different
knowledgeable and independent observers
could reach consensus, although not
necessarily complete agreement, that a
particular depiction is a faithful representation
20. Timeliness
• Timeliness means that information is available
to decision-makers in time to be capable of
influencing their decisions
21. Understandability
• Classifying, characterising and presenting information
clearly and concisely makes it understandable.
• While some phenomena are inherently complex and
cannot be made easy to understand, to exclude such
information would make financial reports incomplete
and potentially misleading.
• Financial reports are prepared for users who have a
reasonable knowledge of business and economic
activities and who review and analyse the information
with diligence
22. Information Irrelevance And Faithful
Representation
• Enhancing qualitative characteristics (either
individually or collectively) render information
useful if that information is irrelevant or not
represented faithfully
23. Cost Constraint On Useful Financial
Reporting
• Cost is a pervasive constraint on the reporting entity’s
ability to provide useful information in general purpose
financial reporting.
• Reporting such information imposes costs and those costs
should be justified by the benefits of reporting that
information.
• The IASB assesses costs and benefits in relation to financial
reporting generally, and not solely in relation to individual
reporting entities.
• The IASB will consider whether different sizes of entities
and other factors justify different reporting requirements in
certain situations.
24. Constraints on Relevant and Reliable
Information
• Timeliness
– If there is undue delay in the reporting of information it
may lose its relevance. Management may need to balance
the relative merits of timely reporting and the provision of
reliable information
• Balance between benefit and cost
– The benefits derived from information should exceed the
cost of providing it
• Balance between qualitative characteristics
– In practice a balancing, or trade-off, between qualitative
characteristics is often necessary. Generally the aim is to
achieve an appropriate balance among the characteristics
in order to meet the objective of financial statements
25. The Reporting Entity- This is currently
a discussion paper.
• The conceptual framework describes rather than
precisely define a reporting entity as a
circumscribed area of business activity of interest
to present and potential equity investors, lenders
and other capital providers.
– Examples of reporting entities are:
• Sole trader
• Corporation
• Trust
• Partnership
• Associations, and
• Group
26. The Parent Entity Financial Reporting
• Two issues considered here are:
– The parent company approach to consolidated financial
statements.
– Whether parent only financial statements and consolidated
financial statements meet the objective of financial reporting
and whether both are needed.
• IASB preliminary conclusion is:
– That consolidated financial statements should be presented
from the perspective of group reporting entity not, the parent
company shareholders
– That the consolidated financial statements meet the objective
of financial reporting, but that parent only financial statements
maybe presented provided they are included in the same
financial report as consolidated financial statements.
27. Underlying Assumptions
• Accrual basis
– In order to meet their objectives, financial statements are
prepared on the accrual basis of accounting
• Going concern
– The financial statements are normally prepared on the
assumption that an entity is a going concern and will continue in
operation for the foreseeable future
28. Elements of Financial Statements
• Financial statements portray the financial effects of transactions
and other events by grouping them into broad classes according to
their economic characteristics
• These broad classes are termed the elements of financial
statements
• Elements directly related to the measurement of financial position
in the balance sheet are assets, liabilities and equity
• The elements directly related to the measurement of performance
in the income statement are income and expenses
• The statement of changes in financial position usually reflects
income statement elements and changes in balance sheet elements
29. Financial Position
• An asset
– A resource controlled by the entity
– As a result of past events and
– From which future economic benefits are expected to flow to
the entity
• A liability
– A present obligation of the entity
– Arising from past events
– The settlement of which is expected to result in an outflow from
the entity of resources embodying economic benefits.
• Equity
– Is the residual interest in the assets of the entity after deducting
all its liabilities
30. Performance
• Profit is frequently used as a measure of
performance or as the basis for other measures,
such as return on investment or earnings per
share.
• The elements directly related to the
measurement of profit are income and expenses.
The recognition and measurement of income and
expenses, and hence profit, depends in part on:
– The concepts of capital
– Capital maintenance used by the entity
31. Income and Expenses
Income
• Increases in economic benefits during the accounting
period in the form of inflows or enhancements of assets or
decreases of liabilities that result in increases in equity,
other than those relating to contributions from equity
participants
Expenses
• Decreases in economic benefits during the accounting
period in the form of outflows or depletions of assets or
incurrences of liabilities that result in decreases in equity,
other than those relating to distributions to equity
participants.
32. Capital Maintenance Adjustments
• The revaluation or restatement of assets and
liabilities gives rise to increases or decreases in
equity
• While these increases or decreases meet the
definition of income and expenses, they are not
included in the income statement under certain
concepts of capital maintenance
• Instead these items are included in equity as
capital maintenance adjustments or revaluation
reserves.
33. Recognition Of The Elements Of
Financial Statements
• Recognition is the process of incorporating in the
financial statements
– An item that meets the definition of an element; and
– Satisfies the criteria for recognition
• An item that meets the definition of an element
should be recognised if:
– It is probable that any future economic benefit
associated with the item will flow to or from the
entity
– The item has a cost or value that can be measured
with reliability.
34. Measurement of the Elements of
Financial Statements
• Measurement is the process of determining the
monetary amounts at which the elements of the
financial statements are to be recognised and
carried in the balance sheet and income
statement
• Bases of measurement include:
– Historical cost
– Current cost
– Realisable (settlement) value
– Present value
35. NIGERIAN ROADMAP TO IFRS ADOPTION
Adoption of IFRS in Nigeria:
a trip down memory lane
• What is SAS?
Just like the IASB’s pronouncements (developing & publishing) of IFRS the NASB (now FRC) issues
prescribeds and pronounce accounting rules to be used by entities in preparing general purpose
financial statements, to ensure transparency and compatibility.
• 32 SASs developed and published so far
• 7 Industry Specific Standards
• 1 SORP- Statement of Recommended Practice on Employees’
Retirement and Termination Benefits for Public Sector Entities
• In the earlier years, NASB’s SAS had many similarities
with IASB’s standards. (but the SASs never matched the
pace of the IASs in terms of review and updates)
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36. Adoption of IFRS in Nigeria:
a trip down memory lane
• Adaptation was reiterated in Nigeria between
2002 – mid 2008.
• Closer harmonisation of SAS with IFRS took place
in 2007 with the release of SASs 25, 27, 28, 29, 30.
• Strong signals from CBN, SEC, NSE and other
regulators suggesting adoption of IFRS.
37. SAS vs. IFRS
SAS IFRS
Principles based Principles based
Primary statements Accounting Policies Accounting Policies
Balance sheet Statement of Financial Position
Profit and loss account Statement of Comprehensive
Income
Statement of Cash Flows Statement of Cash Flows
N/A
Statement of Changes in Equity
Notes Notes
Value Added Statement N/A
Five Year Financial Summary N/A
Measurement Basis -Historical Cost
-Net Realisable Value
-Revalued Amounts
-Fair Value
-Historical Cost
-Net Realisable Value
-Revalued Amounts
-Net Present Value
-Fair Value
38. Adoption of IFRS in Nigeria
• A Road map committee was inaugurated on
October 22, 2009.
• The Road Map committee’s report was
submitted January 26, 2010.
• The Federal Government took a decision on
July 28, 2010 to adopt IFRS effective January 1,
2012 .
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39. IFRS
Competence
2010
Transition Date:
Other public
interest entities
(PIE’s)
2011
2012
Reporting Date:
Other PIE’s
2013
Alignment with other initiatives and training for appropriate personnel
Realisation and standardisation of statutory reporting
• Awareness
• Assessment
• Legislative changes
• Training
• Planning/ Impact analysis
• Transition adjustments/
Opening BS (listed &
SPE’s)
• Transition
adjustments
• Prepare IFRS
Opening Statement
of Financial
Position (SFP)
• “Dry Runs” for
Listed & SPE’s
• Prepare
comparative
figures
• IFRS/ Quarterly
reporting by listed &
SPE’s
• Audit procedures
• Investor
communications
• PIE’s prepare
opening SFP &
comparative figs
• Dry Runs” for PIE’s
• SME’s commence
transition planning
• IFRS/Quarterly
reporting by PIE’s
• Audit procedures
• PIE Investor
communications
• Compliance
monitoring for
Listed & SPE’s
• SME’s prepare
opening SFP &
comparative figs
• PIE/SME Investor
communications
• “Dry Runs” for
SME’s
Roadmap to IFRS conversion
Transition Date:
Listed &
Significant Public
Entities (SPE’s)
Reporting Date:
(Listed & significant
public entities)
Transition Date:
Reporting Date:
SME’s
SME’s 2014
• IFRS reporting by
Other SME’s
• Audit procedures
• Investor
communications
• Compliance
monitoring
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40. Significant public interest entities
• This means
• government business entities,
• all entities that have their equities or debt instruments
listed and traded in a public market i.e.
• a domestic or foreign Stock Exchange or
• an Over the Counter market, including local and regional markets
• such other organisations, though unquoted, are required
by law to file returns with
• regulatory authorities and this excludes private companies that
routinely file returns only with Corporate Affairs Commission and
the Federal Inland Revenue Service. Examples of entities meeting
these criteria include financial and other credit institutions and
insurance companies.
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41. Other Public Interest Entities
• This refers to those entities, other than listed
entities (unquoted, private companies)
– which are of significant public interest because
• of their nature of business,
• size
• number of employees
• their corporate status which require wide range of
stakeholders.
– Examples of entities meeting these criteria are
• large not for profit entities such as charities and pension
funds and may include publicly owned entities
• other entities where there is a potentially significant effect
on financial stability.
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42. Adoption of IFRS in Nigeria:
Challenges
Length of time
Level of preparedness of
all the stakeholders:
Regulators
Challenges
IFRS Skills Cost (IT, training etc.)
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43. BRIEFS ON FIRST TIME ADOPTION
Summary of First-Time Adoption Dates – Nigeria
NB: You must identify where you belong in the Nigeria Roadmap
date of transition Comparative First IFRS reporting date
information
1 Jan 2011 31 Dec 2011 31 Dec 2012
(Dec 31, 2010)
transition period/ First IFRS reporting period
dual reporting period
Opening IFRS Last financial statements First IFRS
Financial
balance sheet in accordance with previous Statements
GAAP other than IFRS
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44. Some relevant definitions
Date of transition to IFRS
The beginning of the earliest period for which an entity
presents full comparative information under IFRS in its first
IFRS financial statements
Opening IFRS statement of financial position
An entity’s statement of financial position at the date of transition to
IFRS
First IFRS Reporting Period
The latest period covered by an entity’s first IFRS financial
statements
Deemed Cost
An amount used as a surrogate for cost or depreciated cost
at a given date
45. Scope of IFRS 1 - Application
Apply IFRS 1 in:
An entity's first IFRS financial statements
• The first annual financial statement in which an entity
adopts IFRS by an explicit and unreserved statement of
compliance with IFRS
Each interim financial report that it presents (under
IAS 34) for part of the period covered in its first IFRS
financial statements
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46. IFRS 1 - First-time Adoption
IFRS 1 requires an entity to use the same accounting policies in its Opening
IFRS Statement of Financial Position and throughout all periods presented
in its first IFRS FS
Apply IFRSs that are effective at the end of its first IFRS reporting period i.e.
December 2012 in preparing and presenting
Statement of financial position for December 31, 2012
Statement of comprehensive income for December, 2012
Statement of Changes in Equity – December 31, 2012
Statement of Cash flows – December 31, 2012
All Comparatives for December 31, 2011
(Entity may apply new IFRSs that have been issued but not mandatory at the
end of its reporting period as long as early application of such in permitted)
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47. First time application of IFRS-The
first set of IFRS financial statements must have :-
• Primary statements:
•Three Statements of financial position (“Balance sheets”)
•Two Statements of comprehensive income (“Income statement”)
•Two Statements of changes in equity
•Two Statements of cash flows
• Notes:
•Three periods presented for the balance sheet notes which are impacted at
opening balance sheet date.
•Reconciliation: Equity from SAS to IFRS at Opening balance sheet and
comparative period
•Reconciliation: Total comprehensive income from SAS to IFRS for comparative
period
48. IFRS 1 - First-time Adoption
Ignore transitional rules in other IFRSs, when
adopting IFRS for the first time (e.g. transitional
provisions in IFRS 2 and 3)
IFRS 1 contains all the first-time adoption rules.
Each new IFRS may update IFRS 1
Beware: Be sure to be working with the right
version of IFRSs
49. HIGHLIGHTS OF STEPS INVOLVED IN CONVERSION
Seven Key points to note in your conversion
1. As it relates to Nigeria roadmap identify your
relevant year
2. Generally - comply retrospectively with IFRS in
force at the reporting date
Particularly:
Recognise all assets and liabilities required by IFRS
Derecognise assets and liabilities not permitted by IFRS
Reclassify all assets, liabilities or component of equity in
accordance with IFRS
Measure all recognised items according to IFRS
3. There are optional exemptions and mandatory
exceptions to retrospective application
50. 4. Apply all mandatory exceptions in IFRS 1
5. Consider optional exemptions
6. Reconcile
7. Disclose
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51. OVERALL IMPLICATIONS
Implication on Financial reporting
• New Assets coming onto the balance sheet
• Potential for greater volatility from increased use of
fair value
• Increased use of management judgment
• Transition elections and exemptions - potential
impact on retained earnings
• Significant increase in disclosures
• Improved annual reports and accounts in terms of
quality and quantity
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52. Implication on financial reporting (contd.)
• Transparent and comparable data
• Implications for debt covenants and other
legal requirements
• Additional valuation costs
• The entity’s business process (all aspect of the
organisation). Complete change of system,
process and people.
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53. PITFALLS TO AVOID
Don’t think it’s not an enterprise-wide issue.
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• Poor stakeholder management
• Last minute implementation from poor planning
• Late engagement of business units
– where data is captured; or
– where customers are impacted
• Not embedding accounting solutions into underlying systems
• Internal reporting backing into legacy GAAP
• Slow to move on developing and retaining resources
• Push down of centralized accounting decisions without appropriate
consultation
• Underestimation of data required and support processes to get them