Accounting reporting environment in Nigeria since 1960

Accounting reporting environment in Nigeria since 1960


Published annual reports are required to provide various users – shareholders, employees, suppliers, creditors, financial analysts, stockbrokers, management, and government agencies – with timely and reliable information useful for making prudent, effective and efficient decisions. The extent and quality of disclosure within these published reports vary from company to company and also from country to country. Literature reveals that the level of reliable and adequate information by listed companies in developing countries lags behind that in developed ones and government regulatory forces are less effective in driving the enforcement of existing accounting standards (Ali, Ahmed and Henry, 2004:183). Non-disclosure results from immature development of accounting practice in developing nations (Osisioma, 2001:40). The government regulatory bodies and the accountancy profession in these nations suffer from structural weaknesses which could encourage corporate fraud at the expense of those that have economic and proprietary interest in the business environment.

Accounting reporting environment in Nigeria since 1960

Accounting and financial reporting requirements of companies in Nigeria are regulated by a multiplicity of laws and bodies (World Bank, 2004:2). These include Companies and Allied Matters Act CAP. 20 L.F.N. 2004, Securities and Exchange Commission Rules and Regulations (1999), Investments and Securities Act CAP.124 L.F.N. 2004, Nigerian Stock Exchanges Act (1961), Banks and Other Financial Institutions Act (1991), Nigerian Insurance Act (2003), Nigerian Accounting Standards Board Act (2003), Institute of Chartered Accountants of Nigeria Act (1965) and Association of National Accountants of Nigeria Act (1993).

The main legal framework for corporate accounting practices in Nigeria is the Companies and Allied Matters Act CAP. 20 L.F.N. 2004. The SEC regulates securities market participants under the Investments and Securities Act CAP.124 L.F.N. 2004 and the Securities and Exchange Commission Rules and Regulations (1999). The Nigerian Stock Exchange, established by the Nigerian Stock Exchange Act of 1961, supports the Securities and Exchange Commission to supervise the securities market operations, and regulates the capital market. Within the capital market there exists the primary and secondary market. The primary market issues new securities and the secondary market deals with existing securities.

The Central Bank of Nigeria is the main statutory regulator of banks and nonbanking financial institutions under the provisions of the Banks and Other Financial Institutions Act (1991). The Banks and Other Financial Institutions Act (1991) contains provision on financial reporting by banks in addition to CAMA requirements. The National Insurance Commission regulates financial reporting practices of insurance companies under the Nigerian Insurance Act of 2003. CAMA 2004 as amended requires financial statements of companies in Nigeria to comply with the accounting standards as laid down from time to time by the Nigerian Accounting Standard Board as constituted.

Accounting reports of Nigerian companies have been found to be deficient over time (Wallace, 1988:352; Adeyemi, 2006:193, Nzekwe, 2009:1), in the sense that they lack vital information that will enable stakeholders make informed decisions. Apart from the studies conducted by the World Bank, disclosure practices by Nigerian companies had been empirically investigated by Wallace (1988:352), Okike (2000:39), Adeyemi (2006:1) and Ofoegbu and Okoye (2006:45). Their observation is quite similar in that they all found the Nigerian corporate reporting practices to be deficient. Two notable studies are the doctoral works of Wallace (1988:352) and Adeyemi (2006:1). Wallace (1988:352) researches on the extent of financial reporting disclosure by using a sample of 47 publicly quoted companies in Nigeria for the period 1982 to 1986. His study won international recognition and accolade, since this was the first work to show a detailed analysis of this subject empirically for Nigeria. Nonetheless, one drawback of the study is that it does not examine the disclosure of specific items of information. It also does not empirically determine the variability of disclosure as a result of specific company attributes. Moreover, this study was conducted more than two decades ago and since then there have been additional reporting standards locally and internationally, changes in legislation, business and reporting environment and securities reporting rules. Adeyemi (2006:1) built on the works of Wallace by considering SAS 1 to SAS 21 and using a sample of 96 listed companies with year end between 2003 and 2004. In addition, he empirically determined the relationship between disclosure and some company characteristics. His study is quite noble; however, with the fast pace of changes in the global business world. We need to be conversant with latest developments in this area of research.

The lapse in the financial reporting system had led to the presentation of the Financial Reporting Council (FRC) Bill to the National Assembly in Nigeria. The Bill is still currently under debate at the National Assembly. The FRC Act when enacted would replace the NASB Act with enlarged functions (Nnadi, 2009a:14). It is expected to go a long way in strengthening the financial reporting system in Nigeria and to ensure credence of financial reports and corporate disclosure practices among Nigerian companies.

Accounting researchers have investigated relationships between corporate characteristics and disclosures in corporate annual reports since 1960s. Early works on this subject was pioneered by Cerf (as cited in Fremgen (1964:467) and afterwards, many studies have examined the quality of information disclosures in various contexts. Examples of such studies are: Owusu- Ansah (1998:605-631); Ho and Wong (2001:139-156), Joshi and Ramadhan (2002:429-440); Chau and Gray (2002:247-265); Naser et al. (2002: 122-155); Naser and Nuseibeh(2003:41-65); Akhtaruddin (2005:399-422) and Ofoegbu and Okoye (2006:45-53). Each of these studies has been distinguished by differences in research setting, differences in definition of the explanatory variables, differences in disclosure index construction and differences in statistical analysis.

Research setting varies from developed to developing countries. Studies in developed countries include: United States (Singhvi and Desai, 1971: 129-138; Buzby, 1975:16-37; Stanga, 1976:42-52, Street and Bryant, 2000:41-69); New Zealand (Mc Nally et al., 1982:11-20; Sweden (Cooke, 1989:113-124;); Canada (Bujaki and McConomy,2002:105-139); Spain (Wallace et al., 1994:41-53); France (Depoers 2000: 245-263); Japan (Cooke, 1992:229-237); Germany (Glaum and Street, 2003:64-100); New Zealand (Owusu-Ansah and Yeao, 2005:92-109); United Kingdim (Iatridis, 2008: 219-241; Camfferman and Cooke 2002:3-30). While studies in developing countries include India (Singhvi,1968:551-552; Ahmed, 2005:73-79), Mexico( Chow and Wong-Boren,1987:533-541), Nigeria (Wallace, 1988:352-362; Ofoegbu and Okoye, 2006:45-53); Zimbabwe (Owusu-Ansah,1998:605-631); Bahrain (Joshi and Ramadhan,2002:429-440); Jordan (Naser et al., 2002:122-155); Saudi (Naser and Nuseibeh, 2003:41-69) Kenya (Barako, 2007:113-128) and Bangladesh (Akhtaruddin, 2005:399-422; Waresul Karim and Ahmed (2006:1). Summary of these empirical evidences are contained in Table 2.01 (pages 58 – 62).

The researchers examine corporate characteristics that are used as predictors of the quality of disclosure. This ranges from two (Buzby, 1975:16) to eleven ( Mc Nally et al , 1982). The most popular characteristics are corporate size, profitability, liquidity, gearing, audit size, listing status, multinational parent, age, and ownership structure. Studies on financial reporting disclosure and corporate attributes are as shown in Table 2.01 (pages 58-62). The quality of disclosure in corporate annual reports and accounts has been represented in the literature by several constructs: adequacy (Buzby, 1975:16, Owusu-Ansah, 1998:609), comprehensiveness (Wallace and Naser, 1995:311 Barrett, 1976: 12), informativeness (Alford, Jones, Leftwich & Zmijewski, 1993:183), and timeliness (Courtis, 1976:45). Each construct suggests that the quality of disclosure can be measured by an index representing the dependent variable.

Some studies use weighted disclosure indexes while some others use unweighted disclosure indexes. Those that use indexes are of two strands, weighted (either subjectively by the researcher(s) alone or by the researcher(s) using weights elicited from surveys of users’ perceptions), while some others are unweighted. All the studies, except for Imhoff (1992:97) and Lang and Lundholm (1993:246), use a researcher created dependent variable. Both Imhoff and Lang and Lundholm use disclosure indexes created by analysts. Chow and Wong-Boren, (1987: 536) have provided some proofs that there may be no significant difference between weighted and unweighted disclosure indexes. In addition, weights neither affect real economic consequences on the subjects whose opinions are pooled (Chow and Wong-Boren, 1987: 536) nor do they reflect stable perceptions on similar information. The information items forming the basis of the index of disclosure are either voluntary or mandatory disclosures. The mandatory disclosures are basically international standards. These items vary from a minimum of 24 (Chow and Wong-Boren, 1987:535) to a maximum of 214 (Owusu Ansah, 1998: 609). Some of these disclosure indexes are items across subjects ( Chow and Wong-Boren, (1987: 536), over time (Dhaliwal, 1980:385) and from similar subjects across countries (Firer and Meth, 1986:178).

While earlier studies use the matched-pair statistical procedures to test the difference between mean disclosure indexes of two or more groups of sample firms (e.g., Singhvi and Desai, 1971:135; Buzby, 1975:26), Studies from the 1980s, beginning with Chow and Wong-Boren (1987:535), use the multiple regression procedure and the sophistication and rigour of analysis of the regression methodology are improving with time. For example, Cooke (1989:113) and Imhoff (1992:97) use different rigorous dummy variable manipulation procedures within a stepwise multiple (OLS) regression while Lang and Lundholm (1993:246) introduce the use of rank (OLS) regression to cater for the monotonic behaviour of disclosure indexes following a change in some independent variables.

Overall, the findings regarding the compliance level of companies and the relationship between the level of disclosure and various corporate attributes are mixed. This section further reviews studies in both developed and developing countries.

Cerf (as cited in Fremgen (1964:467) pioneers the study on the relationship between extent of corporate disclosure and company attributes. He utilizes a random sample of 527 listed and unlisted corporate organizations for evidence of compliance with certain minimal standards of disclosure. Cerf considers twelve explanatory variables for possible correlation with superiority of disclosure. The independent variables include profitability, asset size, method of trading shares, stock ownership, industry, frequency of external financing, stability of growth in earnings and dividends, product, degree of competition, association with CPA firms and management characteristics. Only the first four of these variables are tested. Superiority of disclosure is measured by an index of disclosure. This is constructed based on thirty one information items each weighted by importance. A percentage score is given to each company by dividing the number of points achieved by the total points possible for all items applicable to the company.

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Cerf finds that there is a positive relation between disclosure and asset size, profitability, and shareholder number. As for methods of trading shares he finds that New York Stock exchange companies are significantly superior to others, while for reporting, no significant difference is seen. He also discovers that there is lack of disclosure of some techniques such as depreciation, inventories, recognition of income on long term contracts and income tax allocation. Evidence also shows that specific items required by shareholders are not adequately disclosed. Among them are sales breakdown, research and development (current and planned), capital expenditure (current and planned), and information on management and their policies. Cerf’s ( as cited in Ray 1962:595) study is seen as very interesting but failed to test significance in statistical terms. The study does not consider some corporations such as foreign corporations, banks, finance houses, insurance companies, real estate companies, public utilities and investment companies.

Companies and Allied Matters Act (CAMA) CAP. C20 L.F.N. 2004

Corporate financial reporting in Nigeria is currently guided by CAMA 2004 (as amended). This is the major legislation governing financial reporting of companies in Nigeria. The basic requirement relating to corporate financial reporting is contained in Part XI- Financial Statements and Audit. Sections 331- 356 relate to financial statements while sections 357 to 369 relate to Audit.

Section 331 compels all companies to keep accounting records. These accounting records should contain all matters in respect of all receipt and expenditure. The accounting records should be sufficient to show and disclose with reasonable accuracy, at any time, the financial position of the company.

Section 332 states that the accounting records should be kept in a registered office or such other places deemed fit by the directors, subject to subsection 2 of this section which is in respect of the disposal of records under winding up rules.

Section 333 deals with penalties for non-compliance with the provisions of sections 331 and 332 of the CAMA.

Section 334 requires directors of every company to prepare financial statements in respect of each year of the company. S.334(2) states that the financial statements should include:

  1. a) statement of accounting policies;
  2. b) the balance sheet as at the last date of the year;
  3. c) a profit and loss account or, in the case of company not trading for profit, an income and expenditure account for the year;
  4. d) notes on the account;
  5. e) the auditors’ report;
  6. f) the directors’ report;
  7. g) a statement of source and application of funds (now replaced by statement of cash flow since 1997);
  8. h) a value added statement of the year;
  9. i) a five-year financial summary; and
  10. g) for holding company, a group financial statement.

S.334 (3) exempts private company from the matters as stated in paragraphs (a), (g), (h) and (i).

Section 335 states the form and content of individual financial statements. It requires the financial statements of a company to comply with the requirements of Schedule 2 to this Act (as far as applicable) and with the accounting standard as laid down from time to time by the Nigerian Accounting Standard Board as constituted.

Section 336 compels companies that have subsidiaries to prepare individual and group accounts for the year. The group financial statement should consist of a consolidation of balance sheet and the profit and loss account of the company and its subsidiaries. Section 337 states the form and content of group financial statements; this should comply with the requirements of Schedule 2 of the Act. Section 338 states the meaning of ‘holding company’, ‘subsidiary’ and ‘wholly owned subsidiary’.

Section 339 deals with additional disclosure required in notes to financial statement as contained in Schedule 3 to the Act. Schedule 3 deals with the following:

  1. a) Parts I and II deal respectively with the disclosure of the particulars of subsidiary and its shareholders;
  2. b) Part III deals with disclosure of financial information of subsidiaries;
  3. c) Part IV requires subsidiaries to disclose its ultimate holding company;
  4. d) Part V deals with emoluments and compensation to directors and past


  1. e) Part VI deals with the disclosure of the number of employees of the company with high remunerations.

Sections 340 – 341 deal with the disclosure of loans in favour of directors and connected persons in accordance with Part I and Part II of Schedule 4 of this Act (so far as applicable). Part I of the Schedule 4 is in relating to disclosure of transactions, arrangements and agreements mentioned therein, including loans, quasi loans and other dealing in favour of director. Part II of Schedule 4 is with regards to transactions, arrangements and agreements made by the company or subsidiary of it for persons who at any time during the year were officers of the company but not directors. Section 342 requires every company to prepare in respect to each year a report by the directors in accordance with Schedule 5 of the Act. It also states the penalties for non-compliance.

Sections 343 – 349 deal with procedure on completion of financial statements. Section 343 requires two of the directors of the company to sign the balance sheet and documents annexed thereto. Section 344 states persons entitled to receive financial statements as of right. Section 345 states the duration of time for delivery of the financial statements. Sections 346-348 state the penalty for non-compliance with Section 345 and penalty for laying or delivering defective financial statements. Section 349 states the shareholder’s right to obtain copies of financial statement.

Sections 350-353 deal with modified individual and group financial statements. Section 350 deals with the entitlement to deliver financial statements in modified form. Section 351 deals with qualification of a small company, Section 352 deals with modification of individual financial statements, while Section 353 deals with modification of financial statements of holding company.

Section 354 applies to the publication by a company of full individual or group financial statements. These financial statements must be laid before the company in general and delivered to the Corporate Affairs Commission including the directors’ and auditors’ report. It also deals with contraventions to this provision. Section 355- requires a company to publish abridged financial statement. It applies to any balance sheet or profit and loss account relating to a year of the company or purporting to deal with any such year, otherwise than as part of full financial statement to which section 354 of the Act applies.

Section 356 addresses the power to alter accounting requirements by the Minister after consultation with the Nigerian Accounting Standard Board. Sections 357-369 provide for Audit of the financial statements. It provides for appointment of auditors, qualification of auditors, auditors’ report, auditors’ duties and powers, remuneration of auditors, removal of auditors, auditors’ right, resignation of auditors, and the liability of auditors for negligence.

Development of Accounting Standards (National and International)

The practice of Accountancy worldwide is guided by sets of guidelines and rules. The rules and guidelines are compiled into accounting standards (Izedonmi and Ola, 2001:11). They are statements of principle that discuss the accounting treatment and disclosure of a particular item or group of items. There are two sets of standards governing the accounting practice in Nigeria, the national accounting standards and the international accounting standards. The national accounting standards, known as Statements of Accounting Standards (SASs) are issued by the Nigerian Accounting Standard Board (NASB), while the international accounting standard formerly known as International Accounting Standards (IASs) but now known as International Financial Reporting Standards (IFRSs) are issued by the International Accounting Standard Board.


Nigerian Accounting Standards Board

The Nigerian Accounting Standard Board (NASB) is a parastatal of the Federal government founded on September 9, 1982 but enacted as the NASB Act of 2003. The board came into being after the Nigerian Enterprises Promotion Decree was promulgated to transfer ownership of companies to Nigerians. The companies existing at that time exploited the fact that there was no uniform accounting practice. They utilized any accounting measure that seemed suitable to them. Those companies whose parents were residents outside Nigeria followed the dictates of their parents outside the shore of Nigeria, thereby, resulting to non- coherent accounting practices. NASB was therefore established at that time to stop the unpalatable conditions that existed before and after indigenization.

Specifically NASB was set up to narrow areas of differences in practices so that financial statements are structurally uniform and meaningful; produce accounting information relevant to the economic environment and introduce measures that will enhance the readability and validity of the accounting information (NASB, 2007). The standards are rules governing the preparation of the financial statements and they are essential because they result in efficient allocation of resources within the economy. The NASB was given a legal backing by its inclusion in Section 335(1) of the Companies and Allied Matters Act of 1990 which mandates all companies to prepare financial statements that comply with the Statement of Accounting Standards (SAS) as developed and issued by NASB from time to time. The NASB in 2003 was given the full autonomy as a legal entity with the enactment of the NASB Act of 2003. NASB is the only body that has the statutory power under the Act to monitor and enforce compliance with accounting standards.

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The NASB Act No 22 of 2003 identifies three objectives of the Law as follows:

  1. to establish the NASB charged with the responsibility of developing and publishing accounting standards to be observed in the preparation of financial statements;
  2. to seek to promote and enforce compliance with accounting standards issued by the Board; and
  3. to provide penalties for non-compliance with its provisions.

NASB’s membership includes representative of government and relevant interest groups drawn from the banking, manufacturing, commercial and educational sectors of the economy. They are as follows:

  • Central Bank of Nigeria (CBN)
  • Corporate Affairs Commission (CAC)
  • Federal Inland Revenue Service (FIRS)
  • Federal Ministry of Commerce (FMC)
  • Federal Ministry of Finance (FMF)
  • Nigerian Accounting Association (NAA)
  • Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA)
  • Nigeria Deposit Insurance Corporation (NDIC)
  • Securities and Exchange Commission (SEC)
  • The Institute of Chartered Accountants of Nigeria (ICAN)
  • Auditor-General of the Federation
  • Accountant-General of the Federation
  • Association of National Accountants of Nigeria (ANAN)
  • The Chartered Institute of Taxation of Nigeria (CITN)

As at 2009, the NASB have issued thirty standards. They are as stated in Appendix II.

International Accounting Standards Board

The International Accounting Standards Board (IASB) is an independent organization based in London, United Kingdom, that issues Accounting rules known as International Financial Reporting Standards (IFRS) previously known as International Accounting Standards (IAS). The International Accounting Standards Board (IASB) was preceded by the Board of the International Accounting Standards Committee (IASC), which operated from 1973 to 2001. IASC was set up on the initiative of Sir Henry Benson during the 10th World Congress of Accountants at Sydney, Australia, in 1972 (Ezejelue, 2001:8). The agreement to form IASC was signed on June 29, 1973 by nine accountancy bodies, viz, in Australia, Japan, France, Canada, Germany, Mexico, the United States, the United Kingdom and Ireland and the Netherlands, and these countries constituted the Board of IASC at that time (Alexander, Britton and Jorissen, ,2003:45). The IASC was established as a response to the call by accounting professionals of the G5 for better communication, closer co-operation and greater co-ordination of accounting rules among the various nations of the World. Blake (1981:193) narrated that the need for International Accounting Standards programme at that time was attributable to three factors – firstly, the growth in international investment; secondly, the increasing prominence of multinational enterprises and lastly, the growth in the number of accounting standard setting bodies.

In 1974, Belgium, India, Israel, New Zealand, Pakistan and Zimbabwe joined as associate members. The first two standards IAS 1, Disclosure of Accounting Policies and IAS 2, Valuation and Presentation of Inventories in the Context of the Historical Cost System were published in 1975. In 1977 the International Federation of Accountants (IFAC) was formed, to support the work of the IASC. In 1978, South Africa and Nigeria joined the Board. According to Wallace (1990:9), the implicit primary goal of IASC is harmonisation but its official goal as set out in the constitution is as follows (Roberts, Weetman, and Gordon (2002:133):

  1. to develop in the public interest, a single set of high quality understandable and enforceable global accounting standards;
  2. to promote the rigorous use and application of these accounting standards;
  3. to bring about the convergence of national accounting standards and international accounting standards.

According to Porter (2004: 8), over time, IASC has been marked by a number of significant challenges and accomplishments. During the first decade, (i.e. from 1973-1983) it successfully fended off efforts of developing Countries and it had to cope with the flexible private-sector Anglo-American approaches to accounting. It also had to cope with the more cautious and legalistic European approaches that were oriented much more to the needs of creditors and government. Afterwards, there was a need to harmonise the accounting standard for reasons such as reduction in diversity of financial statements for multinational enterprises and efficient comparison of international financial statements (Tower et al, 1999:294). During the second decade (i.e from 1984-1993) IASC’s initiative to harmonise accounting standards commenced but at a slow pace, mostly, because the standards were rigorous and not sufficiently specific. The Board made efforts to improve its standard by inaugurating a Comparability and Improvement project which was completed in 1993 with approval of ten revised IASs. This made them gain recognition of International Organization of Securities Commissions (IOSCO).

During 1994 to 2000, IASC’s stature was enhanced as a result of the global financial crises of the 1990s and IOSCO recommended that its members should allow foreign firms to use IAS in accessing their securities markets. On 1, April 2001, IASC was transformed to the IASB with the responsibility for setting International Accounting Standards.   A four-level structure was created with a separation between the Trustees, the Board, a Standards Advisory Council and a Standing Interpretations Committee endorsed by IOSCO, the SEC and Financial Standards Accounting Board. The IAS was renamed International Financial Reporting Standards (IFRS). In 2002, U.S. Financial Accounting Standards Board (FASB) and IASB held a joint meeting and issued a memorandum of understanding pledging convergence of their accounting standards and coordination of their work programmes. In 2004, European Commission endorses all IASs and IFRSs for use in Europe. These countries include Austria, Belgium, Cyprus, Czech Republic, Denmark. Germany. Estonia. Greece, Spain, France, Ireland. Italy, Latvia. Lithuania, Luxembourg. Hungary. Malta. Netherlands. Poland, Portugal, Slovenia, Slovakia. Finland, Sweden and U.K. During the same period, Australia, Hong Kong, New Zealand, and Philippines adopt improved IASs and IFRSs.

Several countries that had not adopted IFRS had established machinery for convergence. Convergence is a modified version of adoption. Ball (2006:11) narrated that convergence de facto is less certain than convergence de jure. The latter relates to accounting regulation while the former relates to company practices. That is to say that harmony in actual financial reporting practice is different from harmony in financial reporting standards (Taplin, Tower and Hancock, 2002:188). This can be attributed to some factors such as corporate factors, political factors, cultural factors and economical factors. IASC cannot enforce countries to adopt its standard but it solely relies on them to comply. Widespread international adaptation of the IFRSs offer advantages such as accurate, timely and comprehensive financial statement information, reduces cost of information processing, enhances international comparison of financial statements, and removes barriers to cross-border acquisitions and divestitures (Ball, 2006: 12).

Presently, NASB is making frantic efforts of adapting IFRSs to suit Nigerian environmental peculiarities. However, the Executive Secretary of the Nigerian Accounting Standards Board (NASB), narrated that it is not possible to fully adopt the IFRS taking into cognisance local needs. He said: “Nigeria is at a different level of development compared to some of the IFRC countries. We will converge by adaptation. We take each standard and look at how relevant it is to the economy before we adopt it or converge” (Nnadi, 2009b). A number of leading banks have started making voluntary decisions to improve the transparency and exposure level of their books by using IFRS for the presentation of their financial statements. These banks are First Bank of Nigeria Plc, Guaranty Trust Bank Plc, Access Bank Plc, and EcoBank Transnational International (ETI). The Nigerian Stock Exchange (NSE) has urged quoted companies to comply with the International Financial Reporting Standards (IFRSs) by 2011.

Major changes in Accounting reporting environment from 1960 till date and indices for gauging the economy

The business environment has witnessed changes over the years, mainly influenced by globalization and technological innovation. In recent years, there has been substantial increase in trading activities at the Stock Exchanges worldwide and Nigeria is not left out. For example, the market capitalization at the Nigerian Stock Exchange was N763.9 billion in 2002; it grew to N2.112 trillion in 2004 and to N5.12 trillion in 2006 (NSE Factbook, 2007:37). Companies worldwide are now vying to penetrate international capital markets. The disclosure of adequate and reliable information is necessary to penetrate these international markets. Those competing for funds in the international capital arena have been found to comply with disclosing mandatory requirements and in addition disclose significantly more voluntary accounting information that enables them to compete globally (Meek, Roberts and Gray, 1995: 556).

Since the fall of Enron in the United States, a wider recognition of the importance of corporate transparency and disclosure has evolved (Akhtaruddin, 2005:400). Corporate transparency is determined by the information it discloses in its financial report. Accurate, relevant and reliable disclosures are seen as means of enhancing corporate image, reducing cost of capital, and improving marketability of shares. High-quality accounting information facilitates the acquisition of short and long term fund and also enables management to properly account for the resources put in their care. Thus, it acts as a significant spur to the growth and development of money and capital markets, which are fundamental to the smooth running of any economy. Meek et al (1995:556) submit that effective functioning of capital markets, however, significantly depends on the effective flow of information between the company and its stakeholders.

Prior studies (Singhvi, 1968:551-552; Singhvi and Desai, 1971: 129-138; Buzby, 1975:16-37; Firth, 1979:273-280; McNally, Eng and Hasseldine, 1982:11-20; Chow and Wong Boren, 1987:533-541; Wallace, 1988:352-362; Cooke, 1989:113-124; Cooke, 1992:229-237; Cooke, 1993:521-535; Wallace, Naser and Mora, 1994:41-53; Wallace and Naser, 1995:311-368; Inchausti, 1997:45-68; Owusu- Ansah, 1998:605-631; Entwistle, 1999:323-341; Tower, Hancock and Taplin, 1999:293-305; Depoers, 2000:245-263; Haniffa and Cooke, 2002:317-349; Ho and Wong, 2001:139-156; Street and Gray, 2001:1-127; Bujaki and McConomy, 2002:105-139; Chau and Gray, 2002:247-265; Naser, Al-Khatib and Karbhari, 2002:41-69; Camfferman and Cooke, 2002:3-30; Ferguson, Lam and Lee, 2002:125-152; Eng and Mak, 2003:325-345; Ali et al, 2004:183-199; Prencipe,2004:319-340; Akhtaruddin, 2005:399-422; Al-Shammari, 2005:1-210; Daske and Gebhardt, 2006:461-498; Iatridis, 2008:219-241; Barako, 2007:113-128, Dahawy and Conover, 2007:1-20) as summarized in Table 2.01 (pages 58-62), show that disclosure levels are associated with some company characteristics. Similar research methods, in particular the regression models are observed to have been used by these researchers in different contexts. It is also observed that the results of the empirical studies vary from country to country. This is principally due to the unique business environment attributable to each country of study.

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In the Nigerian context, comprehensive studies of Nigerian listed companies have been conducted by World Bank Group. It is observed that the Nigerian financial reporting practices are deficient (World Bank, 2004:1). Apart from the studies conducted by the World Bank, disclosure practices by Nigerian companies have been empirically investigated by Wallace (1988:352), Okike (2000:39), Adeyemi (2006:40) and Ofoegbu and Okoye (2006:45). Their observation is quite similar in that they all found the Nigerian corporate reporting practices to be weak.

The current global financial and economic crunch has resulted in increased attention to improve and enforce financial reporting disclosures worldwide in order to reform the global economy. Nigeria is recently taking steps to align all corporate reports to the International Financial Reporting Standards (IFRSs) as a means of enhancing full disclosure and strengthening stakeholder confidence. Nigerian Stock Exchange has directed all companies that are listed on the exchange to adopt the IFRSs by December 2011 while the Central Bank of Nigeria has also told Nigerian banks to adopt the IFRSs by December 2010 (Egedegbe, 2009:1).

How rebasing has shifted Nigerian economy far away from South Africa

By solving a fairly simple math problem, Nigeria has overtaken South Africa to become the largest economy on the African continent – by quite a bit. In early April, the Nigerian government announced plans to recalculate the way that it reports Gross Domestic Product (GDP) – a process known in economic circles as ‘rebasing’.

GDP is typically measured against the performance of an economy in a ‘base’ year. Every time GDP is calculated, sample businesses in certain industries are observed to see how fast they are growing, and the weight of an industry in this calculation depends on its prominence in the economy in the base year. Therefore, most countries ‘rebase’ their GDP calculations every few years because the farther away from the base year you get, the more your economy has changed; certain industries have grown and others have become less important, and so as time goes on GDP data becomes less accurate. Until now, Nigeria has used 1990 as its base year. Things have obviously changed drastically since then, so by rebasing their GDP, the Nigerian government is giving the world a more accurate picture of its economy.

While certain industries have always carried a lot of weight in Nigeria – particularly the oil and gas sector – others have been overlooked in a GDP measurement based on the 1990 Nigerian economy. The telecoms industry has exploded in Nigeria in the last 15 years, currently valued at $19 billion USD, and with the rebasing now constitutes 8.6% of GDP, rather than the 1990 figure of 0.8%. In addition, the Nigerian film industry, known colloquially as ‘Nollywood’, has been acknowledged within the new calculations, whereas until now the growing industry had been largely overlooked.

So what does this mean? For the average Nigerian, almost nothing. The GDP rebasing doesn’t put more money in the bank accounts of individuals or provide new job opportunities. For MNC’s that want to operate in Nigeria, it provides a better snapshot of Nigerian industry and investment risk. For the average Canadian, it means we now know where Nigeria stands in relation to our economy and to the rest of Africa. For the Nigerian economy, it means that Nigeria now has the largest economy in Africa, and that fact has worth on the international stage. In the coming years, it’s unlikely that any pan-African discussions will take place without Nigeria at the head of the table due to their newly-discovered economic clout. Practically overnight, Nigeria’s GDP grew by 89% and as of May 2014 is worth $510 billion (USD). However, despite this whopping statistical increase, in concrete terms nothing has really changed in Nigeria’s economy.

Nevertheless, while Nigeria’s economy continues to operate as it did before the GDP rebasing, there is still some value to this reorientation. The rebased GDP provides a more accurate picture of the Nigerian economy, and confirms what many already knew – that Nigeria is the rising power on the African continent. The country has a population of 170 million, providing a huge consumer base and attracting foreign direct investment.

But Nigeria’s economic ascendance is not matched by political stability. South Africa, now in possession of the second-largest economy in Africa and the informal ‘leader’ of the continent in international discussions and forums, has slowly but surely improved its political reputation since the abolition of apartheid – but it still has its share of issues, past and present, that have not gone overlooked. Nigeria, in contrast, has one of the most corrupt governments in Africa, an increasingly brazen rebel group in the Boko Haram, and internal territorial tensions that are exacerbated by inherent inequalities in the federal system. Despite the new size of Nigeria’s economy, South Africa still has higher average wealth levels and more developed infrastructure.

However, despite the many and varied issues within the Nigerian government and administration, Nigeria has given itself an opportunity with its GDP rebasing. While South Africa undoubtedly ranks higher on many measures of development, their economic growth has not matched Nigeria’s in recent years; the government has become complacent as the internationally accepted leader of Africa; and corruption and class tensions have seeped back into the government and bureaucracy. Nigeria has shown that it has the economic clout to ascend to the top of the African political scene; but political and social reforms have to follow, and quickly, if Nigeria wants to solidify its position as a major power in Africa.

Economically, Nigeria doesn’t have much to worry about; multinational corporations are likely to continue to operate in the country whether the social and political situation improves or not. However, in a diplomatic sense Nigeria will not replace South Africa as the continent’s representative in various global forums, such as the G20. At least, not until it can prove to power-holding western nations that it is more than just an economic powerhouse, but a success story of development as well.

Advice for the future Researchers

  1. Adequate steps should be taken by the Nigerian Accounting Standards Board (NASB), Securities Exchange Commission (SEC), Nigerian Stock Exchange (NSE) and other regulatory bodies to ensure full compliance with relevant national accounting requirements.
  2. Effective enforcement programmes should be put in place to protect the interest of the diverse user groups.
  • Stringent reward/punishment programme should be introduced in order to ensure that all listed companies comply with the mandatory accounting standards in Nigeria.
  1. The high compliance of large listed companies can be related to low information costs which could have resulted from the use of modern information technology (IT).
  2. The government should encourage smaller companies by promoting the development of IT in Nigeria. Every organization should be able to afford state-of-the-art IT tools. This will reduce information cost and encourage the disclosure of adequate accounting information.



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