Financial Ratios Effect of International Financial Reporting Standards (IFRS) Adoption in Nigeria

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International Journal of Business and Management Invention
ISSN (Online): 2319 – 8028, ISSN (Print): 2319 – 801X
www.ijbmi.org ǁ Volume 3 ǁ Issue 3 ǁ March 2014 ǁ PP.50-59
www.ijbmi.org 50 | Page
Financial Ratios Effect of International Financial Reporting
Standards (IFRS) Adoption in Nigeria
IBIAMKE, Nicholas Adzor1, ATEBOH-BRIGGS, Patricial B.2
1Department of Accounting, Benue State University, Makurdi, Nigeria
2Department of Business Education, Isaac Jasper Boro College of Education, Sagbama, Nigeria
ABSTRACT: The main purpose of this study is to examine the impact of International Financial Reporting
Standards (IFRS) adoption by Nigerian listed firms on key financial ratios used by investors. The study employs
an innovative design known as “same firm-year” research design to examine how IFRS adoption changes key
financial ratios of Nigerian listed firms. A sample of 60 companies using a filter scale was used. Gray Index was
used to find the impact of IFRS adoption on financial ratios while, Paired sample t test and Levene’s F were
used to test the statistical significance of the differences in mean and variances between ratios under IFRS and
Nigerian Generally Accepted Accounting Principles (NGAAP) respectively. The main finding from the study is
that IFRS adoption has caused a negative impact on the financial ratios of Nigerian listed firms, but the impact
was not statistically significant. We recommend that analysts and other financial statement users should be
mindful of the new features of financial statement when taking economic decisions during this period of
transition to IFRS in Nigeria.
KEYWORDS: Financial ratios, IFRS Adoption, Nigeria
I. INTRODUCTION
Globalization of markets has increased the need for a common accounting language for financial
reporting which will be the result of International Financial Reporting Standards (IFRS) adoption by many
nations of the world. In the recent past different accounting standards were developed by different nations
specifically for use in financial reporting, the resulting consequence was the severe differences in financial
statements and accounts [1]. The advent of IFRS serves on one hand the function of common financial reporting
language for multinational enterprises and comparability of accounting figures by investors on the other hand.
Globally, IFRS can facilitate cross border investment activity, enhance growth of national economies through an
expansion in investment frontiers and by extension, globalised the capital market [2], [3].
In the past, Nigeria has Statement of Accounting Standards hereafter called the Nigerian Generally
Accepted Accounting Principle (NGAAP) for preparing and reporting financial information. Although the
conceptual basis and many of the general principles under NGAAP are similar to IFRS in certain respects, many
differences still exist [4]. These differences can impact figures presented in financial statements hence leading to
differences in financial ratios computed under IFRS and NGAAP.
There are some debates among academics and practitioners that the adoption of IFRS can be
detrimental to some countries if financial statement figures are negatively affected upon IFRS adoption thereby
putting those country‟s companies in a competitive disadvantage in the global market. [5] pointed out one of
such consequences for contractual obligations of changing the methods of arriving at year end balances; they
noted that there have been instances of companies needing to restructure their financing to ensure obligations
can still be met when financial accounts are produced under IFRS for the first time.
While evidence abound in other countries especially those from European Union, scarce evidence
exists in Nigeria to show how IFRS adoption has impacted on financial statements. In this case, this study
responds to an urgent need of users of financial statements to know the impact on financial ratios as a result of
the shift to IFRS. Financial ratios have been chosen in this study because ratios are important to the various
stakeholders particularly investors whose interest is most protected by IFRS. This study will therefore contribute
to the enrichment of both domestic and international literature that relates to the adoption and implementation of
IFRS. Our main purpose in this study, therefore, is to examine the effect of IFRS adoption by Nigerian listed
firms on key financial ratios used by investors. To achieve this objective we structured the paper into the
following ensuing sections: section II is the literature review, section III discusses the research methodology,
section IV deals with the data analysis and discussion of results, finally section V is the summary and
conclusion.

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II. REVIEW OF RELATED LITERATURE
The impact of financial reporting was first discussed as economic consequences in 1978 by Zeff [6]
where he studied the impact of accounting reports on the decision-making behaviour of business, government,
unions, investors and creditors. There are three types of effects in the area of economic consequences in
accounting literature: the financial reporting effects, capital-market effects, and macroeconomic effects [7]. A
financial reporting effect is the concern of this study and reflects the immediate impact of the change in
standards on properties of financial statements. Recent studies conclude that financial statement effects are to a
large extent determined by firms reporting incentives (e.g., [8], [9]) particularly in countries with weak
accounting enforcements since IFRS offer firms substantial discretion in applying the standards [10]. Thus the
impact of IFRS adoption on key financial ratios is likely to be limited if a firm‟s institutional environment and
the firm-level incentives remains unchanged [11], [12], [13]. [10] sum up this stand that some firms may adopt
IFRS merely as a label without making material changes in their reporting policies while other firms due to
some perceived incentives may adopt IFRS as part of a serious commitment to increase transparency.
The study of [14] was the first to quantify the impact of different national accounting practices on profit
measurement by means of a „conservatism index‟: 1 - [(RA – RD) / |RA|], Where RA = adjusted profits and RD
disclosed profits. Measuring the disclosed profit in French, German and UK against the profits adjusted for
international financial analysis, Gray found that French and German companies‟ results were more conservative
than the results of the UK companies. [14] work has been widely replicated and extended by several subsequent
studies using company‟s form 20-F reconciliations to US GAAP [15], [16], [17], [18] among others. [19]
employed the index to comparing Finish national GAAP with IAS and they found that Finnish shareholder‟s
equity is more conservative than IAS adjusted shareholder‟s equity even though the results were not statistically
significant.
[20] found that U.S. GAAP is not more conservative than Australian financial reporting practice in terms of
impact on profits, but is more conservative in terms of the impact on shareholders‟ equity. [21] focused on the
adoption of IFRS by listed companies in Belgium. Without using Gray‟s comparability index and without
testing for significance of her findings, she concludes that a relatively large negative (positive) impact is
revealed for two (one) companies both on shareholders‟ equity and net income when reconciling Belgian GAAP
with IFRS. [22] made use of the reconciliations of 2004 balance sheets of the FTSE 100 companies under UK
GAAP to these balance sheets restated under IFRS. Not using the comparability index, she examined the effect
of the transition on net assets and on individual balance sheet line items. She found that there was no overall
significant effect on equity.
Focusing on the 2004 financial statements of companies listed on the Milan Stock Exchange (MSE),
[23], applying Gray‟s index to net income, equity, ROE, and partial adjustments, find that Italian GAAP is more
conservative than IFRS, but that this result is not as strong as had been expected. [24] measured the difference
between IAS/IFRSs and US GAAP based earnings of non-US companies with US listings. Haverty‟s findings,
based on the financial statements of Chinese companies listed on the New York Stock Exchange, his study
suggested that while there is movement towards convergence, de facto a lack of comparability between US
GAAP and IAS financial statements prepared by these Chinese companies still exists, mainly due to revaluation
of fixed assets under IFRSs but not under US GAAP. [25] analysed the total population of 44 listed companies
on the Portuguese Stock exchange that had to provide reconciliation statements for the transition to IFRS. They
report that more companies were affected positively with regard to shareholders‟ equity and net profit than
negatively. The authors employ Gray‟s comparability index only with regard to earnings and accordingly their
findings are not comparable to those reported here with regard to shareholders‟ equity. The authors noted also
poor compliance with disclosure recommendations and inconsistently presented reconciliations.
Another most relevant study to this work is [26]. They examined the financial statements effects of adopting
IAS during 1998-2002 by direct comparison of financial statements prepared under both IAS and German
GAAP. They found that overall, total assets and book value of equity were found to be significantly larger under
IAS than under HBG, while variations in book value and net income were found to be significantly higher. [26]
make a case for a country-specific approach which considers the direct effects of adopting IAS for the same set
of firm‟s years. Such an approach would help to overcome problems associated with comparing across countries
with different institutional arrangements, as well as controlling for time-series differences. [27] provides a more
in depth study than [23] by analysing 178 companies listed on MSE. These studies provide comparable findings
to those reported here because of the large sample used and because Gray‟s comparability index has been
employed. [28] in their study examine the impact of IFRS adoption on key financial ratios using Finland as a
sample country. The results clearly show that, the adoption of IFRS changes the magnitude of the key
accounting ratios considerably by increasing the profitability ratios and gearing ratio moderately, and
considerably decreasing the PE ratio and equity and quick ratios marginally. In another study using financial
ratios particularly profitability, activity, liquidity and solvency ratios, [29] compare the informative value of

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financial statements of CEZ Inc drawn up under IFRS and Czech accounting standards for 2004 and 2005. The
financial analysis results proved the impact of IFRS implementation on financial performance of the company.
Our review of related literature depicted that where a country changed her accounting GAAP to another (IFRS),
the financial statements figures also changed hence the need to restructure the capital structure to ensure that the
obligations are meet. Thus we hypothesise in the null form as follows:
H01: IFRS adoption does not significantly affect profitability ratios of Nigerian listed companies.
H02: IFRS adoption does not significantly affect liquidity ratios of Nigerian listed companies.
H03: IFRS adoption does not significantly affect leverage ratios of Nigerian listed companies.
H04: IFRS adoption does not significantly affect market ratios of Nigerian listed companies.
III. RESEARCH METHODOLOGY
This study employs an innovative design known as “same firm-year” research design [26], [30]
wherein the study document how IFRS adoption changes key financial ratios of Nigerian listed firms. Same
firm-year research design is a design that varies GAAP while holding the sample composition and the time
period constant. The population of the study comprises of 198 firms listed on the Nigerian Stock Exchange as at
31st December, 2010. The study adopted a purposively sampling technique and the outcome of our sample
selection procedure is presented in Figure 3.1. We begin with the population of 198 companies listed on the
Nigerian Stock Exchange on 31 December 2010. Mandatory IFRS adoption for publicly listed firms in Nigeria
is set to be January 1st 2012, so by selecting 31st December 2010 we ensure that all our sampled firms have
accounting period of not less than one year. Furthermore, our selection of a company as an IFRS adopter is only
made once an explicit and unreserved statement of compliance is made in the firm‟s auditor‟s report.
Figure 3.1: The sample selection criteria
Total number of companies listed on the NSE on 31/12/2010 198
Companies delisted after 31/12/2010 -28
Companies without accounts under both NGAAP and IFRS
On 30/9/2013 our final data collection date -110
Sample size 60
From the initial population of 198 listed firms in Nigeria as at 31st December 2010, 28 firms were
delisted from the exchange for one reason or the other by the Nigerian Stock Exchange. This kind of study
requires that there should be financial statements for the same firm at the same time period under the two
reporting GAAPs (NGAAP and IFRS). Thus using the filter, 110 companies were excluded for the reason that
they do not have their financial statements ready as of the time of the study or that their account is ready but not
under the two GAAPs in the same period as required by IFRS 1. In line with [31] the new population was used
as the sample size since it is not too large for us to handle.
The data is collected from financial statements and related foot notes. We gather two sets of financial
statements for all observations: the first is IFRS financial statements and the other for NGAAP financial
statements in the first year of IFRS adoption. Information on the adjustments made to the “pre-IFRS” year
figures are extracted from the IFRS/NGAAP reconciliations. IFRS 1 requires comparatives to be restated and
reconciled in the first year of adopting IFRS. Although the reconciliations varied considerably in format and
level of details supplied, it was not our aim to determine the level of disclosure but to separate which financial
statement elements were impacted by IFRS and the amounts involved.
To analyze our samples we use financial ratios‟ categories: profitability, liquidity and leverage and
activity. We calculate ratios based on figures obtained from financial statements that are constituted according
to the two sets of accounting standards (NGAAP and IFRS) for the same year. Initially, measures of descriptive
statistics are calculated to describe the main features of the data. The measures used to describe the data set are
measures of central tendency and measures of dispersion. Measures of central tendency include the sampling
mean and median, while measures of variability and dispersion include the minimum variables, maximum
variables, the sampling standard deviation, skewness and kurtosis. Gray‟s comparability index was used for
measuring the relative impact of IFRS adoption on financial ratios of Nigerian listed firms. The statistical tool is
good for use in this regard because it is set to compare financial ratios under two separate GAAP regimes
consistent with our work objectives. The index is expressed by the formula: 1-

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Where:
RIFRS = financial ratio under IFRS
RSAS = financial ratio under SAS
Consistent with previous studies, a value larger than +1 suggests that the financial ratio under NGAAP
is higher than that under IFRS, a value lower than +1 suggests that the financial ratio under NGAAP is lower
than financial ratio under IFRS and an index value of +1.0 is neutral suggesting no change. Comparability index
is inherent to the following problems: First the index report extreme values where financial ratio under IFRS
approaches zero and the financial ratios under NGAAP is relatively large [32], [33], [34]. Another problem of
the index is that the index does not show whether or not the difference if any is significant. To overcome the
first problem this study will exclude the extreme values (outliers) that is, if the value is lower than -2.0 and
higher than +4.0. This means that the researcher will exclude symmetrically cases where a financial ratio under
IFRS is 300 percent less or more than that under NGAAP [32]. A paired sample t- test was used to test for the
statistical significance of the differences the means values alongside the Levene F test for measuring the
statistical significance of the difference in variance of the ratios under the two GAAP. The decision rule is to
reject the null hypothesis if the calculated (t/F) value falls outside the critical values or if the p value is less than
0.025 (the critical value)at two tails.
Finally, the relationship between IFRS and NGAAP ratios is analysed using least square regression.
The aim of the Least Square Regression was to study the extent to which IFRS ratios can be explained by the
corresponding NGAAP ratios and to examine the degree of correlation between the two sets of ratios. Financial
ratios should be identical if there is no difference between IFRS and NGAAP. But where the adoption of IFRS
alters accounting figures then it will also alter financial ratios. Running one regression per ratio, the model is:
IFRSit = α + βNGAAP + ε (1)
Where:
IFRSit = IFRS ratio for company i at time t
NGAAPit= NGAAP ratio for company i at time t
α = intercept
β = coefficient of the variable NGAAP
i = refers to 60 companies sampled
t = year end date
ε = error term
The regression will be run on one ratio at a time basis. The model stated as equation (1) has each IFRS
ratio as a dependent variable and the NGAAP ratio as the independent variable. The essence of using simple
linear regression was to examine the impact of IFRS adoption on each NGAAP ratio. The R2 is expected to be
equal to 100% if there is no difference between the two sets of ratios and the coefficient of NGAAP equal to
+1.0.
IV. ANALYSIS AND RESULTS
Descriptive Statistics: Impact on Accounting Ratios
The descriptive statistics of the impact of IFRS adoption on profitability ratios of Nigerian listed firms
is presented in Table 4.1. Accordingly, Table 4.1 presents the number and percentages of firms that experience
decrease, increase and no change by the transition to IFRS. The table also shows the distributions across the
materiality band using the first, second, and third quartiles [35].

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Table 4.1: Descriptive Statistics of Profitability Ratios and their Gray Comparability Index
NGAAP IFRS
INDEXEPS NGAAP IFRS INDEXROA NGAAP IFRS INDEXROE
MEAN 277 274 0.833 0.053 -0.021 0.671 0.096 0.159 0.796
MEDIAN 65 68 0.996 0.037 0.032 0.948 0.088 0.092 0.995
STD. DEV 743 671 0.622 0.101 0.405 0.888 0.392 1.361 0.824
SKEWNESS 2 0 -0.866 -0.775 -5.916 -1.011 -2.789 4.919 -1.069
KURTOSIS 11 41.855 4.260 39.431 4.715 11.958 36.219 3.660
MINIMUM -1633 -1 996 -1.118 -0.319 -2.758 -2.839 -1.650 -3.317 -1.902
MAXIMUM 3951 2200 2.361 0.326 0.450 3.214 0.900 9.173 3.085
COUNT 57 57 57 56 56 56 57 57 57
INCREASES 24(42.1%) 18(32.1%) 25(43.9%)
DECREASES 30(52.6%) 36(64.3%) 30(52.6%)
NO CHANGE 3(5.3%) 2(3.6%) 2(3.5%)
FIRST QUARTILE 35(61.4%) 31(55.4%) 35(61.4%)
SECOND QUARTILE 9(15.8%) 9(16 .1%) 9(15.8%)
THIRD QUARTILE 13(22.8%) 16(28.6%) 16(28.1%)
ROA
ROE
EPS
Source: Researcher‟s computation using MS-Excel Version 2007
Table 4.1 shows that EPS, ROA and ROE are higher under the NGAAP than IFRS. The mean Gray‟s
comparability indexes are: EPS (0.833), ROA (0.671) and ROE (0.796). The same result is obtained from the
median whose values are: EPS (0.996), ROA (0.948) and ROE (0.995). In line with [14] an index of below +1.0
indicates that IFRS is more conservative than the NGAAP while an index value above +1.0 depicts the
opposite.The results from Table 4.1 mean that: EPS decline by 16.7%, ROA by 32.9% while ROE decrease by
20.4% on average upon the transition to IFRS by Nigerian listed firms. The median value of less than +1.0 in all
the aforementioned profitability ratios additionally suggest that more companies are affected negatively by the
transition to IFRS.30 firms (i.e. 52.6%) experience a decrease in EPS, 36(64.3%) reported a decrease in ROA
and 30(52.6%) reported a decrease in ROE.A more detail analysis of the relative impact of IFRS adoption on
profitability ratios is reported in the first, second and third quartile on Table 4.1.
The impact of IFRS adoption on liquidity ratios is tested using two popular liquidity ratios namely: the
current ratio and net cash flow from operation to current liabilities (NCFO). The descriptive statistics of the
ratios is presented in table 4.2.
Table 4.2: Descriptive Statistics Showing Liquidity ratios and their Gray Comparability Index
NGAAP IFRS
INDEXCR NGAAP IFRS INDEXNCFO
MEAN 1.92 1 2.021 0.930 0.384 0.448 0.898
MEDIAN 1.199 1.20 3 0.991 0.256 0.201 0.998
STD DEV 2.220 2.646 0.315 0.759 1.008 0.810
SKEWNESS 3.390 3.662 -1.07 5 0.447 1.741 -0.487
KURTOSIS 12.830 1 5.095 5.156 5.108 6.927 3.343
MINIMUM 0.097 0.06 8 -0.258 -2 .394 -2.394 -1.480
MAXIMUM 13.158 16.051 1.878 2.939 4.651 3.211
COUNT 58 58 58 57 57 57
19(33.3%) 21(36.8%)
36(63.2%) 31(54.4%)
3(5.3%) 5(8.8%)
44(77.2%) 30(52.6%)
10(17.5%) 14(24.6%)
4(7%) 13(22 .8%)
NO CHANGE
THIRD QUARTILE
Current ra tio
NCFO
FIRST QUARTILE
SECOND QUARTILE
INCREASES
DECREASES
Source: Researcher‟s Computation using MS-Excel version 2007.
Computations from Table 4.2 suggest that current ratio and NCFO ratios have had a negative effect.
The current ratio for instance declined by 7% on average while NCFO reduced by 10.2% on average upon
transition to IFRS by listed firms in Nigeria. Both ratios had a median of lower than +1.0implying that more
firms had their current and / NCFO ratio reduced by transiting to IFRS. If we explain this result in terms of
accounting quality we can say that IFRS are of higher quality than NGAAP. According to [36] an accounting

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standard that exhibit lower liquidity and / or higher gearing can reduce the potential uncertainty and risk that is
associated to a firm hence of higher quality. We also presented the magnitude of the change in first, second and
third quartiles in Table 4.2. Accordingly 44(77.2%) of the firms had between0% - 25% change in current, while
30(52.6%) had a change of between 0% - 25%. Only 7% and 22.8% of the proportion has a change of 75% and
above in current and NCFO ratios respectively.
Two leverage ratios namely the total debt to equity (TD/E) ratio and the total debt (TD) ratio are used
in this study to analyse the impact of IFRS adoption on the leverage ratios of Nigerian listed firms. The
descriptive statistics of these ratios is shown in Table 4.3.
Table 4.3: Descriptive Statistics of Leverage ratios and their Gray Comparability Index
NGAAP IFRS
INDEXTD/E NGAAP IFRS INDEXTD
MEAN 2.849 3.076 1.012 0.61 0.608 0.989
MEDIAN 1 .33 1.397 1.03 0.595 0.632 1.009
STD DEV 5.001 5.43 8 0.41 0.292 0.271 0.233
SKEWNESS 3 .848 3.64 8 -5.376 0.471 0.12 -2.69
KURTOSIS 19.918 18.41 3 36.402 0.534 -0.218 12.803
MINIMUM -4.484 -4.94 6 -1.758 0.028 0.029 -0.226
MAXIMUM 32 .066 34.283 1.576 1.521 1.301 1.469
COUNTS 60 60 60 59 59 59
40(66.7%) 40(67.8%)
18(30%) 17(28.8%)
2(2%) 2(3.4%)
50(83.3%) 50(84.7%)
9(15%) 8(13.6%)
1(1.7%) 1(1.7%)
TD/E Ratio
TD Ratio
FIRST QUARTILE
SECOND QARTILE
THIRD QUARTILE
INCREASES
DECREASES
NO CHANGE
Source: Researcher‟s Computation using MS-Excel version 2007.
Table 4.3 shows that leverage ratios have been affected negatively by the transition to IFRS. Out of 60
sampled listed firms, 40 firms had a leverage ratio increased; only 18 firms‟ show a reduction in the TD/E ratio.
The average Gray‟s comparability index of TD/E is 1.012 meaning that there is 1.2% increase in TD/E on
average while the median comparability index are TD/E (1.030) and TD ratio (1.009) suggesting that more firms
has had their financial leverage increased upon transition to IFRS. Although, the financial leverage has
increased upon transition to IFRS generally, the increases clustered in the first quartile range (i.e. 83.3% and
84.7% of the firm shad a change in TD/E and TD ratios respectively within the first quartile).
To ascertain the extent to which IFRS adoption has impacted on the market ratios of Nigerian listed
firms, the price to earnings (PE) ratio was used. The descriptive statistics of this ratio under both NGAAP and
IFRS together with the Gray index of comparability is presented in Table 4.4.
Table 4.4: Descriptive Statistics Showing P/E Ratio and the Gray Comparability Index
NGAAP IFRS
INDEXPE
MEAN 13.29 16 .46 0 .98
MEDIAN 8.76 11.8 8 1.0 0
STD DEV 22.74 29.82 0.52
SKEWNESS 3.61 3.32 -1 .61
KURTOSIS 19.06 14 .15 4 .41
MINIMUM -2 4.56 -34 .17 -0.89
MAXIMUM 143.60 164 .00 1.99
COUNTS 57.00 5 7.00 57.00
INCREASES 30(52.6%)
DECREASES 25(43 .9%)
NO CHANGE 2(3.5%)
FIRST QUARTILE 34(59 .6%)
SECOND QUARTILE 17(29 .8)
THIRD QUARTILE 6(10.5%)
PE Ratio
Source: Researcher‟s Computation using MS-Excel version 2007.

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According to Table 4.4, IFRS adoption has caused a reduction in the PE ratio. The mean comparability
index of 0.981 from the Table above depicts 1.9% decrease (negative effect) in PE ratio on average upon the
transition to IFRS. Table 4.4 also show that 34 out of 57 firms had a change of within the first 25%. 17 and 6
firms respectively had a change falling in the second and third quartiles respectively.
Analysis of Distribution
The result of the regression analysis is shown in table 4.5 below.
Table 4.5: Regression of IFRS Ratios with NGAAP Ratios of Nigerian Listed Companies
(β)NGAAP
R2
Profitability Ratio:
EPS coeffic ient 0.786 0.758
t stati stic (P- va lue) 13.110(0 .000)
ROA coefficient 2.428 0.367
t stati stic (P- va lue) 5.59 6(0.000)
ROE coefficient 1.855 0.286
t stati stic (P- va lue) 4.69 3(0.000)
Liquidity Ratio:
CR coeffic ient 0.783 0.432
t stati stic (P- va lue) 6.52 2(0.000)
NCFO coeffici ent 0.868 0.428
t stati stic (P- va lue) 6.41 4(0.000)
Lever age Ratio:
TD/E coeffici ent 1.076 0.979
t stati stic (P- va lue) 51.714(0 .000)
TD coeffic ient 0.865 0.868
t stati stic (P- va lue) 19.382(0 .000)
Market Ratio:
P/E coeffic ient 1.649 0.96 9
t stati stic (P- va lue) 41.605(0 .000)
Dependent Variable (IFRS)
So
urce: Researcher‟s computation using SPSS version 16.0
The results of the regression indicate that EPS, TD/E, TD and P/E ratios have a strong relationship. The
R2 were: EPS (0.758), TD/E (0.979), TD (0.868) and P/E ratio (0.969). The remaining ratios namely: ROA,
ROE, CR and NCFO had a weak but significant correlation with R2 ranging from 28.6% to 43.2%. These results
approach 100% meaning that the financial ratios under IFRS and NGAAP are strongly correlated. The results of
the analysis also confirm the increased volatility of financial ratios under IFRS. The ROA, ROE, CR, and P/E
ratios had a coefficient (β) of more than +1.0 meaning that the financial ratios are more volatile under IFRS than
NGAAP. A coefficient above +1.0 indicates that the value of the IFRS ratio is amplified in comparison to the
NGAAP ratio, subject to the value of the intercept. Thus there will be a larger positive variation in IFRS ratios
when NGAAP ratio is positive and larger negative variation when the NGAAP ratio is negative. All the
coefficients are significant in all the categories of ratios at 95% confidence.
Test of Statistical Significance
For each of the ratios the tests of statistical significance for equality of central tendency and the test for
equality of dispersions were conducted. The result of the tests is presented in Table 4.6.
Table 4.6: Table showing the calculated Statistics and the P- Values
Ratio Pairs
Paired Sampled t-test for Equality
of Means
Levene's Test for Equality of
Variances
EPS(NGAAP) - EPS(IFRS)
-0.013
(0.990)
0.000
(0.994)
ROA(NGAAP) - ROA(IFRS)
1.568
(0.123)
2.943
(0.089)
ROE(NGAAP) - ROE(IFRS)
-0.398
(0.692)
1.671
(0.199)
CR(NGAAP) - CR(IFRS)
-0.369
(0.714)
0.223
(0.638)
NCFO(NGAAP) - NCFO(IFRS)
-0.633
(0.529)
0.835
(0.366)

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TDE(NGAAP) - TDE(IFRS)
-1.999
(0.505)
0.285
(0.668)
TD(NGAAP) - TD(IFRS)
0.143
(0.887)
0.718
(0.718)
P/E(NGAAP) - P/E(IFRS)
-1.293
(0.201)
0.582
(0.447)
Source: Researcher‟s Computation Using SPSS version 16.0
(Note: figures in the parenthesis represent the p-value of the test statistics)
The first ratios relate to the impact of IFRs adoption on profitability ratios of Nigerian listed firms
H01: IFRS adoption does not significantly affect profitability ratios of Nigerians listed firms.
The t-test of paired sample for the statistical significance of the difference of means provided the
following t values and P-values: EPS (t= -0.013, p= 0.990), ROA (t= 1.568, p= 0.123), and ROE (t= -0.398, p=
0.692). Because the critical value t is 2.021 is more than the calculated t and the calculated p-values are more
than the critical p of 0.05, the null hypothesis is accepted. The mean value of profitability ratios does not differ
significantly after IFRS adoption. The second test is aimed at testing equality of variances using Levene‟s F test
and it provides the following F and P-values: EPS (F= 0.000, p= 0.994), ROA (F= 2.943, p= 0.089) and ROE
(F= 1.671, p= 0.199). Again since the calculated p is more than the critical p value at 0.05 significance level the
null hypothesis is retained. The data does not support any significant change in the variability of profitability
ratios upon the adoption of IFRS. The conclusion therefore is that, IFRS adoption does not significantly affect
profitability ratios of Nigerian listed firms.
The second tests relate to the liquidity ratios and stated as follows;
H02: IFRS adoption does not significantly affect liquidity ratios of Nigerian listed firms.
For the liquidity ratios, the t-test yielded the following t and p-values: current ratio (t= -369, p= 0.714)
and NCFO (t= -0.633, p= 0.529). Since the calculated t is less than the critical value (2.021) and the P-value is
more than then critical value (0.0025) we accept the null hypothesis which says that the means differences
between liquidity ratios under IFRS and NGAAP are not significantly different. For the test of equality of
variances the calculated F test and P-values of the Levene‟s F-test are as follows: current ratio (F= 0.223, p=
0.638) and NCFO (t= 0.825, p= 0.366). The null hypothesis is also accepted since the calculated p is more than
the critical p- values. The findings are that the variances in the liquidity ratios of NGAAP are not significantly
different from IFRS liquidity ratios. This led us to the conclusion that IFRS adoption does not significantly
affected the liquidity ratios of Nigerian listed firms.
The third tests are related to the leverage ratios and stated as:
H03: IFRS adoption does not significantly affect leverage ratios of Nigerian listed firm.
For the third hypothesis the first tests is the t-test of paired sample data to test for the equality of mean
(central tendency) and the result is as follows: Total debt to equity ratio (t= -1.999, p= 0.050) while the total
debt ratio has (t= 0.143, p= 0.887). Since the calculated t is less than the critical value of 2.021 and the P-values
exceed the critical value (0.025) we accept the null hypothesis. The second sets of test utilize the Levene‟s F-test
to test the equality of variances. According to the test statistic total debt to equity has (F= 0.185, p= 0.718) and
Total Debt ratios resulted to (F= 0.131, p= 0.718). The null hypothesis is also accepted since the P-values
calculated exceed the critical P-values. The conclusion is that, IFRS adoption does not significantly affect
leverage ratios of Nigerian listed firms.
The final test relates to market/valuation ratios;
H04: IFRS adoption does not significantly affect market ratio of Nigerian listed firms.
For the market ratio, the P/E ratio resulted to the calculated paired sample t-test of -1.293 (P= 0.201).
This depicts that the central tendency (Mean) of P/E ratios under NGAAP is not significantly different from that
under IFRS. The test for equality of variance (Levene‟s F-test) has resulted to a calculated F of 0.582 and the P-
value of 0.447. The null hypothesis is therefore accepted since the calculated P-value exceeded the critical P-
value. The conclusion is that IFRS adoption does not significantly affect market ratio of Nigerian listed firm.
These results are in line with [37] whose findings were that the first mandatory IFRS will have a small effect in
countries with weak enforcement regime or where firms have poor reporting incentives to apply IFRS. The
results are consistent with the position of [37] because: (i) Nigeria has a weak degree of accounting standards
enforcement and; (ii) the analysis in section IV posits that all the profitability, liquidity and market ratio
experience decrease on the average upon the transition to IFRS, while leverage ratios experienced an upward
change by the transition from NGAAP to IFRS. These results are poor motivation for management to fully
disclose financial information; perhaps this is the cause of insignificant effect accounted for by this study.

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The findings in this study concord with the Daske et al.’s view that managers may select the level to which they
will disclose information in the annual statements so as to prevent themselves from reporting adverse financial
status. [10] describe such adopters as “label adopters”. This position was later confirmed by [38] where they
found that adoption of IFRS in countries with weak enforcement are mostly for satisfying regulatory needs and
not for satisfying investor‟s and creditor‟s needs.
Our results differ from those of [28] regarding the effects of IFRS on ratios in the European context.
Our study finds no significant difference between means of all ratios and unlike [28] we extended our study to
the test of equality of variances where no significant difference was also found in all the classes of ratios. In
contrast, [28] report significant difference in one liquidity ratio, two leverage and four profitability ratios,
including the market-based price-earnings-ratio. In all our analysis of the effect of IFRS adoption on financial
ratios resulted to findings similar with [22] in UK and [29] in Czech Republic.
V. SUMMARY AND CONCLUSIONS
The study examines the effects of IFRS adoption on the financial ratios in Nigeria. Using the Gray
comparability index to analyse the relative effect along with paired sample t test and Levene F test for testing
the statistical significance, the study found that IFRS adoption has led to a decrease in profitability, liquidity and
market ratios but the decrease is not statistically significant at the 5% confidence level. The study also found
that leverage ratios have increase by the transition from NGAAP to IFRS however; the increase is also not
statistically significant. These findings led us to the conclusion that IFRS adoption does not have a significant
effect on the financial ratios of Nigerian listed firms.
We encourage analysts to adopt a cautious approach when examining financial ratios during the
transition to IFRS in Nigeria. Comparing ratios based on IFRS figures with those based on NGAAP is not fully
appropriate. Users of financial statements need to distinguish reported performance changes caused by the
transition to IFRS from those caused by changes in the business. One possible solution may be to recalculate
previous ratios using IFRS retroactive information presented in the year of the transition. However, this may be
a costly exercise which is still subject to limitations such as exemptions and exceptions allowed by IFRS 1.
Analysts need to be aware of the main features of IFRS that differ from NGAAP.
We recommend that users of financial statements should be mindful of the new feature –
comprehensive income – for which we suggest two ratios: the ROA and ROE. These ratios are adapted from the
regular ROA/ROE but with the comprehensive income at the numerator. The comprehensive income
incorporates unrealized gains and losses that bypass the profit of the income statement. A difference between the
regular and the comprehensive versions of ROA/ROE should prompt further investigation of the underlying
causes.
The findings of the present study can also provide good avenues for potential research. Some of the areas
for which the present study can provide motivation are highlighted below. First, prior literature indicates that
companies‟ compliance with IFRS tends to increase within few years after the initial year of adoption. This is
parallel to the fact that FRC enhanced the processes for monitoring listed companies‟ financial statements may
lead to increased levels of compliance with IFRS mandatory disclosures after 2012. Thus, it would worth
examining whether companies included in the present research can exhibit significance effect on financial ratios.
VI. ACKNOWLEDGEMENT
The authors wise to express their deep gratitude to Dr. I. N. Tsegba the Dean College Management,
Federal University of Agriculture Makurdi, and Dr. T. T. Alabar the Director Centre for Entrepreneurship
Studies Benue State University Makurdi. The authors also wish to thank Emmanuel Abanyam for their
constructive comments
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