CHAPTER needs of experts and speculators (Günther,

CHAPTER 2

LITERATURE REVIEW

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2.1
Introduction

The pace of the integration of the global financial
marketplace has resulted in a need for worldwide financial reporting to be
comparable. Therefore, one of the ways that was utilized by countries in Europe
and other continents for the achievement of this purpose was the development
and subsequent adoption of solitary language for financial statements called
the International Financial Reporting Standards (i.e. IFRS itself inclusive
some of the preceding International Accounting Standards) (Jeanjean & Stolowy, 2008). Ball (2006) noted
that the process of the development of the universally accepted accounting
standards was front lined by the International Accounting Standard Council
(IASC) and its member countries between 1973 and 2000 before its replacement by
the International Accounting Standard Board (IASB) in 2001.

 

 

 

 

 

 

2.2 Conceptual Framework

2.2.1 Adoption of IFRS

As time evolved, the boost in the
scale of globalization and competition between nations in each corner of the
globe made it critical for nations and organisations to join forces to be
increasingly viable around the world (Sanyaolu, Iyoha, &
Ojeka, 2017).
IFRS were developed for this purpose and they can be refered to as list of
financial reporting guidelines, interpretations and outlines for the
preparation of accounting repports which is instituted and published by the
International Accounting Standards Board (Yurisandi &
Puspitasari, 2015).
IFRS have less unequivocal accounting decisions and high revelation
prerequisites as they are intended to prompt monetary announcing results that
meet the data needs of experts and speculators (Günther, Gegenfurtner, Kaserer, &
Achleitner, 2009)
The IFRS have been developed with the aim of decreasing the degree of financial
presentation discretion in comparision to domestic accounting principles so as
to help business entities to improve their accounting practices (Jeanjean
& Stolowy, 2008).

Georgakopoulos, den Besten,
Vasileiou, & Ereiotis (2015)stated in their study of International
Financial Reporting Standards is that its adoption will improve the worth of
accounting to management, increase the comparability of reports, lucidity and
ease of use of accounting data between various nations. The European Union
(2002) outlined the reasons why it would be abandoning the national GAAP of
each of its member nations for the IASB issued standard, the reason for this
action was because of the following:

I.                  
The international
standards will increase investor protection the the region which will lead to
cost competence and efficacy of the financial market.

II.               
The international
standards will contribute to the competion among firms in Europe and result in improvement
in the economy of the region.

III.            
The harmonization of
the standards will enable public interest entities to improve their operations
because of the availability of more funds.

Nigerian companies previously
reported their financial statements in line with the Nigerian GAAP. Hassan (2015)
opined that under the Nigerian GAAP the disclosure neccesities were very
insufficient to successfully reduce the irregularity in information reported
among the user groups of accounting information. Hassan (2015) further gave a
short account on Nigeria’s adoption of IFRS beginning in July 2010 when the
council of Nigerian ministers approved the 1st day of 2012 as the
start of union of the Statement of Accounting Standards (SAS) and the national
GAAP with IFRS. This process was initiated in such a manner that all
significant personalities would beginning presentation of financial statement
in line with IFRS by January 2014. By January 2012 Public Listed Entities and
Significant Public Interest Entities were projected to implement the International
Financial Reporting Standards while Other Public Interest Entities were
anticipated to compulsorily implement the IFRS for legal reasons by January
2013. Small and Medium-sized Entities (SMEs) also mandatorily implemented
international standards by January 2014. In addition NSE listed organizations were
mandated to present their end of year reports for the 2010 financial year in
line with IFRS.

On the relative cumbersome nature
of the adoption process outlined above, research carried out by Osesoga &
Uang (2015) on countries that have adopted IFRS showed that adoption is done in
a careful manner so as to ensure the organizations are not taken aback and to
certify that they follow the process throughly and completely. Also the process
is taken step by step to feel the pulse of the community as regards acceptance
or rejection of the international standards. Houqe, Monem, Tareq, & van
Zijl (2015) stated that there were essentially two ways that the over 100
countries that use IFRS have ensured compliance with the standards. They are:

                   
i.           
Voluntary adoption:-
This is when compliance with IFRS is not imposed by law but chosen and persuasion
by the reporting entity. Soderstrom & Sun (2007)
asserted that this system of adoption of IASB issued standards was first
insituted by firms that required to raise more capital from an international
stock exchange like the German New Market where firms were required to us the
IAS or US-GAAP.

                 
ii.           
Mandatory adoption:- This is
when
compliance is a compulsory requirement by law guiding reporting entities. Mandatory
adoption was first adopted for the IFRS by the European Council of ministers in
2002 to ensure convergence of the National GAAP to IASB issued standards by
2005 (Soderstrom & Sun, 2007).In Nigeria however the Financial Reporting Council has
implemented the mandatory compliance mode to ensure full convergence of the
Nigerian GAAP with IFRS.

Many researchers have carried out
studied on the barriers to and determinants of the adoption of IFRS such as in
the study carried by Nulla (2014) where he noted that enforcement laxity was a
barrier to IFRS adoption because despite the obvious difference in quality of
the IFRS and the national GAAP, the IFRS might not result in better quality of
accounting in countries where the enforcement of the standards are not a
priority. The above researcher concluded that change in the quality of earnings
might not be experienced in some ‘weak enforcement’ climes. Major elements of
the business environment are not only in the position of being the drivers of
the adoption of IFRS but a lot of their activities might serve as barries to
the adoption and increase in accounting quality that comes thereafter, to
outline this point Soderstrom & Sun (2007) depicted the determinants of
IFRS adoption in this diagram below:

Figure 1.1 (Soderstrom & Sun, 2007)

2.2.1 Earnings Quality

Schipper & Vincent, (2003)
refered to eamings quality as the degree to which the amount of earnings
presented to the user groups authentically depicts an association or conformity
among a quantity  and an event that it implies.
They noted in their research that earnings quality must be high because data on
earnings are used in contract negotiation and that if such contracts are
centered on substandard and insufficient data there will be loss of monetary
value by the organization. Earnings of lesser reporting quality are ineffective
as they diminish business development by resulting in funds to be utilized
wrongly. Earnings quality can be defined based on the work of  Chen, Tang, Jiang, & Lin (2010) as the
measure to which the earnings side of an entity’s financial statement reflects
its true profitability circumstances.

The purpose for IFRS adoption  is to enhance financial statement of business
organisation in terms of informational usefulness and value (Osesoga & Uang,
2015).
Lev (1989) opined that the worth of financial information can be quantified
using the Earnings Response Coefficient (ERC). Osesoga & Uang (2015)
defined the Earnings Response Coefficient (ERC) as the consequence of each monetary
value of unanticipated earnings on share proceeds, and is calculated as the ‘gradient
coefficient of the regression of abnormal stock returns and unexpected earnings’.
Also, the higher the value of the Earnings Response Coefficient (ERC) the more
important the financial information for investors decision. Sayekti &
Wondabio (2007) stated that factors that affect the ERC include  share risk, structure of the organisation’s
capital, persistence, prospects of growth, the amount of financial data and the
quality of auditor.

Superior quality financial
reporting can be a means of developing the financial judgments made by an
organisation’s administrators and the sources of there capital such as
shareholders, banks and the government (Gjerde, Knivsflå,
& Sættem, 2011).Ball
(2006) notes that there are 4 tenets that indicate the quality of accounting to
the users like the government, investors, creditors, employees, regulators etc.
The tenents include:

I.                  
Precise representation
of financial actuality (e.g. Recording the true allowance of bad and doubtful
debts, presenting the value of the assets at accurate measurement etc.)

II.               
Reduced opportunity for
managers to maneuver financial information for illegal or deceitful purposes

III.            
Timeliness of
accounting information

IV.            
Speed of inclusion of
bad news in comparism to good news in the financial reports

To further describe the concept the
concept of earnings quality Schipper & Vincent (2003) developed a number of
constructs for explanation. For the purpose of this study the concentration
will be on the description based on time series quality of earnings because of
its correlation with the research methodology adopted. The time series earnings
construct included 3 variables which are persistence, predictability and
variability

Persistence: This
variable is analyzed in terms of the sustainability of an organizations main
income streams i.e., earnings of high quality can be maintained for an indefinite
time period. Researchers like Easton & Zmijewski (1989) and Kormendi &
Lipe (1987) agreed that a way to measure the persistence of earnings is the “slope
coefficient in a regression of stock retums on the change and/or level of
eamings”. Persistent earnings data will most likely be seen by investors as maintainable
(i.e. stable and non-temporal) leading to easier valuation of the company on
the financial markets such as valuation through the price earnings ratio (Schipper
& Vincent, 2003).

Predictability: This
refers to a quantification of how the present earnings can aid in precisely
predicting the organisation’s prospective earnings (Uwuigbe, Uyoyoghene,
Jafaru, Uwuigbe, & Jimoh, 2017). Predictability can
also be explained as the capablility of an accounting presentation model
inclusive of its earnings elements and other key aspects to help the user
groups to project aspects of the financial statements that matters to them (Schipper & Vincent, 2003). The predictive
ability of earnings as at a particular period to forecast the potential flow of
liquidy can be refered to predictability of cash flow, inadvertently there is
should be a relationship between the income reporting quality and prospective cash
flows (Mollah, Farooqueb,
Mobareka, & Molyneuxc, 2015).

Variability: Leuz,
Nanda, & Wysocki (2003) developed a model to measure the relative
variability of earnings which is the “ratio of the standard deviation of
operating eamings to the standard deviation of cash from operations (smaller
ratios imply more income smoothing); and the correlation between changes in
accmals and changes in cash flows (negative correlations are evidence of income
smoothing)”.

2.2.3 Association between IFRS Adoption and Earnings Quality

Wan Ismail, Kamarudin, Keitha,
& van Zijl (2013) opined in their examination of organizational judgment in
accounting situations that the level of autonomy in financial principles and
guidelines will inevitably decide the quality of accounting statements. This
might be because slack international standards enable firms the chance to
engage in income smoothing which reduces the relevance of financial statements
to stakeholders and extensive accounting standards result in more vagueness
which allow illegitimate accounting transactions (Dye & Sunder,
2001).
The application of accounting guidelines give various options to firms which
may result in income of varying quality (Goncharov & Zimmermann, 2006). Better quality
earnings can be attained by instituting sterner accounting guidelines which
reduces the amount of options in addition to more explicit regulation (Ewert & Wagenhofer, 2005).

Regardless of whether the essential
part of money related reports is like an opportune wellspring of new data for
outside speculators or as a method for checking and upholding legally binding
connections, there is as yet a superseding worry about accounting quality (Chua & Taylor, 2008).The development of
the IFRS by the International Accounting Standards Board has set the tone for
companies worldwide to present top quality, clear and similar information which
will be useful for the investors and other users (Ball, 2006). IFRS selection shows up especially valuable to firms if
stakeholders think about IFRS as being educational and bringing about top notch
financial earnings reporting, firms could then utilize the reception of IFRS as
a indicating component through conferring themselves to higher monetary
revealing necessities and more straightforwardness (Günther, Gegenfurtner, Kaserer, &
Achleitner, 2009).
Osesoga & Uang (2015) using a study of listed manufacturing companies in
indonesia between 2009 and 2014 fined that the adoption IFRS has resulted in
improvement of not only the quality of earnings but also the level of investors
belief in earnings quality.

Sanyaolu, Iyoha, & Ojeka (2017)
in their study of earnings quality of quoted banks in Nigeria using earnings
yield and earnings per share as markers from 2009 to 2014 found that IFRS
adoption will reduce the amount of financial data irregularity among the users
and will also improve the quality of earnings. Chua, Cheong, & Gould (2012)
concluded that the compulsory adoption of the IASB issued standards has
resulted better quality of earnings mostly in the aspect reduction of income
management. In the study carried by Hassan (2015) on Nigerian banks also found
that IFRS adoption has improved the quality of earnings and accounting in the
Nigerian banking sector. The conclusion of an observation of 4010 elements over
6 years by Wan Ismail, Kamarudin, Keitha, & van Zijl (2013) asserts that IFRS
adoption increases earnings quality in Malaysian companies.

2.2.4 Value Relevance

Clarkson, Hanna, Richardson, &
Thompson (2011) established that  the value
relevance of total book value of equity and earnings is one of  vital aspects to consider when analyzing the
effect of IFRS adoption on the accounting quality because of the significance
of stock evaluation in the conceptual framework guiding the International
Financial Reporting Standards (IFRS). P?úcana (2015) described value relevance
as the capability of data on an organisation’s financial reports to picture and
sum up the company’s worth. In a study carried out by Paananen & Lin (2008)
value relevance was adopted as one of the variables used to carry out a comparative
study on accounting quality under the IFRS and the International Accounting
Standard. Value relevance can be referred to as the measure of the functional
relationship of the returns on income as reduction from opening marketplace
worth (Soderstrom & Sun,
2007).
Barth, Beaver, & Landsman (2001) opined that value relevance could be
refered to as the forecasted relationship between financial information and
capital market worth of an organisation

Gassen & Sellhorn (2006) noted
that value relevance consists of the entire descriptive capacities and
measurements approximated from functional relationships of share price, income
and additional financial guages translated as proof of the dependablity or
significance of accounting data. Using a comparison of German GAAP to the IFRS
Gassen & Sellhorn (2006) postulated that value relevance under IFRS could
be different from its predeceeding standards because of 3 main reasons. They
include:

I.                  
The basic features of
the standards: The researcher noted this cause of divergence in value relevance
because the German GAAP was more principles based than IFRS and standards that are
principles based result in better quality of income (Webster & Thorton,
2005)

II.               
The purpose of the
guidelines on reporting: In many countries their domestic GAAP allowed their
financial statements to serve various purposes such as taxation and other legal
uses, this inadvertently results in reduction of the value relevance of
financial statements in comparison to the one function IFRS.

III.            
The procedure on setting
the financial standards: In Nigeria the national GAAP for example was
adminstered by the Nigerian Accounting Standards Board (NASB) which was under
the control of the Nigerian government (starting from 1992) while the IFRS are
issued by a private sector organisation. This asserts that the IFRS are
standards setting procedure are more supperior in terms of stakeholder
involvement, objectivity, effective theoretical structure and implementation
than the now defuct NASB.

2.2.5 Earnings Management

A means that can be adopted to
check quality of earnings reported by relevant business organisations is test
the extent to which earnings figures are smoothened with the aim of deceiving
stakeholders to manipulate contractual obligations that arise from financial
data (van Tendeloo & Vanstraelen, 2005). Earnings management brings about the control of monetary and
money related information worked by administrators to accomplish a pre-determined
level of income and a reduction in income administration more often than not
relates to an expansion in earnings quality (Paglietti, 2009). Bao & Bao (2004)
gave 2 key opinions on the concept of earnings management which are relevant to
this study. They are that:

I.                  
Earnings management is
a procedure for assessment of accurals, and estimation of accurals is the core
of accounting presentation.

II.               
Earnings management is
dodgy only if the content of such act is guileful.

CHAPTER 2

LITERATURE REVIEW

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2.1
Introduction

The pace of the integration of the global financial
marketplace has resulted in a need for worldwide financial reporting to be
comparable. Therefore, one of the ways that was utilized by countries in Europe
and other continents for the achievement of this purpose was the development
and subsequent adoption of solitary language for financial statements called
the International Financial Reporting Standards (i.e. IFRS itself inclusive
some of the preceding International Accounting Standards) (Jeanjean & Stolowy, 2008). Ball (2006) noted
that the process of the development of the universally accepted accounting
standards was front lined by the International Accounting Standard Council
(IASC) and its member countries between 1973 and 2000 before its replacement by
the International Accounting Standard Board (IASB) in 2001.

 

 

 

 

 

 

2.2 Conceptual Framework

2.2.1 Adoption of IFRS

As time evolved, the boost in the
scale of globalization and competition between nations in each corner of the
globe made it critical for nations and organisations to join forces to be
increasingly viable around the world (Sanyaolu, Iyoha, &
Ojeka, 2017).
IFRS were developed for this purpose and they can be refered to as list of
financial reporting guidelines, interpretations and outlines for the
preparation of accounting repports which is instituted and published by the
International Accounting Standards Board (Yurisandi &
Puspitasari, 2015).
IFRS have less unequivocal accounting decisions and high revelation
prerequisites as they are intended to prompt monetary announcing results that
meet the data needs of experts and speculators (Günther, Gegenfurtner, Kaserer, &
Achleitner, 2009)
The IFRS have been developed with the aim of decreasing the degree of financial
presentation discretion in comparision to domestic accounting principles so as
to help business entities to improve their accounting practices (Jeanjean
& Stolowy, 2008).

Georgakopoulos, den Besten,
Vasileiou, & Ereiotis (2015)stated in their study of International
Financial Reporting Standards is that its adoption will improve the worth of
accounting to management, increase the comparability of reports, lucidity and
ease of use of accounting data between various nations. The European Union
(2002) outlined the reasons why it would be abandoning the national GAAP of
each of its member nations for the IASB issued standard, the reason for this
action was because of the following:

I.                  
The international
standards will increase investor protection the the region which will lead to
cost competence and efficacy of the financial market.

II.               
The international
standards will contribute to the competion among firms in Europe and result in improvement
in the economy of the region.

III.            
The harmonization of
the standards will enable public interest entities to improve their operations
because of the availability of more funds.

Nigerian companies previously
reported their financial statements in line with the Nigerian GAAP. Hassan (2015)
opined that under the Nigerian GAAP the disclosure neccesities were very
insufficient to successfully reduce the irregularity in information reported
among the user groups of accounting information. Hassan (2015) further gave a
short account on Nigeria’s adoption of IFRS beginning in July 2010 when the
council of Nigerian ministers approved the 1st day of 2012 as the
start of union of the Statement of Accounting Standards (SAS) and the national
GAAP with IFRS. This process was initiated in such a manner that all
significant personalities would beginning presentation of financial statement
in line with IFRS by January 2014. By January 2012 Public Listed Entities and
Significant Public Interest Entities were projected to implement the International
Financial Reporting Standards while Other Public Interest Entities were
anticipated to compulsorily implement the IFRS for legal reasons by January
2013. Small and Medium-sized Entities (SMEs) also mandatorily implemented
international standards by January 2014. In addition NSE listed organizations were
mandated to present their end of year reports for the 2010 financial year in
line with IFRS.

On the relative cumbersome nature
of the adoption process outlined above, research carried out by Osesoga &
Uang (2015) on countries that have adopted IFRS showed that adoption is done in
a careful manner so as to ensure the organizations are not taken aback and to
certify that they follow the process throughly and completely. Also the process
is taken step by step to feel the pulse of the community as regards acceptance
or rejection of the international standards. Houqe, Monem, Tareq, & van
Zijl (2015) stated that there were essentially two ways that the over 100
countries that use IFRS have ensured compliance with the standards. They are:

                   
i.           
Voluntary adoption:-
This is when compliance with IFRS is not imposed by law but chosen and persuasion
by the reporting entity. Soderstrom & Sun (2007)
asserted that this system of adoption of IASB issued standards was first
insituted by firms that required to raise more capital from an international
stock exchange like the German New Market where firms were required to us the
IAS or US-GAAP.

                 
ii.           
Mandatory adoption:- This is
when
compliance is a compulsory requirement by law guiding reporting entities. Mandatory
adoption was first adopted for the IFRS by the European Council of ministers in
2002 to ensure convergence of the National GAAP to IASB issued standards by
2005 (Soderstrom & Sun, 2007).In Nigeria however the Financial Reporting Council has
implemented the mandatory compliance mode to ensure full convergence of the
Nigerian GAAP with IFRS.

Many researchers have carried out
studied on the barriers to and determinants of the adoption of IFRS such as in
the study carried by Nulla (2014) where he noted that enforcement laxity was a
barrier to IFRS adoption because despite the obvious difference in quality of
the IFRS and the national GAAP, the IFRS might not result in better quality of
accounting in countries where the enforcement of the standards are not a
priority. The above researcher concluded that change in the quality of earnings
might not be experienced in some ‘weak enforcement’ climes. Major elements of
the business environment are not only in the position of being the drivers of
the adoption of IFRS but a lot of their activities might serve as barries to
the adoption and increase in accounting quality that comes thereafter, to
outline this point Soderstrom & Sun (2007) depicted the determinants of
IFRS adoption in this diagram below:

Figure 1.1 (Soderstrom & Sun, 2007)

2.2.1 Earnings Quality

Schipper & Vincent, (2003)
refered to eamings quality as the degree to which the amount of earnings
presented to the user groups authentically depicts an association or conformity
among a quantity  and an event that it implies.
They noted in their research that earnings quality must be high because data on
earnings are used in contract negotiation and that if such contracts are
centered on substandard and insufficient data there will be loss of monetary
value by the organization. Earnings of lesser reporting quality are ineffective
as they diminish business development by resulting in funds to be utilized
wrongly. Earnings quality can be defined based on the work of  Chen, Tang, Jiang, & Lin (2010) as the
measure to which the earnings side of an entity’s financial statement reflects
its true profitability circumstances.

The purpose for IFRS adoption  is to enhance financial statement of business
organisation in terms of informational usefulness and value (Osesoga & Uang,
2015).
Lev (1989) opined that the worth of financial information can be quantified
using the Earnings Response Coefficient (ERC). Osesoga & Uang (2015)
defined the Earnings Response Coefficient (ERC) as the consequence of each monetary
value of unanticipated earnings on share proceeds, and is calculated as the ‘gradient
coefficient of the regression of abnormal stock returns and unexpected earnings’.
Also, the higher the value of the Earnings Response Coefficient (ERC) the more
important the financial information for investors decision. Sayekti &
Wondabio (2007) stated that factors that affect the ERC include  share risk, structure of the organisation’s
capital, persistence, prospects of growth, the amount of financial data and the
quality of auditor.

Superior quality financial
reporting can be a means of developing the financial judgments made by an
organisation’s administrators and the sources of there capital such as
shareholders, banks and the government (Gjerde, Knivsflå,
& Sættem, 2011).Ball
(2006) notes that there are 4 tenets that indicate the quality of accounting to
the users like the government, investors, creditors, employees, regulators etc.
The tenents include:

I.                  
Precise representation
of financial actuality (e.g. Recording the true allowance of bad and doubtful
debts, presenting the value of the assets at accurate measurement etc.)

II.               
Reduced opportunity for
managers to maneuver financial information for illegal or deceitful purposes

III.            
Timeliness of
accounting information

IV.            
Speed of inclusion of
bad news in comparism to good news in the financial reports

To further describe the concept the
concept of earnings quality Schipper & Vincent (2003) developed a number of
constructs for explanation. For the purpose of this study the concentration
will be on the description based on time series quality of earnings because of
its correlation with the research methodology adopted. The time series earnings
construct included 3 variables which are persistence, predictability and
variability

Persistence: This
variable is analyzed in terms of the sustainability of an organizations main
income streams i.e., earnings of high quality can be maintained for an indefinite
time period. Researchers like Easton & Zmijewski (1989) and Kormendi &
Lipe (1987) agreed that a way to measure the persistence of earnings is the “slope
coefficient in a regression of stock retums on the change and/or level of
eamings”. Persistent earnings data will most likely be seen by investors as maintainable
(i.e. stable and non-temporal) leading to easier valuation of the company on
the financial markets such as valuation through the price earnings ratio (Schipper
& Vincent, 2003).

Predictability: This
refers to a quantification of how the present earnings can aid in precisely
predicting the organisation’s prospective earnings (Uwuigbe, Uyoyoghene,
Jafaru, Uwuigbe, & Jimoh, 2017). Predictability can
also be explained as the capablility of an accounting presentation model
inclusive of its earnings elements and other key aspects to help the user
groups to project aspects of the financial statements that matters to them (Schipper & Vincent, 2003). The predictive
ability of earnings as at a particular period to forecast the potential flow of
liquidy can be refered to predictability of cash flow, inadvertently there is
should be a relationship between the income reporting quality and prospective cash
flows (Mollah, Farooqueb,
Mobareka, & Molyneuxc, 2015).

Variability: Leuz,
Nanda, & Wysocki (2003) developed a model to measure the relative
variability of earnings which is the “ratio of the standard deviation of
operating eamings to the standard deviation of cash from operations (smaller
ratios imply more income smoothing); and the correlation between changes in
accmals and changes in cash flows (negative correlations are evidence of income
smoothing)”.

2.2.3 Association between IFRS Adoption and Earnings Quality

Wan Ismail, Kamarudin, Keitha,
& van Zijl (2013) opined in their examination of organizational judgment in
accounting situations that the level of autonomy in financial principles and
guidelines will inevitably decide the quality of accounting statements. This
might be because slack international standards enable firms the chance to
engage in income smoothing which reduces the relevance of financial statements
to stakeholders and extensive accounting standards result in more vagueness
which allow illegitimate accounting transactions (Dye & Sunder,
2001).
The application of accounting guidelines give various options to firms which
may result in income of varying quality (Goncharov & Zimmermann, 2006). Better quality
earnings can be attained by instituting sterner accounting guidelines which
reduces the amount of options in addition to more explicit regulation (Ewert & Wagenhofer, 2005).

Regardless of whether the essential
part of money related reports is like an opportune wellspring of new data for
outside speculators or as a method for checking and upholding legally binding
connections, there is as yet a superseding worry about accounting quality (Chua & Taylor, 2008).The development of
the IFRS by the International Accounting Standards Board has set the tone for
companies worldwide to present top quality, clear and similar information which
will be useful for the investors and other users (Ball, 2006). IFRS selection shows up especially valuable to firms if
stakeholders think about IFRS as being educational and bringing about top notch
financial earnings reporting, firms could then utilize the reception of IFRS as
a indicating component through conferring themselves to higher monetary
revealing necessities and more straightforwardness (Günther, Gegenfurtner, Kaserer, &
Achleitner, 2009).
Osesoga & Uang (2015) using a study of listed manufacturing companies in
indonesia between 2009 and 2014 fined that the adoption IFRS has resulted in
improvement of not only the quality of earnings but also the level of investors
belief in earnings quality.

Sanyaolu, Iyoha, & Ojeka (2017)
in their study of earnings quality of quoted banks in Nigeria using earnings
yield and earnings per share as markers from 2009 to 2014 found that IFRS
adoption will reduce the amount of financial data irregularity among the users
and will also improve the quality of earnings. Chua, Cheong, & Gould (2012)
concluded that the compulsory adoption of the IASB issued standards has
resulted better quality of earnings mostly in the aspect reduction of income
management. In the study carried by Hassan (2015) on Nigerian banks also found
that IFRS adoption has improved the quality of earnings and accounting in the
Nigerian banking sector. The conclusion of an observation of 4010 elements over
6 years by Wan Ismail, Kamarudin, Keitha, & van Zijl (2013) asserts that IFRS
adoption increases earnings quality in Malaysian companies.

2.2.4 Value Relevance

Clarkson, Hanna, Richardson, &
Thompson (2011) established that  the value
relevance of total book value of equity and earnings is one of  vital aspects to consider when analyzing the
effect of IFRS adoption on the accounting quality because of the significance
of stock evaluation in the conceptual framework guiding the International
Financial Reporting Standards (IFRS). P?úcana (2015) described value relevance
as the capability of data on an organisation’s financial reports to picture and
sum up the company’s worth. In a study carried out by Paananen & Lin (2008)
value relevance was adopted as one of the variables used to carry out a comparative
study on accounting quality under the IFRS and the International Accounting
Standard. Value relevance can be referred to as the measure of the functional
relationship of the returns on income as reduction from opening marketplace
worth (Soderstrom & Sun,
2007).
Barth, Beaver, & Landsman (2001) opined that value relevance could be
refered to as the forecasted relationship between financial information and
capital market worth of an organisation

Gassen & Sellhorn (2006) noted
that value relevance consists of the entire descriptive capacities and
measurements approximated from functional relationships of share price, income
and additional financial guages translated as proof of the dependablity or
significance of accounting data. Using a comparison of German GAAP to the IFRS
Gassen & Sellhorn (2006) postulated that value relevance under IFRS could
be different from its predeceeding standards because of 3 main reasons. They
include:

I.                  
The basic features of
the standards: The researcher noted this cause of divergence in value relevance
because the German GAAP was more principles based than IFRS and standards that are
principles based result in better quality of income (Webster & Thorton,
2005)

II.               
The purpose of the
guidelines on reporting: In many countries their domestic GAAP allowed their
financial statements to serve various purposes such as taxation and other legal
uses, this inadvertently results in reduction of the value relevance of
financial statements in comparison to the one function IFRS.

III.            
The procedure on setting
the financial standards: In Nigeria the national GAAP for example was
adminstered by the Nigerian Accounting Standards Board (NASB) which was under
the control of the Nigerian government (starting from 1992) while the IFRS are
issued by a private sector organisation. This asserts that the IFRS are
standards setting procedure are more supperior in terms of stakeholder
involvement, objectivity, effective theoretical structure and implementation
than the now defuct NASB.

2.2.5 Earnings Management

A means that can be adopted to
check quality of earnings reported by relevant business organisations is test
the extent to which earnings figures are smoothened with the aim of deceiving
stakeholders to manipulate contractual obligations that arise from financial
data (van Tendeloo & Vanstraelen, 2005). Earnings management brings about the control of monetary and
money related information worked by administrators to accomplish a pre-determined
level of income and a reduction in income administration more often than not
relates to an expansion in earnings quality (Paglietti, 2009). Bao & Bao (2004)
gave 2 key opinions on the concept of earnings management which are relevant to
this study. They are that:

I.                  
Earnings management is
a procedure for assessment of accurals, and estimation of accurals is the core
of accounting presentation.

II.               
Earnings management is
dodgy only if the content of such act is guileful.

x

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