STUDY MATERIAL THREE

International Harmonization of Accounting Standards

Introduction

The overall standards of reporting has to have some attribute in local content also in-order to
improve the credibility of the process

In this study session, we will be talking about the concept of harmonization and discuss the
adoption of IFRS by Nigeria and IASB

Learning Outcome for Study Session 3

At the end of this session, you should be able to:

3.1 Understand the concept of Harmonization

3.2 Discuss the adoption of IFRS by Nigeria and IASB

3.1 Harmonization

Harmonization of accounting standards is the process of ensuring that all companies

anywhere in the world apply the same set of accounting standards in reporting their financial
position and performance. It is believed that this would lead to quality reporting and enhance
greater market efficiency and make raising of finance cheaper. This is otherwise described as
the convergence of accounting standards.

Convergence of accounting standards is the goal of establishing a single set of accounting

standards that will be globally accepted and used for financial reporting.
The International Financial Reporting Standards (IFRS) published by the International
Accounting Standards Board (IASB), have been widely accepted in this regard.
Approximately 120 countries currently permit IFRS for financial reporting of their listed
companies.
The alternative to IFRS is the United States of America GAAP (US GAAP).
Advantages of Harmonization
i. Comparability of the financial position, financial performance and financial prospects
of entities in different countries is facilitated when the same standards are used in the

Page 1 of 11
 financial report preparation. This will assist investors, analysts and researchers
globally in view of the contemporary wave internationalization of business.
ii. Performance evaluation and assessment will become easier for management and
directors with the use of common standards by all companies.
iii. Foreign investment will be encouraged as cross-border trading activities will grow
because assessment of financial reports of trading partners in other countries would
become easier.
iv. Harmonization will make the preparation of group accounts easier for companies that
have international group orientation. Since all members of the group will share the
same accounting framework, there should be no need to make adjustments for
consolidation purposes.
Disadvantages of Harmonization
i. Existing legal prescriptions in some countries may require amendment in order to
accommodate IFRS in the countries. In Nigeria, the CAMA 2004 is currently
undergoing amendments in order to recognize IFRSs’ and some other
contemporary economic issues.
ii. Different tax laws of countries are another problem of harmonization of
accounting standards. In many countries of the world, enterprises are required to
draw up one set of financial statements only serving both tax purposes and
financial reporting purposes. Government has an overriding interest in profit as
computed for fiscal purposes; tax laws often prescribe in detail how profit should
be measured.
iii. Some countries may believe that their framework is satisfactory or even superior
to IFRSs. This has been a problem with the US, although currently is not as much
of an issue as in the past.
iv. Cultural differences across the world may mean that one set of accounting
standards will not be flexible enough to meet the needs of all users.
Typology of Accounting Standards Harmonization
Accounting standards’ harmonization could take any of the following forms
i. Adoption: This is the conversion from existing local standards to IFRS as issued
by IASB without any alteration or amendment. The process involves the local
standards being discarded and put out of use and replace by the IFRS. Nigeria
switched to the use of IFRS by adoption in the year 2012.

Page 2 of 11
 ii. Convergence: Under this approach, countries do not adopt IFRS as issued by the
IASB or incorporate IFRS into their accounting standards directly. Instead, these
countries maintain their local standards but make efforts to eliminate the
differences in those bodies of local standards and IFRS over time.
iii. Endorsement: Under this approach, countries incorporate individual new or
amended IFRS formally into their local body of standards to make the individual
IFRS legally binding. Many of these countries use stated criteria for endorsement,
which are designed to protect stakeholders.
iv. Condorsement: is a term combining the ‘convergence’ and ‘endorsement’
approaches. Under this plan, the U.S. transition to worldwide accounting
standards would occur through a combination of “convergence” projects, and then
through gradual Financial Accounting Standards Board (FASB) endorsement of
IFRS in those areas where FASB and IASB still differ. The U.S. GAAP would
continue to exist under this scenario, and FASB would still retain its authority.

3.2 Essentials of the International Accounting Standards Board (IASB) and

International Financial Reporting Standards

The International Accounting Standards (IASB)

International Accounting Standards Board (IASB) which was formed in 2001 as a

replacement for the International Accounting Standards Committee (IASC) established in
1973. Standards published by the IASB are known as International Financial Reporting
Standards (IFRSs) while those published by the IASC are known as International Accounting
Standards (IASs). The IASC also issued interpretations of rules in standards when there was
divergence in practice. These interpretations were called Standing Interpretation Committee
Pronouncements (SICs). This body has since been named the International Financial
Reporting Standards Interpretations Committee (IFRSIC). IASs published by the IASC were
adopted by the IASB on formation. Some of these IAS have been fully withdrawn, some
superseded and others are still effective till now.
The IASB is responsible to the trustees of the International Financial Reporting Standards
Foundation (IFRS Foundation). The structure of IFRS Foundation is as shown in the
following diagram:

Page 3 of 11
 IFRS Foundation

IFRS Advisory International Accounting IFRS Interpretations

Council Standards Board Committee

The IFRS Foundation

The objectives of the IFRS Foundation are to:
a) develop, in the public interest, a single set of high-quality, understandable,
enforceable and globally accepted financially reporting standards based upon clearly
articulated principles. These standards should require high quality, transparent and
comparable information in financial statements and other financial reporting to help
investors, participants in the world’s capital market and others users of financial
information to make economic decisions.
b) promote the use and rigorous application of those standards;
c) in fulfilling the objectives associated with (a) and (b), to take account of, as
appropriate, the needs of a range of sizes and types of entities in diverse economic
settings;
d) promote and facilitate adoption of International Financial Reporting Standards
(IFRSs), being the standards and interpretations issued by the IASB, through the
convergence of national accounting standards and IFRS.
The activities of the IFRS Foundation and the IASB are under the direction of twenty-two
Trustees who are appointed subject to approval by a Monitoring Board comprising high-level
representatives of public authorities such as the European Commission and the US Securities
and Exchange Commission. The Trustees, which make an annual written report to the
Monitoring Board, are responsible for:
i. appointing the members of the Foundation and the other bodies within it;
ii. establishing and maintaining the necessary funding for their work;
iii. reviewing the effectiveness of the IASB.

Page 4 of 11
Funding for the IFRS Foundation’s activities is received from a variety of sources, including:
a) National financing regimes based upon a country’s Gross Domestic Product (GDP)
b) Income from publications and related activities
c) Major international accounting firms.
The IFRS Advisory Council
The IFRS Advisory Council provides a forum for individuals with interest in international
financial reporting drawn from diverse geographical and functional backgrounds. The
Council has the objectives of:
a) offering advice to the IASB with regard to its agenda and priorities
b) informing the IASB of Council members’ views on standard-setting projects

The IFRS Interpretation Committee

The main role of the IFRSIC is to interpret the application of international standards and to
provide rapid guidance where there are differing possible interpretations of an international
accounting standard. The Interpretations Committee plays the following roles:
i. interprets international accounting standards (IASs and IFRSs)
ii. issues timely guidance on matters not covered by an IAS or IFRS
iii. publishes draft Interpretations for public comment (an IFRIC)
Development of new Standards
The IASB develops a new standard by means of a “due process” which involves wide
consultation of all the interested parties (accountants, who are the preparers of financial
statements, the business community, stock exchanges, regulatory authorities, academics and
other interested individuals and organizations throughout the world). The following steps,
which are listed in the Preface to International Financial Reporting Standards, are involved
in this process:
i. identification and review of all the issues associated with the topic concerned
ii. consideration of the way in which the 1ASB’s conceptual framework applies to these
issues
iii. a study of national accounting requirements in relation to the topic and an exchange of
views with national standard-setters
iv. consultation with the Trustees and the Advisory Council about the advisability of
adding this topic to the IASB’s agenda
v. publication of a discussion document for public comment

Page 5 of 11
 vi. consideration of comments received within the stated comment period
vii. publication of an exposure draft for public comment
viii. consideration of comments received within the stated comment period
ix. publication of the standard.
Publication of an international standard requires the approval of at least ten members of the
IASB.
Adoption of IFRS in Nigeria
The Federal Executive Council approved 1 January 2012 as the effective date for adoption of
International Financial Reporting Standards (IFRS) in Nigeria. The Council directed the
Nigerian Accounting Standards Board (NASB), under the supervision of the Federal Ministry
of Commerce and Industry, to take action necessary to achieve that objective.
The Council’s action to adopt IFRS Standards was based on recommendations set out in the
Report of the Committee on Road Map to the Adoption of International Financial Reporting
Standards in Nigeria. That report was prepared by a working group of government and
private sector experts established by the NASB. The Financial Reporting Council of Nigeria
Act, 2011 repealed the former NASB. The FRCN has statutory authority to establish financial
reporting standards for all ‘public interest entities’, which includes not only quoted and
unquoted companies but also governments, government organizations, and not-for-profit
entities that are required by law to file returns with regulatory authorities.
Phases of IFRS in Nigeria
Phase 1: Significant public interest entities and publicly listed entities
Entities in this category include:
i. Government business entities
ii. Entities that have equity or debt instruments listed and traded in domestic markets,
foreign markets or in over the counter trades.
iii. All other organisations which are required by law to file returns with regulatory
authorities (this excludes private companies that routinely file returns only with
the Corporate Affairs Commission and Federal Inland Revenue Service). This
category will include private entities involved in financial services.
All entities in this category adopted IFRS for periods ending after 1 January 2012.
Phase 2: All other public interest entities
These are unquoted private companies which are of significant public interest because of the
nature of their business, size, number of employees etc.
All entities in this category adopted IFRS for periods ending after 1 January 2013.

Page 6 of 11
Phase 3: Small and medium sized entities (SMEs)
This refers to entities that may not have public accountability and have the following
characteristics:
i. Their equity and debt instruments are not traded or in the process of becoming
traded
ii. They do not hold assets in a fiduciary capacity for a broad group of outsiders as
one of their primary businesses
iii. Their annual turnover (revenue) is not more than ₦500 million or such amount as
might be fixed by the Corporate Affairs Commission.
iv. Their total assets value is not more than ₦200 million or such amount as might be
fixed by the Corporate Affairs Commission.
v. They do not have foreign board members
vi. No members of the entity are a government, government agency, government
corporation or a nominee of any such body.
vii. The directors hold not less than 51% of its equity share capital
All entities in this category adopted the IFRS for SMEs for periods ending after 1 January
2014.
Entities that do not meet the IFRS for SMEs criteria must report using the Small and
Medium-sized Entities Guidelines on Accounting (SMEGA) Level 3 issued by the United
Nations Conference on Trade and Development (UNCTAD).
Nigerian Accounting Standards still in use
The Statement of Accounting Standards (SAS), the Nigerian GAAP, was effectively replaced
by IFRS through the adoption of the IFRS by the FRCN. However, some Nigerian standards
which are industry specific rules are not found in IFRS. Companies in the industries covered
are expected to continue to apply these rules (insofar as they do not conflict with IFRS). Such
relevant standards include:
i. SAS 14: Accounting in the petroleum industry: Down-stream Activities
ii. SAS 17: Accounting in the petroleum industry: Up-stream Activities
iii. SAS 25: Telecommunications Activities

Membership powers and functions of the Financial Reporting Council of Nigeria

The FRCN Act makes provisions for the membership, powers and functions of the Council as
follow:
Membership: Members of the Board of the Council are:

Page 7 of 11
(a) Chairman who shall be a professional accountant;
(b) two representatives from the Association of National Accountants of Nigeria ;
(c) two representatives from the Institute of Chartered Accountants of Nigeria;
(d) one representative from each of the following:
(i) Office of the Accountant General of the Federation;
(ii) Office of the Auditor General for the Federation;
(iii) Central Bank of Nigeria;
(iv) Chartered Institute of Stockbrokers;
(iv) Chartered Institute of Taxation of Nigeria;
(vi) Corporate Affairs Commission;
(vii) Federal Inland Revenue Service;
(viii) Federal Ministry of Commerce;
(ix) Federal Ministry of Finance;
(x) Nigerian Accounting Association;
(xi) Nigerian Association of Chambers of Commerce, Industries, Mines and
Agriculture;
(xii) Nigerian Deposit Insurance Corporation ;
(xiii) Nigerian Institute of Estate Surveyors and Valuers;
(xiv) Securities and Exchange Commission;
(xv) National Insurance Commission;
(xvi) Nigerian Stock Exchange;
(xvii) National Pension Commission; and
(e) the Executive Secretary of the Council.
Power: The Council shall have powers to
(a) Enforce and approve enforcement of compliance with accounting, auditing, corporate
governance and financial reporting standards in Nigeria;
(b) Enter into such contracts as may be necessary or expedient for the purpose of discharging
its functions;
(c) Borrow such sums of money or raise such loans as it may require for the purpose of
discharging its functions;
(d) Co-operate with, or become a member or an affiliate of any similar international body the
objects or functions of which are similar to, or connected with those of the Council;
(e) Exercise such powers as are necessary or expedient for giving effect to the provisions of
the Act;
Page 8 of 11
(f ) Require management assessment of internal controls, including Information Systems
controls with independent attestation;
(g) Require code of ethics for financial officers and certification of financial statement by
Chief Executive Officer and Chief Financial Officer;
(h) Require entities to provide real time disclosures on material changes in financial
conditions or operations; and
(i) Pronounce forfeiture, by Chief Executive Officers and Chief Financial Officers, of certain
bonuses received from the company and profits realized from the sale of company shares
owned by them, where the company is required to prepare an accounting restatement.
Functions: The functions of the Council are to:
(a) Develop and publish accounting and financial reporting standards to be observed in the
preparation of financial statement of public interest entities;
(b) Review, promote and enforce compliance with the accounting and financial reporting
standards adopted by the Council;
(c) Receive notices of non-compliance with approved standards from preparers, users, other
third parties or auditors of financial statements;
(d) Receive copies of annual reports and financial statements of public interest entities from
preparers within 60 days of the approval of the Board;
(e) Advise the Federal Government on matters relating to accounting and financial reporting
standards;
(f) Maintain a register of professional accountants and other professionals engaged in the
financial reporting process;
(g) Monitor compliance with the reporting requirements specified in the adopted code of
corporate governance;
(h) Promote compliance with the adopted standards issued by the International Federation of
Accountants and International Accounting Standards Board;
(i) Monitor and promote education, research and training in the fields of accounting, auditing,
financial reporting and corporate governance;
(j) Conduct practice reviews of registered professionals;
(k) Review financial statements and reports of public interest entities;
(l) Enforce compliance with the Act and the rules of the Council on registered professionals
and the affected public interest entities;

Page 9 of 11
(m) Establish such systems, schemes or engage in any relevant activity, either alone or in
conjunction with any other organization or agency, whether local or international, for the
discharge of its functions;
(n) Receive copies of all qualified reports together with detailed explanations for such
qualifications from auditors of the financial statements within a period of 30 days from the
date of such qualification and such reports shall not be announced to the public until all
accounting issues relating to the reports are resolved by the Council ;
(o) Adopt and keep up-to-date accounting and financial reporting standards, and ensure
consistency between standards issued and the International Financial Reporting Standards ;
(p) Specify, in the accounting and financial reporting standards, the minimum requirements
for recognition, measurement, presentation and disclosure in annual financial statements,
group annual financial statements or other financial reports which every public interest entity
shall comply with, in the preparation of financial statements and reports ;
(q) Develop or adopt and keep up-to-date auditing standards issued by relevant professional
bodies and ensure consistency between the standards issued and the auditing standards and
pronouncements of the International Auditing and Assurance Standards Board ; and
(r) Perform such other functions which in the opinion of the Board are necessary or expedient
to ensure the efficient performance of the functions of the Council.

In-Text Question (ITQs) 3.2

1. Which one of the following is NOT represented on the Board of the Financial Reporting
Council of Nigeria?
i. Corporate Affairs Commission;
ii. Federal Inland Revenue Service;
iii. Federal Ministry of Internal Affairs;
iv. Federal Ministry of Commerce;
v. Federal Ministry of Finance;
2. Explain the steps that a new standard takes before approval, publication and release for
public use.
Summary of Study Session 3
In Study Session 3, you have learned the following;
1. Harmonization of accounting standards is the process of ensuring that all companies
anywhere in the world apply the same set of accounting standards in reporting their financial
position and performance. It is believed that this would lead to quality reporting and enhance

Page 10 of 11
greater market efficiency and make raising of finance cheaper. This is otherwise described as
the convergence of accounting standards.
Convergence of accounting standards is the goal of establishing a single set of accounting
standards that will be globally accepted and used for financial reporting.
The International Financial Reporting Standards (IFRS) published by the International
Accounting Standards Board (IASB), have been widely accepted in this regard.
Approximately 120 countries currently permit IFRS for financial reporting of their listed
companies.
The alternative to IFRS is the United States of America GAAP (US GAAP).
2. International Accounting Standards Board (IASB) which was formed in 2001 as a
replacement for the International Accounting Standards Committee (IASC) established in
1973. Standards published by the IASB are known as International Financial Reporting
Standards (IFRSs) while those published by the IASC are known as International Accounting
Standards (IASs). The IASC also issued interpretations of rules in standards when there was
divergence in practice. These interpretations were called Standing Interpretation Committee
Pronouncements (SICs). This body has since been named the International Financial
Reporting Standards Interpretations Committee (IFRSIC). IASs published by the IASC were
adopted by the IASB on formation. Some of these IAS have been fully withdrawn, some
superseded and others are still effective till now.

Glossary of Terms
Membership: the fact of being a member of a group.

Accounting: the process or work of keeping financial accounts.

Functions: an activity that is natural to or the purpose of a person or thing.

Page 11 of 11