EFFECT OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) ADOPTION ON FINANCIAL REPORTING QUALITY OF DEPOSIT MONEY BANKS (DMBs) IN NIGERIA

In the recent past, different countries experienced corporate failures as a result of inadequate financial reporting framework. This resulted in the global financial reporting reform that gave birth to the development of International Financial Reporting Standards (IFRS) to strengthen the quality of financial reporting, which saw many countries, including Nigeria buying into the adoption of it mandatorily for their public interest entities. This study adopts the Decision-Usefulness Theory for its framework. The Decision-Usefulness Theory focuses on the improvement of financial reporting quality as the fundamental reason for adopting IFRS. Going by the Decision-Usefulness Approach, this study examines whether mandatory IFRS adoption has any effect on financial reporting quality of Deposit Money Banks (DMBs) in Nigeria using the difference-in-difference design. Different models, such as the Ohlson Model, credit relevance model, Modified Jones Model and 3-stage Roychowdhury Model are used to determine the surrogates for financial reporting quality in this study, that is, value relevance, credit relevance, accrual based earnings management and real earnings management respectively. Difference-in-differences regression is utilized to estimate the effect of mandatory IFRS adoption on the surrogates of financial reporting quality and to test the hypotheses of this study. The study finds significant effect of mandatory IFRS adoption on value relevance and credit relevance. However, there is no significant effect of mandatory IFRS adoption on accrual-based earnings management and real earnings management. The study recommends amongst others that the management of DMBs should apply reasonable judgment in the use of fair value accounting as required by principles-based IFRS in order to mitigate the volatility of the financial market. This would enhance the value relevance quality of financial reporting of mandatory adopting banks after the adoption of IFRS by banks.