EPH - International Journal of Business & Management Science ISSN: 2208-2190

EXAMINATION OF COMPLIANCE WITH DISCLOSURE REQUIREMENTS OF

IFRS 16 BY LISTED LOGISTICS FIRMS IN NIGERIA

Emmanson1*, Monday Emmanson2

1*,2
College of Post Graduate Studies Department of Accounting, Tax and Finance Caleb university, Lagos, Nigeria
Email: emmansonme@gmail.com, Phone: +234- 08023144720 Lecturer/Project Supervisor: Akinrinola, Olalekan
Oladipo

*Corresponding Author:-
emmansonme@gmail.com

Abstracts
This paper surveyed the compliance level with the disclosure requirements of IFRS-16 among transportation/logistics
firms listed in the NSE. The sampled 15 firms that claim to adopt and apply IFRS-16 starting effective January 2019. We
examined their varying degree of disclosure compliance based on their audited annual reports for 2019 & 2020. A
compliance checklist index based upon the IFRS compliance, presentation and disclosure checklist 2021 and KPMG
Guide to annual financial statements – Disclosure checklist 2020 was adapted for this study. We found that disclosures
were generally not comprehensive enough in terms adequacy of the disclosures relating to adoption of the new standard,
judgement made by management in the application of the company’s accounting policy, insufficient entity-specific
information, when explaining their accounting policy for leases. Most of the entities failed to disclose the measurement
policy applied to right of use assets at transition and how the company’s incremental borrowing rate is determined. The
surveys also provide indications that the level of compliance differs among the subsector ranging from low to moderate
level of disclosure. This level of insufficiency of disclosures is an indication of lack of necessary transparency to investors
regarding exposures, risks, uncertainties, and leverage which raise doubt over whether the disclosure objective of IFRS16
had been met, as envisage by the standard.

Keywords: Disclosure Compliance, Compliance Check List, Information Asymmetry and Moral Hazards,
Transparency, Financial Statement Disclosures.

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INTRODUCTION
Leasing, IFRS-16 and Transport & Logistics
The Nigeria Equipment Leasing Act 2015 defines leasing as a “means a written agreement between the lessor and the
lessee for the lessee’s use in consideration of the payment of an agreed rental over a specified period” for an equipment
and “the lessor shall retain full title and legal ownership during the specified period of the lease”. Accounting Standard
IAS 17 defines leasing as “an agreement whereby the lessor conveys to the lessee in return for a payment or series of
payments the right to use an asset for an agreed period of time”. Leasing is defined as “a contract between two parties
where one party (the lessor) provides an asset for usage to another party (the lessee) for a specified period of time, in
return for specified payments” (Fletcher et. al., 2005). This paper define lease as an asset based financing contract where
one party called the lessor retain ownership of the assets they lease to another party called the lessee throughout the
duration of the contract, the lessee is liable to pay the lease liability arising from the right of use assets. While IFRS
defined leasing a “contract is or contains a lease if it conveys the right to control the use of an identified asset for a period
of time in exchange for consideration” (IFRS16, par.9).
Leasing has been acknowledging as alternative source of financing the acquisition of these assets by many companies.
And this unique financing instrument has help businesses to expand their access to short- and medium-term financing.
Transportation and logistics companies lease a diverse range of assets, commercial vehicles and automotive equipment,
including heavy and light trucks, commercial trailers and haulage trucks machineries, warehouses, storage tanks, airplanes
and ships, transshipment facilities for intermodal transport and technical equipment for railway facilities. Businesses
within this sector ranges from passenger operators, courier companies to large haulage companies.
IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases
with a term of more than 12 months, unless the underlying asset is of low value. (IFRS16, par.9). Under the new standard,
lessees will need to show all the leases right in their statement of financial position instead of hiding them in the notes to
the financial statements as was previous practice where most countries applied the principles similar to those in IAS 17
based on their regulatory frameworks which was flawed, hence adoption of IFRS 16 new International Financial
Reporting Standard for lease accounting which came into force on 1 January 2019.

Statement of the Problem

The new accounting standard, IFRS 16 Leases, replaces IAS 17and required that almost all leases be accounted for on
balance sheet, recognizing the right of use asset and a lease liability that arise from the agreement. Leasing is common
for entities within the transportation & logistics sector to lease and constitute substantial number of high-priced or high
value items. Under the new IFRS 16 standard, many of these assets and liabilities are to be brought onto a lessee’s balance
sheet unlike IAS-17 were they were previously treated as ‘off-balance sheet ‘items. The changes will have impact on
critical financial ratios, gearing ratios, reported profit performance, as well as performance measures such as EBIT,
EBITA and capital expenditure. This will have great impact on majority of transportation & logistic entities listed in the
Nigeria Stock Exchange (NSE) as capturing the required lease data essential for compliance may appear burdensome and
challenging. Additionally, IFRS 16 required full disclosure compliance by explaining the effects of applying the new
leases standard to stakeholders by disclosing information in the financial statements about their assets, liabilities, expenses
and cash flows that are generated by lease contracts, to enable users “to assess the effect that leases have on the financial
position, financial performance and cash flows of the lessee”.
Following IFRS adoption, several studies have investigated compliance with mandatory disclosures requirement of
different IFRS standards and these studies revealed high level of non-full-compliance and a diversity in disclosure levels
among different countries and among different industrial sub sectors. Saoussen Boujelben & Sameh Kobbi-Fakhfakh
(2020) study mandatory disclosures among the telecom and construction sectors firms in the European Union, revealed
non full comply with the IFRS 15 mandatory disclosures and the degree of compliance differs between the two studied
sectors. In Nigeria, Siyanbola, Musa, & Wula (2014) study of compliance with IAS 16 by listed agriculture firms listed
in NSE found significant difference in the level of compliance. This current study is to examined the level of compliance
with IFRS-16 among listed Transport & Logistics firms in Nigeria. Transportation & logistics entities are to achieve full
compliance because disclosures are the most important supporting mechanisms for reduction in information asymmetric
and value relevance of financial statements.

Objectives of Study
The objectives of this study is to examined the level of compliance with IFRS-16 among Transport & Logistics firms
listed in the Nigerian Stock Exchange (NSE). Our major objectives were to
1. To examine the level of compliance with IFRS-16 disclosure requirements by listed transport and logistics firms in
NSE.
2. To determine whether there is an association between IFRS 16 compliance with industrial sub-sector.
3. To determine whether the association between IFRS 16 compliance and industrial sub- sector is statistically
significant.

Study Questions
In order the attain the study objectives, the following research questions is raised and examined.
1. Is the information disclosed in the financial statements meets the comprehensive, qualitative and quantitative
characteristics of IFRS-16 leasing disclosures requirements as against the checklist? Doses the disclosures reduce
information asymmetry and is value relevance to users?

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2. Is there an association between the level of compliance with IFRS-16 with specific industrial sub sector?
3. Is the level of association between the industrial sub sector and IFRS-16 compliance statistically significant?

Contribution of Study
Firstly, this study will contribute to body of literature and knowledge about IFRS-16 compliance and provides some
preliminary evidence regarding the levels of compliance with the IFRS 16 mandatory disclosures by Nigeria listed entities
in the transportation and Logistics subsector. Secondly, it will provide strong evidence that reinforce or debunked findings
from previous studies.
The rest of this paper is structured as follows: section 2 presents the literature and empirical review, section 3 discusses
the methodology of the study, section 4 presentation and analysis of data. Lastly, section 5 focuses on summary of findings
& discussion, recommendations, and conclusions, limitation and suggestions for future research.

LITERATURE REVIEW
General Overview of IFRS 16 Requirements.
IFRS 16 is a new International Financial Reporting Standard for lease accounting which came into force on 1 January
2019 in replace of the existing IAS 17 standard introduced by the International Accounting Standards Board (IASB).
Superficially, IFRS 16 appears as a straightforward accounting implementation, however, a closer examination revealed
a more complicated piece of reporting requirement which posed potential threat to navigate in compliance.
In Nigeria, reporting entities are required to use the same reporting framework as issued and adopted by the Financial
Reporting Council of Nigeria. The framework is expected to enhance the relevance of their reports in the international
financial communities. In addition, compliance with the Standards would improve the comparability of reports between
different entities in the Nigeria financial ecosystem. The Financial Accounting Standards Board’s new lease-accounting
standard aimed to harmonize financial information to enhance the degree of transparency and comparability of financial
statements, and hence ensure an efficient functioning of the financial markets.
The new lease standard largely changes accounting guidance and required retrospective application to be modified and
became effective 2019, but early adoption is permitted. The guidance required lessees to capture lease assets and lease
liabilities on the balance sheet, with an accounting policy option to exclude those leases with a maximum lease term of
12 months or less from balance sheet recognition. This significantly differs from IAS 17 accounting for operating leases,
under which operating leases could be reported as notes to the accounts, not affecting the balance sheet often referred to
as off-balance-sheet items. FIRS 16 required balance sheet reflects almost all leases, creating much-appreciated asset and
liability transparency to facilitated valid comparisons among organizations that lease or buy. While increasing
comparability between companies, this also affects stakeholder perceptions of financing options. Companies with large
amounts of leases, such as logistic companies that lease much of its assets will be especially impacted by the way the
company finances appear on its income statement, balance sheet and cash flow statement. IFRS 16 also imposed more
transparency to lease obligations and brings new reporting requirements in the way of businesses reporting, presentation
and disclosure’s. Underscoring the enormity of lease portfolios in the logistics companies, compliance will require a new
mindset in presentation, accounting policy perspective, significant judgments, estimation uncertainty and additional
information to meet the disclosure objective.
The International Financial Accounting Reporting Standards (IFRS) has remained the driving force towards enhancing
transparency and comparability of financial information produced by all entities. A review of the global mandatory
adoption of IFRS indicated that 90 countries have fully conformed with IFRS as promulgated by the IASB and include a
statement acknowledging such conformity in the audited reports of entities. This global adoption has been described as a
turning point in the quest towards reducing variations in financial reporting and disclosure, enhanced recognition and
measurement practices worldwide. Consequently, there are enough literature relating to IFRS financial reporting
presentation and disclosure’s that enhances the relevant of financial statements.
Musa & Wula (2014) undertook an assessment of compliance with disclosure requirements of IAS 16 by listed agricultural
firms in Nigerian Stock Exchange (NSE) for years (2002-2011). The tools of analysis used were the compliance index
and 2-way ANOVA test and the result detected poor level of compliance disclosures with the International Accounting
Standard (IAS) 17.
Ioraver, Semberfan, & Tyokoso (2017) adopted multiple regression technique and Wilcoxon Rank Sum Test for two
independent samples to analyzed secondary data extracted from the annual report of listed financial services companies
in Nigeria to investigate the level of compliance with IFRS. The aims were to examine what effect firm characteristics
have on the level of compliance and whether compliance with IFRS significantly differs between listed Deposit Money
Banks (DMB) and Insurance Companies (INC) in Nigeria. The result found that the level of compliance with IFRS by
sampled firms were high at 85.9%. There was positive relationship associated with profitability to adoption of IFRS at
10% level. Firm size and auditor type was positive but insignificantly associated with IFRS compliance. Leverage and
internationality were negatively and insignificantly associated with IFRS compliance. The study conclude that
compliance with IFRS by listed financial services companies in Nigeria was not driven by firm characteristics.
A study by Ajekwe & Ibiamke (2019) investigated compliance level with regulatory requirements regarding disclosure
of critical accounting judgments and major sources of estimation uncertainties in their financial statements published by
17 consumer goods companies listed on the Nigerian Stock Exchange (NSE). Using descriptive statistics and content
analysis. The study found that firms provided some disclosures, but the information was informatively insufficient in
providing users meaningful insights. The overall level of disclosure fell short of intended relevant regulatory
requirements.

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Theoretical Review
General Overview
In this part of the paper the researchers present and discusses the under lining theoretical framework relevant to our study.
This offer an anchorage for us to draw understanding and connections, explain and investigate the phenomena, and make
predictions. It further situates this paper among the prevailing knowledge and the choice of the study’s methodology.
Although existing research showed considerable variations in compliance or non-compliance with both mandatary or
voluntary disclosures items in the financial reports of entities, as required by specific IFRS standard. Different researcher
has propounded theories in an attempt at providing possible explanation to these singularities.

Agency Theory
One of the most cited theory in research literature is the principal and agent theory which emerged in the 1970s from the
disciplines of economics and institutional theory from notable work of Michael C. Jensen and William. They define the
agency relationship as “a contract under which someone (the principal) engage another person (the agent) to perform
some service or act on their behalf which involved some delegation of authority to the agent for decision making.”. Thus,
the "principal” are the owners and other external stakeholder while the "agent" are those hired with specialized skills or
knowledge to perform tasks and take decisions on their principal. They include top executives and board of a corporation
elected to act in the interest of the true owners of the company. By accepting to undertake a task on their behalf of the
principal, an agent becomes accountable to the principal. The agents have a fiduciary responsibility to principal to act in
best interests of the shareholders and shareholders.
Agency problems arise as a result of separation of ownership and control as owner’s delegate investment decision making
to managers which sometimes result in potential conflict of interests between directors and shareholders.
The growth of organizations comes with professionalism and separation of management from owners or equity
shareholders with residual interest in the assets of the organization. This gives rise to need for incentives and control
associated with delegated authority. Since the owners’ and managers’ have different preferences and information needs,
goal congruence and information asymmetry becomes an important notion. Additionally, financial statements are
susceptible to manipulation because management is usually rewarded based on their firm’s performance which is
measured based on the financial statements that they prepare. Owners incur costs in designing appropriate policies and
incentive to motivate managers to both acquire and use information for both benefits. Agency costs arise largely from
principal’s monitoring activities of agents to ensure that agent's goals are perfectly aligned with the principal's goals.
(Healy & Palepu, 2001). According to Holmstrom (1979), accounting report provide one of the most basic signal, or at
minimum marginal information about the agent’s action and performance. The signal is value to owners and other
stakeholders when monitoring the agent. However, the enormity of corporate financial fraud through financial statements
misinformation and exploitation of the market mechanism proved that shareholder activism are not enough to monitor
the entities, thus some form of regulation is needed. The fact that accounting is often called the “language of business”
means financial statements can sometimes have their own “jargon” which may affect the understanding of uninitiated.
As a means of communicating information about a business various organizations are involved in regulating the
preparation and publication of financial reports to meet their specific need. Oversight and regulation of financial reporting
is necessary but it also result in a common agency problem, “multiple principals’ problem”, or “the multiple
accountabilities problem or “the serving of two masters”. Organizations faces multiple competitive interest which is both
internal and external to the organization. Management and shareholders must adopt innovative strategies in order to
maximized the utility of diverse stakeholders. (Voorn, 2019; Martimort, 1996).
Without following certain rules conscientiously, not only does one run the risk of being misunderstood but also risks for
misrepresentation, dishonest or falsification. Comparability of statements is sine qua non to the effective functioning of a
language whether it is in engineering, medicine or in accounting. At the same time, language has to be adaptable to a
changing environment. The international financial reporting standards (IFRS) established a common accounting language,
with the ultimate objective of ensuring that financial statements prepared by firms in different countries are coherent and
consistent across different industries and countries, offering transparency, accountability and efficiency.
This is why the introduction of IFRS mandatory disclosure requirements such as IFRS 16 came to the rescue as disclosures
are the most important supporting components of financial statements. Disclosures as notes to the financial reports provide
narrative descriptions or disaggregation of items presented in those statements and information about items that ought not
be recognition in financial reports. (Dalkılıc & Limoncuoğlu, 2011). The ultimate goal of IFRS is both harmonization and
convergence. Those directors charged with the responsible for preparation of financial reports have to construe and
comprehend the requirements included in financial reporting standards and applied them in a consistent fashion.
IFRS helped brought uniformity in accounting practices and safeguard transparency, consistency and comparability.
Although, financial statements are prepared based on the regulatory framework of a country, they are mandatory in nature
but allowed entities the latitude to adopt any of the practices with relevant disclosure.
The next chapters will present the methodological approach to this paper, data presentation and analysis, result and
conclusion.

METHODOLOGY
Introduction
The current chapter presents the process of developing the research methods needed to complete the enquiry of the current
study. Method aids the researcher to compose an underlying paradigm justifying the research methods undertaken (Blaxter
et al. 2001).

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The further detailed the various phases of developing the methodology of this study. This includes a thorough examination
of the philosophical underpinnings of the chosen research approach. The chapter also discusses the data gathering strategy,
which includes the choice of research instrumentation and sampling. The chapter closes with a discussion on the analysis
tools that we used to analyze the data collected.

Research Method
The methodological approach of this paper is mixed method strategy. This approach is chosen based on the broader
research aims, goals and research questions. We draw on potential strengths from both qualitative and quantitative method
and applied content analysis techniques to explore the annual financial reports of the selected companies. Content
Analysis (CA) is widely used in accounting research to offer insights into accounting practices objectively and
systematically identifying specified characteristics of information in financial reports (Holsti, 1969). Jones and
Shoemaker (1994) identified 68 studies that used content analysis in textual accounting research.
A number of researcher have used content analysis to scrutinized the explanatory portions and notes to annual reports
(such as the chairman’s statement, CEO’s letter and other accounting-related metrics, such as the operating and financial
review (Kohut & Segars, 1992; Aerts, 1994; Abrahamson &Amir, 1996). The current paper chose this method as it allows
the researcher to take qualitative data and transform it into quantitative data (numerical data). The approach works with
a variety of media capturing and displaying data. Twelve (1) entities listed in the Nigerian Stock Exchange (NSE) under
the logistics subsector were identified and sampled The sampled firms are presented in table 1. Secondary data was
obtained from their published audited financial report for 2018 to 2020 to cover pre adoption and post adoption period.
The basic criteria for selection of the sampled companies is that they are involved in logistics/haulage business

Table 1. List of sample firms

S/n Company name Industrial sector
1 ABC TRANSPORT PERSONNEL/CARGO LOGISTICS
2 CARVERTON AVIATION PERSONNEL/AVIATION LOGISTICS
3 RED STAR EXPRESS PERSONNEL/ CARGO LOGISTICS
4 SAHCO PERSONNEL /AVIATION LOGISTICS
5 NAHCO PERSONNEL /AVIATION LOGISTICS
6 ETERNAL OIL OIL & GAS LOGISTICS
7 MRS OIL & GAS LOGISTICS
8 11 PLC OIL & GAS LOGISTICS
9 TOTAL NIG PLC OIL & GAS LOGISTICS
10 SEPLAT PET. OIL & GAS LOGISTICS
11 LAFARGE CEMENT CONSTRUCTION LOGISTICS
12 DANGOTE CEMENT CONSTRCTION LOGISTICS
13 BAU CEMENT CONSTRCTION LOGISTICS
14 ARBICO PLC CONSTRCTION LOGISTICS
15 JULIUS BEDGER CONSTRCTION LOGISTICS
Sources: Researcher 2022

Research Approach
According to Dumke (2002), the two main research approaches are inductive and deductive. When theory is generated
from data, it is generally referred to as the inductive approach. Inductive research begins with observation and completes
the development of the hypothesis. Dumke stated that inductive researchers often deal with qualitative data and use
diverse ways to obtain specific information that places distinct points of view. Inductive reasoning helps in producing
meaning from the information which the researcher has accumulated from different sources.
Deduction reasoning, according to Trochim (2006) “begins with the general and ends with the specific; arguments based
on experience or observation are best represented inductively, but arguments based on rules or other widely accepted
principles are best represented deductively” (p.15). Since the objective of this paper is to examine compliance with
IFRS 16 requirements it is reasonable to use the deductive approach for the current study.

Research Design
Generally, research design is a structure plan and the execute of a particular research. It is important as it guides the
researcher in the strategy, the conceptual framework, identifying whom and what to study on and the tools and procedures
adopted for data collection and analyses. In this study, the researcher we used both qualitative and quantitative research
method. Qualitative information was obtained from the published financial reports and website of the sampled companies.
Quantitative information is extracted from measuring the compliance level of the sampled companies based on the self-
constructed compliance checklist adapted from IFRS compliance, presentation and disclosure checklist 2020. The
rationale for using this method is that the data are often readily available and gotten at a minimal cost to the researchers.
In order to develop the content analysis of the sampled annual reports, the researcher developed a list of the categories of
questions and possible responses in the referenced IFRS 16 (Lease). The questions cover the following areas: presentation,
accounting policy perspective, significant judgements, estimation uncertainty and other information to meet the disclosure
objective.

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Compliance questionnaire has questions that is used to summarize the results of the check list regarding whether the
recognition, measurement, presentation and disclosure requirements of IFRS 16 is achieved. The possible responses about
detailed recognition, measurement, presentation and disclosure points need a "Yes or "No” response. A "Yes" response
will be given 1 and a “NO” response will be given 0.
Data are organized in a contingency table, which are either organized in a short-format matrix with each row representing
each experimental unit (sampled entity), with the repeated measures across columns representing the check-list. This
technique enabled the researchers to arranged the data in an un-replicated complete block design. That is, for each
experimental unit (sampled entity in this case) there is one and only one response per question or at a time to test for
significance. Further analysis is executed from the results using Chi Square Test goodness of fit between observed and
estimated values, homogeneity between groups and test of association between the two variables for a deeper insight.

DATA PRESENTATION AND ANALYSIS

Disclosure Compliance Checklists is a practical guide designed to ensure that financial statements served public interest
by providing the basis for economic decision. High-quality, reliable disclosure, including financial reporting and notes to
the account, are at the core to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital
formation in an economy.

FIRS 16 Compliance Checklist

In this paper, we adopted and modify the IFRS 2020 disclosure checklist relevant to our area of interest, (IFRS 16) lease
accounting. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases to
ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. This
information gives a basis for users of financial statements to assess the effect that leases have on the financial position,
financial performance and cash flows of entities. The sample of interest in this study was drawn from 15 firms listed in
the Nigerian Stock Exchange (NSE) that publish their Annual Report and have substantive least assets in their book. The
sampled entities are presented in Table 3 and the modify checklist questions are presented in Table 4.
In Table 4, the compliance checklist score of the sampled entities is presented with the associated variables. Data analysis
if performed using Excel 2016 Data Analysis package. and presented in Table 5 and figure 3 & 4 represent the compliance
or non-compliance level and entities economic sector.

Table 3 FIRS 16 Disclosures Questions

The detailed recognition, measurement, presentation and disclosure points require a "Yes", "No" response. Mark Y
(yes) N (No) in front of each of question to indicate compliance or non-compliance with the required disclosures.

Source: Adapted from IFRS Checklist 2020 by Researcher

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Table 4. IFRS 16 Disclosures Compliance Score

Source: By Researchers 2022

Data Analysis
Table 5(a) Contingency Table of Compliance Score
COMPANY NAME INDUSTRIAL SECTOR AVAILABLE OBTAINED PERCENTAGE
SCORE SCORE OF SCORE
ABC TRANSPORT PERSONNEL/CARGO 20 10 50%
LOGISTICS
CARVERTON PERSONNEL/AVIATION 20 10 50%
AVIATION LOGISTICS
RED STAR PERSONNEL/ CARGO 20 8 40%
EXPRESS LOGISTICS
SAHCO PERSONNEL /AVIATION 20 7 35%
LOGISTICS
NAHCO PERSONNEL /AVIATION 20 6 30%
LOGISTICS
ETERNAL OIL OIL & GAS LOGISTICS 20 5 25%
MRS OIL & GAS LOGISTICS 20 9 45%
11 PLC OIL & GAS LOGISTICS 20 12 60%
TOTAL NIG PLC OIL & GAS LOGISTICS 20 12 60%
SEPLAT PET. OIL & GAS LOGISTICS 20 9 45%
LAFARGE CEMENT CONSTRUCTION LOGISTICS 20 10 50%
DANGOTE CEMENT CONSTRCTION LOGISTICS 20 15 75%
BAU CEMENT CONSTRCTION LOGISTICS 20 10 50%
ARBICO PLC CONSTRCTION LOGISTICS 20 9 45%
JULIUS BEDGER CONSTRCTION LOGISTICS 20 8 40%
TOTAL 300 140
Source: Researcher 2022

Table 5(b)IFRS-16 Compliance Score among Subsector Group

Subsector Group Personnel Oil & Gas Construction Total Percentages
Logistics Logistics Logistics
Available score 100 100 100 300 100
Compliance Score 41 47 52 140 47
Non-compliance Score 59 53 48 160 53
Source: Researcher 2022

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Figure 3a Compliance Level among individual firms

IFRS 16 COMPLICA LEVEL AMONG LISTED FIRMS IN NSE

Compliance Non-Compliance

80%
70%
60%
50%
40%
30%
20%
10%
0%

Source: Excel Data Analysis

Figure 3b Compliance among Subsector Group

LEVEL OF COMPLIANCE AMONG GROUPS

Personnel Logistics Oil & Gas Logistics Construction Logistics

59

53
52

48
47
41

COMPLIANCE SCORE NON-COMPLIANCE SCORE

Source: Excel Data Analysis

Table 6 Descriptive Data Analysis

Compliance
Mean 0.466666667
Standard Error 0.032244109
Median 0.45
Mode 0.5
Standard Deviation 0.124880896
Sample Variance 0.015595238
Kurtosis 0.876455111
Skewness 0.450223469
Range 0.5
Minimum 0.25
Maximum 0.75
Sum 7
Count 15
Largest(1) 0.75
Smallest(1) 0.25
Sources: Excel 360 Data Analysis

Pearson’s Chi-Squared Test

Pearson’s Chi-Squared Test was used to evaluate
▪ The goodness of fit between observed and estimated values.
▪ Homogeneity between groups regarding their distribution among categorical variables.
▪ Whether or not two variables whose frequencies are represented in a contingency table have statistical independence
from one another.

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The formulae for the test is obtained as

where
• χ 2 = Chi-Square value
• Oi = Observed frequency
• Ei = Expected frequency
The Chi-Squared Test for Goodness of Fit allows us to assess whether or not there are statistically significant differences
between an observed and an expected distribution. The p-value indicates the level of statistical significance of the
difference between the observed & expected distributions.

Observed Values
Personnel Oil & Gas Cement
Transportation Transportation Transportation Total
Compliance 41 47 52 140
Non-Compliance 59 53 48 160
Total 100 100 100 300
Expected Values
Personnel Oil & Gas Cement
Transportation Transportation Transportation Total
46.67 46.67 46.67 140
53.33 53.33 53.33 160
Table 100 100 100 300

Chi Square Test Personnel Oil & Gas Cement

(X2) Transportations Transportation Transportation Total
Compliance 0.688 0.002 0.610 1.300
Non-compliance 0.602 0.002 0.533 1.138

Chi Square Test Result

X2 2.438
Critical value 5.991
P-Value 0.296
Df= 2
Alpha= 0.05

DF (Degrees of Freedom) For a test of independence in a contingency table, the degrees of freedom is (r-1) (r-1) where r
is the number of rows and c is the number of columns.
for a 2-by-3 table, DF = (2-1) (3-1) = 2.

Decision rules:
➢ Critical Value Approach
C.V. approach: If χ2 > χ2.05 = (c.v.), reject null hypothesis.
If pv > Reject Ho (Null Hypothesis)
2
If X < Critical Value Fail to Reject

➢ P. Value approach:
If p-value > a = (alpha), reject null hypothesis.
If p-value > a Reject Ho (Null Hypothesis)
If p-value < a Fail to Reject

FINDINGS AND DISCUSSION

Introduction and Restatement of Objectives
This section presents the findings from analysis of the data gathered for the purpose of this study. The analysis followed
from a review of the annual report and accounts of entities listed in Nigeria Exchange and adopting IFRS16 from the
effective date of January 2019. In particular, we focused on those IFRS-16 disclosure and provision of information
requirements to investors with the intentions of ensuring investors’ confidence in the level of transparency by issuers of
financial reports of publicly quoted entities in the Nigeria Exchange. And, to further enhance the credibility and efficiency
of the capital market.

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The sample were from obtained from three different transportations, haulage and logistics sub sectors of listed firms with
substantial lease portfolio. Namely, personnel transportation logistics, oil & gas transportation logistics and construction
transportation.
We focused on:
1. Whether the information disclosures are comprehensive, qualitative and quantitative characteristics of IFRS-16
leasing disclosures as against the checklist.
2. The extent to which the disclosures in financial reports reveal an entity's underlying economics in a way that is readily
understandable by those using the financial reports.
3. Ascertain whether the explanation of material events as regard lease transactions that have taken place during the
relevant period and their impact of the financial statements are comprehensively disclosed.

Our major objectives were to

1. To examine the level of compliance with IFRS-16 disclosure requirements by listed transport and logistics firms in
Nigeria Exchange.
2. To determine whether there is an association between IFRS 16 compliance with industrial sub-sector.
3. To determine whether the association between IFRS 16 compliance and industrial sub- sector is statistically
significant.

Findings
It is evident from Table 5 and Figure 3 (a) that only 47% of the sampled firm complied with the basic disclosure
requirements of IFRS-16 against the 53% non-compliance.
This indicated a relatively low average level of compliance and a considerable variation in the compliance scores
identified. It revealed non-full-compliance and a diversity in disclosure levels as majority of the sampled firms. The three
subsector groups were non - compliant with the IFRS 16 disclosure on qualitative and quantitative information about the
significant judgements, sources of estimation uncertainty in relation to leases, explanation of the circumstances in which
the interest rate implicit in the lease can be determined, and disclosure of how liquidity risk related to lease liabilities is
managed. As evidence by the score table (V15-V20) However, the degree of compliance reduces when it comes to provide
more details related to the Ifrs-16 objective of provide the users of financial statements with more precise information
that explain the, policies, judgment, estimates and risk management strategy adopted by management. The reasons for a
market failure relate to insufficient information which effects determinants of choice and market imperfections. This
market failure is mainly attributed to asymmetric information (information gap) between management and owners
combined with uncertainty, and causes agency problems. This means that investors may be misled by non-full disclosure
thereby reducing the value relevance of financial statements.
This finding is in agreement with the results obtained by Saoussen Boujelben and Sameh Kobbi-Fakhfakh (2020) in their
exploratory study of compliance with IFRS 15 mandatory disclosures among the telecom and construction sectors firms
in the European Union, which show that the sampled groups do not fully comply with the IFRS 15 mandatory disclosures
and the degree of compliance differs between the two studied sectors.
As indicated by Tables 5a &5b, Figures 3a & 3b, only cement transportation sector of the economy had 52% compliance
level among the sample firms while Personnel transportation sub-sector had highest level of non-compliance at 59%. This
means that approximately half our sample did not provide sufficient information to enable readers/users, understand the
impact of adopting IFRS 16. The Pearson’s chi-square test of association assesses whether the two categorical independent
(IFRS-16 compliance and industrial sector) variables, to see if there is an association between them. The result should
indicate if the pattern of observed frequencies is significantly different from the pattern of frequencies which we would
expect to see by chance - i.e., what we would expect to obtain if there was no relationship between the two variables in
question. Our obtained value of X2 = 2.438 is much lesser than the critical value of 5.991 so in this case there appear not
to be a significant association between the two variables. IFRS-16 disclosure compliance and transportation sector have
a statistically similar pattern of yes/no rates across the sectors. We conclude that the observed pattern of frequencies is
due simply to chance (i.e., that the discrepancies between the observed and expected frequencies are due merely to random
sampling variation, and hence we have no reason to believe that the categories did not occur with equal frequency. This
is in line with the study of Siyanbola, et al. (2014) which
indicated significant difference in the level of compliance with IAS 16 disclosure requirements by listed agricultural firms
in Nigeria. Other studies also confirm the heterogeneous compliance with IFRS requirements among firms is different
industries (Devalle et al., 2016; IAS 38; Kobbi-Fakhfakh, 2017; IAS14/IFRS8; Glaum et al., 2013b; Mnif & Znazen,
2020; IFRS,7; Trabelsi, 2018).
In order to Determine whether the association between the variables is statistically significant, we test to determine
whether the variables are independent, by comparing the p-value to the significance level. From the result of the Chi-
Squared Test, we evaluate whether or not two score samples are distributed equally across various subsector. The p-value
indicates the level of statistical significance of the difference between the observed & expected distributions.
i. Lower p-value = Greater difference between distributions
ii. Higher p-value = Less difference between distributions
Since the p-value for the chi-square statistic is 0.296, which is greater than the alpha level of 0.05. Therefore, there is no
enough evidence to support the conclusion that there is a significant difference in IFRS 16 compliance level between the
industrial subsectors.

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Summary and Conclusion

We examine the compliance level with the disclosure requirements of IFRS-16 on among transportation firms listed in
the NSE. The sampled used were firms that claim to adopt and apply IFRS-16 starting effective January 2019. We examine
their varying degree of disclosure compliance based on their audited annual reports for 2019 & 2020. We utilize
compliance checklist index based upon the IFRS compliance, presentation and disclosure checklist 2021 and KPMG
Guide to annual financial statements – Disclosure checklist 2020.
Our investigation revealed that all the sampled firms have adopted the IFRS 16, for the first time, in 2019, the effective
year for adoption. We find that disclosures were generally not comprehensive enough in terms adequacy of the disclosures
relating to adoption of the new standard, judgement made by management in the application of the company’s accounting
policy, insufficient entity-specific information, when explaining their accounting policy for leases. For instance, most of
the entities failed to disclose the measurement policy applied to right of use assets at transition and how the company’s
incremental borrowing rate is determined.
Many companies used generalized hackneyed language with insufficient entity-specific details when explaining their
accounting policy for leases. There were little or no explanation for how risk associated with material adjustment to the
carrying amounts of assets or liabilities in the Financial Statements, arising from changes to assumptions or other sources
of estimation uncertainty been identified and management. Nor did they explained estimation challenges associated with
the calculation of the incremental borrowing rate, in addition to disclosing the weighted average rate. This level of detail
information could have improved the quantity and therefore the quality of the IFRS 16 compliance disclosures and avoid
unintended neglect, a misinterpretation of disclosure requirements, which does not serve the needs of the investor.
Insufficiency of disclosures is an indication of lack of necessary transparency to investors regarding exposures, risks,
uncertainties, and leverage which raise doubt over whether the disclosure objective had been met, as envisage by the
standard setting body. The targeted objective is to provide the users of financial statements with more precise information
that explain basis for the economic substance of transactions and events. The surveys also provide indications that the
level of compliance differs among the subsector ranging from low to moderate level of disclosure. The lowest level of
compliance is in the oil & gas sub groups with the information disclosure requirements of IFRS16 with 25%, and the
highest rate of compliance is recorded by the construction sub group with 75% level. This might indicate that there may
be specific industrial sub sector factor that impact on level of compliance.
Overall, we conclude that the results found indicate a lack of full-compliance of sampled groups with the IFRS 16
mandatory disclosures. Our survey did not consider if there are firm’s specific endogenous and exogenous factors which
may impact the level of compliance. We however, believe that as this is the first two years of adoption and application of
the standard, that the quality and completeness of IFRS-16 disclosures will to continue increase overtime. We recommend
that the standard setting body in Nigeria should establish a frame of reference, that require both the preparers and auditors
go beyond basic disclosure requirements but to move to high-level principles and entity specific full compliance. The
regulator should stay alert for findings and ensure that the disclosure requirements are enforce in order to boost investor
confidence that standard setters are working to increase transparency, re-establishes confidence in financial markets and
reduces friction in the markets.
Lastly, we acknowledge that this survey has some limitations. Firstly, our sample did not consider all firms listed in the
NSE and we only focuses on three subsectors. So, we must mention that our results may not be generalized. Secondly,
we did not take into account firm’s specific endogenous and exogenous factors which may impact their level of
compliance with the disclosures requirements.
Lastly, this study does not cover the presentation and disclosure requirements for lessors. Besides these limitations, future
research should also consider different entities specific possible determinants of compliance level relating to such
variables as company size, organizational culture, choice of external auditor, the strength of enforcement mechanisms in
the country, the role of Audit Committee, etc. This will allow a much more complete model of compliance.

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