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Synopsis
Introduction Definition of Terms Recent Financial Scandals Regulatory Responses Local Regulatory Developments Brief History of Accounting Standards IFRS Adoption Road Map in Nigeria
Terminology Changes
Benefits of IFRS adoption Challenges of Financial Reporting under IFRS Conclusion
Introduction
The corporate events in the last ten years have shaped, and continued to shape the face of financial reporting. Such events range from scandals of monumental proportions to world economic crises, the recovery from which is still dicey.
Governments across the world have continued to respond to these events, churning out regulations, guidelines, and policy statements to promoting economic rejuvenation and, integrity of financial reporting. The challenge of over regulation has subtle effect stifling growths, though. We cannot but accept the embrace the breeze of change whamming through the financial reporting, and carefully too.
Definition of Terms
Financial Reporting: communication of financial information useful for making investment, credit, and other business decisions (Wild, Shaw, & Chiappetta, 2009, p. 681) Such communications include income statements, balance sheets, equity reports, cash flow reports, and notes to these statements. Accounting Standards: These are authoritative statements issued by standards setting authorities(FRCN, FASB, FRC, IASB etc.) detailing principles underlying the preparation and presentation of financial statements. E.g. SAS, IAS, IFRS etc. IFRS: This stands for International Financial Reporting Standards. Its basically a combination of existing IASs, new IFRS issues, IFRICs among other statements issued the International Accounting Standards Board(IASB). To date, we have IFRS 1 to 13, replacing the existing IAS in piecemeal. International Financial Reporting Interpretations Committee (IFRIC) : IASBs interpretive body, IFRIC, is in charge of developing interpretive guidance on accounting. IPSAS: This stands for International Public Sector Accounting Standards. These are pronouncements issued by IPSASB to guide public sector financial reporting.
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2. WORLDCOM SCANDAL The principal players in WorldCom's accounting fraud included CFO Scott Sullivan, the General Accounting and Internal Audit departments, external auditor Arthur Andersen, and the board of directors. The case provides sufficient detail to allow for a full discussion of the pressures that lead executives and managers to "cook the books," the boundary between earnings smoothing or management and fraudulent reporting. It elicits the role for internal control systems and internal audit to prevent or rapidly detect accounting fraud. It lays bare the expectations about governance processes performed by external auditors and the board of directors, and the pressure and consequences when middle managers follow orders that they know are wrong.
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3. XEROX SCANDAL This is another prominent American corporation, which improperly classified over $6 billion in revenue, leading to an overstatement of earnings by nearly $2 billion. The Securities and Exchange Commission (SEC) had charged the producer of copiers and related services with accounting manipulations. It was estimated at the time, however, that the amount involved was about half that which is now stated, or about $3 billion. A settlement was eventually reached that included a $10 million fine, as well as an agreement to conduct a further audit. There were two basic manipulations that formed the basis for the SEC investigation. The first was the so-called cookie jar method. This involved improperly storing revenue off the balance sheet and then releasing the stored funds at strategic times in order to boost lagging earnings for a particular quarter The second methodand what accounted for the larger part of the fraudulent earningswas the acceleration of revenue from short-term equipment rentals, which were improperly classified as long-term leases.
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4. CADBURY SCANDAL Cadbury Nigeria is a part of the Cadbury Schweppes group, a global giant in confectionaries. The accounting fraud involved was a case of stock loading. This approach led to overstatement of earnings by over N5Billion. This scandal led to shareholders losing huge part of their investments in terms of market value. The company has since been revived into profitability
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c. Vodka Rule
The Volcker Rule is a specific section of the DoddFrank Wall Street Reform and Consumer Protection Act originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers. Volcker argued that such speculative activity played a key role in the financial crisis of 20072010. The rule is often referred to as a ban on proprietary trading by commercial banks, whereby deposits are used to trade on the bank's own accounts.
Phase 1 : January 1, 2012 Public listed entities Significant public interest entities - Government business entities - Financial and other credit institutions - Insurance companies Phase 2: January 1, 2013 Other entities which are of significant public interest because of their natures of business, size, or number of employees or their corporate status. Not for profit entities Pension funds Other publicly owned entities Phase 3: January 1, 2014 Small and medium-sized entities.
TERMINOLOGY CHANGES
SAS IFRS
Statement of Financial Position Statement of Comprehensive Income (One Statement) or Income Statement (separate) and Statement of Comprehensive Income (two statements) including Other comprehensive Income section End of Reporting Period
Balancesheet date
IN CONCLUSION
Our desire to increase world output and improve general economic wellbeing of the world population has necessitated lax regulations, with attendant risk of business failures caused by financial scandals. This has arguably brought us nothing but economic doom. The need to tighten regulatory noose is very much imperative to curb executive malfeasances in our too-big-to-fail corporations. Over-regulation and too much dose of economic austerity measures may prove counter-productive either. The wave of change brought by IFRS has got to Nigeria, and embracing it is not an option but regulatory reality. The benefits of an IFRS adoption far outweigh the associated costs
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