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International Journal of Mechanical Engineering and Technology (IJMET) Volume 10, Issue 08, August 2019, pp. 26-45. Article ID: IJMET_10_08_003 Available online at http://www.iaeme.com/ijmet/issues.asp?JType=IJMET&VType=10&IType=8 ISSN Print: 0976-6340 and ISSN Online: 0976-6359 © IAEME Publication ADEQUACY OF FINANCIAL REPORTING QUALITY OF NIGERIAN QUOTED FIRMS UNDER IFRS ADOPTION Chukwuani Victoria Nnenna and Dr Ugwoke R. O.2 Department of Accountancy Faculty of Business Administration University of Nigeria Nsukka ABSTRACT This study examined the adequacy of financial reports with the objective of determining if there exist significant differences in four proxies of financial reporting quality: earnings, conservatism; accruals and average financial reporting quality before and after the adoption of IFRS in Nigeria. Data were sourced from the published audited financial statements and accounts of firms quoted on the Nigeria Stock Exchange (NSE). Although there exist twelve (12) industrial classifications on the NSE only ten (10) sectors were purposively sampled for twelve (12) years (2006 – 2017). Due to the choice of variables adapted, the financial services industry was not withdrawn. Again, there are no firms recorded under the Utility sector. The study employed the parametric statistical pooled variance/ paired sample t-test model structured in a way to enhance a significant test between the pre-and post-IFRS periods. The study reveals that there are significant differences in the degree of accounting conservatism of quoted Nigerian firms after the adoption of IFRS in 2012. Further findings reveal that there are no significant differences in the degrees of earnings quality, accrual quality and the aggregate financial reporting quality of quoted Nigerian firms after the adoption of IFRS in 2012. Based on the findings from the study, recommendations include that firms should eliminate the incentives to carry out unethical practices which can only occur in the short term since in the long term the market penalizes those manipulative companies. Firms in Nigeria are enjoined to adopt complete accounting conservatism as this approach tends to reduce risks such as litigations. Keywords: IFRS, financial reporting quality Cite this Article Chukwuani Victoria Nnenna and Dr Ugwoke R. O, Adequacy of Financial Reporting Quality of Nigerian Quoted Firms under IFRS Adoption, International Journal of Mechanical Engineering and Technology, 10(8), 2019, pp. 2645. http://www.iaeme.com/IJMET/issues.asp?JType=IJMET&VType=10&IType=8 http://www.iaeme.com/IJMET/index.asp 26 editor@iaeme.com Chukwuani Victoria Nnenna and Dr Ugwoke R. O 1. INTRODUCTION The financial information that will be useful for decision making must be relevant and should faithfully represent what it purports to represent. Financial reporting should, therefore, provide information to help investors, creditors, and other users to project the amounts and timing of future cash flows to the enterprise (Waweru & Riro, 2013). The aim of financial reporting is to provide useful financial information of an entity to existing and potential investors, lenders and other creditors in making a decision about providing resources to the entity (FASB, 2010). The quality of financial reports will be determined by its fitness for purpose which is referred to as usefulness in decision making by the framework. The primary objective of financial reporting is to provide quality information about business entities that help the users of financial reporting in making informed economic decisions. (IASB, 2008). The high-quality financial information provided by the financial reporting process is essential because it facilitates investors and other users to make decisions that will enhance the global market (IASB, 2008). As companies compete globally for scarce resources, investors and creditors, as well as multinational companies, are required to bear the cost of reconciling financial statements that are prepared using national standards. It was argued that a common set of practices will provide a “level playing field” for all companies worldwide (Murphy, 2000). IFRS are standards and interpretations adopted by the International Accounting Standards Board (IASB). They include International Financial Reporting Standards (IFRS), International Accounting Standards (IAS) and interpretation originated by the International Reporting Standards Interpretation Committee (IFRSIC) (Oyedele, 2011). IFRS is a single set of high quality, understandable and enforceable accounting standards that enhances comparability of financial statements that helps participants in the world’s capital market and other users to make economic decisions. The comparability to financial information promotes better investment decisions and provides a road map for allocating resources across the global economy (Jacob and Madu, 2009). Cai and Wong (2010) posit that having a single set of internationally acceptable financial reporting standards will eliminate the need for restatement of financial statements, yet ensure accounting diversity among countries, thus facilitating cross-border movement of capital and greater integration of the global financial markets. Esptein (2009), enumerated some of the advantages of unified financial reporting standards, as increased market liquidity, ease of doing business and reduction in the cost of doing global business (Irvine and Lucas, 2006). The IFRS Adoption Roadmap Committee, (2010) declared that it would be in the interest of the Nigerian economy for listed companies to adopt globally accepted, high-quality accounting standards, for comparability of financial statements, information quality, reduction in the cost of doing business and attraction of foreign direct investments. However, certain standards issued by the Nigerian Accounting Standard Board (NASB) do not have equivalent IAS and vice versa (Adesina, 2011). Most of the Nigerian Statement of Accounting Standards (SASs) issued by the NASB is outdated and considered insufficient to provide the necessary direction in the preparation of qualitative financial statements. In Nigeria, companies ‘cook figures’ and manipulate financial statements, tax avoidance is the norm of the day while earnings management is left uncontrolled by the authorities because of weak and ineffective regulation (Masud, 2013; Onafalujo, Eke &Akinlabi, 2011; Okafor & Killian, 2011). Financial statements are said to be adequate when they do not contain any material error or bias and adequately reflect the economic events that they must present. Scholars use arbitrary techniques (accrual models, value relevance models, research focusing on specific elements, qualitative characteristics such as readability, objectivity, predictive value, neutrality, representational faithfulness, feedback value, timeliness, and so on, are generally used in assessment procedures) in evaluating the quality of financial statements. Consequently, accrual models and value relevance measurements focus on information disclosed in financial http://www.iaeme.com/IJMET/index.asp 27 editor@iaeme.com Adequacy of Financial Reporting Quality of Nigerian Quoted Firms under IFRS Adoption statements to assess financial reporting quality. Earning quality is associated with the quality of discretionary accruals. Higher discretionary accruals suggest lower quality earnings, while lower discretionary accruals suggest higher quality earnings. This study, therefore, examined the adequacy of financial reports with the essence of determining whether there are significant differences in four proxies of financial reporting quality; earnings, conservatism; accruals and average financial reporting quality before and after the adoption of IFRS in Nigeria. Following this introduction, the next section reviewed related literature. The methodology is explained in section three while sections four deals with the analysis and conclusion respectively. 2. REVIEW OF RELATED LITERATURE 2.1. Conceptual Review 2.1.1. IFRS Accounting standards are issued at the international level by the International Accounting Standards Board (IASB). It was formally known as the International Accounting Standard Committee (IASC). In 1973, the IASC was established as an independent, private-sector body to set acceptable and applicable standards for preparers and users of financial statement around the world. (Abata, 2015). The aim of IASC is to develop a single set of high quality, understandable and enforceable global standards that ensure high quality, transparent and comparable information in the financial statements and other financial reporting to help participants in the global market to make economic decisions. Also, to bring about a convergence of national standards and harmonization of global accounting standards. During the period from 1997 – 1999, a restructuring program was implemented which brought the operation of IASC to an end, and the establishment of the International Accounting Standard Board (IASB) in 2001. IASB adopted all the standards previously issued by the IASC. The standards issued by IASB are known as International Financial Reporting Standards (IFRS). The IASB does not have the authority to impose its standards on any country. The decision is left for the various countries to make. A major breakthrough came in 2002 when the European Union (EU) adopted legislation that requires listed companies in Europe to apply IFRS in the consolidated financial statement. Nigeria made a similar requirement in 2012, for all listed companies in Nigeria Stock Exchange to adopt IFRS in financial reporting (Abata, 2015). 2.2. Financial Reporting Quality Financial reporting is not an end in itself. The quality of the process is adjudged by its clarity and transparency in the treatment of each transaction in the financial statement as well as strict adherence to legislation and accounting policies of the entity (Jonas and Blanchet, 2000). Users of financial reports make rational decisions based on the information obtained from the financial statements. However, this financial information may not adequately represent what it ought to present (Choi and Pae, 2011). Financial reporting quality can be defined as the faithfulness of the information conveyed by the financial reporting process (Martínez-Ferrero, 2014). The Financial Accounting Standard Board (FASB), which is one of the leading authorities on the evaluation of financial reporting, stipulates that the main characteristics of financial reports are relevance, reliability, transparency and Clarity (Richardson, and Salterio, 2011). This is because high financial reporting quality will reduce the risk of information asymmetry (Chen, Hope, Li and Wang, 2011). A commonly accepted definition of financial reporting is provided by Jonas and Blanchet (2000) who state that quality financial reporting is full and transparent financial information that is not designed to obfuscate or mislead users. Therefore, the concept of financial reporting quality is broad and includes financial information, http://www.iaeme.com/IJMET/index.asp 28 editor@iaeme.com Chukwuani Victoria Nnenna and Dr Ugwoke R. O disclosures and non-financial information useful for decision making. Financial reports should meet certain qualitative criteria to avoid poor quality and accomplish its purpose. Thus, financial reporting quality requires companies to voluntarily expand the scope and quality of the information they report, to ensure that market participants are fully informed to make wellgrounded decisions on investment, credit, and other financial decisions. This high-quality information facilitates greater transparency and this greater transparency reduces the information asymmetries and satisfies investors and stakeholders’ needs. There are numerous advantages to providing high-quality information. Financial reporting quality reduces information risk and liquidity (Lambert, Leuz and Verrecchia, 2007). Also, it checkmates manager’s tendency of manipulating accounting figures, by using discretionary powers to achieve their goal, and this result in efficient investment (Chen et al., 2011). Of all the benefits of high-quality financial reports, the reduction in the problem of information asymmetry is of great importance because it tends to minimize the challenges faced with conflicting information from different stakeholders. (Rajgopal and Venkatachalam, 2011),. High-quality financial reporting avails the different market participants the opportunity to make a fair judgment about the entities financial reports (Jo and Kim, 2007). Financial analysts should be able to give a good appraisal of financial statement with highquality financial information which enables them to make adequate predictions about the future performance of a company. For accounting information to be useful for decision making, it must be adjudged to be relevant and reliable, which is termed as fundamental characteristics of financial reporting quality (Kariuki and Jagongo, 2013). The relevancy of information must be characterized by its ability to make a difference to a decision-maker. Information is reliable when it represents the economic phenomena which it purports to present. This underlying economic phenomenon must be complete, neutral and free from error. The conceptual framework for financial reporting describes the secondary characteristics of financial reporting as “Enhancing characteristics”. These enhancing characteristics are comparability, verifiability, timeliness and understandability (Kariuki and Jagongo, 2013). The essence of financial reporting is to provide high-quality information on the entity’s report (Kariuki and Jagongo, 2013). As Naswa (2003) puts it, a high-quality accounting standard produces financial statements that report events in the period in which they occur not before and not later. 2.3. Measuring Financial Reporting Quality: The main goal of financial reporting is to provide high-quality accounting information concerning organizations which are financial in nature that is useful for making economic decisions (Nyor, 2013). Financial reporting quality, therefore, relates to the accuracy with which reported financials of a firm reflects its operating performance and how useful they are in forecasting future cash flows (Scott and Irem, 2008). In evaluating the quality of financial reporting, different techniques or methods have been applied and prominent among them are the accrual models and value relevance models which focus on specific elements in the annual report (Beest, Braam and Boelens, 2009). Accrual model and value relevance model are associated with the measurement of earnings quality (Beest, et al., 2009). These models measure the adequacy of the information content of the financial statement. Excessive earnings manipulations by the discretionary powers of management affect the quality of earnings and the value relevance of the financial statement. Quality information is expected to produce greater information content which enhances the decisions of accounting information users (Dechow, Sloan, and Sweeny, 1995). Earnings management is said to negatively affect financial reporting quality due to distortion in financial information on earnings, thereby preventing users of this information to make sound decisions (Van, Tendeloo & Vanstraelen, 2005). One of the http://www.iaeme.com/IJMET/index.asp 29 editor@iaeme.com Adequacy of Financial Reporting Quality of Nigerian Quoted Firms under IFRS Adoption advantages of using discretionary accruals in evaluating financial reporting quality is that it can be calculated based on the information in the annual report (Beest, et al., 2009). 2.3.1. Earnings Quality Earnings Quality is one of the most employed proxies of financial reporting quality in research. About this concept, earnings quality measures the degree of earnings management using accruals. It is necessary to consider that earnings quality is negatively associated with earnings management, which is the inverse of financial reporting quality (Dechow and Dichev, 2002), more earnings management is associated with lower quality of information. Earnings management is used to distort the true performance of firms, but analysts serve as external monitors to managers. One of the managers’ incentives to carry out these unethical practices could be increasing financial performance, which can only occur in the short term, but in the long run, these unethical practices are brought to light by their inability to fulfil their obligations to the capital providers, who withdraw their investments in those companies, which then lower their corporate performance (Rangan, 1998). According to research, analyst’s results on earnings show that companies that practice lower earnings management have higher earnings quality (Louis, 2004). Earnings management is the inverse of financial reporting quality (Dechow and Dichev, 2002); more earnings management is associated with lower quality of information and lower earnings quality. The degree of accruals adjustment by the discretionary powers of managers could be used to measure earnings management, hence, accounting manipulations. Garcia-Osma, Gill de Albornoz Noguer and Gisbert Clemente (2005), observed that accruals are not all discretionary; hence it is necessary to separate the discretionary component from the non-discretionary one to determine the presence and extent of earnings management and hence earnings quality. Kothari, Leone and Wasley (2005) model used the following procedure to separate the discretionary from the non-discretionary accruals. Kothari et al. (2005), in its model incorporation a non-deflated constant and return on assets. All the variables are deflated by the total assets of the previous year (except the constant) and are calculated by cross estimation. This model provides increased reliability and higher quality results, by resolving the question of whether differences in discretionary accrual adjustment DAA may derive from differences in performance (Martínez-Ferrero, 2014). This is derived as follows: 1 TAA = 𝐴𝑖𝑡 + ∆𝑆𝐴𝐿𝐸𝑆𝑖𝑡−𝐴𝑅𝑖𝑡 𝐴𝑖𝑡 + 𝑃𝑃𝐸𝑖𝑡 𝐴𝑖𝑡 + 𝑅𝑂𝐴𝑖𝑡 𝐴𝑖𝑡 + 𝐸𝑡 (1) Where TAA = the total accrual adjustments; Ait = total assets of firm i in period t-1 and this is used as a deflator to correct possible problems of heteroskedasticity; PPEit = the property, plant and equipment of firm i in period t; ∆SALESit = change in sales for firm i in period t; ARit = Accounts receivable for firm i in period t and ROAit = the return on assets for firm i in period t. 1 NDAA = 𝐴𝑖𝑡 + ∆𝑆𝐴𝐿𝐸𝑆𝑖𝑡 𝐴𝑖𝑡 + 𝑃𝑃𝐸𝑖𝑡 𝐴𝑖𝑡 + 𝑅𝑂𝐴𝑖𝑡 𝐴𝑖𝑡 + 𝐸𝑡 (2) Where: NDAA = Non-discretionary Accrual Adjustments Ait = total assets of firm i in period t-1 and this are used as a deflator to correct possible problems of heteroskedasticity; PPEit = the property, plant and equipment of firm i in period t; ∆SALESit = change in sales for firm i in period t; ROAit = the return on assets for firm i in period t. http://www.iaeme.com/IJMET/index.asp 30 editor@iaeme.com Chukwuani Victoria Nnenna and Dr Ugwoke R. O Thus, TAA – NDAA = DAA (Discretionary Adjustment Accrual) and are the residuals of this calculation. 2.3.2. Degree of Accounting Conservatism The degree of accounting conservatism implies a more timely incorporation of economic losses into accounting earnings than of economic gains. Ball and Shivakumar (2005). Authors like Gracia Lara, Gracia Osma, Penalva (2009) and (Ahmed and Duellmand, 2011) found out in their studies that, there is a positive relationship between accounting conservatism and future profitability due to efficient investment. In financial reporting quality, accounting conservatism has become an incentive to managers to promote better-performing projects that increase future performance since these economic or financial projects are more profitable (Martínez-Ferrero, 2014). Ahmed et al (2011) emphasized that companies that indulge in conservative practices, experience increase in financial profitability due to investment in more efficient projects. Companies with a good financial reporting quality are bound to promote profitable investment decisions and thus, these companies could view increases in their corporate performance Bushman and Smith (2001). According to Martínez-Ferrero (2014) conservative accounting reflects bad news for the company more rapidly than good news because this approach tends to reduce litigation risks. The degree of accounting conservatism is measured using a firm-year specific measure of timelines of earnings (C_SCORE). The C_SCORE is a firm-year specific measure of timelines of earnings as proposed by Martínez-Ferrero (2014) and calculated as: C_Score = SizeMVEit + MTBit + LEVit . ( 3) Where: SizeMVEit = the natural logarithm of the market value of equity; MTBit = the market to book ratio; LEVit = the leverage measured by dividing the sum of long term and short term debts by the market value of equity 2.3.3. Degree of Accruals Quality Accruals quality is said to be achieved, when financial information is credible and free of error and bias, intentional or otherwise (Lu, Richardson and Salterio, 2011), thus expanding the scope and quality of reported information and ensuring that market participants are fully informed (Hope, Thomas and Vyas, 2012). Just as with the alternative financial reporting quality measures, Martínez-Ferrero (2014) expect that companies that report more credible information, free of error and bias, enjoy the better corporate performance, making the market able to identify these companies and positively assess their ethical practices. Ball et al (2006), in its model, obtained a measurement of accruals which suggests that nonlinear accrual models that incorporate the timely recognition of losses perform better than linear models. In line with Martínez-Ferrero (2014), the change in working capital (WC) accruals from year t-1 to t is: ΔWCit = OCFt-1 + ΔREVit + ΔAccounts Receivableit + ΔInventoryit – ΔAccounts Payableit – ΔTaxes Payableit + ΔOther Assetsit + OCF*DOCF + e ...............(4) OCFt-1 is operating cash flow of the previous period before period t ΔRev is the change in Revenues; DOCF is the negative operating cashflows. It takes the value 1 if there are negative OCF and 0 otherwise OCF* DOCF is the operating cashflow multiple by the negative operating cashflow. i indicates the company and t refers to the time period. http://www.iaeme.com/IJMET/index.asp 31 editor@iaeme.com Adequacy of Financial Reporting Quality of Nigerian Quoted Firms under IFRS Adoption All the variables (except DOCF) are scaled by the total assets. The study will use the absolute value of the residuals from this model as a proxy for accounting quality bearing in mind that the lower the degree of this proxy, the higher the degree of accounting quality. 2.3.4. Aggregate Measure of Financial Reporting Quality One of the goals of this study is to generate an aggregate measure of financial reporting quality, called AFRQ (Average Financial Reporting Quality). This variable is the sum of the three dummy variables detailed above, and therefore takes values between 0 (absence of quality of information) and 4 (strong level of quality) (Martínez-Ferrero, 2014). For this, the study will create three dummies DEQ, DC_Score, and DAQ, corresponding to the measures of financial reporting quality. After obtaining the value of the three previous dummies the study will proceed to calculate AFRQ as the sum of the DEQ, DC_Score, and DAQ dummies: AFRQ = DEQ + DC _ Score + DAQ ( 5) 2.4. IFRS and Financial Reporting Quality The adoption of IFRS across the globe is an advancement to enhance the quality of accounting through a set of uniform standards for financial reporting (Odia and Ogiedu, 2013). However, the accounting quality of an individual firm is achieved by its strict adherence to rules and regulation governing accounting practice, as well as the legal and political system of the country where the firm is established (Bhattacharjee& Islam, 2009). Land & Lang (2002) document that accounting quality has improved worldwide since the beginning of the 1990s, and suggest that this could be due to factors such as globalization and anticipation of international accounting harmonization. One major benefits derived in the adoption of IFRS is an improvement in the quality of financial reporting. Barth, Landsman, & Lang (2008) emphasized that companies that have adopted IFRS have lower earnings management, practice more timely loss recognition and more value relevance, which suggest the higher quality of financial reporting. Past literature showed improvement in the quality of financial information and this enabled higher quality of financial reports, following voluntary IFRS adoption and this tends to reduce information asymmetry between managers and shareholders, which can be evidenced by proper assets and earnings management, lower cost of capital and high forecasting capability by the investors about the firm’s future earnings. IFRS prevents the use of alternative accounting methods by managers to manage earnings, hence the increase in the quality of financial reporting (Barth et al, 2008). Daske and Gebhardt (2006) focused on the consequences of voluntary adoption of IFRS, and findings show that capital market considerately responds to voluntary IFRS reporting. Evidence on the relationship between voluntary adoption of IFRS and accounting quality is mixed. But recent findings emphasized higher accounting quality among firm that adopts IFRS (Odia and Ogiedu, 2013). With the improvement on the quality of financial and accounting information reported by companies in countries that have adopted these standards, this study considered the moderating role of IFRS adoption in the Financial Reporting Quality (FRQ) in Nigeria. 2.5. Theoretical Framework: Agency Theory Advanced by Fama& Jensen (1976), this theory acknowledges that managers, standing in a privileged position of being the custodians of the company’s information and being privy to better information of the company, can be reasonably expected to disseminate it to the principal and other users. Contrary to the expectations of many, even though the company and its management choose accounting principles, the management out of intense self-interest manipulates the process so that they may fail to disclose important information to the owners and other users. This can only attest to the norm that people often make choices that are http://www.iaeme.com/IJMET/index.asp 32 editor@iaeme.com Chukwuani Victoria Nnenna and Dr Ugwoke R. O motivated by an individual’s ambition and geared to the fulfilment of their own needs. The adoption of IFRS for financial reporting in Kenya eliminates the opportunities for making alternative judgments with respect to different situations and in the process avoids opportunistic tendencies by managers and directors thus ensuring a reduction in information asymmetry. One of the defining characteristics of business in the 1990s was the adoption of the Agency theory to address the managerial excesses of the 1970s and 1980s (Simerly and Mingfaing, 2000). The classical Agency concept was developed by Berle and Means (1932) who observed that ownership and control which have been separated in larger corporations because of dilution in equity positions provided an opportunity for professional managers to act in their own best interest. Thus, the Agency theory attempted to provide an explanation to firm behaviours in choice financing. Despite the earlier works of Berle and Means (1932), Jensen and Meckling (1976) and Grossman and Hart (1982) are a pioneer in Agency theory research (Simerly and Mingfaing, 2000). Their analyses permitted the building up of interlink between the organization and the agency theory of corporate finance. Therefore, the Agency theory is a contractual device suggested to balance the motives of management and that of shareholders’. 2.6. Empirical Review 2.6.1. IFRS and Earnings Quality Barth, Landsman & Lang (2008) using t-test compared domestic GAAP and IAS/IFRS across 21 countries, suggesting that firms applying IAS/IFRS exhibit less earnings management, more timely loss recognition, and more value-relevant accounting measures. Ames (2013) studied the impact of IFRS adoption on accounting quality, measured in two broad ways—earnings quality and value relevance using logistic regression. The study found that earnings quality is not significantly improved among firms in the sample post-IFRS adoption. The study also found that some components of the balance sheet item changed in value relevance after the adoption of IFRS. This is in line with the notion that IFRS improved the quality of certain components of the financial reports, while some other parts are not affected by the adoption in South Africa. Elbannan (2011) found out in its study of the Egyptian company’s adoption of IFRS, that earnings management did not decrease after the adoption. This he attributes to lack of improvement in the enforcement of these standards by regulators and inadequate training of practitioners. Zhou, Xiong and Ganguli (2009) examined the impact of the adoption of IFRS on earnings management in a study of Chinese firms. They found that in post-adoption, earnings were less smoothened, which is associated with a decrease in earnings management. They conclude that the improvements of IFRS adoption are at least somewhat neutralized by more opportunities for earnings management under IFRS. Morais and Curto (2008) in a sample of 30 Portuguese listed firms finds that after IFRS adoption, the smoothness of earnings decreased, which is consistent with Zhou et al. (2009) and may be interpreted as an improvement in earnings quality. However, they also find that the value relevance of accounting information decreases in the wake of IFRS adoption. Outa (2011) studied the impact of IFRS adoption on the quality of listed companies in Kenya. The population of the study comprised of listed companies between the periods 19942003. Research methods used consisted of regression models and the metrics of earnings management, timely loss recognition and value relevance. T-test was based on empirical distribution. The findings led him to conclude that listed companies, mandatorily required to apply IFRS, show less evidence of earnings management, more timely loss recognition and more value relevance of accounting amounts. http://www.iaeme.com/IJMET/index.asp 33 editor@iaeme.com Adequacy of Financial Reporting Quality of Nigerian Quoted Firms under IFRS Adoption Atu, et al. (2016) examine the determinants of earnings management using selected quoted companies in Nigeria. The study adopts a cross-sectional research design with extensive reliance on secondary data from the financial statement of quoted companies with data from 30 companies for 2007-2014 financial years. The study made use of ordinary least squares (OLS) regression analysis to examine how the explanatory variables (corporate governance, firm size, audit firm type and financial performance) impact on earnings management using discretionary accruals measure. The study indicates the existence of a negative significant relationship between board size, audit firm type and earnings management. In addition, the study found the existence of a non-significant relationship between firm size, ROA and earnings management. Cláudia-Marria, António and Elísio (2011) analysed whether accounting quality produces an impact on firm performance using only accounting data: the abnormal accruals methodology to evaluate accounting quality and ROA to determine firm performance for 17 European countries. Findings from the regression results confirm the mechanical relationship between accruals and accounting measures of performance: income increasing abnormal accruals, which mean decreasing accounting quality, will increase ROA and vice-versa. In addition, when current performance is compared with the abnormal accruals of the previous year, results suggest that the reverse effect does not occur for two consecutive years. Onalo, Lizam and Kaseri (2014) investigated whether the Nigeria adoption of IFRS is associated with high-quality accounting measures. The study measures the quality of financial statement information using earnings management, timeliness of loss recognition and value relevance using data from a total of twenty Nigeria banks covering a period of six years. Regression results suggest that IFRS adoption is associated with minimal earnings management and timely recognition of losses. Results marginally support IFRS adoption association with high-value relevance of accounting information. Value relevance results were induced by capital market fraud. The study concludes that IFRS adoption engenders higher quality of banks financial statement information compared to local GAAP. Shehu (2013) examined monitoring characteristics and financial reporting quality of the Nigerian listed manufacturing firms. Using 32 firms-years longitudinal panelled of 160 observations in a panel OLS estimated and controlled for fixed/random effects, the result shows a significant positive relationship between monitoring characteristics and financial reporting quality. Representing financial reporting quality with earnings management using the modified Dechow and Dichev’s (2002) model, the Hausman specification test shows that the panel result after controlling for random, best suits the population as the fixed effect hypothesis was rejected by the Wald/Ch2 test. Of the control variables, both returns on assets and return on equity are significant. However, leverage, independent directors, audit committee, institutional, block and managerial shareholdings are all significant implying monitoring characteristics is influencing financial reporting quality of quoted manufacturing firms in Nigeria. Shoorvarzy and Tuzandehjani (2011) examine the effect of management efficiency (as the internal factor) on the quality of financial reporting (QFR). With regards to this, the expected operating cash flow was used for evaluating the quality of financial reporting using a sample of 100 companies during the period of 2001 to 2008. Result from the regression model, descriptive and inferential statistical techniques (including normality, homogeneity of variance, and independence of residual) and correlation analysis indicate that management efficiency is influential on financial reporting quality in firms. Hejazi, Ansari, Sarikhani and Ebrahimi (2011) investigated the effects of income smoothing and earnings quality on evaluating the performance of companies listed on the Tehran Stock Exchange using data from 96 companies among those listed within the years from 1999 to 2003. The data related to the performance mean of companies during the five-year period were aggregately and yearly studied, collected, and tested. The results of the study indicated that their http://www.iaeme.com/IJMET/index.asp 34 editor@iaeme.com Chukwuani Victoria Nnenna and Dr Ugwoke R. O performance is not influenced by income smoothing or earnings quality. In other words, no significant difference was found between the performance mean of smoother and no smoother companies and between those having high earnings quality and those having low earnings quality. Mikova (2014) examines whether IFRS adoption is associated with lower earnings manipulation measured by discretionary accruals, a commonly used method. It focuses on European Union membership among countries with both the common-law tradition and the code-law tradition. It investigates a sample of 603 companies (10,251 fi rm-year observations) during the years 1992–2013. The finding contributes to current accounting debate with the empirical evidence that earnings management did not decline after IFRS adoption. Overall, the results do not support the assumption that IFRS has an improving impact on reporting quality and demonstrate that other relevant factors should be considered in creating more efficient capital markets. Liu and Skerratt (2014) investigate earnings quality across the three groups within the current regulations using a panel least squares and found that medium-sized companies have the lowest earnings quality. The earnings quality of listed companies and small companies are similar. Even in a sub-sample of seemingly suspicious companies, where earnings quality is lower than in the full sample, medium-sized companies still have the lowest quality. The evidence supports the less stringent reporting requirements for small companies. The lower quality of reporting observed in medium-sized companies may be justifiable if the demand for their public information is sufficiently lower and the cost of supply less easily absorbed than in the case of listed companies. Salerno (2014) investigates the impact that the quality of reported earnings has on the accuracy of financial analysts’ earnings forecasts given that extant research indicates that earnings attributes are important considerations to users of accounting information. Salerno (2014) used two measurements of forecast accuracy to assess the impact that earnings quality has on the forecast accuracy of financial analysts. Following prior research, one measurement considers the environment in which the analyst operates and compares its accuracy to that of their peers. The second compares the individual analyst forecast to the actual reported earnings. For both measurements of accuracy, the results show that higher earnings quality is associated with improved forecast accuracy. Shehu (2015) investigated firm attributes from the perspective of structure, monitoring, performance elements and the quality of earnings of listed deposit money banks in Nigeria. The study adopted a correlational research design with balanced panel data of 14 banks as a sample of the study using multiple regression as a tool of analysis. The result reveals that firms attributes (leverage, profitability, liquidity, bank size and bank growth) have as significant influence on earnings quality of listed deposit money banks in Nigeria after the adoption of IFRS, while the pre-period shows that the selected firm attributes have no significant impact on earnings quality. Akram, Hunjra, Butt and Ijaz (2015) elaborated the impact of earnings management on the organizational performance construction and material in Pakistan and India using a sample of 20 listed companies of Karachi Stock Exchange (Pakistan) and 20 of Bombay Stock Exchange (India) for the period of 2009-2013. OLS technique was applied for hypothesis testing. Findings from the study indicate that there is a significant negative relationship between earnings management and organizational performance in Pakistan. On the other hand, there is an insignificant relationship between earnings management and organizational performance in India. Moreover, there is a significant mean difference between Pakistani and Indian construction sector firms’ discretionary accruals, return on assets and return on equity. http://www.iaeme.com/IJMET/index.asp 35 editor@iaeme.com