ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS AND EARNINGS MANAGEMENT IN QUOTED MANUFACTURING COMPANIES IN NIGERIA.

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1-Accounting
2-Banking and Finance
3-Business Administration
4-Economics

TOPIC:  ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS AND EARNINGS MANAGEMENT IN QUOTED MANUFACTURING COMPANIES IN NIGERIA.

TABLE OF CONTENT
Abstract
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Objective of the Study
1.4 Research Questions
1.5 Research Hypothesis
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Definition of Terms
CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual Framework
2.2 Theoretical Framework
2.3 Empirical Literature
2.4 Appraisal of Literature
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
3.2 Design
3.3 Population of the study and sample size
3.4 Instrument for Data collection
3.5 Data source
3.6. Model Specification
3.7. Method of Data analysis
3.8 Justification of Methods and Techniques used
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction
4.2 Data Analysis
4.3 Summary of Key Findings
CHAPTER FIVE: DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS
5.1 Discussion of Findings
5.2 Summary
5.3 Conclusion
5.4 Recommendations
5.5 Limitations of the Study
5.6 Suggestions for Further Studies
References
Appendix

ABSTRACT
This study titled "Adoption of International Financial Reporting Standards and Earnings Management in Quoted Manufacturing Companies in Nigeria" was conducted to examine the influence of IFRS adoption on earnings management practices within the Nigerian manufacturing sector. The specific objectives were to investigate the effect of IFRS adoption on earnings management, determine whether audit quality moderates this relationship, and assess whether firm size influences the effect of IFRS on earnings management. The study employed an ex-post facto research design and covered a ten-year period from 2015 to 2024. The population comprised all quoted manufacturing companies in Nigeria, from which a purposive sampling technique was applied to select firms that consistently operated and reported within the study period. Data were collected from secondary sources, particularly the published annual reports of the selected companies. The key variables analyzed included earnings management, proxied by discretionary accruals; audit quality, proxied by Big Four audit firm presence; and firm size, measured by the natural logarithm of total assets. Descriptive statistics, correlation analysis, analysis of variance (ANOVA), multiple regression models, and multicollinearity tests were used to analyze the data. The descriptive statistics revealed that earnings management had a mean of 0.0324, with minimum and maximum values of -0.1200 and 0.1500 respectively, while the ANOVA results showed that audit quality had a significant effect on earnings management (F = 5.6558, p = 0.0194). The multiple regression model confirmed that audit quality significantly constrained earnings management (t = -2.3776, p = 0.0194), while firm size had no significant influence (t = 0.2202, p = 0.8275). Based on these findings, it was recommended that regulatory authorities should intensify IFRS enforcement, manufacturing companies should consistently engage high-quality auditors, professional bodies should strengthen auditor competence, and corporate governance structures should be reinforced to promote reliable financial reporting.

CHAPTER ONE
INTRODUCTION (Preview)
1.1 Background of the Study
The adoption of International Financial Reporting Standards, commonly referred to as IFRS, has resulted in profound and revolutionary impacts on financial reporting practices worldwide. The basic premise of these standards is to create a level playing field by standardizing accounting principles amongst countries and jurisdictions, which further aims at enhancing the comparability and credibility of financial reports that organizations prepare. According to the research conducted by Pwagusadi (2020), the use of IFRS plays a vital role in strengthening the overall quality of accounting. This contributes immensely towards reducing information asymmetry generally found in financial markets, resulting in better and more informed investment decisions by stakeholders. In the same way, Solanke (2020) strongly believes that the adoption of International Financial Reporting Standards (IFRS) significantly enhances transparency and accountability in financial reporting. These are critically important attributes when it comes to building and maintaining a strong notion of investor trust within the vast and integrated global capital markets. For additional verification and support of this view, Nwachukwu and Emeka (2022) observe that the ongoing global movement towards the adoption of IFRS has been predominantly influenced by an increased demand for consistent and cohesive financial reporting standards. These standards have the potential to effectively close the existing gaps and disparities in country-specific accounting practices. The increasing use of International Financial Reporting Standards, or IFRS, across a varied combination of both developed and emerging economies highlights even more emphatically its perceived advantages. Such advantages are most prominently observed in how IFRS helps improve overall quality of financial disclosure while reducing at the same time the potential for earnings manipulation (Pwagusadi, 2020; Solanke, 2020).
On the basis of the profound global significance of the International Financial Reporting Standards (IFRS), many researchers and scholars have tried to examine its broad-ranging implications on accountancy practices of corporates, with particular reference to the increasingly relevant issue of earnings management. Okolie and Izedonmi (2023) contended in their article that the adoption of IFRS has the impact of disciplining and limiting the avenues for opportunistic earnings management by imposing stricter rules and regulations on accounting and, simultaneously, requiring companies to provide more comprehensive and detailed disclosures in their accounts. In support of this view, Eze and Obi (2021) presented an extremely valid point: that the convergence to International Financial Reporting Standards (IFRS) has a significant impact in constraining managerial discretion under financial reporting practices. This restriction of discretion, according to their own findings, then serves to restrict the possible avenues through which earnings manipulation can occur. That being said, there are also counterarguments presented by Musa and Ahmed (2022), contending that the net impact of IFRS on earnings management may not necessarily be entirely positive across environments. This is particularly relevant in instances where the enforcement mechanisms that should encourage adherence to these standards are substantially weak, leading to mixed consequences on earnings management practices. This observation is also reinforced by the research of Adebayo and Salawu (2022), in which the authors place significant emphasis on the idea that the effectiveness of International Financial Reporting Standards (IFRS) in reducing the practices associated with earnings management is dependent, to a large degree, on the specific regulatory and institutional contexts in which such standards are applied. Thus, while IFRS certainly provides a sound foundation for promoting good quality financial reporting, the exact degree of its impact upon the various practices associated with earnings management is a question that afflicts much academic research and investigation.
Building on this specific discussion, it has become ever more obvious that audit quality is a key factor that greatly influences the overall effectiveness of International Financial Reporting Standards (IFRS) in curbing cases of earnings management. As pointed out by the researchers Okonkwo and Oladipo (2023), audit quality is not merely vital; it has an absolutely central role to play in supporting and strengthening the credibility and trustworthiness of financial reports prepared under different IFRS environments. This perspective is strongly supported by the research conducted by Oyeleke Lateef and Temitayo Oluwasegun (2023) in the year 2023, who noted that audits of high quality serve as an extra safeguard against potential opportunistic behaviors exhibited by management, particularly in contexts where organizations are moving towards the adoption of International Financial Reporting Standards (IFRS). Furthermore, the findings presented by Sokiri and Tonye (2020) in their study suggested that companies which are audited by the prestigious Big Four audit firms generally display reduced instances of earnings management. This reduction can be attributed to the stringent auditing standards enforced by these firms, along with the significant reputational concerns they face, which collectively promote a higher level of accountability and transparency in financial reporting. To further strengthen and substantiate this contention, Uwalomwa and Uadiale (2021) noted the crucial observation that not only does audit quality play a vital role in sustaining and enhancing compliance with the International Financial Reporting Standards (IFRS), but it also positively affects the manner in which investors perceive and analyze financial statements. These crucial facts, taken together, illustrate and exhibit the multifaceted relationship and connection that exists between IFRS adoption and audit quality, especially influencing the outcomes with regard to earnings management practices.
Firm-specific characteristics, and above all, the size of a firm, play a definitive role in shaping the dynamics of the relationship between the adoption of International Financial Reporting Standards (IFRS) and the behavior of earnings management. Following the research conducted by Udoayang and Uwah (2020), it has been observed that larger companies would have a greater tendency to adhere to IFRS standards. This can be justified substantially due to their higher degree of public visibility and the additional pressure of being scrutinized closely by various stakeholders in the market. On the same note of argument, Ibrahim and Yusuf (2023) opined that large companies are subject to more external monitoring processes, which by the way mitigate the possibility of manipulation of earnings after IFRS adoption. On the other hand, however, it has been argued by Watts and Zimmerman (1986) that even after the implementation of International Financial Reporting Standards (IFRS), smaller firms may still actively resort to earnings management practices. This occurs primarily because such smaller firms are weaker in their control mechanisms and are relatively lower in terms of resource capacity, which undermines their capability to effectively implement the comprehensive standards that are set by IFRS. To further articulate this view, Roychowdhury (2023) emphasized the fact that the size of a firm can play an extremely crucial role in moderating the influence that IFRS has on the quality of financial reporting. More specifically, larger firms are found to show considerably greater improvements with respect to the quality of earnings. This line of literature posits that the size of firm is a relevant issue in comprehending how adoption of IFRS equates into real changes in earnings management practice.
When we place the different global and firm-level determinants within the particular Nigerian context, we find that the adoption and application of the International Financial Reporting Standards (IFRS) by publicly traded manufacturing firms presents an especially interesting and distinctive situation worthy of further study and analysis. As Okechukwu (2022) noted in their publication, Nigeria's adoption of IFRS was strategically intended to align the financial reporting procedures in Nigeria with accepted international standards. This was not a procedural alteration; rather, it was meant to considerably increase both transparency and the degree of trust that investors might place in the financial reporting of Nigerian companies. To fortify this view, Oko, Akpanke, and Ejoh (2019) had an observation that indicated the adoption of International Financial Reporting Standards (IFRS) by Nigeria would lead to a significant reduction in the incidence of irregularities in financial reporting and thus enhance the overall quality of earnings reported by entities. For Nigerian manufacturing firms, Uwikor, Nnah, and Erasmus (2023) clarified that these firms experience a variety of industry-specific reporting issues, and as such, analysis and examination of earnings management practice would be particularly crucial and significant to understanding the financial performances of these firms. In additional support of this assertion, Uwuigbe, Olubukunola, and Okorie (2021) put forward the argument that the degree to which the implementation of International Financial Reporting Standards (IFRS) can be effective in mitigating or reducing earnings management practices in Nigeria could very easily be affected considerably by various factors that include audit quality and firm size. These observations are invaluable and offer a solid and convincing justification for conducting an exploration into the interaction between the implementation of IFRS and audit quality and firm size, which continues to influence and dictate earnings management practice in Nigerian quoted manufacturing companies. This is indeed a matter that needs thorough and comprehensive empirical investigation in order to understand.

1.2 Statement of the Problem
IFRS adoption in Nigeria was strategically planned to enhance the transparency, reliability, and comparability of financial reports, especially across companies that are publicly quoted within the manufacturing sector. Ideally, IFRS adoption ought to lower the practice of earnings management significantly by reducing managerial discretion and introducing more rigorous disclosure requirements. This objective has been underscored by Pwagusadi (2020) and Solanke (2020). In spite of this, in the peculiar setting of Nigeria, there is a body of increasing evidence indicating that the practice of earnings management will continue unabated in spite of the International Financial Reporting Standards (IFRS) regime (Uwikor, Nnah, & Erasmus, 2023). This persistent and worrisome incidence of earnings management gravely undermines the fundamental underlying objective of IFRS, which is high-quality financial reporting that, in turn, promotes investor confidence and general market efficiency (Okechukwu, 2022; Oko, Akpanke, & Ejoh, 2019). The prevailing circumstances in which financial statements made in accordance with IFRS still demonstrate evidence of likely manipulation depart from the idealistic expectation that there would be a noticeable decline in earnings management practice and enhancement in general financial health.
While previous studies have extensively examined the general impact of IFRS adoption on financial reporting quality, there is a huge gap in sectoral-level studies, particularly for the Nigerian manufacturing sector. The literature that is available, which includes the very prominent studies of Musa and Ahmed (2022) and Adebayo and Salawu (2022), has all pointed out that the comparative efficacy of International Financial Reporting Standards (IFRS) at limiting earnings management practices is extremely dependent on some particular contextual variables. These variables prominently include matters such as the quality of audits conducted and the combined size of the concerned firms. It must, however, be stipulated that comparatively few empirical investigations have thoroughly explored exactly how these particular variables engage with one another, more precisely within the Nigerian manufacturing sector. This gap is particularly important given that Nigerian manufacturing firms frequently experience unique financial challenges peculiar to their operations, in addition to surmounting a myriad of reporting-specific issues specific to their industry (Uwikor, Nnah, & Erasmus, 2023). In addition to this, the functions of moderating by factors such as audit quality and firm size on the IFRS adoption and earnings management practice nexus are areas yet to be researched extensively in this specific sector. This study, therefore, seeks to bridge this gap by investigating not just the effect of IFRS adoption on earnings management in listed manufacturing companies in Nigeria, but also the mediating role of audit quality and firm size, and hence making a more specific and industry-based addition to the existing body of knowledge.
1.3 Objectives of the Study
i.Examine how the adoption of IFRS affects earnings management in quoted manufacturing companies in Nigeria.
ii.Determine whether audit quality moderates the relationship between IFRS adoption and earnings management in quoted manufacturing companies in Nigeria.
iii.Assess whether firm size has an influence on the effect of IFRS adoption on earnings management in quoted manufacturing companies in Nigeria.
OTHER PARTS OF CHAPTER ONE INCLUDE:
1.4 Research Questions
1.5 Research Hypotheses
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Operational Definitions

CHAPTER TWO
LITERATURE REVIEW  (Preview)
This chapter critically examines relevant literature that would assist in explaining the research problem and, furthermore, recognizes the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps. This chapter, therefore, focuses on the concept of International Financial Reporting Standards (IFRS), adoption of IFRS, earnings management, and the relationship between IFRS adoption and earnings management in quoted manufacturing companies in Nigeria. The chapter covers the following subheadings:

2.1 Conceptual Framework
2.2 Theoretical Framework
2.3 Empirical Review
2.4 Summary of Literature Review

CHAPTER THREE
RESEARCH METHODOLOGY (Preview)
Research Design: The study adopted an ex post facto research design.
Population of the Study and Sample Size: The population of the study comprises manufacturing companies quoted on the Nigerian Exchange Group (NGX) as of 2024, with a sample size of 9 manufacturing companies selected based on the availability of complete and consistent financial statements for the period 2015 to 2024.
Research Instrument: The study utilized published annual financial statements and reports as the instruments for data collection.
Methods of Data Analysis: The collected data were analyzed using descriptive statistics, correlation analysis, Analysis of Variance (ANOVA), multiple regression models (MRM), and Variance Inflation Factor (VIF) to examine the relationships among the variables and test the hypotheses.

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
MAJOR FINDINGS (Preview)
i. The study found that IFRS adoption could not be directly established as having a significant effect on earnings management in quoted manufacturing companies in Nigeria, because IFRS adoption was constant across the sampled companies, resulting in no variation for statistical testing. Consequently, the null hypothesis was accepted based on the inability to establish a significant direct effect within the sampled firms.

ii. The study found that audit quality significantly reduces earnings management in quoted manufacturing companies in Nigeria, as evidenced by a regression coefficient of -0.0093, t-statistic of -2.3770, and p-value of 0.0194 (p < 0.05). The ANOVA result further showed an F-value of 5.6558 and a p-value of 0.0194, leading to the rejection of the null hypothesis and indicating that higher audit quality is associated with lower earnings management.

iii. The study found that firm size does not significantly influence earnings management in quoted manufacturing companies in Nigeria, as evidenced by a regression coefficient of 0.0001, t-statistic of 0.2185, and p-value of 0.8275 (p > 0.05). The ANOVA result also showed an F-value of 0.0477 and a p-value of 0.8275, leading to the acceptance of the null hypothesis and indicating that firm size has no statistically significant effect on earnings management within the sampled companies.

CHAPTER FIVE:SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
This chapter covers the following outline:
5.1 Discussion of Findings
5.2 Summary of the Study
5.3 Conclusion
5.4 Recommendations
5.5 Limitations of the Study
5.6 Suggestions for Further Studies
References
Appendix

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