The Challenges and Prospects of IFRS Adoption in Ethiopian Commercial Banks

TABLE OF CONTENTS

ABSTRACT

ACKNOWLEDGEMENTS

LIST OF TABLES

ACRONYMS

CHAPTER 1: INTRODUCTION
1.1. General Background of the Study
1.2. Statement of the problem
1.3. Objective of the study
1.3.1. General Objective
1.3.2. Specific Objective
1.4. Research QUESTIONS
1.5. Significance of the study
1.6. Scope and Limitation
1.7. Organization of the Paper

CHAPTER 2: LITERATURE REVIEW
2.1. Introduction
2.2. Conceptual and Theoretical Framework of the study
2.2.1. International Accounting Standard
2.2.2. International Financial Reporting Standard
2.2.3. The driving factors for the emergent of IFRS
2.2.4. Objectives of International Financial Reporting Standard
2.2.5. Prospects of Adopting IFRS
2.2.6. Major challenges of adopting IFRS.
2.3. Empirical EVIDENCE
2.4. Summary and Gap in the Existing Literature

CHAPTER 3: METHODOLOGY
3.1. Introduction
3.2. Research Approach
3.3. Sample Selection
3.3.1. Total Population
3.3.2. Target Population
3.3.3. Sample Design and Size
3.4. Survey Design
3.4.1. Data and Collection instrument
3.5. Data analysis
3.6. Validity and reliability of the study

CHAPTER FOUR: DATA ANALYSIS AND PRESENTATIONS
4.1. Introduction
4.2. Reliability Study
4.3. Demographic characteristics of respondents
4.4. Information on whether the bank used to IFRS
4.5. Information on existing financial reporting standards
4.6. Information on perception of previous standards and IFRS
4.7. Information on challenges and IFRS TRAINING
4.8. Benefits of IFRS ADOPTION IN Ethiopian Commercial Banks
4.8.1. Benefits of IFRS adoption to Banks
4.8.2. Benefits of IFRS adoption for investors
4.8.3. Benefits of IFRS adoption for Management
4.8.3. Benefits of IFRS adoption to other stakeholders
4.9. Challenges of IFRS ADOPTION IN Ethiopian Commercial Banks
4.9.1. Challenges of legal and regulatory requirement
4.9.2. Challenges of professional Bodies
4.9.3. Challenges of measurement of business performance
4.9.4. Challenges of Information Technology
4.9.5. Challenges of Training and Education

CHAPTER 5: CONCLUSION AND IMPLICATIONS
5.1. Introduction
5.2. Conclusion
5.3. Implications
5.4. Future Research Areas

REFERENCES

APPENDIX (A) : QUESTIONNAIRE

APPENDIX (B):INTERVIEW GUIDE

ABSTRACT

The study aims to examine the challenges and prospects of International Financial Reporting Standards (IFRS) adoption in Ethiopian Commercial Banks. To answer the research question and to achieve the objective of the study this paper adopted the mixed research approach. The questionnaire data were analyzed using descriptive statistics and data from interview and document review were interpreted qualitatively. The results show that IFRS adoption in Ethiopian Commercial Banks will result in a number of important benefits to a wide range of stakeholders. The study also find that with the exception of capital market the other five variables namely need of amending legal and regulatory requirement , volatility of financial position and financial performance , difficulty of obtaining source documents and data ,need of updating the existing accounting software, information system and information technology of the bank, shortage of skilled and competent man power , shortage of strong professional bodies are the key challenges of IFRS adoption in Ethiopian Commercial Banks. Finally the study recommended the relevant commercial code, tax proclamation and NBE directive should be amended by Government organs in consultation with strong professional bodies , establishment of strong professional bodies and capital market, allocation of sufficient financial and other resources by top management , introduction of IFRS in colleges and universities and future adopters should think ahead the required source documents and data as well as ensure the extent of changes needed to update the existing IT infrastructure to satisfy IFRS requirements.

Keywords: Adoption, Ethiopian Commercial Banks, International Financial Reporting Standards

Acknowledgements

First of all I would like to thank God for being my creator, savior and source of strength. I would like to express my sincere gratitude to Dr. Abebaw Kassie, for his unreserved advice, guidance, comments and suggestions during the course of my study. I was extremely fortunate in having him as my advisor.

My sincere thanks go to Finance Directors, IFRS Project Managers, IFRS Project Team members of all Ethiopian Commercial Banks ,AABE's financial reporting and accounting review staffs and other staffs who are directly involved in the monitoring and reviewing of entities' financial reports in providing me appropriate data.

My families deserve special mention for their support and prayers. My husband Marne Negussie, I would like to thank you for your prayer. My beloved daughters Hana Mame and Tsion Marne, you are my purpose, energy and courage. I would also like to thank my friends Solomon Kitata, Omer Mohammed, Belay Getachew and Dereje Hailemariam who were important to the successful realization of my thesis. As well as I would like to express my apology that I could not mention personally one by one.

List of Tables

Table 1 Reliability Test (Cronbach's Alpha)

Table 2 Demographic characteristics of respondents

Table 3 Summary of whether the bank used to IFRS

Table 4 Information on existing financial reporting standards

Table 5 Perception of previous standards and IFRS

Table 6 Challenges and IFRS traning

Table 7 Summary of responses for open-ended question of what are challenges of IFRS adoption

Table 8 Descriptive statistics benefits of IFRS adoption to Banks

Table 9 Descriptive statistics benefits of IFRS adoption for investors

Table 10 Descriptive statistics benefits of IFRS adoption for Management

Table 11 Descriptive statistics benefits of IFRS adoption for other stakeholders

Table 12 Descriptive statistics challenges of legal and regulatory requirement

Table 13 Descriptive statistics challenges of professional bodies

Table 14 Descriptive statistics challenges of measurement of business performance

Table 15 Descriptive statistics challenges of Information Technology

Table 16 Descriptive statistics challenges of Training and education

Table 17 Descriptive statistics challenges of capital market

Acronyms

illustration not visible in this excerpt

CHAPTER 1: INTRODUCTION

1.1. General Background of the Study

Accounting is generally known as the "language of business” since it assumes the medium in which the performance and position of corporate entities are communicated to the outside world. Business enterprises all over the world cannot continue speaking in different languages to each other while exchanging financial numbers from their international business activities. Thus, a single set of worldwide accounting standards simplify accounting procedures by allowing the use of a common reporting language across the globe. With IFRS adoption, the language of business is now one that is generally known and understood by most international investors.

The process of international convergence towards a global set of accounting standards started in 1973 when 16 professional accounting bodies from Australia, Canada, France, Germany, Japan, Mexico, Netherlands, United Kingdom and the United States of America agreed to form the International Accounting Standard Committee (IASC). International Accounting Standards (IAS) which was issued by IASC came as a child of necessity due to unprecedented growth in trade and investment between countries of Europe, America, Asia and Australia. It led to a search by investors for new destinations for surplus funds. But companies that started going abroad to become multinational soon faced the problem of consolidating their financial statements due to differences in the General Acceptable Accounting Principles (GAAPs) of parent and subsidiary companies.

In 2001, the IASC was reorganized into International Accounting Standard Board (IASB) with an objective to develop global standards and related interpretations that are now collectively known as International Financial Reporting Standard (IFRS). With the advent of globalization, global capital markets have witnessed rapid expansion, diversification and integration. This has brought about a shift away from local financial reporting standards to global standards. In the wake of this transformation, the European Commission issued a legislation to require the use of IASB standards for all listed companies in 2005, thus making IFRS mandatory (Ikpantan.et.al, 2015).

The goal of financial reporting is to make information available for decision-making. Diversity in financial reporting in different countries arises because of the differences in legal systems, tax systems and business structures. IFRS is intended to harmonize this diversity by making information more comparable and easier for analysis, promoting efficient collaboration of resource and reduction in capital cost (Demaki, 2013)

Many countries recognized the need to have quality financial reports and other benefits such as enhance comparability of financial information, bringing excellence in financial reporting due to transparency, enable the entities to know its true worth, ability to access global capital market resulted in improvements to the quality and consistency of financial reporting (Rawat.et.al, 2015).Better Global Comparability, better Access to International Capital Market and Lower Cost of Capital, easy Cross Border Listing, avoidance of Multiple Reporting, better Quality of Financial Reporting, Economic Growth and opportunities for Accounting Professional are the benefits of adopting IFRS in India (Thappa, 2012)

As well as significant benefits are derived from adopting IFRS there are also problems. According to (Rawat.et.al, 2015), IFRS conversion has many challenges such as volatility and subjectivity to the financial statements due to use of fair value accounting, difficulty to arrive at fair value and absence of expertise to provide valuation service, need of change of tax laws to address the change of tax liability arises from the effect of convergence on the items in the financial statements, the lack of training facilities and academic courses on IFRS and effects on audit. According to the study conducted by (Thappa, 2012) the challenges of adopting IFRS by banks are classified into technical challenges and other challenges. The technical challenges are ;loan Impairment, hedge Accounting, fair Value, consolidation of Financial Statements, financial Instrument, tax reporting Practices, IFRS-1 Fist Time Adoption of IFRS .The other challenges are outlined as amendment to the existing laws, shortage of Trained and experienced resources, creation of Awareness about IFRS, measurement of business Performance, complexity in financial Reporting and increased Initial Cost.

Despite the fact that a range of IFRS adoption studies have been investigated by various scholars, most of them were conducted by analyzing the data from member countries of EU. However, very few studies have been carried out on data from developing and emerging economic countries like Ethiopia. While research has been carried out on the benefits and key challenges of Adoption of International Financial Reporting Standards (IFRS) in Ethiopia (Fikru,2012), adoption, challenges and perception of International Financial Reporting Standards (IFRS) on the Quality of Financial Reporting of Financial Institution in Addis Ababa, Ethiopia (Meles,2016), Challenges and Prospects of International Financial Reporting Standards (IFRS) implementation in Ethiopia (Firdawok,2017).As per the researcher knowledge there is no previous study conducted with regards to challenges and prospects of adopting IFRS by Ethiopian commercial banks. Therefore, this study makes an attempt to bridge this gap and tries to study the Ethiopian data with reference to IFRS adoption, benefits and challenges of IFRS adoption for Ethiopian commercial banks.

In order to capitalize the benefits from IFRS based financial reports, following the recommendation of World Bank the government of Ethiopia passed the Financial Reporting Proclamation No.847/2014 (M0FED, Financial Reporting Proclamation No.847/2014 20thYear N0.81, 2014) for financial reporting and regulation No.332/2014 (M0FED, Regulation No. 332/2014 21th year No 22, 2015) for the establishment and determination of the procedure of the Accounting and Auditing Board of Ethiopia which is in charge of coordinating the implementation of IFRS and regulating the financial reporting practice of the country.

1.2. Statement of the problem

Various studies have been conducted to assess adoption of IFRS in different countries around the world. Most of these studies conducted on the data from developed and industrialized countries. The European Union (EU) took the lead when it mandated all listed companies in the European Union to start the adoption and implementation of the IFRS in their financial reporting since 2005 (Odia.et.al, 2013).According to (Веке,2015) as cited in (Onalo.et.al, 2014) although it became mandatory for firms listed on capital markets of European and other developed countries to implement IFRS beginning from 2005, only few emerging countries have recently converged with or adopted IFRS as their reporting standards. Hence most prior extant studies on the change from local GAAP to IFRS or better state IFRS ad opti on/conv ergence focus majorly on European and other developed countries with paucity of such studies on emerging economies . Lack of empirical studies on the association between changes in accounting standards or IFRS adopţion/convergence and accounting quality of financial institutions such as banks in terms of earnings management and value relevance is theoretically and practically precarious giving the functional status of financial institutions particularly banks on economic scenes local or international. Furthermore, financial institutions particularly banks is one sector that is expected to be most affected by changes in accounting standards specifically IFRS adoption or convergence (Olano.etai, 2014). According to (IASB, 2014) as cited in (Olano.et.al, 2014) moving to IFRS has had a major impact on the reporting requirements of financial institutions.

Few studies have been conducted on the data from developing and emergent countries like Ethiopia .Studies on IFRS have been conducted in Nigeria such as (Demaki, 2013) examines Prospects and Challenges of International Financial Reporting Standards to Economic Development in Nigeria and finds that need of amendment of laws and regulation is among the major challenges and among the benefit enhanced effectiveness of management function is the major one. (Michael, 2013) , studied the Application and Challenges of International Financial Reporting Standards in Nigeria. The result of the study is lack of preparedness is the major challenge. (Odia.et.al, 2013) , studied the issues, challenges and lessons from IFRS Adoption. The findings are lack of legal and regulatory and allocations of resources are the major problems.

(Kumar, 2014) and (Rawat.et.al, 2015) conducted a study on International Financial Reporting Standard (IFRS) and finds complexity of IFRS is the significant problem and among others enhance refined performance measures is the benefit of IFRS adoption. (Thappa, 2012) studies on challenges of IFRS adoption in Indian Banking Industry. The result shows that lack of awareness is the major challenges of IFRS adoption.

(Tesfu, 2012) studies the Benefits and Challenges of adopting IFRS in Ethiopia and found that need for training, complexity of IFRS and lack of implementation guidance are the major challenges of IFRS adoption, (Mihiret, 2016) investigates the Process, Issues and Implications of IFRS Adoption in Ethiopia .The study shows that lack of commitment and low capacity among accounting Professional and lack of coordination of all concerned stakeholders are the major challenges. (Hailemichael, 2016) studies Adoption, Challenges and perception of International Financial Reporting Standards (IFRS) on the Quality of Financial Reporting of Financial Institution in Addis Ababa, Ethiopia and finds that there is a strong positive relationship between IFRS adoption and quality of Financial reporting of financial institutions and the study also highlights challenges of IFRS adoption the significant ones are cost of adoption ,IT challenge and lack of implementation agent and guidance , (Teshome, 2017) investigates Challenges and Prospects of International Financial Reporting Standards (IFRS) implementation in Ethiopia .The investigation shows that need for training, lack of readiness to implement within the time frame set by the board, lack of adequate implementation guidance and lack of enforcement capacity are some of key challenges facing the transition to IFRS.(Alemi,2016) conducts a research on IFRS Adoption Progress in Ethiopia and founds that shortage of qualified professionals and lack of preparedness are the major challenges of IFRS adoption. Most of the studies conclude that Transparency and comparability are the major benefits of IFRS adoption.

In spite of studies have been conducted on the adoption of IFRS, challenges and prospects in Ethiopia, as per the knowledge of the researcher previous studies have been conducted prior to the financial institutions mandatorily adopt and face the practical challenges. The actual problems regarding the challenges of absence or difficulty of finding source documents and data to satisfy IFRS requirements as well as resources and infrastructure accessible for the adoption has yet to be studied in the context of Ethiopian Commercial Banks. Therefore, this study makes an attempt to bridge this gap and tries to study the prospects and Challenges of IFRS adoption in Ethiopian Commercial Banks in the eve of a full adoption in 2018.

1.3. Objective of the study

1.3.1. General Objective

The main purpose of the study is to examine the challenges and prospects of IFRS adoption in Ethiopian Commercial Banks.

1.3.2. Specific Objective

- To examine whether IFRS adoption has a benefit for external stakeholders as well as internal users.
- To determine the presence of inconsistency of local rules and regulation with IFRS requirements.
- To assess the availability of the required skilled professional as well as backing of professional bodies in the IFRS adoption.
- To examine the effect of IFRS adoption on financial performance of the commercial banks in Ethiopia.
- To determine the existing source documents and data are appropriate and adequate to execute the information system in aiding IFRS adoption as per the requirement.
- To find out the non existence of capital market influence the IFRS adoption.

1.4. Research questions

- Does IFRS adoption has benefit for external stakeholders as well as internal users?
- Does the local rules and regulation have inconsistency with IFRS requirements?
- Does the adoption have the required skilled professional as well as backing of professional bodies in the adoption of IFRS?
- Does the adoption of IFRS have an effect on financial performance of the commercial banks in Ethiopia?
- Are the existing source documents and data having an appropriate adequacy for the adoption of IFRS as per the requirement?
- Does the non existence of capital market influence the IFRS adoption?

1.5. Significance of the study

The findings and recommendations of this study would benefit countries and entities which will adopt IFRS to overcome challenges and to enhance understanding of stakeholders about the benefits of IFRS adoption for internal and external stakeholders as well as the whole nation.

The study could also be used as an initiation for those who are interested to conduct a research on a detailed and comprehensive study about the adoption of IFRS.

1.6. Scope and Limitation

The general aim of the study is to assess challenges and prospects of IFRS adoption limiting its scope to commercial Banks in Ethiopia. Due to the broad and the complex nature of International Financial Reporting Standards this study focuses on the challenges and prospects of IFRS adoption in Ethiopian Commercial Banks. The researcher approaches the finance director, IFRS project manager and at least three IFRS project team member as a respondent for questionnaire. The researcher approaches AABE's financial reporting and accounting review staffs and other staffs who are directly involved in the monitoring and reviewing entities' financial reports. However evidence from National Bank of Ethiopia is not collected due to limitation of time of the researcher. NBE as a regulatory body of banks in Ethiopia could have provided the relevant information regarding the prospects of IFRS adoption for the growth of Ethiopian economy. Likewise NBE could also have provided information about its requirements on banks, whether there are any inconsistencies between the IFRS requirement and NBE requirement and how it is resolved.

1.7. Organization of the Paper

The paper is organized into five chapters. The first chapter deals with the introduction part which consists of background of the study, statements of the problem, objectives of the study, research questions, and significances of the study and scope of the study. Second chapter contains a review of the related literature on both theoretical and empirical studies. The research design and methodology is presented in chapter three. Chapter four is the discussion of the results and findings of the study. The final one is chapter five which deals with the conclusions, implications and future research areas that are forwarded based on the result obtained.

CHAPTER 2: LITERATURE REVIEW

2.1. Introduction

This chapter outlines a review of related literature to International Financial Reporting Standards and its adoption. It consists of general overview about International Financial Reporting Standards, prospects and challenges of adopting IFRS. This chapter analyses existing empirical research in the area of International Financial reporting Standards and finally it presents the summary of review and identifying the gap in the existing literature.

2.2. Conceptual and Theoretical Framework of the study 2.2.1. International Accounting Standard

The first move towards accounting standards convergence was the proposal to create the Accountants International Study Group (AISG) by the professional accountancy bodies in Canada, the United Kingdom and the United States in 1966. This was formed in order to develop comparative studies of accounting and auditing practices in the three nations. The AISG was eventually created in 1967. It published 20 studies until it was disbanded in 1977. Sir Henry Benson put forward the proposal for the setting up of the International Accounting Standard Committee (IASC) at the 40th World Congress of Accountants in Sydney in 1972. After discussions and signature of approval by the three AISG countries and representatives of the professional accountancy bodies in Australia. France, Germany, Japan, Mexico and the Netherlands, the IASC was established in 1973. Sir Henry Benson was the first elected Chairman while Pad Rosenfield was the first secretary of the IASC. By the beginning of the 21st century the only one of the nine original IASC countries (Germany) did even a relatively small number of listed companies used IASs to report to domestic Investors (Ojiedu et.al, 2013).

IAS is International Accounting Standards (IAS) which was issued between 1973 and 2001 by the International Accounting Standard Committee (IASC). On 1 April, 2001, IASC was replaced by International Accounting Standards Board (IASB). Since then International Accounting Standards Board (IASB), based at London -UK is now responsible to issue International Financial Reporting Standard IASB is an independent body and consists of members from nine different countries around the globe having variety of functional backgrounds. During its first meeting the Board adopted existing IAS and SICs. The IASB has continued to develop standards calling the new standards IFRS (Kumar, 2014). Between 1973 and 2001, the IASC issued 41 standards or IASs before it was replaced by the International Accounting Standards Board (IASB) (Ojiedu et.al, 2013).

2.2.2. International Financial Reporting Standard

International Financial Reporting Standard constitutes standards, Interpretations and the framework for the Preparation and Presentation of Financial Statements set and adopted by the International Accounting Standards Board. IFRS has replaced the older term international accounting standard. Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IFRS are considered ‘principles based' set of standards in that they establish broad rules as well as dictating specific treatments. (Kumar, 2014). IFRSs are standards and interpretations adopted by the International Accounting Standards Board (IASB). This includes IFRSs, IAS, and Interpretations originated by the IFRIC or its predecessor the former Standing Interpretations Committee (SIC). IFRSs are increasingly being recognized as global reporting standards of financial statements (Thappa, 2012). The need for a global set of high-quality financial reporting standards has long been apparent. The process of international convergence towards a global set of standards started in 1973 when 16 professional accountancy bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and the United States agreed to form the International Accounting Standards Committee (IASC), which in 2001 was reorganized into the International Accounting Standards Board (IASB). The IASB develops global standards and related interpretations that are collectively known as International Financial Reporting Standards (IFRS)( Thappa,2012).

All listed companies in France, Germany, the Netherlands and the UK and other 21 countries were mandated by the European commission to adopt IASs or the International Financial Reporting Standards (IFRS) from 2005.The Australian government and standard setter had put upon adoption policy of IAS by 2005.The US roadmap for adoption is 2014-2016. Canada and Japan are also considering convergence with IFRS (Ojiedu et.al, 2013).

2.2.3. The driving factors for the emergent of IFRS

The globalization has brought a lot of changes in doing business across the world. The use of different accounting frameworks in different countries creates confusion for users of financial statements resulting into inefficiency in capital markets across the world. The increasing complexity of business transactions and globalization of capital markets call the regulators, multinational companies, auditing firm and investors to see the need for common standards in all areas of financial reporting. Thus, the case for a single set of globally accepted accounting standards has prompted many countries to pursue convergence of national accounting standards with IFRS. It is believed that accounting harmonization is necessary for the globalization of capital markets (Quigley. 2007) as cited by (Ojiedu et.al, 2013). Investors now seek investment opportunities all over the world. Many business entities continue to expand their operations across national borders. Companies are seeking capital at the lowest cost anywhere. Securities markets are crossing national boundaries (and increasing cross-border capital flow). Merger talks among some of the world's largest stock exchanges continue and the glowing investment transactions via the internet (Ojiedu et.al, 2013).

2.2.4. Objectives of International Financial Reporting Standard

The main objective of IFRS is harmonization in financial reporting. Some additional objectives are; to create the global financial reporting infrastructure, to generate sound business sense among the beneficiaries, to generate the dimensions of fair presentation of financial statements and to maintain higher transparency of financial statements and mobility of capital (Kumar, 2014). The primary goal of IASC formation was to develop a single set of high quality International Accounting Standards (IASs) to replace national standards (Ojedu.et.al. 2013). The ultimate objective of convergence is to achieve a single set of internally consistent, high quality global accounting standards, issued by the IASB and adopted by all the national standard setters (IASB, 2003).

2.2.5. Prospects of Adopting IFRS

As per European Commission the requirement of compliance of IFRS by all listed companies in their consolidated financial statements (CFS) from 2005 (IAS Regulation) onwards will help eliminate barriers to cross boarder trading in securities by ensuring that company accounts throughout the European Union (EU) are more reliable, transparent and comparable. This will increase market efficiency and reduce the cost of raising capital for companies, ultimately improving competitiveness and helping boost economy (Kumar, 2014). The business of multinational companies are being extended and established in various countries with emerging economies .These companies in emerging economies are increasingly accessing the global markets to fulfill their capital needs by getting their securities listed on the stock exchanges outside the country. This results in making the Capital markets global in nature (Thappa, 2012). Although there are arguments that IFRS are irrelevant to developing countries but they are adopting it because IFRS is a product with "network effects”. IFRS is perceived as a high quality accounting standard, compared to most local accounting standards, which can help to foster increased comparability of financial statements by investors. Globalization, increased borderlisting, attraction of foreign investment and aids, and other institutional factors have been the motivating factors for IFRS adoption (Ojiedu et.al, 2013).

2.2.6. Major challenges of adopting IFRS

The problem of differences in accounting standards will continue to exist for some time. From a regulatory perspective, convergence to IFRS would require amendments to the Companies Act and the Income Tax Act, to mention the major ones. Currently industries such as banking and insurance companies are also regulated by specific acts that prescribe accounting norms. IFRS does not provide industry specific standards so there would be additional transition challenges as and when progress is made. IFRS requires valuations and future forecasts, which will involve use of estimates, assumptions and management's judgments (Kumar, 2014). The principal impeding factors in the adoption process of IFRS in Europe, America and the rest of the world are not necessarily technical but cultural issues, mental models, legal impediments, educational needs and political influences(Obazee, 2007) as cited by (Ojiedu et.al,2013). According to Rong- Ruey Duh (2006), the implementation challenges include: timely interpretation of standards, continuous amendment to IFRS, accounting knowledge and expertise possessed by financial statement users, preparers, auditors and regulators, and managerial incentive (Ball, Robin & Wu 2000) as cited by (Ojiedu et.al, 2013).

2.3. Empirical evidence

(Bhattachaijee.et.al, 2009) Conducted a study on Problems of Adoption and Application of International Financial Reporting Standards (IFRS) in Bangladesh .The aim of the study is to examine the adoption and application of IFRS with specific reference to the role of IFRS for quality accounting information, problems regarding the adoption and application of IFRS in the context of Bangladesh by reviewing various journals , research papers and diagnostic study reports and news paper articles and concludes that Agency problem between management and shareholders , reduce the cost of investors of processing financial information, reduce accounting diversity , improve risk-sharing and lowers cost of capital. The study highlights the challenges of adopting IFRS as the wholesale importation of the highly sophisticated rules like IASs is not suitable for less sophisticated economic and regulatory structure of Bangladesh, ambiguity of role and responsibility of the Securities and Exchange Commission (SEC) and the Institute of Chartered Accountants of Bangladesh (ICAB) and only enforcement mechanism will not help the procedure if some firms are forced to adopt IFRS against their will.

(Thappa, 2012) has examined Challenges, the impact of IFRSs in Indian banking Industry and the various phases of implementation of IFRSs in the banking sector in India. The paper also highlights on the challenges ahead in the implementation of IFRS in Indian banking sector and the possible ways to address the challenges. The study is basically based on the secondary data gathered from related literature published in the journals, newspaper, books, statements, reports. The nature of study is qualitative, descriptive and analytical. Finally the paper concludes that IFRSs in Indian Banking Industry would bring many benefits to the industry along with some challenges like changes to the existing law, skilled manpower, increasing cost.

(Ogiedu, 2013) examined IFRS Adoption: Issues, Challenges and Lessons for Nigeria and other Adopters by reviewing the literatures on the adoption of IFRS .The paper deals with some of the issues and challenges associated with IFRS adoption and finds that Weak institutional framework and uniform application of IFRSs across different jurisdictions are the major challenge among others. Some of the suggestions of the study are; Continual training of auditors, regulators, analysts and other users, introduction of an awareness program by government, allocation of adequate resources, careful planning and extensive public education, a legal and regulatory and institutional support with strong management systems. Finally the study concludes that various stakeholders' involvement in the development plans and effective communications are vital for successful IFRS adoption.

(Demaki, 2013) attempted to study Prospects and Challenges of International Financial Reporting Standards to Economic Development in Nigeria.IFRS will position Nigerian companies in the global market place as well as ensure transparency, accountability and integrity in financial reporting in Nigeria which is a prerequisite for the attraction of investment that will promote economic development. It will provide international investors the ability to make well- informed, useful and meaningful comparison of investment portfolio in Nigeria and other countries. Multinational companies with the aid of IFRS financial statement provide for easy consolidation of financial statements. It promotes better management control systems. IFRS statements are easier to comply with the financial requirements of overseas stock. It also facilitates ease of cross border transactions and trading within the region through common accounting practice especially in underdeveloped regions of the world like the Economic Community of West African States (ECOWAS). It will help to facilitate compilation of meaningful data on the performance of enterprises within the ECOWAS and other regions of the world. It will assist Nigeria in attracting international investors as the adoption of IFRS financials promotes easy monitoring of overseas investments. Transparency and better accountability in government Ministries, Departments and Agencies (MDA) will be promoted through the IFRS adoption in the public sector accounting and management of resources. It will also lead to increase in government revenue as a result of transparency and integrity in reporting. Easier access to capital is also facilitated through IFRS. Despite the aforementioned envisaged benefits there are still challenges. There is the urgent need to improve the level of public awareness especially among investors and regulatory authorities in Nigeria. There is also chronic shortage of professionals that are competent to implement the IFRS within the given time frame as contained in the schedule of the Nigerian roadmap for its adoption (i.e. January 2012 -January 2014).

(Michael, 2013), has conducted a research on the Application and Challenges of International Financial Reporting Standards in Nigeria. The study used the content analysis method by reviewing available literature sourced from textbooks, Journals, Newspaper and other official document on International Financial Reporting standards that are relevant to Nigeria to highlight challenges. The result of study reveals that the transition to IFRS will bring a significant change to tax accounting methods, taxable profits and tax liabilities, lack of IFRS awareness and knowledge, absence of conversion management and outline of conversion plan. Finally the study suggests that the syllabi in respect of accounting courses in higher educational institutions should incorporate the provisions of the standards, the understanding of IFRS should also be introduced to the students of the tertiary institutions. Emphasis on training of practitioners on the field should be extended to students as some of them may not be able to meet the training fees. Therefore it is necessary that lecturers are well equipped to train the students. Laws that are inconsistent with the IFRS have to be amended.

(Olano.et.al,2014) investigated the relationship between International Financial Reporting Standards and the quality of banks financial statement information by using data from banks audited financial statements and capital market performance report and employing Eviews for analyses. The study concludes that not only IFRS adoption is associated with high accounting quality evidenced there are factors beyond the fundamentals - capital market fraud- which determine stock market valuation. Finally the study recommends the global adoption of IFRS, Particularly for emerging economies and Nigeria banking sector should embrace best corporate governance practices.

(Tesfu, 2012) in a study regarding IFRS adoption in Ethiopia tried to see the adoption of IFRS in Ethiopia. The study focused on the factors, Prospects and challenges of IFRS adoption in Ethiopia. To answer the research question and achieve the objectives, both primary and secondary data were collected through questionnaire, interview and the review of related authorized document. The respondents which were selected from those companies adopted IFRS includes finance officers and accountants. The result shows that Cost of adoption, need for training, complexity of IFRS, Lack of adequate implementation guidance. Increase volatility of earnings, tax driven nature of previous standards, Problem with Fair value use of IFRS was the main challenges of IFRS adoption. Moreover the findings revealed that due to the benefits outweighs the problems IFRS should have been adopted earlier in Ethiopia. The benefits of effective and efficient financial reporting for companies, IFRS lead to improved comparability and reliability of financial statements, enhanced transparency through disclosure of information, enhanced investor confidence, improved regulatory oversight and greater credibility for the accounting profession.

(Hailemichael, 2016) conducted a research on the Adoption, Challenges and Perception of IFRS on quality of financial reports of Financial Institutions in Addis Ababa: Ethiopia. The study focus on identifying the impact of adopting IFRS on the quality of financial reporting, examining the challenges and recognizing the benefits of adopting IFRS in financial institution. The paper uses both qualitative and quantitative approach by taking a sample of 32 out of 35 private banks and insurances companies registered under National Bank of Ethiopia. The study uses both primary and secondary data source collected through questionnaire and document review. The study reveals that high implementation costs, the complexity of financial reporting, lack of IFRS implementation agent, lack of IFRS implementation guidance, lack of availability of competent specialists, high level training requirement, less familiarity with the IT challenges in handling the implementation of IFRS, lack of proper instructions from regulatory bodies, and problem with IFRS implementation proper plan and absence of commitment & proper plan of financial institutions to implement IFRS and requirements of the existing Tax law amendment are the challenges. Quality of financial reporting has significant correlation with the transparency, accountability and economic efficiency. The study highlights implementation of IFRS leads to improved comparability & reliability of financial statements reduce cost of capital of firms through lower cost of information, greater marketability of shares, and reduced information asymmetry and others. The study recommends among others that the National Bank of Ethiopia has to give clear direction through its directives about the implementation of IFRS; the curriculum of accounting should be amended in light of IFRS the board should conduct a study to identify the gaps in systems and processes, develop IFRS accounting manual modifying charts of accounts and provide detailed instructions by taking IFRS requirements into accounts.

(Alemi, 2016), conducted a research entitled IFRS Adoption Progress in Ethiopia. The aim of the paper is to assess the IFRS adoption progress in Ethiopia and investigate factors that motivate Ethiopia to adopt IFRS, advantages and challenges ahead of IFRS adoption in Ethiopia . Both primary which is collected through open-ended interview and secondary data collected using document analysis techniques from the annual reports of companies reporting under IFRS, and proclamations and regulations that deal with financial reporting issues in Ethiopia. The result of the study revealed some companies in Ethiopia have started using IFRS voluntarily since 2002/03 without making necessary preparedness but nationally; IFRS is adopted officially in December, 2014 through enactment of Proclamation. Adoption of IFRS in Ethiopia may provide opportunities such as high commitment from the government in terms of issuing proclamation and regulation, willingness to incorporate IFRS in Accounting Curricula of Universities, establish regulatory body, making logistic and financial support to the Accounting and Audit Board of Ethiopia, enhanced dependability on financial statements, enhanced comparability and Foreign Direct Investment and easy access to finance. The result of the study also highlights challenges of adopting IFRS these include knowledge gap in IFRS among preparers, professionals, users, and academics, shortage of qualified professionals ,resistance from organizations who are benefited from the existing accounting and auditing system, knowledge gap in the management of corporate organization, cost of IFRS materials since they are available in foreign currencies and regularly updated , training cost due to trainers are from abroad which also require payment in foreign currency and absence of Professional institutions .

2.4. Summary and Gap in the Existing Literature

With the advent of globalization, global capital markets have witnessed rapid expansion, diversification and integration. This has brought about a shift away from local financial reporting standards to global standards. Because of the advantages it provides for countries, multinational companies and regulators, many counties adopt International Financial Reporting Standards. Adoption of International Financial Reporting Standards has a number of benefits for a range of stakeholders such as, effective and efficient financial reporting for companies ( Tesfu,2012), improved comparability (Thappa,2012), (Alemi,2016) , reliability of financial statements, enhanced transparency (Teshome,2017), enhanced investor confidence (Odia.et.al,2013), improved regulatory oversight and opportunity for accounting professionals (Thappa,2012).

Although IFRS adoption renders many benefits it poses many challenges. Various literatures revealed challenges in the process of IFRS adoption. Need of amendment to regulatory requirement and tax laws, high implementation cost, more complex financial reporting requirements, shortage of IFRS specialist and tight dead line are the major challenges. Financial institutions particularly banks is expected to be most affected by changes in accounting standards specifically IFRS adoption or convergence (Olano.et.al, 2014). According to (IASB, 2014) as cited in (Olano.et.al, 2014) moving to IFRS has had a major impact on the reporting requirements of financial institutions.

Most of existing studies on IFRS adoption focus mainly on European and other developed countries with paucity of such studies on emerging economies. Several studies have addressed issues related to accounting harmonization in Europe and its impact on comparability and transparency of financial statements (Thappa, 2012).Relatively few studies have been conducted on the data from developing countries. In spite of studies have been conducted on the challenges and prospects of IFRS previously in Ethiopia, as per the knowledge of the researcher prior studies does not address the scope in terms of time horizon and variables under investigation specifically emphasized on Ethiopian Commercial Banks in progress to issue their first IFRS based financial report. Therefore, this study makes an attempt to bridge this gap and tries to study the actual problems on the adoption process in 2017/18.

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