IFRS Compliance in the Construction Industry in Nigeria: A Quantitative Study
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Background of the Study
The construction industry in Nigeria plays a pivotal role in the nation's economic development. As a critical sector that supports infrastructure development, housing, and urbanization, its contribution to GDP is significant. However, the sector has faced challenges such as inefficiency, lack of transparency, and poor financial reporting practices. The adoption of the International Financial Reporting Standards (IFRS) in Nigeria was expected to address these concerns by promoting transparency, comparability, and reliability in financial statements. Since the mandatory adoption of IFRS in 2012, industries across the Nigerian economy, including the construction sector, have been transitioning to meet the compliance requirements.
Compliance with IFRS enhances the trustworthiness of financial reports, which is essential for attracting investors, securing funding, and ensuring sustainable growth. However, the construction industry is uniquely characterized by long-term projects, complex revenue recognition practices, and significant reliance on external financing. These peculiarities present challenges in complying with IFRS standards, particularly concerning the measurement of work-in-progress, fair value assessments, and impairment of assets.
Despite the presumed benefits of IFRS, the level of compliance within Nigeria's construction industry remains a subject of debate. Factors such as the cost of implementation, lack of skilled personnel, and limited awareness have hindered full compliance. Understanding the extent to which construction companies comply with IFRS is vital for policymakers and stakeholders to address the existing gaps and improve financial reporting practices in the sector.
Statement of the Problem
Non-compliance with IFRS standards in the construction industry undermines the reliability of financial reports, affecting stakeholders' decision-making processes. Despite the potential benefits of IFRS, there is limited empirical evidence on the compliance level among Nigerian construction companies. This study seeks to address this gap by examining the extent of IFRS compliance, identifying the challenges faced by construction companies, and assessing the implications of non-compliance for the industry.
Aim and Objectives of the Study
1. To assess the level of IFRS compliance in the Nigerian construction industry.
2. To identify the challenges hindering IFRS compliance among Nigerian construction companies.
3. To evaluate the impact of IFRS compliance on stakeholders' decision-making in the construction sector.
Research Questions
1. What is the level of IFRS compliance in the Nigerian construction industry?
2. What are the key challenges hindering IFRS compliance among construction companies in Nigeria?
3. How does IFRS compliance affect stakeholders' decision-making in the construction industry?
Research Hypotheses
1. H₀: There is no significant level of IFRS compliance in the Nigerian construction industry.
2. H₀: Challenges faced by construction companies have no significant impact on IFRS compliance.
3. H₀: IFRS compliance does not significantly influence stakeholders' decision-making in the construction industry.
Significance of the Study
This study contributes to the understanding of IFRS compliance in Nigeria’s construction industry, offering insights into the challenges faced by firms. The findings will aid regulators, policymakers, and industry stakeholders in formulating strategies to enhance compliance, ultimately improving financial transparency and economic growth.
Scope and Limitation of the Study
This study focuses on the construction industry in Nigeria, specifically examining the compliance level with IFRS standards. Limitations include the reliance on self-reported data, which may be subject to bias, and the focus on a single sector, which may limit generalizability.
Definition of Terms
• IFRS Compliance: Adherence to the International Financial Reporting Standards for preparing financial statements.
• Construction Industry: Economic sector involving the planning, design, and execution of building and infrastructure projects.
• Financial Reporting: The process of disclosing financial information to stakeholders.
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