IFRS ADOPTION: THE ROLE OF NETWORK EFFECTS AND LEGAL SYSTEM
ABSTRACT
This study is motivated by a desire to examine IFRS Adoption: The Role of Network Effect and Legal System. In light of the empirical review and other discussions, a number of questions arose as to whether there is relationship between adoption of IFRS and network effects and there is relationship between adoption of IFRS and legal system of a country. Using the Ordinary Least Square (OLS) regression technique with the aid of computer software, the empirical findings revealed among other things that there is no significant relationship between adoption of IFRS and legal system of a country and that there is no significant relationship between adoption of IFRS and network effect of a country. Recommendations were however made by the researcher.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background of the Study                    
Statement of the Research Problem                 
Objectives of the Study                        
Research Hypothesis                         
Scope of the Study                         
Significance of the Study                     
Limitation of the Study                         
Organization of the Study                     
Operational Definitions of Terms                 
References                             
CHAPTER TWO: LIERATURE REVIEW
2.1    Concept of International Financial Reporting Standard (IFRS)    
2.2    IFRS Adoption                                
2.3    Benefits of Uniform Accounting Standards            
2.4    Factors Affecting the Adoption of IFRS            
Prediction Model for Adoption of IFRS            
Network Effects in Countries’ Adoption of IFRS        
References                                
CHAPTER THREE: RESEARCH METHODOLOGY
3.1    Introduction                             
3.2    The Research Design                         
3.3    Population and Sample of the Study                 
3.4    Sampling Technique                        
3.5    Sources of Data                             
3.6    Measurement of Variables                     
3.7    Method of Data Analysis                     
3.8    Model Specification                         
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1    Introduction                        
4.2    Presentation and Analysis of Results                
4.3    Test of Hypotheses                        
CHAPTER FIVE:    SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATION
5.1    Introduction                         
5.2    Summary of Findings                         
5.3    Discussion                                 
5.4    Conclusion                                 
5.5    Recommendations                     
Bibliography                             
Appendix                                
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
The International Accounting Standards Board (IASB) was established in 2001 to develop international Financial Reporting Standards (IFRS). In the period from 2003 through 2008, nearly 50 countries (including the EU countries) mandated IFRS for all listed companies in their jurisdictions. Further, in that period, another 15 countries either mandated IFRS for some listed companies or allowed listed companies to voluntarily adopt IFRS. Another group of 16 countries initiated “convergence” projects with IFRS through 2008, and the list of states with convergence projects planned beyond 2008 includes some of the world’s largest economics such as China and the U.S (Ramanna and Sletten, 20120).
In recent years, a large number of countries have made reporting under international Financial Reporting Standards (IFRS) mandatory. This switch to IFRS reporting is probably the largest change in reporting standards in history and, not surprisingly, has been examined extensively (Soderstrom and Sun 2007; Hail et al. 2010).
The gradual adoption of the IFRS all around the world reduces and eliminates the costs of gaining information for the decision-making, as companies (mainly listed) use the same system of financial reporting standards regardless their domicile. In this way, the IFRS as high-quality accounting standards contribute to the smooth functioning of global capital markets and shall promote the flow of foreign capital to adopting countries. Despite this important feature, research analyze the benefits from the IFRS implementation only from investor’s i.e. microeconomic, perspective. Among other, studies of Ball (2006), Daske & Gebhart (2006), Barth et al. (2008), and Armstrong et al. (2010) shall be reminded.      
    According to Ramanna and Sletten, (2010), the theory of IFRS network benefits developed and tested in the context of countries can equivalently be applied to firms. Firms-level research on the determinants of IFRS adoption can consider how perceived network benefits interact with economic incentives in shaping adoption choices. For example, future firm-level research can investigate whether network benefits increase the attractiveness of voluntary IFRS adoptions to multinational as opposed to domestic corporations.
    The concept of network effects has recently been used to explain several accounting related phenomena, such as the adoption of stock-option compensation plans (Kedia and Rajgopal, 2009) and the decision to expense options in the income statement (Reppenhagen 2010). Ramanna and Sletten, (2010) document that network effects can influence accounting-related decisions more generally, suggesting network theory can be used broadly in the literature on accounting and corporate governance choice.
STATEMENT OF THE RESEARCH PROBLEM
The adoption of a set of uniform standards is unlikely to improve financial information comparability in countries where financial statement lack credibility. Prior literature suggests that weak country-level institutions can result in poor implementation of high quality accounting standards, which in turn can result in less credible financial reporting (e.g, Ball et al., 2000, Hung, 2001; Daske et al., 2008). Because IFRS is principles-based, it allows managers considerable flexibility in its application (Nally and Kaplan, 2007; Henry, 2008). This suggests that the increased uniformity that follows from mandatory IFRS adoption is only likely to lead to improved financial statement comparability among firms in countries with strong implementation credibility – i.e., where the standards are applied such they faithfully capture the underlying economic phenomena.
    In the light of the above, the following research questions are raised:
Is there relationship between adoption of IFRS and network effect?
Is there relationship between adoption of IFRS and legal system of a country?
OBJECTIVES OF THE STUDY
The objective of this study is to investigate the impacts IFRS Adoption: The role of network effects and legal system.
The specify objectives are:
To verify if there is relationship between adoption of IFRS and network effects.
To examine if there is relationship between adoption of IFRS and legal system of a country.
RESEARCH HYPOTHESIS
The hypotheses that would be tested in the course of the work are;
There is a positive relationship between adoption of IFRS and network effect of a country.
There is a positive relationship between adoption of IFRS and legal system of a country.
SCOPE OF THE STUDY
This research work is an empirical study on IFRS Adoption: the role of network effect and legal system. The population of the study is entire 56 countries in Africa, while the sample size is restricted to some selected countries in Africa.
    The length of period covered by the study is 2010-2011. Geographically, the study will be conducted in Benin City, Edo State.
SIGNIFICANCE OF THE STUDY
It is expected that this study would consolidate existing literature on the issues surrounding the relationship between IFRS adoption and network effects and legal system of a country. Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies in economic modeling and policy simulation with respect to the selected variables examined in the study.
The result of the study would be of benefits to investment analyst, investors and corporations in examining the effectiveness of the role of network effect and legal system on IFRS adoption. It will also be useful in stimulating public discourse given the dearth of empirical researches in this area from emerging economies like Africa. Finally, it would also add to the available literature on the area of study while also providing a platform for other researchers who may want to further this study.
LIMITATION OF THE STUDY
There is always a challenge of ascertaining the level of data accuracy especially with regards to time-series data. The study considers this a limitation.
ORGANIZATION OF THE STUDY
The study is divided into five (5) chapters. These are briefly outlined below:
Chapter One: Introduction
This is concerned with the background or reasons for the study, the statement of the problem, the research objectives, etc.
Chapter Two: Literature Review
This reviews related literature in the study area with the purpose of developing a theoretical framework for the study.
Chapter Three: Research Design and Methodology
This looks at the research design, data collection and data analysis procedures.
Chapter Four: Results and Discussion
This interprets the analysis in chapter three.  
Chapter five: Summary, Recommendations and Conclusion
    Here, we provide the research findings, recommendations and conclusion.
OPERATIONAL DEFINITIONS OF TERMS
IFRS           =    A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board
Adoption      =    The action or fact of adopting or being adopted.
 REFERENCES
Armstrong, C., M. Barth, A. Jagolinzer, and E. Riedl, 2010,“Market Reaction to the Adoption of IFRS in Europe,” The Accounting Review 85: 31-61.
Ball, R. (2006) 'International financial reporting standards (IFRS): Pros and cons for investors', Accounting & Business Research, 36,  5-27.
Barth, M. E., Landsman W. R., Lang, M. H., & Williams, C. D. (2008). Accounting quality: International accounting standards and US GAAP, SSRN.
Daske, H. and Gebhardt, G. (2006) 'International Financial Reporting Standards and experts perceptions of disclosure quality', Abacus, 42(3-4), 461-498.
Hail, L., C. Leuz, and P. Wysocki, 2010, “Global Accounting Convergences and the Potential Adoption of IFRS by the U.S. (Part I): Conceptual Underpinnings and Economic Analysis,” Accounting Horizons 24(3): 355-394.
Ramanna, K. and E. Sletten, “Why do Countries adopt International Financial Reporting Standards?” Harvard Business School Accounting and Management Unit Working Paper No. 09-102, revised June 14, 2009
Soderstrom N. S., & Sun, K. J. (2007). IFRS Adoption and Accounting Quality: A Review. European Accounting Review. [Online] Available: http://papers.ssrn.com/sol3/papers.cfm? abstract_id=1008416