SMU-final Approved One

St.
MARY’S UNIVERSITY
SCHOOL OF GRADUATE STUDIES

MBA PROGRAMME
CHALLENGES AND OPPORTUNITIES OF ADOPTING IFRS AND ITS

CONTRIBUTION TO QUALITY OF FINANCIAL REPORTING:
A STUDY ON BANKING SECTOR IN ETHIOPIA
BY:
YETNEBERK ABEBE AYANE
ID MBAAF/0446/2008A
JANUARY, 2018
ADDIS ABABA, ETHIOPIA
St. MARY’S UNIVERSITY
SCHOOL OF GRADUATE STUDIES MBA PROGRAMME
A RESEARCH REPORT SUBMITTED TO THE SCHOOL OF GRADUATE STUDIES

OF St. MARY’S UNIVERSITY IN PARTIAL FULFILLMENT OF THE
REQUIRMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS
ADMINISTRATION (MBA)

BY:
ID MBAAF/0446/2008/A
JANUARY, 2018
ADDIS ABABA, ETHIOPIA
i
St. MARY’S UNIVERSITY
SCHOOL OF GRADUATE STUDIES MBA PROGRAMME
BY:
APPROVED BY BOARD OF EXAMINERS
……………………………. ……………………… …..……………………………
Dean, Graduate Studies Signature Date
AREGA SEYOUM (PhD) …………………................. ……..…………………............
Advisor Signature Date
……………………………. ……………………………. …….………….........................
External Examiner Signature Date
……………………………. …………………………… ……….……………….............
Internal Examiner Signature Date
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Declaration
I hereby declare that this submission is my own work towards the Master of
Business Administration prepared under the guidance of Arega Seyoum (PhD) and
that, to the best of my knowledge, it contains no material previously published by
another person nor material which has been accepted for the award of any other
degree of the University, except where due acknowledgement has been made in the
text.
Yetneberk Abebe Ayane ………………………. ……………………...

MBAAF/0446/2008A Signature Date Date
iii
Table of Contents
Declaration .................................................................................................................................................. iii
Table of Contents ....................................................................................................................................... iv
Acknowledgement ...................................................................................................................................... vi
Acronym .................................................................................................................................................... vii
List of tables and Figures ........................................................................................................................ viii
Abstract ........................................................................................................................................................ ix
CHAPETER ONE....................................................................................................................................... 1
1.1 BACKGROUND OF THE STUDY ........................................................................................... 1
1.2 Statement of the problem ........................................................................................................... 2
1.3 Research question ....................................................................................................................... 4
1.4 Objectives of the Study ............................................................................................................... 4
1.4.1 General objective: ............................................................................................................... 4
1.4.2 Specific Objectives: ............................................................................................................. 4
1.5 Significance of the Study ............................................................................................................ 5
1.6 Scope of the Study ....................................................................................................................... 5
1.7 Limitation of the study ............................................................................................................... 6
1.8 Organization of Paper ................................................................................................................ 6
2 LITRATURE REVIEW ..................................................................................................................... 7
2.1 Historical Background of IFRS. ................................................................................................ 7
2.1.1 Concept of IFRS .................................................................................................................. 8
2.1.2 Debates of adopting IFRS on quality of financial reporting ........................................... 9
2.1.3 Opportunities of adopting IFRS on the quality of financial reporting. ....................... 10
2.1.4 Challenges of IFRS Adoption on the quality of financial reporting. ............................ 11
2.1.5 Motivating Factors for Adopting IFRS in Ethiopia ....................................................... 12
2.2 The Conceptual Framework for Financial Reporting ........................................................... 13
2.2.1 Enactment of Financial Reporting Proclamation .......................................................... 14
2.2.2 Roadmap to IFRS Implementation in Ethiopia ............................................................. 15
2.3 Empirical Evidences: as International and National level. ................................................... 16
2.3.1 Evidence from international level case studies;.............................................................. 16
2.3.2 Evidence from National level case studies; ..................................................................... 18
2.3.3 IFRS and Financial Reporting Quality. .......................................................................... 19
2.3.4 IFRS and Transparency of Financial Reporting............................................................ 19
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2.3.5 IFRS and Comparability of Financial Reporting. ......................................................... 20
2.3.6 IFRS and Accountability of Financial Reporting. ......................................................... 20
2.4 Summary and Research Gap ................................................................................................... 21
CHAPTER THREE .................................................................................................................................. 23
3 RESEARCH MYTHODLOGY ....................................................................................................... 23
3.1 Introduction ............................................................................................................................... 23
3.2 Research Design ........................................................................................................................ 23
3.3 Study Setting.............................................................................................................................. 23
3.4 Study Population ....................................................................................................................... 24
3.5 Sample Size ................................................................................................................................ 24
3.6 Data Collection Instrument. ..................................................................................................... 25
3.7 Data collection Procedures. ...................................................................................................... 25
3.8 Theoretical Framework on Measurement Variable .............................................................. 25
3.9 Data Analysis. ............................................................................................................................ 25
3.10 Assessing Reliability.................................................................................................................. 26
CHAPTER FOUR..................................................................................................................................... 27
4 RESULT ANDDESCUSION............................................................................................................ 27
4.1 Response Rate of Respondents Banks. .................................................................................... 27
a. General Information ..................................................................................................................... 28
b. Opportunities of IFRS Adoption on quality of financial reporting. ......................................... 31
c. Challenge faced in adopting IFRS on the quality of financial reporting. ................................ 33
d. Correlation Analysis for IFRS on the quality of financial reporting ....................................... 35
e. Regression Analysis for IFRS on the quality of financial reporting banking sector in
Ethiopia. ................................................................................................................................................. 36
CHAPTER FIVE ...................................................................................................................................... 39
5 CONCLUSION AND RECOMMENDATION .............................................................................. 39
5.1 Introduction ............................................................................................................................... 39
5.2 Conclusions ................................................................................................................................ 39
5.3 Recommendation....................................................................................................................... 41
5.4 Future Research Areas ............................................................................................................. 42
References .................................................................................................................................................. 43
Annex .1 ...................................................................................................................................................... 46
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Acknowledgement
It is a pleasure to convey my gratitude to those who helped me in making this

thesis. In the first place I would like to thank God for being my creator, savior and
source of strength. I am also sincerely grateful for Dr. Arega Seyoum, for his
invaluable assistance and guidance during the course of my study. I was extremely
fortunate in having him as my advisor and course instructor. I could never have
started all of this without his guidance in the area of International Financial
Reporting Standards and thus opened up unknown areas to me.
My lovely wife Tsentew Yehuwalashet deserve special thank you for being
supportive and caring me in everything I need from you. Love you!
Finally, I would like to thank my friend Esayas, Habtamu, Adisalem, Tilahun and
everybody who was important to the successful realization of my thesis as well as
expressing my apology that I could not mention personally one by one. You are all
dear to me. Thank you.
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Acronym
Acronym Definition
AABE Accounting and Auditing Board of Ethiopia

ACCA Association of Chartered Certified Accountants
AISG Accounting International Study Group

ECX Ethiopia Commodity Exchange
ERCA Ethiopian Revenue and Customs Authority
FDI Foreign Direct Investment
GAAP Generally accepted accounting principles
IAS International Standards on Auditing
IASB International Accounting Standards Board

IASC International Accounting Standards Committee
IFAC International Federation of Accountants
IFRIC International Financial Reporting Interpretations Committee

IFRS International Financial Reporting Standards
IMF International Monetary Fund
IPSA International Public Sector Accounting
KASB Korean Accounting Standards Board

MOFED Ministry of Finance and Economic Development
NBE National Bank of Ethiopia
NGO Non-Governmental Organization
PIE Public Interest Entities
ROSC Reports on Observance of Standards and Codes
SEC Security and Exchange Commission
SIC Standing Interpretations Committee

SME Small and medium enterprises
SPSS Statistical package for social science

UNCTAD United Nations Conference on Trade and Development
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List of tables and Figures
Table 3.1 Number of Financial Institutions 24

Table 3.2 Independent Variable Factors. 22
Table 3.3 Item-Total statistics for reliability 26
Table 4.2.1 General information 28
Table 4.3.1 Opportunities of Adopting IFRS. 31
Table 4.4.1 Challenge faced in adopting IFRS 33
Table 4.3.2 Descriptive Statistics of dependent variable and independent 34
Table 4.5.1 Correlation coefficient for determining IFRS on the quality 35
Table 4.6.1 Regression Analysis for IFRS on the quality of financial reporting 36
Table 4.6.2 Model summary IFRS on the quality of financial reporting. 37
Table 4.6.3 ANOVA result for the quality of financial reporting. 38
Figure 3.1 Dependent and Independent Factors. 22
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Abstract
The goals of IFRS is to develop, in the public interest, a single set of high-quality,
understandable, enforceable and globally accepted financial reporting standards based upon
clearly articulated principles. However, its adoption and implementation bring opportunities and
create challenges to the adopter. The main objective of this study is to provide an input for
banks, governmental and policy and to academics/researchers serve as for future researches on
this field of study. Both primary and secondary sources of data have been used for the study from
selected 11 banks. Primary data were collected through pre designed questioners whereas
secondary data were collected from different banks annual reports, scientific papers and
proceedings relevant to the study using document and regression analysis techniques, and
proclamations and regulations that deal with financial reporting issues in Ethiopia. The study
found that some banks in Ethiopia have started using IFRS voluntarily for the preparation of
their financial statements without making necessary awareness, and from the analysis of survey
dependent and independent variables has significant correlation with the transparency,
comparability and accountability of IFRS on quality of financial reporting. There should be
AABE to collaborate with the ministry of education and Professional association outside
Ethiopia in order to spread the promulgate knowledge of IFRS, since adoption of IFRS could
lead to increased foreign direct investment and access to finance, which in turn may lead to
economic growth of Ethiopia.
Key Words: IFRS, Adoption; Challenge; Opportunities; Quality; Transparency, comparability;
accountability.
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CHAPETER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A country can change its existing accounting system to a globally recognized accounting
standard called International financial reporting standards(IFRS) either fully replacing or
customizing it with IFRS over time. The first approach is known as adoption or ‘big bang’
approach while the latter is called a convergence approach ‘Big bang’ approach is a strategic
decision to adopt IFRS on a single date. while in Convergence approach, gradual movement is
made towards IFRS through customizing with the existing accounting standards to adopt IFRS
gradually and allow time for necessary changes in local legal frameworks (Pacter, 2015).
Especially in developed country, many or even all banks have legal obligation to prepare
financial statement that conform to the required standards that are generally acceptable in the
profession(Frank, 2002).IFRS is to develop, public interest, , understandable, enforceable and
globally accepted a single set of high-quality financial reporting standards based upon clearly
articulated principle.(Kalpash & Yassa, 2015).
In the IFRS adoption era, most countries had their own standards with local bodies responsible
for developing and issuance of local standards even if some of them align largely with
International accounting standards (IAS). The International Accounting Standards Board
(ISAB)adopt the IFRS framework on 1 April,2001, the ISAB took over the setting IAS from the
international Accounting Standards Committee(IASC)(ISAB, 2016).
In Africa, among the continents’ 54 states, 24 states have adopted IFRS. However, the
momentum of adopting IFRS in the continent looks to be much slower than that of the rest of the
world.(Rooyen, 2016). Ethiopia is also moving towards implementation of IFRS starting from
July 8, 2018 (Proclamation 847, 2014).
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According to World Bank on the Report on the Observance of standards and Codes(ROSC),
there is no specific set of accounting regulation in Ethiopia and therefore accounting practice
vary across institution.(ROSC, 2007). But now, through the issuance of the Council of Ministers
Regulation No. 332/2014, the Government has established the Accounting and Auditing Board
of Ethiopia (AABE) to provide guidance for financial reporting and to determine the accounting
and auditing procedures to be used in Ethiopia. (Proclamation 847, 2014). Accordingly, based on
the relevant provisions of the proclamation, AABE has been established and an autonomous
government organ having its own legal personality.
According to the studies conducted by researchers in our country, which focuses on the progress
of IFRS adoption in Ethiopia(Alemi & Pasricha , 2016), implementation of IFRS in Ethiopia
banks (Fareed & Zinabu, 2015),IFRS Adoption in Ethiopia issues, processes(Yitayew, 2016),
benefits and key challenge in Ethiopia (Tesfu, 2012), they don’t indicate about adoption of IFRS
on the quality of financial reporting. There are so many challenges in adopting IFRS on the
quality of financial reporting in the banking sector in Ethiopia.. Accordingly, the current study is
attempts to identify the challenge and opportunities of adopting IFRS and its contribution on the
quality of financial reporting in the banking sector in Ethiopia.
1.2 Statement of the problem
In spite of the numerous studies about the Adoption and implementation of IFRS by developed
and industrialized countries around the world, less attention has been given by developing
countries. While adopting IFRS, countries have faced different challenges viz., cultural, legal,
and political obstacles to an immediate full adoption of IFRS (Wayne, 2010). Recently there has
been a push towards the adoption of IFRS developed and issued by the International Accounting
Standards Board (IASB). IFRS are attracting significant scholarly attention to have quality
financial reporting.(Phan & MasitilLe, 2014).
Number of studies have been made on the subject of IFRS adoption, its effect on financial
reporting, benefits and challenges, etc. Just to mention a few, (okpala, 2012) investigates the
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effect of IFRS adoption on Foreign Direct Investment and Nigerian economy. (Matthew , 2015)
assessed the impact of International Financial Reporting Standards (IFRS) adoption on the
Financial Reporting practice in Nigerian Banking Sector.
Similarly, in Ethiopia, a few studies have been made in related topics. For instance,(Fareed &
Zinabu, 2015) conducted a study on the assessment of the Implementation of IFRS in Ethiopian
Banking sector; and IFRS adoption progress in Ethiopia (Alemi & Pasricha , 2016),IFRS
Adoption in Ethiopia issues, processes(Yitayew, 2016), benefits and key challenge in Ethiopia
(Tesfu, 2012), and this research work is similar in assessing challenge and benefits of IFRS but
they didn’t indicate about adoption of IFRS on the quality of financial reporting, there are
challenges in adopting IFRS on the quality of financial reporting banking sector in Ethiopia. The
financial institution is not capable to adopt IFRS with quality because there is lack of IFRS
expertise and sufficient period to prepare quality financial reporting as required by IFRS
standards.
The factors that initially contributed to the introduction of IFRS in Ethiopia seem external-
attracting investment for economic development. According to a study conducted by(ROSC,
2007), Before 2016, there is no particular accounting standard in Ethiopia. Even though some of
the laws indicate to use Generally Accepted Accounting Principles for example the income tax
proclamation of Ethiopia article 58(1). Given this, moving out from such sophisticated and
traditional way of report preparation of will not be smooth, so this study try to find out major
challenges and opportunities of adopting IFRS with recommendation to facilitate the process of
IFRS adoption on the quality of financial reporting in Banking sector in Ethiopia.
Therefore, this study is motivated on the absence of relevant study that assess the challenges and
opportunities of adopting IFRS and its contribution on the quality of financial reports in the
banking sector in Ethiopia. Moreover, it is important to notice that the Ethiopian environment is
different from the developed countries environment where the accounting profession is more
developed and where there is specific set of accounting regulation and an independent standard
setting body. Therefore, it is better to see the problem in national and international context to
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enrich and understanding of IFRS and the issues related to its first time adoption in Ethiopian
banking context.
1.3 Research question
This study has attempted to address the following basic research questions:
1. What are the constituents of quality financial reporting?

2. What are the challenges faced by banking sector in adopting IFRS on quality of financial
reporting?
3. What are the opportunities in adopting IFRS on the quality of financial reporting in
banking sector?
1.4 Objectives of the Study
IFRS are attracting significant scholarly attention especially in markets where decision making
on its adoption is approaching”(Phan & MasitilLe, 2014). Accordingly, following the increase in
the number of countries adopting IFRS, large number of research works has been conducted to
know the merits and demerits of these movements and the reasons for adopting, and to identify
the opportunities and challenges ahead in adoption of IFRS and its contribution on the quality of
financial reporting in banking sector in Ethiopia.
1.4.1 General objective:
The main objective of this study is to assess the challenges and opportunities of adopting IFRS
and its contribution on the Quality of financial reporting in the banking sector in Ethiopia.
1.4.2 Specific Objectives:
The Specific Objectives of the study are to find out the following:
 To evaluate the adoption of IFRS on the quality of financial reporting banking sector in
Ethiopia.
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 To examine the challenge, encountered by banking sector in adopting of IFRS
 To assess the opportunities of adopting IFRS in the banking sector in Ethiopia.
1.5 Significance of the Study
The finding of the study is useful to:
Banks
This study necessary because would enable the managers of the banks to improve on their
adoption of the IFRS standards on the quality of financial reporting. Finally, it would serve as a
reference source to employee of the banks or other researchers who might want to carry out their
research on the similar topic.
Government and Policy Makers
The government can use the finding of the study to assist in policy formulation and development
for a framework used for improving the adoption of IFRS practices in relation to performance of
financial reporting quality throughout the country. It also enables them to know what kinds of
policies should be framed or formulated in order to enhance the performance of financial
institution.
Academics/Researchers
This study is to assist academicians or other researchers to use as a base for further research or
study hence it provides little understanding of the nature and influence of IFRS on quality of
financial reporting of financial institution and other organization.
1.6 Scope of the Study
The unit of analysis for this study includes selected commercial banks’ Finance department
personnel, particularly those working directly in the adoption of IFRS. The study does not
compare and contrast the finding of different financial institution with one another, since it is
strongly believed that the banking sectors are homogeneous. Moreover, the scope of the study is
5
also limited to analyzing the quality of financial reporting in relation with the challenges and
opportunities of adopting IFRS and its contribution on the quality of financial reporting in
banking sector in Ethiopia. The study doesn’t assessed other IFRS related issue in the banking
industry and it didn’t analyze the whole problem for the adoption of IFRS in the sector.
1.7 Limitation of the study
Due to lack of sufficient researches and/or articles in the area in the country, this study tries to
formulate the literatures by relying on other countries contexts and studies. Furthermore, the
study does not include all banks, for the reason that among eighteen banks registered under NBE
to conduct the banking service seven banks they didn’t establish IFRS adoption team and they
are reluctant for the adoption process, even if they are obliged by the law and the authority to
start and prepare them self on adopting IFRS. Moreover, even if the researcher strives his best to
get the current situation of IFRS adoption in banks, officials of NBE and AABE do not open
their doors to disclose the information and shows their dissatisfaction to endure an interview.
Due to the above all facts the researcher user purposive sampling method to get the result
obtained from the study.
1.8 Organization of Paper
This study is organized in to five chapters. The first chapter states the general introduction of the
study. Chapter two presents the literature review regarding the research area of International
Financial Reporting Standards and its adoption and therefore to set out the theoretical
foundations for the research. The third chapter outlines the research methodology. The research
results are presented in chapter four. The last chapter draws conclusions and recommendation
and wind up the report by highlighting future research areas.
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CHAPTER TWO
2 LITRATURE REVIEW
Introduction
In this chapter, a review of related literature about International Financial Reporting Standards
(IFRS) and issues relating to the adoption of IFRS are presented. The literature review consists
of historical background of IFRS, basic concept on IFRS, rationales and debates of IFRS
adoption, the perceived opportunities and challenges of adopting IFRS, the enactment of
Financial Reporting Proclamation and roadmap to IFRS implementation in Ethiopia context, the
motivating factors in adopting IFRS, IFRS from other countries experience, and conclusion and
research gap.
2.1 Historical Background of IFRS.
IFRS stands for International Financial Reporting Standards and they are standards for reporting
financial results and are applicable to general purpose financial statements and other financial
reporting of all profit oriented entities. The term IFRS comprises IFRS issued by IASB; IAS
issued by IASC; and interpretations issued by the Standing Interpretations Committee (SIC) and
the International Financial Reporting Interpretations Committee (IFRIC) of the IASB(Hoyle,
Thomas , & Timothy , 2009), ( Baker, Lembke, & King, 2009) and(Larsen, 2006).
The first move towards accounting standards convergence can be traced back to 1966 when the
Accounting International Study Group (AISG) was proposed to be formed by the professional
accountancy bodies in Canada, the United Kingdom and the United State in order to develop
comparative studies of accounting and auditing practices. Subsequently, the AISG was founded
in 1967. After discussion and approval by the three AISG countries and representatives of
accountancy bodies in Australia, France, Germany, Japan, and Netherlands, the ISAC was
established in 1973 with the aim of issuing a single set of high quality and globally accepted
International Accounting Standards (IASs).
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Between the years 1973-2000, the ISAC issued 41 International Accounting Standards (IASs). In
1997, Standing Interpretation committee (SIC) was established to consider continuous
accounting
Issues. ISAC and subsequently to take responsibility of issuing IFRS.
IFRS are key elements of economic reporting infrastructures that provide standardized format for
listed companies in the European Union to provide their financial reporting in accordance with
International Financial Reporting (IFRS). The global financial reporting system has been
transformed significantly with unprecedented number of countries and enterprises around the
world adopting IFRS as bases for the preparation of financial statements (UNCTAD, 2008)
2.1.1 Concept of IFRS
(Bowrin, 2007)defined International Financial Reporting Standards (IFRS) as; A series of

accounting pronouncements published by the IASB to help preparers of financial statements,
throughout the world, produce and present high quality, transparent, comparable and accountable
financial statements for stockholders. The term harmonization means the reconciliation of
different accounting and financial reporting system by fitting them in to common board
classification. (Matthew , 2015).
Convergence means the process of converging or bringing together international standards issued
by ISAB and existing standards issued by national standards setters, with the aim of illuminating
alternatives in accounting for economic transaction and events.(Obezee, 2009) suggest that
convergence could be either by adoption (a complete replacement of national accounting
standards with IASB’s standards) or by adaptation (modification of IASB’s standards and
disclosure requirements of the IASB standards and basis of conclusion.) The ultimate objectives
of convergence if to achieve a single set of internationally consistent, high quality globally
accepted accounting standards, issued by ISAB and adopted by the national standards setters.
(ISAB, 2016).
The concern of harmonization of accounting standards and convergence with IFRS are due to the
globalization of capital markets. In fact, it is believed the accounting harmonization in necessary
8
for the globalization of capital market(Quigley, 2007). Investor now seek investment
opportunities all over the world.
In spite of the various arguments against global convergence to IFRS, definitely the adoption of
IFRS can reduce the cost of doing business across different national boundary by reducing the
need of supplementary information, facilitating easy access to global capital, increasing the
practice of transparency and public accountability, enhancing the understanding and the ability to
generate value strategic processes and synergies, facilitating motivating and attracting of foreign
investors(Baba, 2013). Accordingly, convergence to IFRS can help in maintaining creditability
of financial reporting and increase in quality of financial reporting.(Obezee, 2009).
2.1.2 Debates of adopting IFRS on quality of financial reporting
The main objective of IFRS is to ensure that an entity’s first financial statement, and its interim
financial reports for part of period covered by those financial statements, contain high quality
information that:
 Is transparent for users and comparable over all periods presented
 Provides a suitable starting point for adopting IFRS.
 Can be generated at cost that does not exceed the benefits
An entity shall prepare and disclose an opening IFRS statements of financial position at the date
of transition to IFRSs. This is the starting point for accounting in accordance with IFRS. An
entity shall use some accounting policies in its opening IFRS statement of financial position and
throughout all period presented in its first IFRS financial statements. Those accounting policies
comply with each IFRS effective at the end of its first IFRS reporting period.(Pacter, 2015).
This rationale of IFRS adoption has a notion that harmonization of international accounting
standards would substantially contribute towards facilitating the process of global economic
integration by removing the barriers to the cross border movement of goods, service and capital.
This perspective of IFRS adoption agenda relates to multi-national corporations with cross
border stock exchange listing and companies operating with transnational boundaries. While the
adoption of IFRS is a manifestation of globalization associated with ensuring the financial health
of global capital markets through transparent, accountable, and comparable financial
9
information, the developing nations have no choice but to embrace the realities of globalization
to participate in the globalize economic wealth highly enjoyed by developed countries,(Irvine &
Lucas, 2006), argued with nation that accounting profession in developing countries is not
developed to the point where it can regulate the profession and financial reporting practices
effectively in a way that it helps the adoption of IFRS in those jurisdiction even though
capability of accounting professionalism and its contribution to the effective implementation of
IFRS could vary in developing nations depend on their level of development. Similarly, argued
that the regulatory infrastructure of developing countries may not provide basic financial
reporting bases. This argument shows the low level of accountancy professionalism and financial
regulatory system existing in Ethiopia economic environment referring to the requirements of
globalized financial reporting infrastructure (IFRS) as it was indicated by the World Bank report
(ROSC, 2007).
(Zori, 2015)argues that the quality of financial reporting rationale of accounting standardization
overemphasizes the benefits of adopting standards in contrast to the institutional perspective that
considers the important institutions that must be in place to support the adoption and
implementation of the standards to realize the expected economic benefits. This argument
illustrates the lack of the necessary institutional arrangements in many of African counties and
presumes that the institutional arrangements like the presence of capital markets and general
level of economic development play a critical role in the decision of institutionalizing and
adoption IFRS in African countries.
(Covrig, DeFond, & Hung, 2005) argued that foreign mutual fund ownership is significantly
higher among IAS/IFRS adopters, which suggests a voluntary switch to IAS/IFRS aimed at
attracting foreign investors by providing them with both more information and quality of
financial reporting is more familiar to them.
2.1.3 Opportunities of adopting IFRS on the quality of financial reporting.
Various studies have been conducted in different countries to identify benefits realized and
challenges faced in adopting IFRS for the first time. IFRS might provide the following benefits:
organization problem between management and shareholders can be substantially reduced
through implementation of IFRS as increased transparency causes managers to act more in the
10
interest of the shareholders (Bhattacharje & Islam, 2009).and understandability, lower cost of
capital to companies and higher share prices due to greater confidence of investors and
transparent information), reduce national standards setting costs, ease of regulation of security
markets, easier comparability of financial data across boarder and investment opportunities,
increase credibility of domestic markets to foreign capital providers and potentials to foreign
merger partners. It facilitate easier international mobility of professional staffs across national
boundaries (Odia & Ogiedu, 2013).
(Armestrong, 2016)found that investors expected net benefits to IFRS adoption in Europe
associated with increase in information quality, decrease in information asymmetry, more
rigorous enforcement of the standards and convergence.( Baker, Lembke, & King, 2009) listed
the benefits from adoption of IFRS in the world as: better financial information for shareholders
and regulators, enhanced comparability, improve transparency of result, increased ability to
secure cross border listing, better management of global operations and decreased coat of capital
in the world.
2.1.4 Challenges of IFRS Adoption on the quality of financial reporting.
The adoption of IFRS is not an easy task due to the fact that several challenges could be faced in
the adoption processes. The challenges of IFRS common to countries across the world even
though there are some unique challenges that are specific to a particular country depending on its
context (Baba, 2013). The main inhabiting factors in 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(Obezee, 2009).
Awareness about international practices: with the new system where we have GAAP for
different countries users to view financial statements from different perspectives. It is important
creating awareness among users of financial statements. Taxation: IFRS convergence can create
problem. How do taxation laws address the treatment of tax?
Fair Value- in IFRS format, Fair value if used in measurement of most items of financial
statements and this lead to volatility and subjectivity in financial statements in arriving at the fair
value. where this adjustment is reflected in income statements as gain or losses, it remains a
11
contentious issue if it should be applied in computing distributing profit. (Ikepefan & Akande,
2012)
According to(Odia & Ogiedu, 2013) the challenge affecting the IFRS adoption include: the
timely interpretation of standards continuous amendment to IFRS, accounting knowledge and
expertise possessed by financial statement user, preparers, auditors and regulators and
managerial incentive.
According to (Baba, 2013), among others, the challenges of IFRS adoption includes the
regulatory requirements to amend the existing tax laws of a country in line with the requirements
of new standards, level of education and experience, level of awareness, in adequate technical
capacity, implementation cost, weak enforcement and compliance mechanisms.
2.1.5 Motivating Factors for Adopting IFRS in Ethiopia

In Ethiopia’s context it was found that there are different factors that motivate the adoption of
IFRS in Ethiopia which can be divided into internal and external factors.
From internal factors, the most motivating factors is the absence of national accounting standards
in the country. Agreeing with what is argued for by academics, practitioners pointed out
additional reasons stating that while debate was going on among different stakeholders, another
pressure comes from external forces.
The most external pressure, according to them, comes from, lenders and donors, international
correspondent organization, World Bank and IMF, International Audit Firm (such as Earnest and
Young, KPGM International, and Delliotte). Association of Chartered and Certified Accountants
(ACCA) through its affiliate office and Ethiopian who are working as professional auditors in
Ethiopia and pushing banks to use IFRS.
(World Bank, 2007) Among the efforts made by the government, implementing high quality
IFRS is critical to meeting and sustaining Ethiopia’s economic growth potential. IFRS provides
quality financial reporting to international investors, shareholder of the banks with a brand of
trust in the quality of financial reporting. That trust in financial reporting is essential if investors,
shareholders are to be encouraged to step in to promote continued economic growth. IFRS have a
profound impact on the country’s growth potential, because nationally supported IFRS increases
stability, accountability and transparency, comparability both at institutional and government level.
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2.2 The Conceptual Framework for Financial Reporting
The ISAB Framework was approved by the ISAC Board in April 1989 for publication in July
1989,(ISAB, 2016), as part of a bigger project to revise the Framework the ISAB revised the
objectives of general purpose financial reporting and the qualitative characteristics of useful
information. This conceptual Framework sets out the concepts that underlie the preparation and
presentation of financial statements for external users.(Pacter, 2015).
The Conceptual Framework deals with;

1. The objective of financial reporting:
2. The qualitative characteristics of important financial information:
3. The definition, recognition and measurements of the elements from which financial
statements are prepared; and
4. Concepts of capital and capital maintenance.
The objectives of general purpose financial reporting are to provide financial information about
the reporting entity is useful to existing and potential investors, lenders and other creditors in
making decisions about providing resources to the entity. Those decisions involve buying, selling
or holding equity and debt instruments, and providing or settling loans and other forms of credit.
Many existing and potential investors, lenders and other creditors cannot require reporting
entities to provide information directly to them and must rely on general purpose financial
reports for much of the financial information they need. The usefulness of financial information
is enhanced if it is transparent, comparable, accountable, timely reporting and understandable to
all users across the world.
In Ethiopia context Proclamation(Proclamation 847, 2014) sets out financial reporting frameworks
applicable to different reporting entities and mandated (AABE, 2015) with the responsibility of
regulating the accountancy profession and ensuring its development in the Ethiopia with primary
purpose of protecting the public interest. To achieve this, AABE is responsible for regulating the
13
profession as well as for issuing a national professional accountancy qualification that is recognized
internationally. Among others, its responsibilities include setting accounting and auditing standards
and code of conduct to regulate the behavior of professionals; register and certify professionals and
firms to provide such services; review and monitor the work of professionals and firms rendering
accountancy and/or audit services and reporting entities; providing professional qualification
training, supporting education and continuous professional development programs; enforcing the
financial reporting law and taking disciplinary measures on those who do not comply with the
provisions of the law and the regulation set by the Government and directives, other relevant policies
and guidelines issued by the Board.
2.2.1 Enactment of Financial Reporting Proclamation
The enactment of a Proclamation to provide for financial reporting (proclamation no. 847/2014)
is the current development in the accounting, auditing and financial reporting history in Ethiopia.
Before the promulgation of this proclamation, there if no single organized body responsible for
regulating the accounting and auditing professions and financial reporting practices in Ethiopia
and very minor provisions have been issued in various separate laws that are not found in a
single place and issued by AABE and NBE.
The government of Ethiopia issued this proclamation (Proclamation 847, 2014). AABE is the
statutory body established in terms of the Financial Reporting Proclamation 847/2014 to achieve the
following objectives as stated in Article 1 of the proclamation; to establish a sound, transparent
and understandable financial reporting system application to entities in both private and public
sectors; to have a uniform financial reporting lows that structures of Ethiopia; to support various
building blocks of the economy and to reduce financial crisis risks, corporate failure and
associated negative economic impacts; and to ensure that the provision of financial information
meets internationally recognized reporting standards.
The board shall be accountable to the Ministry of Financial and Economic Development (Atr.3/2
of Regulation 332/2014). According to the Article 5 of the (Regulation No. 332, 2014), the board
shall have the following objectives:
14
 Promoting high quality reporting of financial and related information by reporting
entities;
 Promoting high professional standards among auditors and accountants;
 Promoting the quality of auditing and accounting service;
 Ensuring that the accounting profession is used to keep public interest; and
 Protect the accountants and auditor’s professional independence.
Recognizing the importance of high quality financial reporting and its contribution to improved
financial management is necessary to attract investment and to exploit International opportunities, the
Government of Ethiopia in 2014 passed the Financial Reporting Proclamation—a ground breaking
piece of legislation enshrining the accounting profession’s role in fostering the growth of the
economy and ensuring the stability of the economy; and the related Council of Minsters Regulation
setting-up the oversight Board – the Accountants and Auditors Board of Ethiopia.(AABE, 2015).
2.2.2 Roadmap to IFRS Implementation in Ethiopia

Although some reporting entities in Ethiopia says they are already using IFRS for their financial
statements, during the world bank 2007 review of financial statements that focused on issues of
presentation and disclosure ( not issues of recognition and measurement which are not detectable
through a review of financial statements requirements) on sample of 35 financial statements from
financial institutions, share companies and NGOs revealed that there were significant
differences, public enterprises between the actual accounting in Ethiopia differ from IFRS.
The deference in IFRS adoption period by such entities prior to the national mandatory
requirement date shall be referred herein as “voluntary” adoption and treated accordingly. Such
claim by reporting entities and their auditors shall be scrutinized strictly and any infraction shall
be dealt with firmly.
The following three phases stated to adopt IFRS in Ethiopia (AABE, 2015).
Phase 1: Significant public interest Entities and financial Institution and public enterprises
owned by Federal or Regional Governments at July 8, 2016 is recommended as the date for
adoption of IFRS for financial institution and large public enterprises.
15
Phase 2: Other Public Interest Entities (ECX member companies and reporting entities that
meet PIE quantitative thresholds) and IPSAs for charities and societies in Ethiopia will
statutorily be required to issue IFRS and IPSAs based financial statements respectively for the
year ending July 8,2018.
Phase 3. Small and medium size entities IFRS for SMEs shall mandatorily be adopted as at July
8,2018. This mean that all small and medium-sized entities in Ethiopia ill statutorily be required
to issue IFRS based financial statements for the ending July 7, 2019.
This seems, Ethiopia is recognizing the significant influence that corporate reporting has on
investment decisions; the country is now attaching greater importance to transparency in corporate
accounting and reporting. Adopting IFRS leads to improved quality of financial reporting. The
availability of relevant information on potential investment targets has a bearing on the efforts to
mobilize investment for financing economic and social development. (UNCTAD, 2008).
2.3 Empirical Evidences: as International and National level.

2.3.1 Evidence from international level case studies;
According to the case studies conducted by the United Nation covering Brazil, Germany, India,
Jamaica, Kenya, Pakistan, South Africa and Turkey, the factors that initially contributed to the
introduction of IFRS in the countries covered vary(UNCTAD, 2008).
According to the case studies, in Brazil, the central Bank’s intention of adopting IFRS was to
bring financial reporting in line with international best practice to facilitate comparability of
financial reporting and fostering investor confidence.
In Germany, a number of large companies began to provide their financial statements in

accordance with IAS in order to able to access financial markets abroad Germany. In 1998, The
adoption of IFRS for the preparation of consolidated financial statements of listed companies in
Germen become mandatory following the European Union to implement the IAS regulation of
2002. Since the case study of Germany illustrate, a European Union wide approach of
implementing IFRS, the implementation challenge extended beyond its domestic factors
(UNCTAD, 2008).
16
According to the case study of Kenya, the aim was to raise national financial reporting
requirements to international best practice following significant collapses in the country’s
financial service sector in the 1980s and 1990s. The case study of Kenya also indicates the
intention of the standard setting body to reallocate resources away from setting national
accounting standards to strengthening other activities aimed at more effective implementation of
international accounting and auditing standards (UNCTAD, 2008).
In Nigeria,(Ocansey & Enahoro, 2014) carried out a comparative study of IFRS adoption
between Nigerian and Ghana and noted that the national standards of Ghana and Nigeria were
closely related and had both suffered lack of certain standards and disclosure requirements,
thereby, not being able to add sufficient value to financial reporting, because of lack of new set
of skill and expertise, transitional challenges, dealing with inconsistencies in applicable laws.
The case study of India indicates that the intention was to harmonize domestic financial reporting
requirements with international standards. The study also showed another approach of
converging Indian accounting standard with IAS by adopting the country’s economic reality to
IAS.
The case study of Jamaica also indicated the intention of harmonization corporate reporting
practice across countries in the Caribbean in accordance with international
requirements(UNCTAD, 2008).The case studies of Pakistan, South Africa and Turkey showed
that the intention was to raise their financial reporting requirements to internationally recognized
bench marks (UNCTAD, 2008).
According to(UNCTAD, 2008)case study reports of the countries covered, a number of practical
Challenges were faced by countries while implementing IFRS in their respective jurisdiction.
These issues can be grouped in to three main areas.
1. Institutional Issues:
When IFRS are introduced in a given jurisdiction, the preexisting law and regulations in the
country relating to the governance of business entities. According to (UNCTAD, 2008) report,
often, the law and regulation overlap or become inconsistent, with each other especially when the
17
role and responsibility of different institution are not clearly defined and coordination
mechanism are not in place. Lack of consistency in regulatory system, banking policy and
procedure with IFRS/IAS become cause for serious misunderstanding and inefficiency in the
adopting of IFRS.
2. Enforcement Issues:
Enforcement of standards is also one of the critical elements in the implementation of IFRS. The
full benefits of a global set of financial reporting standards such IFRS would be realized only
when these standards are consistently enforced. The institutions responsible for enforcing IFRS
need to realize that, as a result of the growing globalization of financial market, their
enforcement efforts often protect both domestic and international investors to attract foreign
direct investment as a result of enforcements of concerning bodies and effective monitoring of
financial reporting preparers.
3. Technical Issues:
Practical adoption of IFRS requires adequate technical capacity among preparer, users and
Regulatory authorities. Countries implementing IFRS face a variety of capacity related issues,
depending on the approach they take. According to(UNCTAD, 2008) reports, the case studies
showed a number of challenge in the practical adopting of IFRS on quality of financial reporting;
one of the main difficulties encountered in the practical implementation process was the shortage
of accountants and auditors who are technically competent in implementation IFRS and IASs,
this would result low transparency and comparability of financial reporting.
2.3.2 Evidence from National level case studies;
According to the research conducted by (Alemi & Pasricha , 2016)identified IFRS implementing
challenges like high implementation costs, the complexity of financial reporting, lack of IFRS
implementation agent, lack of IFRS implementation guidance, increased volatility of earnings,
lack of availability of competent specialists, high level training requirement, problem with the IT
system in handling the transition to IFRS, lack of proper instructions from regulatory bodies, and
problem with IFRS use of fair value accounting. Hence it is recommended the government of
18
Ethiopia better to finalize the already started tasks of organizing a separate institute fostering the
implementation of IFRS, and issuance of an enforcing legislation for the implementation of IFRS
an Educational institutions should focus on curriculum revision accordingly.
On the other hand, (Alemi & Pasricha , 2016)the transition to IFRS in Ethiopia will be
challenging. The study also discusses the prospect of IFRS implementation in Ethiopia and the
result showed that the transition plan to IFRS and its implications for preparers, users, educators
and other stakeholder has to be effectively coordinated and communicated.
Similarly, (Yitayew, 2016) shows that while the Ethiopian IFRS adoption experience illustrates
the macro-economic rationale driven nature of IFRS adoption, the rationales and the processes of
translating the idea into Ethiopian context illustrates the socially constructed nature of IFRS
adoption. This study suggests that more resources and stakeholders need to be coordinated by
AABE to build the capacity of preparers in terms of IFRS reporting practices to achieve the IFRS
implementation strategic objectives.
2.3.3 IFRS and Financial Reporting Quality.
IFRS is a high quality financial reporting framework. It is an international language for financial
reporting and as such investors, regulators, policy makers and other users of financial reports
benefit from its use. Since the global business world including developing countries (Ethiopia
included) are competing for the same international capital, the financial language used must be
consistent and no need to have a separate financial language for developing countries to provide
high quality financial statements.
2.3.4 IFRS and Transparency of Financial Reporting.
(Covrig, DeFond, & Hung, 2005)If markets are to function properly and capital is to be allocated
efficiently, investors require transparency and must have confidence that financial information
accurately reflects economic performance. Investors should be able to make comparisons among
companies in order make rational investment decision. In a rapidly globalizing world, it only
makes sense that the same economic transactions are accounted for in the same manner across
various jurisdictions. On the other hand, that low transparency financial reporting can increase
19
the scope for agency conflicts between shareholders and managers, thereby necessitating a
greater proportion of outside directors to monitor management in situations where earnings are
less timely.
2.3.5 IFRS and Comparability of Financial Reporting.
The comparability of financial reporting quality is a key issue given the widespread acceptance
of IAS/IFRS all over the world. However, despite the advantages of convergence(Barth . Mary &
Lang, 2008) argued for the adoption of IFRS by reasoning out that singe set of internationally
accepted accounting standards is expected to reduce the cost of processing financial information
and auditing to users of capital markets, increase uniformity and comparability of financial
statement across companies operating in different national boundaries thereby ease investment
analyses activities and facilitate easy access to foreign direct investment (FDI) and liberalization
of capital markets. The trend toward IFRS as a single set of globally accepted accounting
standards is clear and strong comparability of quality Financial reporting throughout the
world,(Palea, 2013).
2.3.6 IFRS and Accountability of Financial Reporting.
IFRS have been widely implemented as another measure of addressing corporate fraud. The
strict measures to increase accountability have some consequences to prepares of financial
reports in terms of the cost of complying with the reporting requirements(Salman & Carson ,
2009). IFRS are body of prescriptive rules and guidelines with global reach and appeal which
provide direction and guidance on how business enterprise in a globalized world could achieve
the goal of proper record keeping, transparency, accountability and enhancing public confidence
in financial reporting (Tendeloo & Vanstraelen, 2005).
Thus, failure on the part of the firm to apply the requirements of IFRS would result in
inconsistencies, lack of accountability brings distortion in financial reports, which in turn results
into poor financial reporting practice and dissemination of accounting information that is less
value to any particular group of users. This is because the preparation and presentation of
20
financial information should be bereft of objectivity, reliability, credibility and comparability,
and thus results in fraudulent business practice which subsequently lead to business failure and
become devastating on the national economy (Atu, Atu, & Atu, 2014).
2.4 Summary and Research Gap
Following the rapidly growing adoption of IFRS by various jurisdictions around the world, this
globally rising financial reporting architecture has attracted significant research attention for the
last decades. The review of the literature shows various deliberations and perspectives about the
IFRS adoption and implementation practices based on international and national context. It
reflects some of the issue relating to the debates, challenges and opportunities of IFRS adoption
by countries with varying legal, and socio-economic contexts. It highlights the preconditions of
IFRS adoption to be fulfilled by adopting jurisdictions in terms of transparency, comparability
and accountability issues.
Ethiopia has been undertaking various financial reforms and projects to enhance its financial
reporting environment in line with IFRS. However, few studies were conducted to assess such
processes that led to the adoption of IFRS in Ethiopia. Previous studies such as,(Fareed &
Zinabu, 2015) conducted a study on the assessment of the Implementation of IFRS in Ethiopian
Banking sector; and IFRS adoption progress in Ethiopia (Alemi & Pasricha , 2016),IFRS
Adoption in Ethiopia issues, processes(Yitayew, 2016), benefits and key challenge in Ethiopia
(Tesfu, 2012), they did not indicate that the challenges and opportunities of adopting IFRS on
quality financial reporting in Ethiopia banking sector, how the Ethiopian IFRS adoption
translated into practice and the challenge faced by legal framework, lack of IFRS expertise,
having inconsistence financial reporting practice and the overlaps of AABE roadmap for official
adoption(AABE, 2014). This implies that there is knowledge gap in the Ethiopian context about
the IFRS adoption processes on the quality of financial reporting Hence, this study aims to
narrow the knowledge gap by putting point of reference in terms of assessing IFRS adoption and
its contribution on the quality of financial reporting in the banking sector in Ethiopia.
21
Factors Affecting Adoption of IFRS
DEPENDENT INDEPENDENT
VARIABLE VARIABLE
TRANSPARENCY
QUALITY OF
FINANCIAL COMPARABILITY
REPORTING
ACCOUNTABILITY
Figure 3.1 Dependent and Independent Factors.
Table 3.2 Independent Variable Factors.
Independent Variable Factors

Enhancing high quality of information
Transparency
Enable shareholder easily understand financial information
As a source of globally comparable information
Enable shareholders oversees capital market,
comparability Attract foreign direct investment,
IFRS would reduce the cost of preparing worldwide
consolidated financial statements.
Standards provide information that is needed to hold
management to account
Accountability
Vital importance to regulators around the world
Enable preparers or auditors committed for their profession
Source: (ISAB, 2016).
22
CHAPTER THREE
3 RESEARCH MYTHODLOGY
3.1 Introduction
This chapter describes the methodology used in order to conduct the study. It describes the types
of methods selected for data collection and analysis and the reasons for why these methods were
chosen in comparison to the other alternative methods. The chapter consists of nine sections. The
first four sections present the study setting, research design, study population and the sample size
of the study. The sections fifth and sixth outline the data collection instrument and procedure of
the study. The seventh section presents theoretical frame work measurements of variable for this
study and the eighth and ninth section is about the data analysis and validity of the study. The
purpose of this study is to assess the challenge and opportunities of adoption IFRS and its
contribution on quality of financial reporting in the banking sector in Ethiopia.
3.2 Research Design
To conduct this study, researcher adopted descriptive statistics quantitative research approach,
According to (Creswell, 2003). Quantitative research takes a particular approach to theory,
answering research question and setting up a research strategy, making conclusion from results,
and so forth.
3.3 Study Setting
Currently, there are about 18 private and public banks registered under the NBE. Accordingly,
from the total of 18 banks, the researcher have sampled 11 banks purposively selected those who
establish IFRS implementation team, that means 61% from the total number of entire population.
viz. Commercial bank of Ethiopia(CBE), Awash bank(AB), Dashen Bank(DB), Bank of
Abyssinia(BOA), United Bank(UB), Wegagen Bank(WB), Nib International Bank(NIB), Oromia
23
International Bank(OIB), Cooperative Bank of Oromia(CBO), Zemen Bank(ZB), and Enat
Bank(EB).
Table 3.1: Number of Banks in Ethiopia.
Governmental Private Total

Bank 1 17 18
Total 1 17 18
Source; NBE Annual Report, 2016.
3.4 Study Population
According to (Creswell, 2003) covering the entire companies in the study makes the study
difficult. For a homogenous population this much sample size is believed to be representative.
Among the 18 registered banks in the country, the researcher selected 11 banks, the population
considered on this study top level, middle level and lower level managers of the selected banks
IFRS implementation team under investigation.
3.5 Sample Size
Sampling is the process of choosing from a much large population, a group about which the
researcher wishes to make statements so that the selected part will represent the total group(
Leedy, 2013). Purposive sampling is a non-probability sampling method and it occurs when
elements selected for the sample are chosen by the judgment of the researcher. Researchers often
believe that they can obtain a representative sample by using a sound judgment, which result in
saving time and money. So that the study used descriptive statistics from the total of 112 sample
respondents selected from 11 banks who were a member of the IFRS adoption team in their
respective banks, From each of the 11 sample banks, the researcher selected 13 respondents from
CBE because of the volume of the bank and each 5 respondents from the rest 10 banks.
Accordingly, a total of 63 respondents which represented about 56% of the target population
(112) were selected.
24
3.6 Data Collection Instrument.
Here the researcher were employee both primary and secondary data. Primary data were
collected from the appropriate sources by using predesigned questionnaires and interview, the
primary data also supplemented by secondary data from all banks recent Annual Report,
scientific journal and proceeding relevant to the study.
3.7 Data collection Procedures.
In order to work this research, the researcher first develop a research proposal and submitted to
advisor; next the researcher incorporate comments given by advisor. The required data have been
collected after obtaining permission from concerned authorities of selected banks. In this
research all issues of ethics confidentiality would be respected. Data were collected from 11
banks those who have IFRS implementation team at their finance department are chosen for
respondents to the research questionnaires, the researcher believes that those personnel are
appropriate respondents for responding the questionnaires.
3.8 Theoretical Framework on Measurement Variable
Theoretical framework explores, describes, explains, analyzes and presents fact, principle and
provisions of phenomena for better and background understanding of such phenomena(Frank, 2002)
To achieve part of the research objective and to test the research hypotheses, this study used the
theoretical framework with some minor modifications. In this study the dependent variable is the
adoption of IFRS on quality of financial reporting, while the independent variables are transparency,
comparability, and accountability. The study is interested in testing the variability of these variables.
Do these variables truly in any way affect /assess the adoption of IFRS on quality of financial
reporting in banking sector or not.
3.9 Data Analysis.
As explained in the preceding part, the research is designed to follow a mixed methods approach.
To this end, both qualitative and quantitative analyses were used. Data collected using
questionnaire were analyzed through descriptive statistics, frequency distribution, correlation and
multiple logistic regression using Statistical Package for Social Scientists (SPSS-21). It helps to
25
describe what the data look like, where the center (mean) is, how broadly they are spread in
terms of one aspect to the other aspect of the same data( Leedy, 2013). The SPSS is used to find
out percentages, mean values, frequencies, correlations, etc. as main means for summarizing the
data. Data collected from the interview and reviews of documents are interpreted qualitatively. In
analyzing the data from interviews, narrative approaches including quotations from respondents
have been used.
3.10 Assessing Reliability

The reliabilities of challenges and opportunities of adopting IFRS and its contribution on the
quality of financial reporting in the banking sector in Ethiopia were assessed with Cronbach’s
Alpha. Table 3.3, report means, standard deviations, correlations, and reliability values for each
of constructs. The reliability values for all constructs are all greater than .70, which are
considered acceptable.
Table 3.3 Item-Total statistics for reliability

Scale Mean Scale Corrected Squared Cronbach's
if Item Variance if Item-Total Multiple Alpha if Item
Deleted Item Deleted Correlation Correlation Deleted
IFRS on the quality of 13.03 4.304 .960 .925 .930
financial reporting
Transparency 13.07 4.097 .849 .785 .960
Comparability 13.05 4.252 .941 .897 .933
Accountability. 13.10 3.922 .866 .816 .957
Source: Statistical Package for Social Scientists (SPSS-21)
26
CHAPTER FOUR
4 RESULT ANDDESCUSION
This chapter include the analysis of data gathered, the research finding or result, based on the
results the researcher gives discussion on the finding and also some interpretation of the result. In
order to present the finding and the discussion about the Challenge and opportunities of adopting
IFRS and its contribution on quality of financial reporting in the banking sector in Ethiopia:
Among the 18 registered banks in the country, the researcher selected 11 banks, the population
considered on this study top level, middle level and lower level managers of the selected banks
IFRS implementation team under investigation, and the AABE official are conducted in the
interview for this study. the researcher uses SPSS form of table and figures .
4.1 Response Rate of Respondents Banks.
A total of 63 questionnaires were administered to selected 11 banks who have IFRS project team,
from the total number of questionnaires 60 were filled and returned. Data for the analysis in this
study were collected from 11 banks of IFRS project team, the respondent were finance manager,
division finance manager, auditors, accountants and other official. These banks are selected from
registered under National Bank of Ethiopia. A response rate of 95% was achieved.
27
a. General Information
Table 4.2.1 General information
Valid Cumulative
Description of Value Frequency Percent
Percent Percent
1. Respondent of Gender
Valid Male 48 80 80 80
Female 12 20 20 20
Total 60 100 100
2. Age brackets of Respondents
Valid 25-34 years 10 31.7 31.7 31.7
35-44 years 30 50 50 81.7
45-54 years 11 18.3 18.3 100
Total 60 100 100
3. Educational Background of Respondents
Valid BA/ BSC Degree 47 78.3 78.3 78.3
MA/ MSC Degree 13 21.7 21.7 100
Total 60 100 100
4. Position in the Banks
Valid Top Level Management 20 33.3 33.3 33.3
Middle Level Managements 27 45 45 78.3
lower Level Managements 13 21.7 21.7 100
Total 60 100 100
5. Does your banks adopt full IFRS
Valid Yes 6 10 10 10
No 54 90 90 100
Total 60 100 100
5. What is the difficulty encountered at the first time Adoption of IFRS
Difficulty in understand how to implement
Valid IFRS 16 26.7 26.7 26.7
Lack of regulation on how to implement IFRS 20 33.3 33.3 60
Shortage of professionals in regarding to IFRS. 22 36.7 36.7 96.7
Others 2 3.3 3.3 100
Total 60 100 100
7. How many years IFRS was introduced in your banks
Valid Less than 1 years 53 88.3 88.3 88.3
2-5 years 7 11.7 11.7 100
Total 60 100 100
8. Does your Bank understand and uses proclamation No. 847/2014
Valid Yes 46 76.7 76.7 76.7
No 14 23.3 23.3 100
Total 60 100 100
9. Did you get formal training when IFRS was introduced
Valid Yes 20 33.3 33.3 33.3
No 40 66.7 66.7 100
10. If your answer for question No “9” is “No”, why
Lack of training Institutions 24 40 40 40
Valid Tight schedule of adoption 19 31.7 31.7 71.7
Lack of readiness of your Bank 17 28.3 28.3 100
Total 60 100 100
28
Based on the findings displayed on table 4.2.1 above a total of 60 respondents 80% or 48 of them
are Males the remaining 12% or 10 of respondents were Females, this implies the gender
distribution of officials in those banks is not balanced, on the other hand from total of 60
respondents 19 of them or 31.7% were found at the age bracket 25-34 Years, 30 or 50% of
respondents were found at the age bracket 35-44 Years, and 11 or 18.3% of respondents were
found at the age bracket 45-54 Years, this indicates most of respondents’ in those banks were
productive and Mature or from 35-44 age group are dominant with appropriate work experience
and therefore they were well competent and qualified to give relevant information on IFRS
which was needed for the study. Similarly educational level of the participants varied widely
from a total of 60 respondents 47 or 78.3% of respondents have 1st degrees (BA/BSC Degree),
and the remaining respondent 13 or 21.7% have 2nd Degree (MSc/MA Degree), this indicates
most of officials are middle level professionals, this suggests our respondents give relevant and
accurate information needed for the study of IFRS on the quality of financial banking sector in
Ethiopia. Total of 60 respondents 20 or 33.3% of them are Top level management of the banks,
27 or 45% of them of our respondents were middle level managements and remaining
respondents 13 or 21.7% were lower level managements of the banks. This implies the
information gathered for this study was collected from the concerned bodies in those banks and
the researcher believes that the information we get from those personals are truthful and
appropriate for the study. While, a total of 60 respondents of banks were adopted or not. This
question was Yes or No answer. 6 or 10% of respondent of banks were adopted or use IFRS and
the remaining 54 or 90% of the respondents say that IFRS were not fully adopted by banks. With
respect to the difficulty encountered at first time adoption of IFRS, 16 or 26.7% of the sample
respondents reported difficulty in understanding how to implement IFRS; while 20 or 33.3% of
the respondents stated that ‘lack of regulation on how to implement IFRS’, 22 or 36.7% of
respondents’ experience shortage of professionals in regarding to IFRS, and the remaining of
respondents 2 or 3.3% experienced other factors.
When IFRS was introduced in this bank from a total of 60 respondents 53 of them or 88.3% of
respondents were IFRS introduced in the banks less than 1 years.7 or 11.7% of them were IFRS
introduced in the company’s 2-5 years, this indicates most of officials in banks were not yet fully
adopted IFRS and therefore they were not experienced related information on how to implement
IFRS.
29
A total 60 respondents of banks were understanding and uses proclamation No 847/2014 dated
December 5, 2014. This question was a Yes or No answer. 46 or 76.7% of respondents
understands and uses proclamation No 847/2014 dated December 5, 2014 about IFRS and the
remaining 14 or 23.3% of the respondents not understands and uses proclamation No 847/2014
dated December 5, 2014 about IFRS in the selected banks. On the other hand, the respondents
were involved in training session or not. This question was a Yes or No answer. 20 or 33.3% of
the respondents say that they were taking training activity when IFRS was introduced. 40 or
66.7% of the respondents could say that they were not involved in training activity when IFRS
was introduced. 67% of respondents could say that they were not undergone training process
when IFRS was introduced that means there hasn’t to be a form of training when IFRS introduce
banks in Ethiopia. From the total respondents of the banks 24 or 40% of respondents could say
there is lack of IFRS training institution’s to get formal training at the first time adoption of
IFRS, 19 or 31.7% of respondents’ tight schedule of adoption given by AABE, 17 or 28.3%
respondents state that lack of readiness of your banks, this implies that there is high need to get
training from financial institution workers.
30
b. Opportunities of IFRS Adoption on quality of financial reporting.
Table 4.3.1 Opportunities of Adopting IFRS.
Based on Respondent the opportunities of adopting IFRS on quality Std.

N Mean
of financial reporting valuation. Deviation
The adoption of IFRS provides high quality financial reporting. 60 4.38 .640
IFRS improved the reporting practice in your bank better than 60 4.32 .770
GAAP.
The adoption of IFRS brought about high quality with regards to 60 4.35 .755
transparency financial statements.
comparability of financial statements
accountability.
IFRS helps shareholders to make better investment decisions than 60 4.48 .792
GAAP.
Adoption of IFRS improves correspondent bank relationship. 60 4.22 .691
IFRS adoption improves regulation oversight and enforcement 60 4.10 .858
Valid N (list wise) 60
For this study eight questioners regarding opportunities of adopting IFRS also asked for response
by statements with a 5 point Likert scale and indicate the extent they agree with the statements
that is: 5- Strongly agree, 4-Agree, 3-Nuetral, 2-Disagree, 1-Strongly disagree. A mean (M)
score of 0-1.50 means that respondents strongly disagree, between 1.50 -2.50 means they
disagreed, 2.50-3.50 means that the respondents were neutral or no sure, 3.50 – 4.50 means they
agreed, and a mean above 4.50 means the respondents strongly agreed.
Based on the findings displayed on table 4.3.1 above (with Mean=4.38; SD=0.640), the
respondents agreed that the adoption of IFRS provide high quality financial statements.
Similarly, majority of the sample respondents (with a Mean=4.32; SD=0.770) agreed that IFRS
31
could really improve the reporting practice in banking sector compared to the GAAP. On the
other hand, a significant number of respondents (Mean=4.35; SD=0.755) adoption of IFRS will
brought about high quality financial reporting with regard to transparency of financial
statements. Likewise, respondents with a Mean score of 4.37; SD=0.663, claimed that the
adoption of IFRS could brought high quality financial reporting in terms of comparability of
financial statements. While, respondents with Mean=4.32 & SD=0.792, indicated that the
adoption of IFRS will bring about high quality financial reporting with respect to accountability.
Still a significant portion of the sample respondents (Mean=4.48; SD=0.792) agreed that IFRS
can help the local investors/shareholders to make better investment decisions to sell or buy
shares compared to the GAAP. Some respondents (Mean=4.22; SD=0.691), on the other hand,
agreed that the adoption of IFRS could improves correspondent bank relationship. Finally,
moderately large number of bank officials (with Mean=4.10; SD=0.858) confirmed that the
adoption of IFRS could improves regulation oversight and enforcement for regulators.
32
c.
Challenge faced in adopting IFRS on the quality of financial
reporting.
Table 4.4.1 Challenge faced in adopting IFRS
Based on Respondent the Challenges Faced in the Adoption of IFRS N Mean Std.
on quality of financial reporting valuation. Deviation
Adoption of IFRS makes your bank’s chart of account more bulky. 60 4.52 .676
Existing NBE’s minimum reporting directives do not match with 60 4.50 .770
IFRS standards
There is a gap between local tax related proclamations and IFRS 60 4.30 .830
standards
IFRS standards do not timely interpreted by local regulator. 60 4.52 .651
There is lack of proper instructions from local regulatory bodies. 60 4.43 .890
There is lack of expertise in setting IFRS standards 60 4.55 .675
Absence of independent valuators for fair value measurements. . 60 4.48 .701
There is delay in IFRS implementation and AABE’s roadmap. 60 4.42 .743
Having no previous national Accounting standards makes the 60 4.57 .647
adoption process of IFRS more time consuming.
There is no adequate number of IFRS specialists in your bank to 60 4.27 .800
guarantee high quality of financial Reports.
Valid N (list wise) 60
For this study ten questioners for challenges faced in the adoption of IFRS on quality of
financial reporting also asked for response by the statements with a 5 point Likert scale and
indicate the extent they agree with the statements that is: 5- Strongly agree, 4-Agree, 3-Nuetral,
2-Disagree, 1-Strongly disagree. A mean (M) score of 0-1.50 means that respondents strongly
disagree, between 1.50 - 2.50 means they disagreed, 2.50-3.50 means that the respondents were
neutral or no sure, 3.50 – 4.50 means they agreed, and a mean above 4.50 means the respondents
strongly agreed. Based on the findings clearly stipulated on table 4.4.1 above, most of the
sample respondents (with Mean=4.52; SD=0.676) agreed that the adoption of IFRS makes the
banks’ chart of accounts more bulky. Likewise, a significant proportion of the sample banking
33
sector financial executives (Mean=4.50; SD=0.770) claimed that the existing NBE’s minimum
reporting directives do not match with IFRS standards. Some of the sample respondents (with
Mean=4.30; SD=0.830) revealed that there is a gap between the local tax related proclamations
and IFRS standards, (M=4.52; SD=0.651) the respondents could strongly agree IFRS standards
does not timely interpreted by local regulators, (M=4.43; SD=0.890) the respondents could
agree there is lack of proper instructions from local regulatory bodies (M=4.55; SD= 0.675) the
respondents could strongly agree there is lack of expertise in setting IFRS standards ( M=4.48;
SD=0.701) the respondents could agree Absence of independent valuators for fair value
measurements. (M=4.42.; SD=0.743) the respondents could agree There is delay in IFRS
implementation and AABE’s roadmap. (M=4.57; SD=0.647) the respondent could strongly
agree having no previous national Accounting standards makes the adoption process of IFRS
more time consuming, (M=4.27; SD=0.800) the respondents could agree there is no adequate
number of IFRS specialists in your bank to guarantee high quality of financial Reports.
In general, descriptive statistics of the study dependent variables is IFRS on the quality of
financial reporting and the independent variable are Transparency, Comparability and
Accountability. The following table (4.3.2) shows the descriptive statistics of the dependent and
independent variables.
Table 4.3.2 Descriptive Statistics of dependent variable and independent
variables.
Descriptive Statistics
Mean Std. Deviation N
IFRS on the quality financial reporting 4.38 .640 60
Transparency 4.35 .755 60
Comparability 4.37 .663 60
Accountability. 4.32 .792 60
The dependent variable (i.e. IFRS on the quality of financial reporting) has a mean response of
4.38 and std. of 0.640 from this it can be argued that most of the respondents were agreed that
the adoption of IFRS have effect on the quality of financial reporting in the banking sector in
Ethiopia. Similarly, all the independent variables (i.e. transparency, comparability and
34
accountability) have a mean response from 4.32 (lowest) with std. of 0.792 to 4.37 (highest)
mean with standard deviation of 0.663 indicating that most respondents are agreed with the
question designed for each variable.
d. Correlation Analysis for IFRS on the quality of financial reporting

The researcher carried out a correlation analysis to test the relationship between the dependent
and the independent variables. In this study the dependent variables is IFRS on the quality of
financial reporting and the independent variable are transparency, comparability, accountability.
The findings for this analysis are shown in the following.
Table 4.5.1 Correlation coefficient for determining IFRS on the quality

financial reporting banking sector in Ethiopia.
Correlations
IFRS on the
Accountability
Comparability
Transparency
quality
financial
reporting
IFRS on the Pearson Correlation 1 .875** .941** .893**

quality financial Sig. (2-tailed) .000 .000 .000
reporting N 60 60 60 60
Pearson Correlation .875** 1 .856** .747**
Transparency Sig. (2-tailed) .000 .000 .000
N 60 60 60 60
Pearson Correlation .941** .856** 1 .873**
Comparability Sig. (2-tailed) .000 .000 .000
N 60 60 60 60
Pearson Correlation .893** .747** .873** 1
Accountability. Sig. (2-tailed) .000 .000 .000
N 60 60 60 60
**. Correlation is significant at the 0.01 level (2-tailed).
35
The Pearson correlation analyses confirm that there is a significant positive relationship between
three independent variables (transparency, comparability and accountability) and the outcome
variable. The bivariate correlation between subjective transparency and IFRS on the quality of
financial reporting is 0.875, that of comparability and IFRS on the quality of financial reporting
is 0.941 and accountability and IFRS on the quality of financial reporting 0.893, are significant at
the 0.01 level of confidence.
e. Regression Analysis for IFRS on the quality of financial reporting

banking sector in Ethiopia.
The researcher carried out a regression analysis to show the association between the independent
variables with the dependent variable on the financial institutions data.
Table 4.6.1 Regression Analysis for IFRS on the quality of financial reporting
banking sector in Ethiopia.
Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.

(Constant) .453 .157 2.891 .005
Transparency .219 .060 .258 3.647 .001
Comparability .440 .093 .455 4.717 .000
Accountability. .245 .061 .303 4.039 .000
a. Dependent Variable: The adoption of IFRS on the quality financial reporting

36
Table 4.6.2 Model summary IFRS on the quality of financial reporting.
Model Summary b
Model R R Square Adjusted R Square Std. Error of the Estimate
1
.962a .925 .921 .180
a. Predictors: (Constant), transparency, comparability, accountability.

b. Dependent Variable: IFRS on the quality of financial reporting
Table 4.6.1; shows there is significant association between the independent variables
transparency, comparability and accountability with the dependent variable IFRS on the quality
of financial reporting banking sector in Ethiopia; since the p-value for those independent
variables are less than 0.05. And the resulting regression equation is as follows;
Y = 0.453+ 0.219X1+0.440X2+0.245X3+℮
Where Y= IFRS on the quality of financial reporting,
X1= Transparency;
X2 =Comparability;
X3 = Accountability; and
℮= the residual amount.
The regression equation above shows as by taking all factors into account constant at zero, the
IFRS on the quality of financial reporting have a value of 0.453. And the findings presented also
show that taking all other independent variables at zero, a unit increase in transparency would
lead to a 0.219 increase in the IFRS on the quality of financial reporting; taking all other
independent variables at zero, a unit increase in comparability would lead to a 0.440 increase in
the IFRS on the quality of financial reporting; and taking all other independent variables at zero,
37
a unit increase in accountability would lead to a 0.245 increase in the IFRS on the quality of
financial reporting.
From table 4.6.2; R-Square which is the coefficient of determination is a commonly used statistic
to evaluate model fitness. The adjusted R2, is also called the coefficient of multiple
determination, is the percentage of the variation in the dependent variable explained uniquely or
jointly by the independent variables. 92.1% of the variations in IFRS on the quality of financial
reporting can be attributed to the combined effect of the predictor variables. This means that
7.9% of the changes in the changes can be attributed to other factors.
Table 4.6.3 ANOVA result for the quality of financial reporting.
ANOVA a
Model Sum of Squares df Mean Square F Sig.
Regression 22.372 3 7.457 230.501 .000b
1 Residual 1.812 56 .032
Total 24.183 59
a. Dependent Variable: IFRS on the quality financial reporting
b. Predictors: (Constant),Transparency, Comparability, Accountability.
Table 4.6.3; show the P-value of 0.000 indicates that the regression relationship is significant in
predicting how the three independent variables transparency, comparability and accountability
influence the IFRS on the quality of financial reporting. The F critical at 5% level of significance
is 0.03. Since F calculated is 230.501 is greater than the F critical (value = 0.03) thus showing
that the model is significant.
38
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
5.1 Introduction
This chapter presents conclusions and recommendations of the results. It has four sections; the
first section presents conclusions of the study. The second section presents recommendations on
conclusion of the study, the third section presents possible future research areas on IFRS.
5.2 Conclusions
This study is focus challenges and opportunities of adopting IFRS on quality of financial
reporting in banking sector in Ethiopia, the study used document analysis (proclamations,
legislations, directives, annual reports, papers on IFRS and other documents), and self-
administered questionnaire distributed to top level, middle level, lower level managers of
selected banks IFRS adoption team. questionnaire data were analyzed using descriptive statistics,
correlations, and multiple linear regression
Three research questions were developed and tested in this study.

 The first question is to access the components of quality financial reporting (i.e.
transparency, comparability, and accountability) that could affect quality financial reporting
in the process of adopting IFRS.
1. Transparency is one of independent variable that could affect the quality of financial
reporting (dependent variable), the result indicate that all respondent could agree on
transparency of financial reporting and quality of financial reporting have positive
relationship.
2. Comparability is the other independent variable that could affect the quality of financial
reporting, the result show that all respondent could agree on comparability of financial
reporting and quality of financial reporting have significant relationship.
39
3. Accountability is the last independent variable that could affect the quality of financial
reporting and quality of financial reporting has positive relationship.
In general, ensuring quality financial reporting depends on effective Institutional Control, having
transparency, comparability, accountability & availability of technical skills. Merely adopting
IFRS is not enough. Each interested party, shareholders, independent auditors and accountants,
training providers, regulators and standard setters will have to come together and work as a team
for a smooth IFRS adoption in banking sector in Ethiopia.
 The second question is to understand the challenges faced in the process of adoption IFRS on
quality of financial reporting banking sector.
The main challenges in the process of adopting IFRS on the quality of financial reporting
include significant gap in minimum reporting requirements between NBEs and IFRS
standards, lack of readiness to implement within the time frame set by the board, lack of
adequate guidance from concerning bodies, lack of active market and independent valuators
to know fair value of the asset, and lack of skillful IFRS professionals are some of the key
challenges that affect the quality financial reporting.
 The last question the opportunities gained due to the adoption of IFRS on the quality of
financial reporting in banking sector.
The opportunity gained due to adoption of IFRS are it bring transparent, comparable and
accountable quality financial reporting, it improves correspondent bank relationship, provide
high information symmetry for investors to buy and sell their share, it attracts foreign direct
investments, this would reduce foreign currency scarcity to balance the import and export
activities of the banks.
Finally, all top Management of banks should ensure that the Financial Statements are prepared in
compliance with the IFRS. Internal/External Auditors and Accountants should prepare and audit
financial Statements in compliance with IFRS. Regulators and standard setters must implement
efficient monitoring system of regulatory compliance of IFRS along with this the regulators
should ensure that proper changes are to be made in existing laws for IFRS transition to
smoothen adoption process. In order to ensure timely transition to IFRS the board has currently
40
started to provide large number of trained Accountants and Auditors in IFRS. Why? Ethiopia
financial institutions currently does not have the sufficient number of IFRS qualified
professionals to prepare quality financial reporting for banking sector. Only enforcement
mechanism will not help the adoption of IFRS with high quality but an external Advisor also
required with all these systems in places, the IFRS adoption in banking sector in Ethiopia will
become very smooth and accurate. “as per interview of NBE and AABE officials.”
This paper has been conducted to critically examine the factors that could influence the adoption
of IFRS on the quality of financial reporting banking sector in Ethiopia. The Pearson correlation
and multiple linear regression analysis have been used for the study and the result reveals that
variables including transparency, comparability, accountability have showed significant effect on
the quality of financial reporting on the adoption of IFRS in Ethiopia banking sector.
5.3 Recommendation.
The conclusions also disclose that there is a grave problem in relation to the detailed application
and adoption of IFRS on the quality of financial reporting banking sector in Ethiopia. This
implies that the concerned regulatory bodies such as the NBE,AABE and others should strictly
follow the application of all the standards. If these standards are adopted and not applied, they
become valueless. To ensure a smooth switch from the existing inconsistent accounting
Standards to IFRS, Continuous training to staff and addressing all the difficulties that would be
experienced while carrying out the adoption of IFRS with quality financial reporting.
IFRS is principally meant to promote the interest of public interest entities and in particular to
enhance their access to inexpensive funds from international capital markets through the
presentation of transparent, comparable and accountable financial reporting attached in full
disclosures and also public entities need to own the adoption process as well as work closely
with professional bodies, so that they can positively impact the standard setting process.
Finally, the findings reveal that there are various factors that influence the adoption of IFRS on
quality of financial reporting banking sector in Ethiopia. The study found statistically significant
relationship between Independent variable and the quality of financial reporting in adoption of
41
IFRS. Based on the findings of the study, it is essential that the actors to support and engage
themselves for smooth adoption of IFRS. There should be AABE to collaborate with the ministry
of education and Professional association outside Ethiopia in order to spread the promulgate
knowledge of IFRS, since adoption of IFRS could lead to increased foreign direct investment
and access to finance, which in turn may lead to economic growth of Ethiopia.
5.4 Future Research Areas
IFRS is an extensive scope of accounting which cannot be dealt with in its entirety in one study
alone. This study focused on the challenges and opportunities of adopting IFRS on the quality of
financial reporting and Factors that could explain the successful adoption to IFRS standards in
Ethiopia banking sector. However, it would be highly appropriate for future research to be
conducted on the issue of having high quality financial reporting attracts; Foreign direct
investment and participating in active capital market worldwide. This would reduce foreign
currency scarcity to balance the import and export activities. How small and medium scale
enterprises adopt and comply with IFRS tailored for them could also be considered as another
area for future research. Finally, this study attempted to focus on the factors affecting the
adoption of IFRS on the quality of financial reporting banking sector in Ethiopia. Even though
the research found some important factors affecting the implementation of IFRS, the researcher
advocates more studies to be conducted in the area.
42
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45
Annex .1
St Mary University
School of Graduate Program
Masters of Science in Accounting and Finance
Questionnaire on, Challenges and opportunities of adopting International Financial Reporting

Standards (IFRS) and its contribution on the quality of financial reporting in the banking sector
in Ethiopia.
Dear Respondents,
This questionnaire is designed to explore, the challenges and opportunities of adopting IFRS and
its contribution on the quality of financial reporting in the Banking sector in Ethiopia. This study
is conducted in partial fulfillment of the requirements for the Master’s Degree in Accounting and
Finance at St. Mary University school of Graduate studies.
Your response is vital to the outcome of the study and you are politely requested to answer all
questions completely and objectively. The research is going to be carried out based on your
response and other relevant data that could support it. It from of a major part of the research and
the information you will enable the researcher to critically analyze challenges and opportunities
of adopting IFRS on the quality of financial reporting in banking sector.
Your cooperation to respond genuinely is very valuable to this study because it represents in the
sample. Please answer all questions. Spaces provided at the end of questionnaire for you to add
further explanations or comments. I would promise that all information you provide would be
strictly confidential. Please tick (✓) or provide your own answer applicable.
Than you in advance for your indispensable cooperation to spare invaluable time and energy to
complete these questionnaires.
Name: Yetneberk Abebe
MBA in Accounting and Finance student at St Mary’s University school of graduate studies.
Telephone: +251 913 83-86-09
46
PART 1. General Information
1. Gender
 Male
 Female
2. Age Bracket
 Less than 25 Years
 25-34 Years
 35-44 Year
 45-54 Years
 Over 55Years
3. Educational Background
 Diploma
 BA/BSC Degree
 MSc/ MA
 Other Specify ______________
4. Your Position in the banks.
 Top Level Managements.
 Middle Level Managements.
 Lower Level Managements.
5. Does your company fully adopt IFRS?
 Yes
 No
If No, why? ____________________________________________________________
47
6. If your answer for question No.5 is ‘Yes’, What difficulty you encountered at first time
adoption of IFRS?
 Difficulty in understanding how to implement IFRS
 Lack of regulation on how to implement IFRS.
 Shortage of professionals in regarding to IFRS.

 Other Specify _______________________________________________________________
__________________________________________________________________________
7. Number of years since IFRS was introduced in your Bank?
 Not applicable
 Less than 1 years
 2-5 years
 5-10years
8. Does your Bank understand and uses proclamation No. 847/2014 dated December 5, 2014
about IFRS on Share Company?
 Yes
 No
If No, please Specify _____________________________________________________________

______________________________________________________________________________
9. Did you get formal training or seminar on first time adoption of IFRS?
 Yes
 No
10. If your answer for question No “9” is “No”, why
 Lack of training Institutions
 Tight schedule of adoption
 Lack of readiness of your Bank
Other, please specify____________________________________________________________
_____________________________________________________________________________
48
PART 2: Adoption IFRS on Quality of Financial Repotting
The scale below will be applicable as Five-point scales ranging from “Strongly disagree” to
“Strongly agree” that are: 1 = Strongly disagree, 2 = Slightly disagree, 3 = Neutral, 4 =
Slightly agree 5 = Strongly agree
Bases of Respondent for Opportunities of adoption of

S.NO 1 2 3 4 5
IFRS on Quality of Financial Reporting Evaluation
The adoption of IFRS provide high quality financial
1
statements.
IFRS has really improved the reporting practice in your
2
bank better than GAAP.
The adoption of IFRS has brought about high quality in
3 financial reporting with regards to transparency financial
statements
The adoption of IFRS has brought about high quality in
4 financial reporting with regards to comparability of
financial statements
The adoption of IFRS has brought about high quality
5
financial reporting with regards to accountability.
IFRS helps shareholders to make better investment
6
decisions than GAAP.
Adoption of IFRS improves correspondent bank
7
relationship.
IFRS adoption improves regulation oversight and
8
enforcement.
49
PART 3: Challenges Faced in the Adoption of IFRS in Banking Sector.
The scale below will be applicable as Five-point scales ranging from “Strongly disagree” to
“Strongly agree” that are: 1 = Strongly disagree, 2 = Slightly disagree, 3 = Neutral, 4 =
Slightly agree 5 = Strongly agree.
Based on Respondent the Challenges Faced in the

S.NO Adoption of IFRS on quality of financial reporting 1 2 3 4 5
valuation.
Adoption of IFRS makes your bank’s chart of account
1
more bulky.
Existing NBE’s minimum reporting directives do not match
2
with IFRS standards
There is a gap between local tax related proclamations and
3
IFRS standards
4 Lack of IFRS standards timely interpreted by local regulator.
There is lack of proper instructions from local regulatory
5
bodies.
6 There is lack of expertise in setting IFRS standards.
Absence of independent valuators for fair value
7
measurements.
8 There is delay in IFRS implementation and AABE’s roadmap.
Having no previous national Accounting standards makes the
9
adoption process of IFRS more time consuming.
There is lack of adequate number of IFRS specialists in your
10
bank to guarantee high quality of financial Reports.
50

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St.

SCHOOL OF GRADUATE STUDIES

CHALLENGES AND OPPORTUNITIES OF ADOPTING IFRS AND ITS

A STUDY ON BANKING SECTOR IN ETHIOPIA

YETNEBERK ABEBE AYANE

SCHOOL OF GRADUATE STUDIES MBA PROGRAMME

A RESEARCH REPORT SUBMITTED TO THE SCHOOL OF GRADUATE STUDIES

CHALLENGES AND OPPORTUNITIES OF ADOPTING IFRS AND ITS

A STUDY ON BANKING SECTOR IN ETHIOPIA

YETNEBERK ABEBE AYANE

ADDIS ABABA, ETHIOPIA

SCHOOL OF GRADUATE STUDIES MBA PROGRAMME

CHALLENGES AND OPPORTUNITIES OF ADOPTING IFRS AND ITS

CONTRIBUTION TO QUALITY OF FINANCIAL REPORTING:

A STUDY ON BANKING SECTOR IN ETHIOPIA

YETNEBERK ABEBE AYANE

APPROVED BY BOARD OF EXAMINERS

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Dean, Graduate Studies Signature Date

AREGA SEYOUM (PhD) …………………................. ……..…………………............

Advisor Signature Date

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External Examiner Signature Date

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Internal Examiner Signature Date

Yetneberk Abebe Ayane ………………………. ……………………...

It is a pleasure to convey my gratitude to those who helped me in making this

AABE Accounting and Auditing Board of Ethiopia

AISG Accounting International Study Group

FDI Foreign Direct Investment

GAAP Generally accepted accounting principles

IAS International Standards on Auditing

IASB International Accounting Standards Board

IFRIC International Financial Reporting Interpretations Committee

IMF International Monetary Fund

IPSA International Public Sector Accounting

KASB Korean Accounting Standards Board

NGO Non-Governmental Organization

PIE Public Interest Entities

ROSC Reports on Observance of Standards and Codes

SEC Security and Exchange Commission

SIC Standing Interpretations Committee

SPSS Statistical package for social science

Table 3.1 Number of Financial Institutions 24

1.1 BACKGROUND OF THE STUDY

1.2 Statement of the problem

1.3 Research question

1. What are the constituents of quality financial reporting?

1.4 Objectives of the Study

1.4.1 General objective:

1.4.2 Specific Objectives:

1.5 Significance of the Study

The finding of the study is useful to:

Government and Policy Makers

1.6 Scope of the Study

1.7 Limitation of the study

1.8 Organization of Paper

2.1 Historical Background of IFRS.

2.1.1 Concept of IFRS

IFRS on the Pearson Correlation 1 .875 .941 .893**