ABSTRACT
The research work “The impact of Financial Accounting Reporting on the corporate performance of Business Organizations”, basically aims at ascertaining how financial accounting reporting has helped in advancing the objectives of corporate organizations. In the process, it investigated the effected that financial accounting bear on the performance of a business. Furthermore, if sought to ascertain the compliance of relevant statues by corporate organizations and the overall satisfaction of stakeholders in a corporate organizations. The study obtained its data basically from primary and secondary sources. The primary sources of data collection employed were questionnaire, oral interview and observations, while the secondary sources of data included textbooks, journals. in the analysis of the data collected, the chi-square was used to analyze the responses gathered. The study revealed that a loot of problems were inherent in financial reporting ranging from non-disclosure of vital information, subjective judgments of prepares of the financial information and most times non-compliance to relevant statues. There were recommendations given such as strict compliance to the relevant statute were made to the companies, the government needs to strengthen its regulatory agencies in order to ensure that the financial statements show a “true and fair view and comply with the relevant statues at all times.
TABLE OF CONTENTS
Title page ---------------------------------------------------------------------- ii
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Certification: ----------------------------------------------------------------- -- iii
Dedication: ---------------------------------------------------------------------- iv
Acknowledgment: ------------------------------------------------------------- -v
Abstract: ---------------------------------------------------------------------------vi
Table of contents: --------------------------------------------------------------vii
CHAPTER ONE: INTRODUCTION
1.1 Background of The Study: ---------------------------------------------1
1.2 Statement of The Problem: -------------------------------------------- 3
1.3 Objective of The Study: ------------------------------------------------ -4
1.4 Research Hypotheses: -------------------------------------------------- 6
1.5 Significance of The Study: ----------------------------------------------7
1.6 Scope of The Study : ----------------------------------------------------- 8
1.7 Limitation of The Study: ---------------------------------------------------8
1.8 Definition of Terms: --------------------------------------------------------- 9
1.9 reference: ------------------------------------------ --------------------------10
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Overview of the financial Accounting System: -----------------------11
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2.2 Financial Accounting Records: -------------------------------------------11
2.3 The Subsidiary Books the General Journal (proper) ----------------12
2.4 Source Document: -----------------------------------------------------------17
2.5 The Ledgers: ------------------------------------------------------------------- 19
2.6 Classification of Accounts: ---------------------------------------------------19
2.7 The Trial Balance: --------------------------------------------------------------20
2.8 The Trading Profit and Loss Account: -------------------------------------20
2.9 The Balance Sheet: ------------------------------------------------------------21
2.10 Principles and Assumption Underlying Financial Standards: --------21
2.11 Accounting Standards: --------------------------------------------------------28
2.12 Controversial Issue in Financial Accounting Reporting: --------------31
2.13 Cross Sectional Analysis of Selected Companies in Enugu State: -36
2.14 Brief History of the Companies: ---------------------------------------------36
References: ---------------------------------------------------------------------------- 45
CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY
3.1 Research Design: --------------------------------------------------------------47
3.2 Sources of Data: --------------------------------------------------------------- 48
3.3 Method of Data Collection: ---------------------------------------------------50
3.4 Determination of Population Size: -------------------------------------------51
3.5 Determination of Sample Size: -----------------------------------------------51
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3.6 Method of Administration and Questionnaire: -----------------------------52
3.7 Method of Date Analysis: ------------------------------------------------------ 53
3.8 Decision Rule: ---------------------------------------------------------------------54
Reference: --------------------------------------------------------------------------------56
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Date Presentation: ---------------------------------------------------------------57
4.2 Data Analysis: -------------------------------------------------------------------- 58
4.3 Hypothesis Testing: -------------------------------------------------------------69
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings: ---------------------------------------------------------- 84
5.2 Conclusion: ------------------------------------------------------------------------85
5.3 Recommendation: ----------------------------------------------------------------86
Bibliography:-------------------------------------------------------------------- ---87
Appendices: -----------------------------------------------------------------------89
CHAPTER ONE
INTRODUCTION
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Background of the Study
The impact of financial reporting on the corporate performance of a business organization is becoming more apparent to user groups of a financial statement.
Accounting is a not an exact science neither are business operations without some subjective and judgmental errors when it comes to reporting them. A financial reporting therefore is a document statement which informs the various interest groups to a business on the operations and performance of their business in a period under review its present state of affairs as well as its anticipated future, in accordance with the statutes. If a financial report is to service its purpose it ought to be characterized by the following.
a. Relevance
b. Understandability
c. Reliability
d. Completeness
e. Objectivity
f. Timeliness
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In the accounting process of an organization is to provide the information required to prepare a financial report which shall have the above characteristics then the transaction doing the period must be recorded prompt by and accurately and interpreted in conformity with the Generally Accepted Accounting Principles (GAAP), Statements of Accounting Standard Board (NASB), International Accounting Standard committee and the companies and Allied Matters Act cop LFN (CAMA)
Financial accounting reporting become necessary with the obvious need for accountability of stewardship from the managers to whom investors entrusted their financial resources. The Railway age in the UK. Occurred between 1830 to 1870 and for the first time the world same the emergence of multimillion corporations with large numbers of shareholders. It was a period of disorder but it brought the basis for the present day system of corporate financial report. Financial reporting is a duty of stewardship assigned to the directors of a company by section 334 of the company and Allied Matters Act Cap L20 LFN, equally the mandatory responsibility of companies to keep accounting records derives its strength from section 331 and 382 of the same act. These sections explicitly defined the necessary content and manner in which financial records should be kept.
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1.2 STATEMENT OF THE PROBLEM
The study “The impact of Financial Reporting on the corporate performance of business organization” aims at investigating the financial reports of selected companies in Enugu State with a view to determine the following ;
a. The extent to which a standard financial report contributes to or detracts from the growth of a business organization.
b. The extent to which the financial reports of corporate business organization comply with statutory provisions.
c. The uniformity and conflict which exist in the financial reporting regulations given the multiplicity of regulators.
Therefore, bused on the above statements, the researcher shall investigate the financial accounting reporting standards and every regulation their bear on the financial statement and to the extent the selected company (s) has either complied with or disobeyed the relevant statutes.
1.3 OBJECTIVES OF THE STUDY
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The objectives of this study are to critically examine the financial reports of the selected company and to probe into the fundamental for their preparation as well as its presentation with a view to determining:
a. The adequacy of the basis and the fundamental that guides its preparation.
b. The degree to which the financial report meets the needs of its various users.
c. The extent to which the financial report conform to the established standard.
d. The influence that financial report has on business performance.
e. Finally, to present suggestions and recommendations based on my findings.
RESEARCH QUESTIONS
In order to determine the impact of financial reporting on the corporate performance of business organizations, it is pertinent to test the following question;
1. Does the information disclosed in the financial statements adequate to support good decision making?
2. Does the disclosure requirement of the statutes affect corporate performance positively or negatively?
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3. Do companies comply strictly with the regulation?
4. Does the financial report meet the needs of the various users?
This study will offer solutions to ones raised it is my believe that the result of these finding will go a long why to helping researchers in this area of study, it will also enhance the understanding of the structure of published reports and accounts by the users.
The various users groups of the published financial report have their benefits from this study as follows:
1. The Potential Investors: These are groups who are interested in committing their financial resources to the buying of the company’s shares. These set of people will benefit from this study as the result of this study still arm them with the necessary tools with which to evaluate the financial report of a corporate organization as it affects them.
2. The General Public: This group shall benefit from this report by the knowledge that the business organization exists for them and not against them, as such has to live up to its full responsibilities.
3. The Regulators of Financial Accounting Report: This group includes the Nigerian Accounting Standard Board (NASB), the companies and Allied Matters Act 2004 Cap (20 LFN (CAMA) the
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Banking and Other Financial Institutions Act of 1991 (BOFIA), prudential guidelines for licensed Banks. The Insurance Act 2003. The study will help them to standardize and harmonize their operations.
4. The Employee Group Including Existing: Potential and past employees.
5. The Government Including Tax Authorities Department who have Interest in the Financial Reports of Companies: The result of this work shall be of immense assistance to each to these user groups in the advancement of their interest.
1.4 RESEARCH HYPOTHESES
The following null and alternative hypothesis shall be tested in this research works:
1. H0: The information provided in financial statements is not adequate to support good decision making.
Hi: The information provided in financial statements is not adequate to support good decision making.
2. H0: The disclosure requirements of statements do not affect corporate performance positively.
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Hi: The disclosure requirements of statements do not affect corporate performance positively.
3. H0: corporate organizations do not comply strictly to the statutory regulations.
Hi: corporate organizations do not comply strictly to the statutory regulations.
4. H0: Financial reports do not meet the needs of the various users of financial information.
Hi: financial reports do not meet the needs of the various users of financial information.
1.5 SIGNIFICANCE OF THE STUDY
This study is a very important one and most significant at this period of economic situation which has witnessed the collapse of giant corporate with impressive profit and loss accounts and balance sheet statement, because the financial report serves is a “prima facie” evidence on the state of attains of such companies as well as its performance and could be relied upon as a certificate because it had the auditors certification, financial reporting could be done with every ser business, utmost good faith and diligence.
1.6 SCOPE OF THE STUDY
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This study could have covered the impact of financial accounting reporting on corporate performance of all the sectors of the Nigerian economy but due to the challenges of such a task especially the financial resources with which to execute it, it is limited to braving industry. The study used the Nigerian Breweries plc, Enugu.
1.7 LIMITATIONS OF THE STUDY
The limitations encountered by the researcher of this work are given as follows:
a. The confidential nature of financial accounting information in the business organization posed as a problem to this business organization posed as a problem to this study.
b. The researcher was unable to reach all the members of the sample as a result of their frequent travels and busy schedule.
c. The sample used in the research though representative but it is relatively small compared to the population, as a result of lack of financial with which to carry out the research on a greater sample.
1.8 DEFINITION OF TERMS
Auditor: a person who is qualified to examine the accounts of an organization to see that they are in order.
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Balance Sheet: a business as at a specified date.
Bank: a financial institution whose responsibilities among others is to keep deposits for their client and customers.
Government: an institution of the state whose responsibility is to maintain law and order in the society.
Prima facie: sufficient to establish something legally until disprove later.
Researcher: an enquiring basically concerned with search knowledge.
REFERENCES
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Alexander, D. and Britton, A (1996); Financial Reporting (5th edition). London. Olakanmozco (2007); The Companies and Allied Matters Act Cap. (20 LFN 2204 (2nd edition) Law Lords Abuja.
CHAPTER TWO
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REVIEW OF RELATED LITERATURE
2.1 OVERVIEW OF THE FINANCIAL ACCOUNTING SYSEM
The financial accounting system is one that is well designed to facilitate the smooth, efficient and uninterrupted flow of data from the point where a transaction occurs through the various stages of data processing to the final stage, thereby culminating in a report.
A financial accounting system is made up of three distinct stages which are:
a. Data recording.
b. Information summarization and interpretation.
c. Information reporting
2.2 FINANCIAL ACCOUNTING RECORDS
The starting point for the financial accounting is the recording and analysis of transactions. A definite step is followed in the traditional accounting approach, the steps in the processing and generating of output of the accounting system are:
i. Identification and analysis of relevant transitions in the journal.
ii. Making entries of the transactions in the journal.
iii. Posting from the journal to the ledger.
iv. Preparation of trial balance.
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v. Determining and recording of the adjusted entries in the journal the ledger.
vi. Preparation of the adjusted trial balance.
vii. Preparation of the final accounts and statement which are the profit and loss account and the balance sheet.
It must be noted that in the emerging business environment where e-commerce is the procedure of doing business, the majority of business are conducted electronically. Whereby transactions happen paperless, it is worthy of note that the steps may not followed sequentially but in essence. They very need for all the step is satisfied in the electronic system. But because accounting focuses on the transactions and the financial information content rather than the steps taken to actualize or document it, accountants have adapted themselves to the current e-commerce business environment and the product which is d a financial report is still the same.
2.3 THE SUBSIDIARY BOOKS THE GENERAL JOURNAL [PROPER]
This is used for the following:
a. Opening entries.
b. Closing entries.
c. Transactions of a special nature
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It should be noted that every transaction is capable of entry in the journal proper, but in order to economize resources, other books are used in place of the general journal. A golden rule in accounting is that all transaction must pass through the journal proper before posting to the ledger. Each accounting transaction is entered in the journal in a chronological order, analysed into debit and credit, made self-contained and separated from any other transactions. Specifically a journal entry consists of:
a. The transaction data.
b. The amount of each debit and credit.
c. A brief narration of the transaction.
The journal provides in a permanent form a full descriptive record of financial transaction and thus facilitates the entries into the ledger. The entering a transaction in journal is called journalizing.
ADVANTAGES OF A JOURNAL
Some of the advantages are:
a. The journal uniquely provides in one place complete picture of each transaction.
b. The journal provides a complete chronological history of all transactions, as such if serves as a source for future reference to the accounting transactions, of an entry.
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c. The use of a journal reduces the possibility of an error when transaction are first recorded.
d. A journal provides concede but informative narrative sufficiently detailed to prove or disprove the accuracy of a transaction.
SALES DAY BOOK
Each sale, with the exception of cash sales shall be entered in the sales day book with such details as dates, name, reference to duplicate invoice, and posted to the debit of the buyer’s account in the ledger. At the end of any interval provided that if does not overlap the period for which the final accounts are to be prepared, the whole accounts are added and the total posted to the credit of sales account.
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The inter-relationship between source documents, the sales day book and the ledger may be shown with the following diagram.
---------------------------------Source document
------------------------------------------Subsidiary book
Principal Books of Accounts
Equal Totals
Source Document: Sales Day Book and Ledger Entries.
Sales invoice sent to customer
Sales day book
Sales Ledger
General Ledger
Credit sales account of customers for the period.
Debit account of customers for the period.
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RETURNS INWARD BOOK
This is a book of original entry for recording sales returns it is therefore, sometimes called a sales returns book or returns inward and allowance journal, copies of credit noted sent to customers from the source of information.
The commonest reasons for returning goods are that they are unsatisfactory due to damage in transit, poor finishing or deviation from standard quality. Where the damage is partial, instead of the whole goods or even a part being returned, some reduction may be mark from the invoice price and the customer credited accordingly.
In each of these circumstances, the relevant details are shown in the credit note which is sent to the customer.
PURCHASES DAYBOOK
The purchase day book is a subsidiary book which credit purchases are entered. The source document from where the data from the entries is got from is the purchased invoice from suppliers. Particular attention must be to the method of dealing with trade discounts. Trade discounts should be adjusted from the listed prices of goods and should be
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deducted before the purchase is entered in the day book, so that the entry may represent the true state on purchase price.
RETURNS OUTWARD AND ALLOWANCE BOOK
The returns outwards and allowances book may be regarded as the opposite of the returns inward book. The latter is the book in which sales returns are recorded where as the former is a subsidiary for recording purchases returns allowances book. The source of information for making entries in the return outward book are credit noted sent to the business by suppliers.
2.4 SOURCE DOCUMENT
Sources documents are original documents from which accounting records are kept. The importance of source documents derive from the fact that they capture the details of transactions at the original and subsequent recording of the transactions will be based on details on the source documents. A typical source document will have the following key information:
a. Data of the transaction (s).
b. Brief details about the transaction (s).
c. Amount of the transaction in naira.
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d. Signature of authorizing or approving officer.
The examples of source documents are:
a. INVOICE: an invoice is a business document prepared when goods are sold on credit and is normally sent by the seller to the buyer. It gives the detail of the goods and the value of the transaction to the seller of the goods as well as the buyer.
b. RECEIPTS: these are business documents issued by a creditor to a debtor when cash is received in the settlement of debt or a situation of outright cash sales in acknowledgment for the receipt of cash.
c. DEBIT NOTES: a debit note is a document prepared by a customer who returns some of the goods previously bought on credit, given to the creditor indicating that he has debited his account in his book to the amount replaced in the debit note. It has various uses between the seller and the buyer.
d. CREDIT NOTE: when the returned goods are received by the supplier, a document to evidence this, is prepared and forwarded to the customer. This document is called a credit note, because the document involved is entered on the credit side of the customer’s personal account and debit to the returns inward. This has the effect to reducing the amount of his debit balance.
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e. VOUCHERS: these are evidence to transactions thus a voucher provides evidence of certain transaction.
2.5 THE LEDGERS
The ledger can be defined as the principal book that contained the accounts for the transactions of a business organization. It is written up periodically and is the ultimate destination of all entries recorded in the subsidiary books.
The ledger is sub-divided into three forms namely:
i. Debtors ledger or sales ledger: this ledger contains the accounts of the credits customers.
ii. Creditors ledgers or purchase ledger: this is ledger contains the accounts of credit suppliers.
iii. General ledger of nominal ledger: this ledger contains all other accounts except accounts of trade debtors and trade creditors.
2.6 CLASSIFICATION OF ACCOUNTS
There are two broad classifications of accounts: These are personal accounts and impersonal accounts. Personal accounts are the accounts of persons, natural or corporate, which have business dealings with the
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organizations. The personal account comprises “debtor” accounts, creditor’s accounts, capital account and bank account.
Impersonal accounts are accounts of non persons. Impersonal accounts are further sub-divide into real accounts and nominal accounts. Real accounts relate the tangible assets whereas nominal accounts relate to revenue/income expenses and intangible assets.
2.7 THE TRIAL BALANCE
If the doubled entry principal has been completed and correctly applied, it is obvious that the total of credit entries. That is why the trail balance is seen as an account that tests the arithmetic accuracy of the ledger.
2.8 THE PROFIT AND LOSS ACCOUNT
This is an account that is prepared in order to disclose the performance of the business in terms of determining the gross and net profit of an organization.
According to the statement of accounting standard number two which highlights information to be disclosed in the financial statements, the trading profit and loss account forms a major part of the financial statements of corporate organizations.
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2.9 THE BALANCE SHEET
A balance sheet is a statement that present the assets owned and used by a business organization for the purpose of generating income doing side the liabilities which is the amount owed by the business, thus the amount represents claims by outsides, over the assets of the organization.
The balance sheet is a very important statement which at a particular date shows the worth of the organization its presentation and disclosure is guided by the CAMA 2004 Cap C20 LFN and the statement of accounting standard.
2.10 PRINCIPLES AND ASSUMPTIONS UNDERLYING FINANCIAL ACCOUNTING
Principles are generally ideas that are intended to guide accountants in recognizing economic activities. Assumptions represent common understanding about the accounting entity and the environment under which principle will have to be applied.
Accounting principles are built on some fundamental concepts which are often disclosed because they are generally accepted as the under pinniys for the preparation and presentation of financial statements.
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THE BASIC CONCEPT
The Entity Concept: accounting information is prepared from the point of view that every economic unit, regardless of its legal form of existence is treated us a separate entity from parties having proprietary or economic interest in it. Thus, the business and the owner (s) are considered completely separate. This is so such that the business will always be treated by the accountant on its own merit.
THE MONEY MEASUREMENT CONCEPT
This convention states that the accountant only records those facts that are expressed in money terms. Any facts, however revenant they may be to the user of the financial information is ignored by the accountant if they can not conveniently by expressed in money terms. It is often that the greatest asset on effective and efficient business possesses is the work force. So why does the work force never appear on a business balance sheet? The short answer is that it would be extremely difficult to quantify this asset and other resources in money terms. So the accountant does not bother to try. Facts and outcomes that cannot be expressed in money terms are ignore.
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THE GOING CONCERN CONCEPT
This concept states that in the absence of evidence to the contrary it is assumed the business will continue to indefinite future. This concept has a major influence on the assumptions made when evaluating a particular item in the balance sheet. For example, the convention allows us to assume that stock will eventually be sold in the normal course of business i.e. at normal selling price. Perhaps, even more obviously it allows for the principle of depreciation. If an item of plant is depreciated over ten years, when we are assuming that the plant will have a useful life to the business of ten years. It is worthy of note that the going concern concept does not say that the business is not going to heep being profitable into the indefinite future. It merely says or assumes that the business will manage not to collapse altogether.
THE HISTORICALL CONCEPT
The historical concept holds that cost is the appropriate basis for initial account recognition of all assets acquisition, service rendered or received expenses incurred, creditors and owners interests and it also holds that subsequent to acquisition values are retained throughout the
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accounting process. The historical cost concept does not always receive the new universal support of earlier years.
THE PERIODIC CONCEPT
It is a well known fact that the result of a business unit cannot be determined with precision until its final liquidation, the business community and users of financial statements require that the business be divided into accounting periods usually one year and that the charges in position be measured over these period.
THE DUALITY CONCEPT
This may be regarded as a formalization of the basis of double entry. It states that in relation to any one economic event, two aspects are recorded in the account namely:
a. The source of wealth.
b. The form is takes (its application). The concept further states that these two aspects always equal to each other.
THE MATCHING CONCEPT
This concepts holds that for any accounting period the earned revenue and all the incurred costs that generated that revenue must be matched and reported for the period if revenue is carried over from a
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period or deferred to a future period all elements of costs and expenses is relation to the revenue are usually carried over or deferred as the case may be.
THE CONSISTENCY CONCEPT
Usually, there is more that one way in which an item may be treated in the accounts, without violating accounting principles. The concept of consistency holds that when a company selects a method, it should continue (unless conditions warrant a change) to use that method on subsequent periods so that a comparison of accounting figures over time is meaningful.
THE REALIZATION CONCEPT
The concept establishes the rule for the periodic recognition of revenue as soon as:
a. It is capable of objective measurement.
b. The value of assets received or receivable in exchange is reasonably certain. It is the view that revenue can be recognized at various points for example, when goods we produced, when goods are delivered and the owner has assumed liability or when the transaction is completed choice, in most cases is an industrial norm and depends
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on which of the points is the critical even only when the event is passed can revenue be legitimately recognized.
THE FUNDAMENTAL ACCOUNTING PRINCIPLES
In the choice and application of the appropriate accounting principle or policies, some fundamental concepts contradict one another. It is exercise of judgment needed but some practical principles have been evolved for use in particular circumstances some of these principles are:
a. Substance over form: Although business transactions are usually governed by legal principles, then are nevertheless accounted for and presented in accordance with their substance and financial reality and not merely with legal form.
b. Objectivity: This principle connotes independence of judgment on the part of the accountant preparing the financial statements. Objectivity requires support by veritable evidence, in contrast to subjectivity or dependence on the inevitable opinion of the accountants preparing the financial statement.
c. Fairness: This is an extension of the objectivity principles in view of that fact that there are many users of accounting information, all having different needs, of the fairness principles requires that
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accounting reports should be prepared not to favour any group or segment of society.
d. Materiality: This principle holds that items of materials values are accorded their strict accounting treatment.
e. Prudence: This principles demands exercising great care in the recognition of profit whilst all known losses are adequately provided for. This is however, not a justification for the creation of secret of hidden reserves.
ACCOUNTING BASES
These are the totality of methods adopted by an enterprise for applying fundamental accounting concepts to its financial transactions. They include for example the determination of the accounting period for the purpose of revenue and cost recognition and the values to place on items appearing in the balance sheet as at the end of each accounting period. There are two distractive accounting bases, the accrual and the cash
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ACCRUAL BASIS
Under this basis revenue and expenses are recognized in the accounting period to which they relate and in which they are earned and incurred and not when they are received or paid.
CASH BASIS
Under this basis only revenue actually received and expenses actually paid during an accounting period are recognized in that period.
2.11 ACCOUNTING STANDARDS
A standard is an greed upon criteria of what is proper practice in a given situation, a basis for comparison and judgment, a point of departure when variation is justifiable by the circumstance and reported as such. Standards are not designed to confine practice within rigid post to truth, honest and fair dealing. They are not accidental but intentional in origin and direct a high, but attainable level of performance. Without precluding justifiable departures and variations in the procedures and process.
The financial accounting reporting in Nigeria is guided by the standards issued by the Nigeria Accounting Standard Board (NASB).
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The Nigeria Accounting Standard Board came into being in September, 1982 but was formally established by the National Assembly via the Nigeria Accounting Standard Board Act l003 which became effective on 10th July, 2003.
FUNCTIONS:
The functions of the NASB among others are to:
- Develop and publish Statements of Accounting Standards (SAS) which is to be observed in the preparation of the financial statement.
- Promotes the general acceptance and adoption of such standard by then preparers of financial statements, external authors and user of financial statements.
- Review from time to time the accounting standards developed in line with the prevalent social economic and political environment.
As at August 008, the NASB has issued (30) operational standards in Nigeria which have been adopted by the shareholders in the accounting professional practice.
International Federation of Accounting Bodies ( 1FAB) the internal federation of accountancy bodies is an international organization to which each country’s accounting body is affiliated to and an organization that
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promotes uniformity of principles adopted by accountants throughout the world. IFAB has a standing committee known as the international accounting standard committee (IASC) which is responsible for the issuing of accounting standards known as international accounting standards (IAS). As present, the IASC of IFAB has issued forty one (41) operational standards adopted by member countries and is being practiced worldwide.
STATEMENTS OF INTERPRETATION OF INTERNATIONAL ACCOUNTING STANDARD (SIC).
From time to time, the IASC issue out interpretation of (ISA) known as statement of interpretation (SIC) which insists in the better understanding of IAS because of the ambiguity in the statement earlier issued. At present, IASC has issued eleven (11) of such interpretations.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
With the globalization trend in commercial activities the need for a uniform and globally accepted standards for the treatment of financial transactions such standards should be widely acceptable and thereby bring uniformity and consequently, give room for comparison of financial information regardless of where the financial statements are prepaid. At present, one IASC of IFAB has issued out five international financial reporting standards.
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THE PRUDENTIAL GUIDELINES FOR LICENSED BANKS
Banking is essentially an international business especially now that internationalization of most domestic financial markets in many countries are happening at a greater pace. One implication of international banking is the necessity to develop and continuously review the reporting systems which allow for a high degree of compatibility of banking performance across nation boarders. It is on this note that the apex institution in the Nigeria banking system, the central bank of Nigerian (CBN) through the Banking Supervision Department (BSD) issued on November 7, 1990 circulation letter N0: BSD/DO/23/VOL: 1/11 to all licensed banks and their auditors. The circular addressed requirement for assets classification and disclosure, provisions, interest accruals and off-balance sheet engagements.
This guideline is to be strictly adhered to be all licensed banks because it bears heavily on the financial accounting reporting of bank in Nigeria.
2.12 CONTROVERSIAL ISSUES IN FINANCIAL ACCOUNTING REPORTING.
Financial accounting is an evolutionary disciple that has continued to change in its method and practice over time as such some practices of the
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disciple have raised questions from the accounting expert as to what constitutes the best accounting practices.
ACCOUNTING METHODS AND PRACTICES
a. Historical cost accounting method
The historical cost accounting is the current accounting practices and techniques adopted by companies in preparing and presenting their published financial statements of public use. There is not strict definition of historical cost accounting according to OKWUOSU, but is characteristics revolve around concepts and conventions contained in the international accounting standards and local statement of accounting standard issued by the NASB. The two main characteristics of historical cost accounting are:
1. All the financial transactions of an enterprise are recorded at their historical cost.
2. Monies received and paid out are at historical cost. At the end of the profit and loss account, balance sheet and cash flow statement are produced using historical figures of transactions.
3. Transactions are matched in the profit and loss account such that the income generated in a period is matched with the expense incurred to generate income. This is the matching accrued concept.
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Although the use of historical cost accounting excluded adjustments for information, the cost needs adjustme