ACCOUNTING POLICIES AND FINANCIAL REPORTING IN NIGERIA (A CASE STUDY OF GUINNESS NIG PLC)

Abstract

This project examines the Evaluation of Accounting policies and financial reporting in Nigeria. For the accountant to efficiently carry out the preparation of financial statements, his primary concern is to keep in a systematic way of all records of the monetary transactions of the business, entering them in prescribed manner. These concepts are seldom disclosed because they are taken generally as the under-working of the preparation and presentation of financial statement. Questionnaires and interview was used in gathering data and information for the research work. Data was presented with the use of table and analysis, using chi-square. One of the findings reveals, that accounting policies play vital role in financial reporting by bringing the necessary framework for expressing financial information. This project recommends that financial reports should be reported in such a way that is within the users range of understanding and since there are many users of financial reports, they should be reported in a way which would make them easy for the average users to interpret and apply them. 

TABLE OF CONTENTS

Title Page                                                                 i

Certification                                                              ii

Dedication                                                                         iii     

Acknowledgements                                                    iv

Abstract                                                                    vi

Table of content                                                         vii

Chapter One: Introduction                                       1

1. Background to the Study                                           1
2. Statement of Problems                                               4
3. Research Questions                                                   5
4. Objectives of the Study                                               5
5. Statement of Hypothesis(es)                                        6
6. Significance of the Study                                            7
7. Scope of the Study                                                     8
8. Limitations of the Study                                             8
9. Definition of Terms                                                    9

Chapter Two: Review of Related Literature              14

1. Introduction                                                              14

2.2   Nature of Financial Reporting                                     16

2.3   Use of Accounting Information System                        17

2.4   The Meaning of Financial Statement or Reporting        22

2.5   Objectives of Financial Reporting                                23

2.6   Selection and Application of Accounting Policies           27

2.7   Consistency of Accounting Polices                               29

2.8   Changes in Accounting Policies                                   29

2.9   Types of Contents of Financial Statement                    31

2.10  Accounting Concepts and Conventions                        35

2.11  The Importance of Accounting Polices in Financial Reporting                                                                        42

Chapter Three: Research Method and Design            45

1. Introduction                                                              45
2. Research Design                                                        45
3. Description of Population of the Study                        45
4. Sample Size                                                               46
5. Sampling Techniques                                                 47
6. Sources of Data Collection                                         47
7. Method of Data Presentation                                      48
8. Method of Data Analysis                                                       49

Chapter Four: Data Presentation, Analysis and Interpretation                                                          50

4.1   Introduction                                                              50

4.2   Presentation of Data                                                  50

4.3   Data Analysis                                                            50

4.4   Hypothesis Testing                                                     61                   

Chapter Five: Summary of Findings, Conclusion and Recommendations                                                 66

5.1   Introduction                                                              66

5.2   Summary of Findings                                                66

5.3   Conclusion                                                                68

5.4   Recommendations                                                     69

References                                                                 71

Appendix I                                                                 73

Appendix II                                                                74

Appendix III                                                               77

CHAPTER ONE

INTRODUCTION

1. Background to the Study

For many years now, increasing attentions has been paid to the method and assumption made in preparing financial statement not only in the complexity of modern business, but also in increased size of business unit. The end product of financial accounting process in preparation and publication of financial statement, International Financial Reporting Standard (IFRS 1).

A substantial number of alternative postulates, assumption, principle and method adopted by a reporting entity in the preparation of its account can significantly affect its result of operations, financial position and changes thereof.

It is therefore, essential to the understanding, interpretation and use of financial statement that whenever there are acceptance method which may be followed, those who prepare them should disclose the main assumption on which they are based. The adoption of those methods and assumptions increase efficiently of the business and also act as safeguard against errors and fraud. For the accountant to be efficiently carryout the preparation of financial statement, his primary concern is to keep a systematic record of all monetary transaction of the business, entering them in a prescribed way that such undertaken were made on convention derived from experience.

There are principle originated from such concepts as entity, going concern, periodicity, accrual consistency and historical cost. The principles are seldom disclosed because they are generally accepted as the underlining of the preparation and presentation of financial statement.

Financial accounting includes the accumulation of historical records technically referred to as stewardship accounting. These historical records from the embodiment of financial statements.

Financial accounting like any other subject rest on the foundation of certain fundamental rudiments, assumptions, polices, concepts and principle which provide the essential frame work for expressing accounting information.

These policies which include entity concepts, going concern, accrual periodicity, consistency, historical cost etc are seldom disclosed on the financial statement because they are generally accepted as being the bedrock underlying the periodic preparation and presentation of financial statement.

However, where there are several acceptable alternatives, methods or approached that may be adopted in preparing the financial statements or where the fundamental concepts on which the financial statement is based must be disclosed. Unless financial statements are viewed against the background of these fundamental concepts and principle, the user would be in a twilit world where something are clear while other are not. It is therefore essential to the understanding, interpretation and meaningful analysis of financial statement that these basic concepts assumptions principles and policies used in the preparation of financial statement must be constantly done in mind.

1.2   Statement of Problem     

It is obvious that accounting policies has helped tremendously to present financial information. Also accounting policies are seen to be concepts that underline the way in which account should be prepared. It is also believed that, the proper application of accounting policies will help to produce a reliable and fair financial statement. In view of the above reasoning, some of the problems that will be addressed in the course of this study are: if accounting policies help to resent a complete way of preparing account, who will suffer the major brunt if accounting policies are not followed when preparing financial statement; what are likely problems to be faced if accounting policies are not strictly adhere to; and also what are the other issues that are not certain in accounting policies?

1.3   Research Questions

This study seeks to provide answers to the following questions?

1. Is there any relationship between accounting policies and financial statement?
2. Are accounting policies relevant in the preparation of financial statements?
3. Does accounting policies ensure uniformity in the preparation of financial statements?
4. Does financial institutions use accounting policies in evaluating financial transactions?
5. Does accounting policies serve as a guideline in preparing financial statement?

1.4   Objectives of the Study  

The main objective of this study is to examine the relationship between accounting policies and the quality of financial reporting in Nigeria. Others are;

1.     To find out if there is any association between accounting policies and financial reporting.

2.    To ascertain if accounting policies are relevant in the preparation of financial statements.

3.     To find out if accounting permits uniformity in the preparation of financial statements.

4.     To ascertain if financial institutions use accounting policies as a tool to evaluate financial transactions.

5.     To ascertain if accounting policies serve as a bedrock for the preparation of financial statement.

1.5   Statement of Hypotheses

Under this study, the following hypotheses were formulated;

Hypothesis One

HO:   There is no relationship between accounting policies and financial report quality.

Hi:    There is a relationship between accounting policies and financial report quality.

Hypothesis Two

HO:   Accounting policies are not relevant to the preparation of financial statements. 

Hi:    Accounting policies are relevant to the preparation of financial statements.

1. Significance of the Study

Users of financial statements can get further insight about financial strength and weakness of a company if they properly analyze information reported in these statements. Therefore, financial analysis is the process of identifying financial strength establishing relationship between the items in the statement of position and statement of comprehensive income.

Financial analysis can be undertaken by the management of the company or by parties outside the company. Some users of financial statement are shareholders, creditors, investors, government, the general public etc. The type of information a specific user requires from the financial statement depends upon the kind of decision that is to be made. Thus, it is said that financial statement is user oriented.

Therefore, this study would be of great use to intending researchers in this aspect of accounting. From this, one can affirm that this work when completed will be of immense use to various parties within the business and academic setting.   

1.7   Scope of Study

An evaluation of accounting policies and financial reporting in the various organization will assist in the development and standardization of accounting principles in Nigeria at large and Edo State in particular. This study took a time frame of 2009 – 2013 and using a sample size of 50 for effective survey.  

1.8   Limitations of Study    

In the course of this study, some problems were encountered.

Firstly, the study was carried out amidst a tight academic schedule; thus, frequent interruption with lectures, test and private reading was not uncommon.

Secondly, financial means was a major setback. The researcher’s financial means was grossly inadequate as a result; the compass of the researcher’s movement and the study was circumscribed. It was difficult to obtain some information as they were deemed to be confidential by the companies visited.

In the face of the above limitations, it was virtually impossible to carryout an in-depth study. However, every attempt possible has been to capture the main purpose and the objectivity of the study.

1.9   Definition of Terms

For the purpose of understanding and clarity, it is deemed expedient to define some technical terms used in this project work.

Accounting Policies: These are the specific accounting based selected and consistently followed by a business enterprise.

Accounting Concept: A concept is defined as a general assumption, which is taken for granted in the preparation of the periodic financial accounts.

Accounting Conventions: The concepts of accounting have become accepted in the business world. The concepts are capable of being interpreted in many ways. Therefore what have grown up in accounting are generally accepted approaches to the application of the concepts.

Assets: Assets are economic resources, which are owned by a business and expected to benefit future operations. Assets may have definite physical forms such as building and machinery. On the other hand, some assets exist not in physical or tangible form but in the form of valuable legal claims or light such as amount due for customers, investment e.t.c. Finery and Miller identified the following categories of assets.

Fixed Assets: Fixed assets are assets of a relatively permanent in nature in the operation of the business and not intended for resales. Such assets include, land and building, plants and machinery, furniture and fitting e.t.c which are expected to have a long useful life. These assets are always carried in the financial statement at cost less accumulated depreciation.

Tangible Assets: These are assets having bodily substance. Tangible assets including land and building, plant and machinery and other similar properties having physical substance. Tangible assets could be fixed or current assets.

Intangible Assets: These are assets without bodily substance and whose value has only with it owners, intangible asset include; Goodwill, Patients tight, trade-marks and other similar assets having physical substance but having value because of the right inherent in them.

Current Assets: These are asses which are expected to be converted into cash within a year varies from one firm to another. Current assets include cash, marketable sureties, account receivable, stock prepared expenses. Current assets are listed in the statment of financial position in their order of liquidity.

Liquid Assets: These include debtor’s temporary investment and cash. They are called liquid asset because they are readily realizable.

Liabilities: Availability is the obligation of a business to other entities or person in respect of money owing for goods or services already received.

Current Liabilities: These are obligations whose liquidation (settlements) is reasonably expected to requires the use of current assets or the substitution of other current liabilities. All liabilities to be paid within one year are classified as current liabilities. In general they are listed in their probable order of liquidation. Example includes account payable and accrued liabilities.

Long Term Liabilities: These are sums falling due for payment after one year from the statment of financial position date. Examples are items of bank loan or overdrafts trade creditors or taxation not falling within one year.

Capital: The term capital has many connotations. It is therefore considered necessary to discuss the important ones.

Owner’s Equity: This kind of equity results from funds received from investors either holders of a corporations or owner of a partnership or proprietorship. And earnings of the firm that did not paid out dividend are added to their equity.

Capital Employment: This is the amount available for production; it represents the total assets less current liabilities employed in the business.

Working Capital: This is the amount of capital that is available for the day-to-day running of the business. It represents the difference between the current assets and current liabilities. The solvency or insolvency of an enterprise depends on the size of its working capital.