EFFECT OF ACCOUNTING ESTIMATE ON PROFITABILITY OF QUOTED COMPANIES IN NIGERIA (A CASE STUDY OF LAGOS STATE)

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Generally, accounting is defined as the language every business speaks and understands all over the world. The language defines communication or transferring of ideas or feelings through the utilization of popular signs, gestures, marks and articulated vocal sound.

Accounting statement is associated of inseparable from a small bag which envelops the financial statements of an organization for a given period of time mostly one year. The organization in question could be government, business enterprises or family. Normally, business organizations made use of the right type of estimate gotten from the government. The reason was to put a constraint to the expenses on some items like advertising and research and development, which were perceived as expensive and important item. This is different with what can be gotten in the present day economics. According to the volume IV of International Edition of the Encyclopedia Americana [1988], “Every organization or business uses accounting system to carry out its financial future planning. A business estimate is a formalized quantitative presentation – a set of figures of a firm’s organized plans”. Accounting estimate is importantly, a method of forecasting and control. An accurate and well-prepared estimate renders management with a well-planned program on the basis of careful investigation, study, and research on the part of every arm of the organization. Consequently, an accurate and properly prepared estimate gives all-encompassing co-ordination of the marketing, production and financial activities of a business. Estimation single handedly, does not bring understanding or accomplishment of the plans. But total control over all the activities is highly needed so that any diversion from the original goal may be pointed out immediately and corrected so that the business may be kept on the part of the original goal. Modern estimate control envelops both a plan of processes, activities and the methods of subjecting the operations within the spheres of the original plan. Effective and productive utilization of this tool needs sound and standardized organization, well organized accounting classification and records, proper research, and the strong and exciting support of all employees from top down. Accounting estimate and budget is needful in the building of business plans. Each and every organizational activity can be showcased in terms of estimates and budgets. With the operation of a budgetary control system, business expenditure can be made to match with the economic realities of the organization. Over the years, accounting estimation and budgetary control has been evaluated a number of times in other to point out its link or what it has to do with profitability of companies. The existence of many companies presently can only be justified in terms of their profitability. Hence, to such and related companies, anything, which enhances their profitability, is deserves it. Profitability on the other hand can mean different things to different organization that operate under different conditions. Most organization takes it to mean ability to realize a return over and above the cost of resources put into the organization’s operations. Thus, to some organizations, anything, that minimizes the cost of operation, is profitable. The use of accounting estimate and budgetary control in profit forecasting is fabulous. It can be used in matching expenditure and income in order to make some profits. And to the extent that accounting estimate control is mostly applied in profit planning, its contribution to the realization of profits cannot be stumbled upon.

STATEMENT OF THE GENERAL PROBLEM

The general poor performance of compani9es in Nigeria as a result of the current economic recession that has taken its toll on the business environment ; the poor company performances in Nigeria has led to the massive loss of jobs thus geometrically increasing the number of unemployed Nigerians. The increase in the number of failed companies and unemployed negatively affects the economy thus making it increasingly difficult to come out of the present economic recession currently on ground in the country.

AIMS AND OBJECTIVES OF THE STUDY

The major aim of the study is to examine the effect of accounting estimate on profitability of quoted companies in Nigeria. other specific objectives of the study includes;

1. To examine the benefit of effective accounting on organizational growth.
2. To determine the nature of accounting estimates currently used in quoted companies in Nigeria.
3. To determine the relationship between accounting estimate and profitability of quoted companies in Nigeria.
4. To recommend ways of improving growth and profitability through accounting estimates.

RESEARCH QUESTIONS

1. What is the effect of accounting estimates on profitability of quoted companies in Nigeria?
2. What is the benefit of effective accounting on organizational growth?
3. What is the nature of accounting estimates currently used in quoted companies in Nigeria?
4. What is the relationship between accounting estimate and profitability of quoted companies in Nigeria?
5. What are the ways of improving growth and profitability through accounting estimates?

RESEARCH HYPOTHESES

H0: Accounting estimate has no effect on profitability of quoted companies in Nigeria

H1: Accounting estimate has an effect on profitability of quoted companies in Nigeria

H0: There is no significant relationship between accounting estimate and profitability of quoted companies in Nigeria

H1: There is a significant relationship between accounting estimate and profitability of quoted companies in Nigeria

SIGNIFICANCE OF THE STUDY

The study would greatly benefit the corporate organizations, business establishment and small and medium scale enterprises as it would reveal the effect of accounting estimate on profitability of Nigerian companies. The study would also be of immense importance to students, researchers and scholars who are interested in developing a further study on the subject matter.

SCOPE AND LIMITATION OF THE STUDY

The study is restricted to the effect of accounting estimate on profitability f quoted companies using the Lagos state as the case study.

LIMITATION OF THE STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.