The Effect Of Accounting Standards On The Quality Of Financial Reporting In Nigeria

Project and Seminar Material for Accountancy / Accounting

Abstract

This research examines the effect of accounting standards on the quality of financial reporting in Nigeria. The broad objective of the study is to determine the effect of financial accounting standard on the quality of financial reporting in Nigeria and also to ascertain if accounting standard is effective in business enterprise. It also aims at bringing to the awareness of the users of financial statement the benefits of financial reporting standard towards improving business performance. The researcher adopted the primary source of data collection and the chi-square statistical tool was used to test the stated hypotheses. It was found that financial reporting standard has a significant effect on financial reporting in Nigeria and that accounting reporting standard is effective in business enterprise. Finally, it was recommended that the standards setting body maintain cooperation with government regulatory bodies and financial institution so as to ensure compliance and disclosure in all material respect with financial reporting standard requirement. The financial reporting standard (FRS) should ensure full compliance.

Chapter One

Introduction

1.1 Background to the Study

The end product of financial reporting is the preparation and publication of financial statement. A substantial number of alternative postulate, principle assumption and method adopted by a reporting entity in the preparation of financial statement can significantly affect its result of operation and understanding the interpretation of financial reporting in financial statement.

The financial statement prepared by the accountants is based on convention that is derived from printable reports and there conventions originate from such concepts as: entity, going concern, periodicity, realization consistency, matching concept, historical cost. These concepts are fundamental to financial reporting standards and presentation of financial statement, disclosure of fundamental financial concept and acts followed.

This is because financial statement are for interest to a variety of users, especially shareholders, the use of financial statement clearly valuable evaluation of a reporting enterprise unless if financial statement clearly disclose the significant financial accounting policies that have been adopted in their preparation.

Its is also adopted in recognizing measures and values on item of revenue, expense, gain, loss or any asst or liability. Financial reporting practice have evolved in response to the verity and complexity of types of enterprise and business transaction, there exist more than one recognized calculating profit, measuring depreciation, valuing inventory.

Standard accounting practices require publicly traded companies to follow certain accounting rules when presenting financial statements so that the readers of the statements can easily compare different companies. Private companies are also often required by banks and shareholders, for example, to present information according to their specified rules.

Usually, countries practicing civil law system write standards into law and countries with English common law systems have private organizations to set the rules. There are specialist organizations that can arrange for the set-up of an accounting practice with a franchise business model which can prove successful from the out-set.

The accounting standards are developed to ensure a high degree of standardization in the published financial statement. They provide the necessary information about how financial reporting information should be gathered, prepared and presented in order to improve the value of its contents and facilitate through understanding.

1.2 Statement of Problem

Financial accounting as an aspect of the accounting profession is concerned primarily with the Tran writing of financial information to the user who would use it to improve the outcome of their decision process. The financial information are embodied in the financial statement which serves as a means of communicating information to interested parties the obligation and performance of the reporting entity or enterprise in Nigeria system.

In preparing and presenting financial statements, the accountants must be guided in such preparation by the standard of the profession to ensure that such financial statement prepared and presented will facilitate a thorough understanding to its user.

1.3 Research Questions

The following research questions are used in the research work.

What significant effect does financial accounting standard has on the quality of financial reporting in Nigeria?
How effective is accounting standard in business enterprise?
What are the problems encountered in the application of accounting standard?

1.4 Objectives of the Study

The broad objective of this study is to ascertain the effect of accounting standard on the quality of financial reporting in Nigeria. To following are the sub-objectives;

To determine the effect of financial accounting standard on the quality of financial reporting in Nigeria.
To ascertain if accounting standard is effective in business enterprise.
To ascertain the problems encountered in the application of accounting standard.

1.5 Statement of Hypotheses

The following are the hypotheses of the study;

Hypothesis I

HO: Financial accounting standard has no significant effect on the quality of financial reporting in Nigeria.
HI: Financial accounting standard has significant effect on the quality of financial reporting in Nigeria.

Hypothesis II

HO: Accounting reporting standard is ineffective in business enterprise.
HI: Accounting reporting standard is effective in business enterprise.

Hypothesis III

HO: There are no problems encountered in the application of accounting standard.
HI: There are problems encountered in the application of accounting standard.

1.6 Significance of the Study

At the end of this research work, one will be able to know the procedures adopted in the preparation of financial statement reporting and the information contained therein.

Accounting Users:

The relevance of the various concepts and convention in the preparation of financial will be classified. This is based on the fact that an attempt will be made to discover the importance of disclosure of the various concept and convention used in the preparation of financial statement, the understanding and interpretation of which it will greatly affect the decision of users.

Future Researchers:

The study will broaden the knowledge of the academic community on the importance of accounting standard on the quality of financial statement and their subsequent disclosures.

1.7 Scope of the Study

The scope of this research work is limited to the effect of accounting standards on the quality reporting in Nigeria. In this study, the research covers in depth information gathered in such areas as, the historical development of financial statement, the objective of financial reporting, the various financial reporting standard, postulate the theoretical concept and principles. The time frame of the study is 5 years i.e. 2011 – 2015 (both years inclusive).

1.8 Limitations of the Study

In carrying out this research work, a number of difficulties were encountered.

Finance: lack of adequate and sufficient finance in terms of the cost of collecting data, and processing the required information hindered the smooth conduct of this project.
The non-availability of existing research materials made the researcher to search deeply for relevant data information from the internet, library and book stories.
In the course of personal interview conducted by the researcher, it was difficult to obtain some information, as they were deemed confidential by the companies and persons visited.

1.9 Operational Definition of Terms

For the purpose of clarity, some of the terms in the research work as derived by IAS are explained below.

Financial Statement:

This is a formal record of the financial activities of a business, person or other entity. The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.

Financial Policies:

These are those bases or principles describing a corporation choices regarding its debt/equity mix, currencies of denomination, maturity structure and hedging of decision with a goal of maximizing the value of the firm to some set of stockholders.

Financial Information:

These are data such as credit cards numbers, credit ratings, accounting balances and other monetary facts about a person or organization that are used in billing, credit assessment loan transactions and other financial activities.

Financial Reporting Standards:

This is a set of accounting standards stating how particular types of transactions and other event should be reported in the financial statement.

Entity:

This means an economic unit that is treated as separate from parties having proprietary or economic interest.

Investment:

These are asset acquired for the purpose of income generation without any activities in the form of production, trade or provision of services.

Asset:

This is a research controlled by an entity as a result of past event from which future economic benefit are expected.

Liability:

A present obligation to transfer economic benefit as a result of past transaction.

Financial Statements:

Financial statements are a collection of reports about an organization’s financial results, conditions and cash flows.

IAS:

International Accounting Standards.

GAAP:

Generally Accepted Accounting Principles.

Accounting:

This is defined as the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information (Frank Wood & A. Sangster, 2005).

Income Statement:

Income statement is a financial statement that measures a company’s financial performance over a specific period (Investopedea.com).

Statement of Cash Flow:

Statement of cash flow is a financial statement that shows changes in the balance sheet (financial position) accounts and income affect cash and cash equivalents and breaks the analysis down to operating, investing and financing activities(Bodie, Zane; Alex Kane and Alan J. 2004).

1.10 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
Chapter three deals on the research design and methodology adopted in the study.
Chapter four concentrate on the data collection and analysis and presentation of finding.
Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain the effect of accounting standards on the quality of financial reporting in Nigeria.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of accounting standard and quality financial reporting in Nigeria.

5.2 Summary

The research work was carried out with the objective of unraveling the benefits Nigerian companies stand to achieve by the adoption and implementation of the International Financial Reporting Standards in preparing and reporting its financial statements. To this effect, two hypotheses were assumed and tested, so that it can be accepted or rejected at the end of the research work when it will be analyzed using questionnaire to obtain data from chartered accountants, auditors, managers, investors in Jos North Local Government of Plateau State.
The outcome of the study revealed the following:

The adoption will increase the level of confidence of global investors and investment analysts in the financial statements of companies in Nigeria.
The adoption of IFRS is an effective tool for enhancing the uniformity and comparability of financial statements of companies in Nigeria.
The companies that have adopted IFRS will be able to generate more funds from foreign sources.
There are still challenges militating against the successful adoption and implementation of IFRS but government has put adequate measures in place to address these issues.
The adoption and implementation of IFRS will increase the FDI inflow in Nigeria.

5.2 Conclusion

In this study, attempts were made to assess the relevance of IFRS in the preparation and presentation offinancial statements in Nigeria. Based on the findings, it was concluded that adoption of IFRS is a right step inthe right direction which actually has been more relevant in the preparation and presentation of financialstatements in the Nigerian. Although, there are many issues and challenges facing implementation, the benefitsoutweigh the challenge. With adoption, Nigerian Companies will produce more credible financial statementsthat will not only be informed but also provide a basis for better interpretation. This invariably will boostinvestors’ confidence and attract cross border financial transactions which is the basis for economic growth.

5.4 Recommendations

Abstracting from the above mentioned, the research makes the following recommendation to ensure a successfuladoption and implementation of IFRS in Nigeria.

Government and the regulators should ensure that there is availability of training facilities and materials for Professional Accountants on the concept of IFRS and issues relating to its implementation conversion
Compliance with IFRS timetable should be mandatory and failure should be marched with appropriate sanctions.
Government should release more fund to FRC to educate all stakeholders with special reference to the academic, staff and accounting students who will uphold the future of IFRS in the country and developing a plan to help properly equip the company for upcoming changes
Professional accounting bodies in Nigeria should made IFRS training a part of MCPE at a reduce cost.
While monitoring the IFRS implementation timetable, the government, the Central bank of Nigeria and other regulatory bodies should ensure that ethical environment and corporate transparency are observed.

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