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ACCOUNTING
STANDARD AND THE QUALITY OF FINANCIAL REPORTING IN NIGERIA
ABSTRACT
This study is
motivated by a desire to examine the influence of accounting standards on
financial reporting in Nigeria banking sector. In light of the empirical review
and other discussions, a number of questions arose as to whether the effects of
the various accounting standards issued by the NASB on financial reporting in
Nigeria and to check the level of compliance to standards issued by the NASB by
business entities in Nigeria. Questionnaire was administered to some selected
staff of the sampled respondents in Nigeria. Data was collected and analyzed
using the simple percentage, descriptive statistics and chi-square statistical
tool. This study revealed among other things that the NASB should ensure that
its standards suit the Nigeria business environment so as to meet up with our
local reporting needs. It is recommended that the standards should be
continuously reviewed in the light of relative charges in the environment to
make them relevant in financial reporting.
TABLE OF CONTENTS
CHAPTER ONE:
INTRODUCTION
1.1
Background of the
Study
1.2
Statements of the
Problem
1.3
Research Objectives
1.4
Research Hypotheses
1.5
Scope of
Study
1.6
Limitations of
Study
1.7
Significance of the
Study
References
CHAPTER TWO:
LITERATURE REVIEW
2.1
The Need for Financial
Reporting
2.2
Characteristics of Useful Accounting
Information
2.3
Forms and Contents of Financial
Statements
2.4
Regulation of Financial
Reporting
2.5
Accounting
Standards
2.6
Conceptual Framework for Accounting
Standards
References
CHAPTER THREE:
RESEARCH METHODOLOGY
3.1
Introduction
3.2
Research Design
3.3
Sources and Methods of Data Collection
3.4
Research Instruments
3.5
Characteristics of the Population
3.6
Sampling and Sampling Design
3.7
Data
Presentation
3.8
Data Analysis and Statistical
Tools
CHAPTER FOUR: DATA
PRESENTATION AND ANALYSIS
4.0
Introduction
4.1
Analysis of Questionnaires by
Respondents
4.2
Testing of Hypothesis
CHAPTER FIVE:
SUMMARY, RECOMMENDATION AND CONCLUSION
5.0
Introduction
5.1
Summary of the
Findings
5.2
Discussion of the
Findings
5.3
Recommendation for Future
Research
5.4
Conclusion
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.8
BACKGROUND OF THE STUDY
Prudent
business decision-making thrives on the availability of reliable financial
information. The items of financial information relied upon by economic
decision-makers are contained in corporate financial reports (including income
statement/profit and loss account, balance sheet, cash flow statement and value
added statement). The decision-makers are many and varied in their goals. They
can be classified into separate interest groups. There is the equity investor
group, including existing and potential shareholders and holders of convertible
securities, options or warrants. The second group consists of the loan creditor
groups, including existing and potential holders of debentures and loan stock
and providers of short-term secured and unsecured loans and finances. In the
third group is the employee group; this is made up of analyst-advisers,
including financial analysis and journalists, economic, statisticians,
researchers, trade unions, stockbrokers and other providers of advisory
services such as credit-rating agencies. The fifth group consists of the
business contact group. These are customers, trade creditors and suppliers and,
in a different sense, competitors, business rivals including those interested
in mergers, amalgamations, departments, agencies concerned with the supervision
of commerce and industry, with local authorities. The final group comprises the
public, including taxpayers, rate payers, consumers and other communities as
special interest groups, such as political parties, consumers, environmental
protection agencies, local and regional pressure groups (Alexander and Britton,
1988).
A striking feature of these is that their information requirements are
sometimes in conflict with one another, when attempt is made to satisfy them
simultaneously, in a single financial report. For example, government’s
requirement for financial information for purpose of taxation may be
incompatible with the management’s decision to minimize tax liability. Although
tax avoidance is legitimate, sometimes, management’s evasion, which is an
illegal act. Tax evasion is a deliberate action to refuse to pay tax and is
regarded as a criminal offence. Environmental agencies (like Federal Agency)
are interested in the protection of the environment in which the business
organization operates, thereby entailing huge corporate capital expenditure,
whereas the business organization naturally aspires to maximize profits and
cash inflows by minimizing costs. The maximization of corporate cash outflows
towards improved conditions of service as part of the staff welfare package is
a constant item on the agenda of trade union, but management would always like
to postpone upward wages and emoluments review for as long as possible.
Ordinary shareholders with short-term focus may not be supportive of
transferring profits to reserves. They would rather prefer the firm to apply a
substantial portion of the profit to pay immediate dividends. Each group of
users, therefore, tends to perceive the reliability of financial statements
from its own narrow interest.
However, the International Accounting Standards Committee (1989) is of the
opinion that:
While
all the information needs of all these users cannot be met by financial
statements, there are needs which are common to all users. As investor are
providers of risk capital to the enterprise, the provision of financial
statements that meet their needs will also meet most of the needs of other
users that financial statements can satisfy (Hendriksen and Ven Breda,
2001:146).
Also, it has been
noted that ownership is different from management: hence there is a need to
ensure that owners’ interests do not suffer in the hands of selfish management
through unscrupulous manipulation of results reported in financial statements.
The issues involved are captured in agency theory (Jensen and Mecking, 1976;
Van Horne, 2001).
1.9
STATEMENTS OF THE PROBLEM
Investors
are becoming worry of the Nigerian corporate accounting environment, based on
the negative reports of the influential Transparency International
(www.Transparency.org/cpi/2005), which ranked Nigeria the second most corrupt
country in the world for 2003, the third most corrupt in 2004; and the sixth
most corrupt in 2005, if necessary research effort is not spared, the lack of
trust in corporate financial reporting could worsen with Nigeria losing
out in the stiff international competition for foreign direct investment. The
generous fiscal incentives directed at attracting large portfolios of foreign
direct investments to Nigeria appear to yield only marginal results because of
inadequacy of financial reporting system (Adeyemi and Arowomole, 2004).
Due to competition, globalization and the challenge of technology, the changing
landscape of corporate financial reporting has probably led to aggressive
financial reports, which fail to comply with the disclosure provisions, as
specifically required by the accounting and reporting standards. The need to
comply with the laws and standards is generally acknowledged as a problem.
Professional indiscipline on the part of the preparers of financial statements
and possible collusion of the parties involved in managing an organization’s financial
reporting may be a problem. Current thinking in accounting now centre upon the
need for the international harmonization of financial reporting.
Against
this backdrop, the following research questions are raised:
(i)
How have standards issued by the NASB affected financial reporting in Nigeria?
(ii)
How has the NASB ensure strict compliance to its standards by business entities
in Nigeria?
(iii)
What are the grey areas in financial reporting that have not been adequately addressed
by the NASB through its standards?
(iv)
How have standards issued by the NASB affected the uniformity and comparability
of financial reports in Nigeria?
1.10
RESEARCH OBJECTIVES
The
broad objective of this study is to examine the effect of the Nigerian
Accounting Standard Board (NASB), on financial reporting in Nigeria.
Specifically,
the objectives of this study include:
(i)
To study the effects of the various accounting standards issued by the NASB on
financial reporting in Nigeria.
(ii)
To check the level of compliance to standards issued by the NASB by business
entities in Nigeria.
(iii)
To identify grey areas in financial reporting that have not been adequately
addressed by the NASB via its issued standards.
(iv)
To check the impact of standards issued by the NASB on the uniformity and
comparability of financial reports in Nigeria
1.11
RESEARCH HYPOTHESES
1.
HO: There is no
relationship between quality of financial reporting and standards issued by the
NASB.
HI: There is a
relationship between quality of financial reporting and standards issued by the
NASB.
2.
HO: There is no
relationship between adequacy in measures put in place and compliance to standards.
HI: There is a
relationship between adequacy in measures put in place and compliance to
standards.
3.
HO: The standards are
deficient in terms of area of coverage in financial reporting and as a result
to do meet up with lime challenges.
Hi: The standards are not
deficient in terms of area of coverage in financial reporting and meet up with
time challenges.
4.
HO: There is no
relationship between uniformity and comparability of financial reports and
standards issued by the NASB.
HI: There is a
relationship between uniformity and comparability of financial reports and standards
issued by the NASB.
1.12
SCOPE OF STUDY
The
study is focused on examining the effects of the various standards issued by
the Nigerian Accounting Standards issued by the Nigerian Accounting Standards
Board (NASB) on financial reporting in Nigerian, and it is restricted in terms
of the following:
(i)
Sample size: The research study is focused on the NASB, the preparers
and users of financial reports, and the sample size is selected using the
probability method of sampling.
(ii)
Geographical coverage: This research study examines the influence of
standards issued by the NASB on financial reporting in Nigeria from its
inception to date (1982 to 2010).
(iii)
Situs: This research study was carried out in Benin City.
1.13
SIGNIFICANCE OF THE STUDY
This
study should enhance the understating and reliability of management and
financial analysts’ forecasts of corporate earnings, thereby stimulating
capital market operations. It has the potential of assisting stakeholders in
knowing what is being disclosed, and why, in assessing the impact of compliance
or non-compliance on the usefulness of financial statements. It is also hoped
that the study will enhance the understanding of firm-level disclosures and
compliance across industries in Nigeria. This will enable regulatory bodies to
focus on areas of challenges and reduce information asymmetry. The study should
also facilitate the functioning of directors of companies of all sizes,
managers who have to deal with fixed assets, stock, work-in-progress, foreign
currency, intangibles and other organizational resources, and accountants who
need to update their knowledge of the impact of accounting standards.
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