THE EFFECT OF FINANCIAL ACCOUNTING REPORTING ON THE MANAGEMENT OF BUSINESS (A CASE STUDY OF NIGERIA BOTTLING COMPANY PLC)
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THE EFFECT OF FINANCIAL
ACCOUNTING REPORTING ON THE MANAGEMENT OF BUSINESS (A CASE STUDY OF NIGERIA
BOTTLING COMPANY PLC)
ABSTRACT
Effort is made to access the effect of formal accounting
reporting on the management of a business financial accounting covers those
activities related to the preparation of certain reports which are known as
financial statements. These statement report the financial status of a firm at
a particular time. The firms activities and resulting profit/losses during the
most recent period and the flow of resources occurring within the firm during
the same period.
I draw my research from the work of many authors. Such work
done have included textbooks in all forms, magazine and Encyclopedias.
Apart from extensive use of literature, other method of
research includes (a) interview with businessmen. (b) Questionnaires have been
designed and distributed to some businessmen (especially at trade fair). The
questionnaires have been designed for officers in management cadre in public
and private companies, shareholders, staff, partners and owners in sole
proprietorship
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Of recent, the harmonization and international convergence of
accounting standards and practices are of interest to researchers in both
developed and developing countries. For the past decade, members of the
accounting profession have been anticipating the adoption of the IFRS
(Securities and Exchange Commission, (2010) as cited in Winney, Marshall,
Bender, Swiger, 2010) and this anticipation has prompted a lot of academic
research on the subject of adoption of IFRS by different countries of the
world-Nigeria is not exempted. As a result of this, the Financial Reporting
Council of Nigeria (FRCN) announced the transition date for adopting IFRS for
business organizations in Nigeria to begin from January 1, 2012.
Financial report is a formal and comprehensive statement
describing financial activities of a business organization such. For such a
business entity, financial report is a statement that reports all relevant
financial information, presented in a structured manner and in a form easy to
understand for managerial use for taking prompt and informed decision making
related to investment (IASB, 2007) and also to decision making pertaining to
production planning, investment planning, expected returns and performance
evaluation.
The financial reports comprises of balance sheet (for
determining financial position), profit and loss statement (describes statement
of comprehensive income), statement of equity changes (explain the changes of
the company’s equity), and cash flow statements (reports on a company’s cash flow
activities, particularly its operating, investing and financing activities).
Although, these statements are often complex and may include an extensive set
of notes to the financial reports and explanation of financial policies and
management discussion and analysis (IASB, 2007). The notes typically describe
each item on the balance sheet, income statement and cash flow statement in
further detail. Notes to financial reports are considered an integral part of
the financial statements. However, the approaches that the notes and financial
statement are presented and reported are critically for investment decision
making by existing and prospective investors in order to earn optimal returns
on their investments.
This indicates that financial reporting methods in terms of
information disclosure pattern, transparency, auditing, reporting standards,
regulatory control and flexibility, corporate governance, and financial
scandals have influence on investment decision making in any organization,
especially in manufacturing industry with extensive range of investment
activities that requires comprehensive financial facts that can be obtained
from a financial statement.
The perceived relevance of the financial report is to provide
information about the financial position, performance and changes in financial
position of a firm that is useful to a wide range of users in making management
and investment decisions. These users include managers, directors, employees,
prospective investors, financial institutions, government regulatory agencies,
media, vendors and general public. Though, these financial reports are often
prepared according to national standards, corporate governance, professional
ethics, and code of ethics. This to avoid financial reporting fraud and scandals
that might hinders effective decision making process by management and other
users of reports.
The purpose of ethics in financial accounting reporting with
expected standards is to re-orientate corporate organization on the need to
abide by a code of conduct that facilitates public confidence in their services
(Okafor, 2006).
In Nigeria, it has become common practice by manufacturing
firms to adopt creative accounting in anticipation of sourcing for equity
capital from the capital firms. Although this approach in financial reporting
process often lead to over-valuation of assets and company’s net worth in the
views of prospective shareholders and other stake holders. In Okoye and Alao
(2008) view, “creating accounting is the transformation of financial accounting
figures from what they actually are to what preparers desire by taking
advantage of the existing rules and/or ignoring some or all of them".
Also, another perceived problem of financial reporting
disclosure is the non-compliance to industry corporate governance, ethics, and
regulatory standards which is prevalent in the manufacturing industry and the
firm’s sector of Nigeria. In 2008, at the manufacturing end of the real sector
of Nigerian economy, huge financial fraud and scandal occurred in Cadbury
Nigeria that led to service disengagement of its Managing Director and Finance
Director. This was on the account of manipulating the company's financial
records, book padding scandal and corruption.
This warranted the Board of Directors to commission the audit
firm, Price water House Coopers to review and investigate the company's
accounting records.
The investigation confirmed a deliberate overstatement of the
company's financial position over a number of years to the tune of between N13
and NI8 billion.
The over-statements are directly traceable to those systems
abuses, violation of regulatory standards, in particular, deliberate breaches
of our accounting systems and controls.
On the basis of the foregoing, this study examines the effect
of financial reporting on the management of business organizations.
1.1.1 HISTORICAL PROFILE OF NIGERIAN BOTTLING COMPANY (NBC)
The Nigerian Bottling Company Ltd is one of the biggest
companies in the non-alcoholic beverage industry in the country and is the sole
franchise bottler of The Coca-Cola Company in Nigeria.
The company serves approximately 160 million people by
producing and distributing a unique portfolio of quality brands, bringing
passion to marketplace implementation, and demonstrating leadership in corporate
social responsibility.
NBC Ltd started operations in Nigeria in 1951. Based in the
city of Lagos, they operate 13 bottling plants across the country. In addition,
they channel products through 59 warehouses and distribution centers.
The company employs about 4,800 people and indirectly
supports the jobs of up to more than a million more in our value chain.
The company aims to be our customers’ most preferred
supplier, and conduct programmes to support more than 450,000 customers who
sell our products to consumers.
The company is part of the Coca-Cola Hellenic Group, one of
the largest bottlers of the Coca-Cola Company’s products in the world, and the
biggest in Europe. Coca-Cola Hellenic operations span 28 countries, serving
more than 570 million people. The company is headquartered in Athens and listed
on the Athens, New York, and London stock exchanges.
The company produces, sells and distributes a wide range of
beverages, most of which are trademark products of the Coca-Cola Company. The
company product’s portfolio consists of:
leading brands Coca-Cola, Coca-Cola light, Fanta and Sprite
local brands such as Schweppes, Five Alive, Limca and Eva
The company continuously reviews opportunities to expand our
product portfolio in order to offer consumers in Nigeria an increasing range of
choices. Every measure is taken to ensure that the company’s products are of
the highest quality.
1.2 STATEMENT OF
THE PROBLEM
The need for formation on which to base investment credit and
similar decision underlies the objective of financial reporting. If information
provided is not useful for decision making, there would be no benefits form
providing it to set against related costs.
Some business organizations still find it difficult to
establish a certain significant relationship between financial accounting
reporting and the management of the entire business.
Why is the exercise of accountability assumed to be the
ultimate objective of financial reporting by most organizations? To begin with,
“financial reporting is not an end in itself but is intended to provide
information useful for many purposes”. Therefore, “financial reporting
objectives aught to consider the needs of users and the decisions they make”.
Most organizations do not present financial accounting reporting
in compliance with the Financial Reporting Council of Nigeria (FRCN), which
often affects managerial decision making negatively. Again, there is no proper
allocation of resources of the organization which leads to non-achievement of
the profit maximization objective.
Financial reporting is the communication of financial
information useful for decision making such as investment, credit and other
business decisions. But the financial reporting of most organizations does not
disclose clearly the nature and accurate accounts of the organization’s
transactions which the true and fair view of financial position of the
organization can be ascertained.
Also the inability of the management to recruit trained and
professional personnel, as a result, the quality of the decision made by this
organization are very poor.
1.3
OBJECTIVE OF THE STUDY
The main objective of the study is to examine the effect of
financial accounting reporting on the management of business. The specific
objectives are to:
1. To investigate
the relationship between financial accounting reporting and organization
2. To scrutinize
whether financial reporting can effectively communicate financial information
that will be useful for decision making such as investment, credit and other
business decisions.
3. To examine
whether financial report provides adequate information in all areas of
organization and economic activities
4. To investigate
whether financial reporting discloses clearly the nature and accurate accounts
of the organizations’ transactions which the true and fair view of financial
position of the organization can be ascertained.
5. To examine the
attitude of management in the allocation of resources that often leads to the
achievement of profit maximization objective.
1.4 RESEARCH
QUESTIONS
1. Are there
considerable effects of financial accounting reporting on the management of
business organizations?
2. Can financial
reporting effectively communicate financial information that will be useful for
decision making such as investment, credit and other business decisions?
3. Does financial
report provides adequate information in all areas of organization and economic
activities?
4. Does financial
reporting disclose clearly the nature and accurate accounts of the
organizations’ transactions?
5. What is the
attitude of management in the allocation of resources that often leads to the
achievement of profit maximization objective?
1.5 RESEARCH
HYPOTHESIS
Because of the above research questions, the following
hypotheses were formulated.
HYPOTHESES I
HO: Financial reporting can not effectively communicate
financial information that will be useful for decision making such as
investment, credit and other business decisions.
Hi: Financial reporting can effectively communicate financial
information that will be useful for decision making such as investment, credit
and other business decisions.
HYPOTHESIS II
HO: Financial report does not provide adequate information in
all areas of organization and economic activities
HI: Financial report provides adequate information in all
areas of organization and economic activities.
1.6 SIGNIFICANCE OF
THE STUDY
The significance of this study is that, it shows the effect
of financial reports in the operation of the organization. This research will
be beneficial to internal and external users of financial report. The financial
of this research will help managers determine the method of financial needs
that will help in realization of their corporate objectives. The study will
help the management to know the experts (accountants) that will be able to
prepare an annual report that will enable the management to make well-informed
decision that will enhance profit maximization. It will enable the external
users to know whether the organization is making profit in coder to invest
more. This study will also serve us resource material for other researchers for
further research in related areas.
1.7 SCOPE OF THE
STUDY
The research work covered the whole of business
organizations, but due to certain constraints the research is restricted to
Nigeria Bottling Company PLC. Therefore, the area in which data were collected
is limited to Nigeria Bottling Company PLC, Benin City.
Thus, the research investigates the effect of using financial
reports in the management of business organization.
1.8 LIMITATION OF
THIS STUDY
The limitation of this study is the time factor. Since the
researcher carried out the research of the same time with her studies, there
was limited time for to cover all the necessary areas of the research study.
And also lack of audience from the despondence.
1.9 DEFINITION OF TERMS
ANNUAL REPORT: this is a comprehensive report on a company’s
activities throughout the preceding year. Annual reports are intended to give
shareholders and interested people information about the company’s activities
and financial performance.
MANAGERIAL DECISION: This is the decision concerning the
operating of the firm, such as the choice of the firm size, firm growth rate,
and employment.
INFORMATION: This can be seen as data which have been
processed into a form meaningful to the recipient (receiver)
ORGANIZATION: Is an organized body of people working together
for the pursuit of a particular purpose (s) called organization goals.
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