APPRAISAL OF FINANCIAL REPORTING PRACTICES OF PENSION FUND ADMINISTRATORS IN NIGERIA WITH IBTC PLC AS CASE STUDY
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APPRAISAL OF FINANCIAL REPORTING
PRACTICES OF PENSION FUND ADMINISTRATORS IN NIGERIA WITH IBTC PLC AS CASE STUDY
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
Financial
reporting covers those activities related to the preparation of certain reports
which are known as financial statement. These statements reports the financial
status of firms at a particular time
with firms’ activities and resulting profit or losses during the most recent
period and the flow of resources occurring within the firm during the same
period Schiavo-Campo and Tommasi (2009). Bogdanor, (2011) define financial
reporting as a field that treats money as a means of measuring economic
performance instead of factor of production. It encompasses the entire system
of monitoring and control of money flows in and out of an organization as
assets and liabilities, and revenues and expenses. Financial accounting gathers
and summarizes financial data to prepare financial reports such as balance
sheet and income statement for the organization’s management, investors,
lenders, suppliers, tax authorities and others.
Financial
reports are necessary tool used by investors and potential investors to see how
a company functions and stands financially. It is a deciding factor in what and
how much an investor will invest in a company. It is also used to analyze and
assess a company’s potential areas of growth as well as its areas of loss.
Looking at the manager’s annual report helps to determine some of the
reoccurring factors that have affected the financial statement and gives clues
on what can be done to avoid potential danger in the future. The report also
comes in handy when having to report back to company’s financial statement when
being audited Rutherford, (2003). Moreover, financial accounting information
usually comes in the disguised form by “wearing” the cloak of technicalities.
Such technicalities include calculations which need expert knowledge in its
interpretation. But when some business because of low financial layout, cannot
employ such experts’ hands, they tend to ignore financial accounting
information system which has an effect on the management decision making of
such business concern Parry, (2010).
Pension is
the amount paid by government or company to an employee after working for some
specific period of time, considered too old or ill to work or have reached the
statutory age of retirement. It is monthly sum paid to a retired officer until
death because the officer has worked with the organization paying the sum
Balogun, (2015). Pension is also the method whereby a person pays into pension
scheme a proportion of his earnings during his working life. The contributions
provide an income (or pension) on retirement that is treated as earned income
.This is taxed at the investors’ marginal rate of income tax. On the other
hand, gratuity is a lump sum of money payable to a retiring officer who has
served for a minimum period of term year.
The pension
fund administrators were established for employees in Nigeria as a contributory
pension scheme for payment of retirement benefits of employees to whom the
scheme applies. Under this Act, all employees in the public service of the
Federation, and the private sector are involved except the Military, the judges
and top political office holders. Firms employing less than five people may
also be exempted. Prior to the enactment of the pension reform Act 2004,
pension schemes in Nigeria had been bedeviled by many problems. The public
service operated an undefended and ill-defined benefits scheme and the payment
of retirement benefits were budgeted annually. The annual budgetary allocation
for pension was often one of the most vulnerable items in the budget
implementation in the light of resource constraints Orifowomo, (2014).
Pension fund
administrators (PFAs) have been duly licensed to open retirement saving
accounts for employees, invest and manage the pension funds in a manner as the
commission may from time to time prescribe, maintain books of accounts on all
transactions relating to the pension fund managed by it, provide regular
information to the employees or beneficiaries and pay retirements benefits to
employees in accordance with Pencom, (2011) the provision of the Pension Reform
Act 2004. Before it is issued with an operating license, the pension fund
administrators (PFAs) must be a limited liability company with the sole
objective of the management of pension funds. To discourage frivolous
applications and to ensure credibility, such company must have a paid up share
capital of one hundred and fifty thousand naira and demonstrate professional
capacity to manage pension funds and administer retirement benefits.
PFAs
financial reporting is the communication of relevant qualitative and
quantitative information for decision making by users of such information
through financial statements. PFAs are entrusted with the legal responsibility
of preparing and communicating such relevant information to the users. However,
they do not independently carry out this task, but it is the joint effort of
the management, auditors and the government. The accounting researchers have attempted
to develop a theory of financial reporting to support the accounting practices
by PFAs or to develop a theory of financial reporting to be followed by the
management, the former effort being emphasized by academic researchers. The
purpose of this research work therefore is to examine financial reporting
practices of pension fund administrators in Nigeria.
1.2
STATEMENT OF THE PROBLEM.
Before now
some of the major problem of the pension fund administration in Nigeria was the
non-payment or delay in the payment of pension and gratuity by the Federal and
State governments. For instance, the pension backlog was put at about two
trillion fifty six thousand naira as at December, 2005. In fact, pension fund
administration became a thorny issue with millions of retired Nigerian workers
living in abject poverty and they were often neglected and not properly cater
for after retirement Orifowomo, (2014). Sadly, retirees went through tough
times and rigorous processes before they were eventually paid their pensions,
gratuity and other retirement benefits. At one time the money to pay their
benefits is not available; and at another time, the Pension Fund Administrators
were not there to meet the retirees’ needs.
The new
contributory pension scheme appropriately focuses on the need for adequate
savings, good investment and sustained output growth: there is, however, some
doubt as to whether the public sector in Nigeria can exhibit the level of
financial discipline over the long run required to generate the surplus pay off
accumulated pension obligation carried over from the old scheme which now
involve the issuing holding and redemption of retirement bonds.
Financial
accounting reporting is very important for the functioning of any organization.
However, it is sad to found that most financial statements do not take into
cognizance fully the principles of accounting systems. The flow of information,
the cost of collecting any information and the internal control procedures
suffers from some loop holes. The problem of the study therefore has to do with
issue relating to misleading financial accounting reporting by pension Fund
administrators in Nigeria.
1.3
OBJECTIVES OF THE STUDY
The aim of
this study is to appraise financial reporting practices of pension fund administrators
in Nigeria with IBTC Plc as case study
Among other
Specific objectives of the study are:
i. Evaluate the relationship between
financial reporting and the effectiveness of Pension Fund Administrators in
enhancing the welfare of the pensioners
ii. Examine the extent to which the
contributory pension scheme is beneficial to the public sector
iii. Examine if the financial
reporting of the PFA fully take into
cognizance the principles of accounting systems
iv. Ascertain the extent to which the
financial information reporting by IBTC Plc. has affected organization
1.4 RESEARCH
QUESTIONS
The
questions to be answered for the purpose of this study as follows:
i. What is the relationship between
financial reporting and the effectiveness of Pension Fund Administrators in
enhancing the welfare of the pensioners?
ii. To what extent is the contributory
pension scheme beneficial to the public Employees?
iii. Does the financial reporting standards of
the PFA fully take into cognizance the principles of accountability.
iv. To what extent has the financial
reporting of IBTC Plc affects employees in Nigeria.
1.5 RESEARCH
HYPOTHESES.
Hypothesis I
H0: There is
no significant relationship between financial reporting and the effectiveness
of Pension Fund Administrators in
enhancing the welfare of the pensioners
HI: There is
significant relationship between financial reporting and the effectiveness
of Pension Fund Administrators in
enhancing the welfare of the pensioners
Hypothesis
II: For the purpose of this study the following has been put forward:
Ho: The financial reporting of the PFA fully does
not take into cognizance the principles of
accountability.
H1: The
financial reporting of the PFA fully take into cognizance the principles of
accountability
1.6
SIGNIFICANCE OF THE STUDY
The
significance of the study will as follows:
It provides
an objective view to the relevance of financial reporting in the contributory
pension scheme.
The study
also assesses the effectiveness of the contributory pension scheme on the
stakeholder, government, financial institutions worker etc.
The study
will also serve as a reference material to future researchers that will be
carrying out study in the research domain
1.7 SCOPE OF
THE STUDY
This
research work centers around financial reporting practices of pension fund
administrators in Nigeria. The research covers the activities of Pension Fund
Administrators for six years, 2010 to 2015 to enable critical assessment to be
carried out. Further, the study is restricted to financial reporting practices
of PFAs in view of the fact that contributors are entertaining fears on the
sustainability of the PFAs in Nigeria.
1.8
DEFINITION OF TERMS: The following terms will be defined for the purpose of
this study.
Contributory
Pension Scheme: A pension scheme that establish a uniform set of rules,
regulations and standards for the administration and payment of retirement
benefits for the public service of the federation, federal capital territory or
private sector.
Financial
Accounting: Financial accounting “is concerned with the recording of
transactions for a business enterprise or other economic units and the periodic
preparation of various reports from such records”. Financial accounting then
can be said to be a systematic gathering, summarizing and reporting of business
transaction in monetary terms such that it provide information which permits
informed judgment by the users of such information
Information:
These can be thought of as being facts needed or received by a person or group
of persons which is or will be useful to him/her. These information may be
spoken / written programmed or tele-printed.
Management:
Management can be defined as the rational selection of courses of action to
optimize the interrelationship of man, materials and money for the survival and
growth of the organization. It can be regarded as the “process of getting
things done through people” A person who manages is called a manager.
Pension:
Pension is the amount paid by government or company to an employee after
working for some specific period of time, considered too old or ill to work or
have reached the statutory age of retirement. It is monthly sum paid to a
retired officer until death because the officer has worked with the
organization paying the sum Adebayo, (2006).
Pension Fund
Managers: The pension fund managers were established for employees in Nigeria
as a contributory pension scheme for payment of retirement benefits of
employees to whom the scheme applies. Their duty is to ensure that every person
who worked in either the public service of the Federation, or private sector
receives his retirement benefits as and when due.
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