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THE USEFULNESS OF ACCOUNTING
STANDARDS IN THE PREPARATION OF FINANCIAL STATEMENTS
ABSTRACT
The most
common report from external use are the financial statement included in the
annual report to shareholders (owners) and potential investors. These financial statements are prepared to
confirm with “generally accepted accounting principles” such “principles” have
evolved over time or have been made acceptable by decree from official rule
making body.
Accounting
principles result from an essentially political process. The government through the Securities and
Exchange Commission (SEC) prescribes the methods of accounting profession
through its board, Nigeria Accounting Standards Boards also issue statements of
accounting standards as guide for prepares of financial statements.
In
explanation of the above, the researcher examined the usefulness of the
statement produced by the accounting profession’s organ (NASB) and how they are
being complied with, its achievements and problems, hypothesis was also
conducted.
Chapter
five, discussed the findings of the study.
It was discovered from the findings that accounting standards
application in preparing financial statement have came to conclusion that it
contributes numerously not to the company – Guinness (Nig) Plc, Enugu also on
the nation’s economy as a whole.
TABLE OF
CONTENTS
Cover page
Title page Approval page
Dedication
Acknowledgement
Abstract
Table of
content
CHAPTER ONE
1.1 INTRODUCTION
1.2 Background Of The Study
1.3 Statement Of The Problem
1.4 Purpose of the study
1.5 Scope Of The Study
1.6 Statement of hypothesis
1.7 Scope and limitation of the study
1.8 Definition of terms
CHAPTER TWO
2.1 REVIEW OF RELATED LITERATURE
2.2 Historical development of accounting
standards
2.3 Users of accounting standards
2.4 The making of accounting standards
2.5 Application and compliance
2.6 Usefulness/benefits of standards
CHAPTER
THREE
3.1 Research design and methodology
3.2 Population and sample size
3.3 Sources of data
3.4 Data collection techniques
CHAPTER FOUR
4.1 PRESENTATION, ANALYSIS AND INTERPRETATION
OF DATA
4.2 Presentation and analysis of data
4.3 Interpretation of data
4.4 Test of hypothesis
CHAPTER FIVE
5.1 FINDINGS, CONCLUSION AND
RECOMMENDATION
5.2 Findings
5.3 Conclusion
5.4 Recommendation
Bibliography
Appendices
(questionnaires)
CHAPTER ONE
1.1 INTRODUCTION
GENERAL
There has
been quite a lot of criticisms in recent years about accountants and the
financial report which they prepare. A
lot of people have had to question the validity of the profit measuring
procedures applied in arriving at the profit measuring procedures applied in
arriving at the profit disclosed in the published accounts.
Consequently,
the profession has found it necessary to do a re-appraisal of the accepted
procedures, which had found it necessary to do a re-appraisal of the accepted
procedures, which had hitherto dominated accounting field in profit
measurement.
Quite a
member of proposals have made an attempt in reforming the methods generally in
use. This has resulted in the coming
together of different countries with a view to working out modalities for the
standardization of these profit measuring and reporting procedures. This gave birth to the International
Accounting Standards Committee (IASC) and local bodies like the Nigerian
Accounting Standard Board (NASB) for Nigeria.
The
International Accounting Standards (IAS) to be followed by all member countries
of which Nigeria is one. Nigeria on the
other hand produces additional Statements of Accounting Standards on Accounting
Standards (SAS) in an attempt to make the International Standards meet local
conditions.
The Nigerian
Accounting Standard Board (NASB), which was inaugurated in September 1992, was
charged with the following responsibilities.
a) To formulate and publish in
the public interest accounting standards to be observed in the preparation of
financial statements and to promote the general acceptance and adoption of such
standards by prepares and users of financial statements.
b) To promote and sponsor
legislation when necessary in order to ensure that standards developed and
published by the board received nation-wide acceptance adoption and compliance.
c) To review from time to time
the standards developed by the board in the light of change in the social,
economic and political environment. since 1982 till date, the board has issued
statements of accounting standards and two drafts at completion stages. The standards so far issued by the board
are:-
SAS 1
- Disclosure of Accounting
Policies
SAS 2
- Information to be
disclosed in financial statements
SAS 3
- Accounting for property,
plant, and equipment
SAS 4
- On stock
SAS 5
- On construction contracts
SAS 6
- On extra-ordinary items
and prior year adjustment
SAS 7
- On foreign currency
conversion and transactions
SAS 8
- On accounting for
employees retirement benefits
SAS 9 -
On accounting for depreciation
SAS 10
- Accounting by banks and
non-bank financial institution
(part 1).
SAS 11
- On leases
SAS 1
- On accounting for
deferred taxes
SAS 1
- On investment
SAS 14
- On petroleum profit
This work
intends to analyze and examine usefulness of these standards in the financial
statements with particular emphasis on Guinness Nig. Plc Enugu City.
1.2 BACKGROUND OF THE STUDY
Guinness
(Nig) Plc, is one of the biggest breweries in Nigeria today. It is a quoted company in the Nigerian Stock
Exchange Commission (SEC). Guinness
(Nig) Plc is an associated of Guinness overseas ltd, with headquarters at
Dublin in England.
The journey
of this company to Nigeria started in 1950 when the company was incorporated to
import and distribute Guinness Stout from Dublin for sale in Nigeria. In 1962, the stout brewery in Ikeja Lagos,
was commissioned. This station was the third of it kind in the world and the
first outside the British Isles. A
second brewery in Nigeria was commissioned in Benin and from 1982 other
breweries stations was commissioned including in other states.
The company
share capital is made up of 60% ordinary share owned by Nigerians and 40%
ordinary shares owned by Guinness overseas limited. The Enugu Department which happens to be over
study interest has a staff strength of about 10000 workers including both skilled
and unskilled workers.
The accounts
section of the brewery share of the total staff strength is about 200
workers. The accounting department which
is charged with the responsibility of providing management with relevant
financial information that enable her (management) make decisions, also
maintains and keep proper books of accounts which are summaries of the daily
financial activities of the company.
Another major responsibility discovered within this accountant
department is the preparation of the financial statements annually, which most
be in compliance with the requirement of statements of Accounting Standards
which external auditor must confirm and report on.
1.3 STATEMENT OF PROBLEMS
“Good
accounting practice” means that the accounts must be prepared in compliance and
in line with the Statements of Standards Accounting Practice (SSAP),
International Accounting Standards (IAS), and Statement of Accounting Standard
(SAS).
Thus, the
burden of this investigation is to find “Good Accounting Practice” is being
adhered to in the preparation of the financial statement and its benefits. The researcher’s aims at achieving this by
conducting special investigation on the
requirements of the accounting standard and then relates it to the activities
of preparing financial statement at Guinness (Nig) Plc.
1.4 PURPOSE OF STUDY
The
objective of accounting and financial statements is to provide reliable
information about the economic resources and obligation of the business
enterprises. This information is
important in order to evaluate the company’s strengths and weaknesses. Its information indicates the various
resource based available to export opportunities and make future progress.
In summary
therefore, the account gives information about the economic resources and
obligation of a business enterprises, which is needed to form a judgment about
the ability of the business to survive, grow, adapt, and prosper a mid harsh
economic conditions.
Another
major purpose is that of providing information about the change in the net
resources of the business organization, that is resources less obligations.
If these
objectives of accounting are to be achieve then the financial statements must
be understood by its readers or users.
This would only be possible if, they are prepared in accordance with the
generally accepted accounting principles.
Those principles are derived from authoritative guidelines and
standards.
Thus, the
overall objective of research is to unveil the benefits or usefulness of the
accounting standards in published financial statement oat Guinness (Nig) Plc.
Other
objectives or purposes of the study includes:
a. The effects of the
standards on the Nigerian economy
b. To determine the extent of
compliance of the financial statement in the accounting standards.
c. The benefits or uses of the
standards in other areas like students and lecturers.
1.5 RESEARCH QUESTION
The
researcher formulated the following research questions to enable her carry out
this research work:
1. What are
the effects of accounting standards on the Nigeria economy?
2. To what
extent has the Nigerian companies complied with accounting standards in the
preparation of financial statement?
3. what are
the benefits of the use of accounting standards in other areas of the economy?
4. How
significant is accounting standards in the preparation of financial statement?
1.6 SIGNIFICANCE OF THE STUDY
The
accounting standards are developed to ensure a high degree of standardization
in the published financial statements.
They provide the necessary information about low accounting information
should be prepared, presented on order to enhance the value of its contents and
facilities thorough understanding. The
significance of this study to the academic world cannot be over-emphasized as
this topic is becoming more important to students of accounting and allied courses
and they are usually subject of examinations.
For example, many examination questions of Institute of Charted
Accountants of Nigeria (ICAN) and other bodies like the Institute of Bankers
are directly based on the contents of these standards and their applications in
preparing financial statements.
This study
is intended to be benefit to the “prepares and users” of accounting information
who interpret and proper understanding of the financial statement and use the
information to derive decision in making managerial decisions for the interest
of the organization.
This study
is also intended to highlight the significance of accounting standards in the
Nigeria economy.
One most
important significance of this study is revealed to the management of Guinness
(Nig) Plc, Enugu City on the importance and economic effect of applying
accounting standards in preparation of financial statements and also to act as
guide to the accounting staff of the organization, its usefulness and
compliance procedures. Infact, this work
would be very valuable to all accounting officers in their task of preparing
financial statements.
Finally,
this study would also serve as reference literature to further researchers on
usefulness of accounting standards.
1.7 STATEMENT OF HYPOTHESIS
Hypothesis
according to O.K. Olakunori (1997) “is a statement which guides an
investigation by providing a tentative solution to the research problems. After
the research problem has been stated, the next thing to do in the research
process is to give focus on direction to its solution.
Also, Orji
.J. (1996) said that hypothesis is a proposition put forward as a basis for
reasoning a supposition formulated from providing data and presented as
temporary explanation of occurrence as in science in order to establish a basis
for future research.
In order to
analyse the usefulness of Accounting Standards in the preparation of financial
statements of any firm, considering the validity and reliability of the
information gathered the following hypothesis were formulated.
1. H0:
Accounting standards have not played useful role in the
preparation
of financial statement of the company.
HA: Accounting standards have played useful role
in the preparation of financial statement of the company.
2. H0:
Accounting standards have no benefit in the Nigerian economy.
HA: Accounting standards have benefits in the
Nigerian economy.
3. H0:
Accounting standards does not aid the users of financial
statements
to understand the financial statement to get better understanding of it.
HA: Accounting standards aid the users of
financial statements to understand the financial statement to get better
understanding of it.
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