IMPACT OF ACCOUNTING STANDARDS AND FINANCIAL REPORTING (A SURVEY OF LISTED BANKS)
Abstract
The study examines the impact of accounting standard on financial reporting on Nigerian financial institutions. The broad objective of the study is to ascertain if there is relationship between accounting standards and the content and presentation of financial statements and also to find out if financial reporting information has a positive impact on the effective management of Nigeria banks. The local standards do not cover all the aspects of financial reporting encountered by prepare of financial statements. The random sampling technique was used in selecting a sample size of l4 banks out of all banks quoted on the Nigeria Stock Exchange as at third quarter of 2015. The survey design was adopted in this study and a total number of 50 questionnaires were administered but 47 copies were returned completely. The t-statistics was adopted in carrying out the analysis of data. From the analysis of data collected, the result reveals that there is a positive relationship between accounting standards, its contents and presentation of financial statement in the banking sector. It is concluded that accounting standards have improved Nigerian banks on how they can prepare financial statement and presents it in line with the Companies and Allied Matters Act (CAMA) 2004 and other relevant accounting standards (IAS and SAS). Based on these findings, some recommendations among others were made that proper accounting standards be put in place by the relevant accounting standard setting bodies so as to ensure the preparation of high quality financial report or statement in the Nigeria banking sector.
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgments iv
Abstract v
Table of Contents vi
Chapter One: Introduction 1
1.1 Background to the Study 1
1.2 Statement of Problem 5
1.3 Research Questions 5
1.4 Objectives of the Study 6
1.5 Statement of Hypotheses 6
1.6 Significance of the Study 8
1.7 Scope of the Study 8
1.8 Limitations of the Study 9
1.9 Definition of Terms 10
Chapter Two: Review of Related Literature 11
2.1 Introduction 11
- The Financial Reporting Council of Nigeria (FRCN) 11
2.2.1 Objectives of Financial Reporting Council of Nigeria
(FRCN) 12
2.2.2 Membership of Financial Reporting Council of Nigeria 12
2.2.3 The Functions of the Financial Reporting Council of
Nigeria (FRCN) 14
2.2.4 Appointment of the Chairman of FRCN Board 14
2.2.5 Powers of the Council 17
- The International Accounting Standard Committee (IASC) 20
2.3.1 Why are International Accounting Standards necessary
in Nigeria? 25
- International Financial Reporting Standard 27
2.4.1 Benefits of Adoption of IFRS 28
2.4.2 Challenges to the Adoption of IFRS 29
2.4.3 Emerging Countries Challenges 30
2.5 The Role of the Users of Financial Statements in the Development of Standards 30
2.6 Financial Reporting: Meaning of Financial Reporting 31
2.7 Objectives of the Financial Reporting 32
2.8 Qualitative Characteristics of Reporting 33
2.9 A True and Fair View/Fair Representation 36
2.10 The Element of Financial Statement 36
2.11 Users of Accounting Information and their Information
Needs 37
Chapter Three: Research Methods and Design 41
3.1 Introduction 41
3.2 Research design 41
3.3 Description of the Population of the Study 41
3.4 Sample Size 42
3.5 Sampling Techniques 42
3.6 Sources of Data Collection 42
3.7 Method of Data Presentation 43
3.8 Method of Data Analysis 43
Chapter Four: Data Presentation, Analysis and Hypotheses Testing 44
4.1 Introduction 44
4.2 Presentation of Data 44
4.3 Data Analysis 45
4.4 Hypotheses Testing 57
Chapter Five: Summary of Findings, Conclusion
and Recommendations 60
5.1 Introduction 60
5.2 Summary of Findings 60
5.3 Conclusion 61
5.4 Recommendations 61
References 63
Appendix I 66
Appendix II 67
CHAPTER ONE
INTRODUCTION
1.1 Background to the study
Section 335(l) of the Companies and Allied Matters Act CAMA 1990 as amended stipulates that the preparation of financial statement, shall comply with the accounting standards’ issued from time to time by the Nigeria Accounting Standard Board.
Financial statements are described as the end product of accounting transactions or economic events aimed at providing qualitative and quantitative financial information to evaluate and predict the performance of an organization to permit informed judgment and decision making, (Illaboya, 2005).
In Nigeria, the standard setting body was the Nigeria Accounting Standard Board (NASB) which is presently referred to as the Financial Reporting Council of Nigeria (FRCN) which was passed into law On 18 May 2011 and was signed into law on 20 July 2011. The financial reporting council of Nigeria like all standard setting bodies in the world is independent of the profession of accounting. The council identifies areas where a measure of uniformity is required so as to bridge the variation in reporting practices and ensure a high level of uniformity which is panacea to corporate compatibility.
The need for an accounting standard setting body in Nigeria became urgent when the Nigeria enterprise promotion decree was promulgated to transfer ownership of companies to Nigerians. Foreigners exploited the lack of uniform accounting procedures in valuing their equities in companies affected by the decree. Those companies, whose parents were resident outside Nigeria, followed the dictate of their parents. At the end of it all, there were as many accounting practices reflected in the account as there were companies in Nigeria (Nnadi, 2007).
Whenever an auditor challenged a company on the appropriateness of its accounting practices, management was usually quick to as the auditor to produce the law prohibiting such practice. The Nigeria accounting standard board presently known as the financial reporting council of Nigeria was therefore established in order to ensure that these conditions did not persist, (Nnadi, 2007).
The Nigeria accounting standard board (NASB) presently referred to as Financial Reporting Council of Nigeria (FRCN) has been the body responsible for establishing standards of accounting and reporting in the Nigeria business enterprises. The board help to ensure that the published financial statements are uniform in content and format and communicate precisely what they purport to convey. These standards are in effect rules governing the preparation of financial statements. Accounting standards issued by the board are essential because they lead to efficient allocation of resources in the economy such that more successful companies are better able to raise capital to finance their operations than the less successful one.
The development of new accounting standards involves a long process usually referred to as “due process”. The due process ensures that all interested parties get the chance to make some contributions towards the proposed standards. The process begins with the selection of an area of accounting to be standardized. An accounting problem must be sufficiently significant in terms of its effect on the financial statements. If problems do not create significant difficulties, the cost of the due process may be justifiable. Any individual or organization can write to the financial reporting council (FRC) to suggest an issue for standardization (Nnadi, 2007).
Accounting standard is a statement issued by the appropriate standard setting body locally or internationally on a specific area or topic in financial accounting, the acceptance and application of which is mandatory for prepares and users of financial statement, (Igben, 2004).
Accounting standards are issued at the international level by the International Accounting Standard Committee (IASC) while they are issued in Nigeria by the financial reporting council of Nigeria. The standards issued by the (IASB) are known as international accounting standard (IAS) while those issued by the (FRCN) are known as statement of accounting standard presently know as International Financial Reporting Standard (IFRS). Both IAS/IFRS are applicable except that if an IAS is inconsistent with an SAS, the IAS/IFRS would be inapplicable to the extent of the inconsistency. This implies that on any matter on which an IAS and an SAS make conflicting pronouncements, the SAS shall supersede the IAS in Nigeria (Igben, 2004).
1.2 Statement of Problem
Our national accounting standard (SAS) is partly based old IAS, some of which have since been amended or withdrawn by IASB. Furthermore, the local standards do not cover all the aspects of financial reporting encountered by prepare of financial statements. We think it is fair to admit that our standards are partly out of date and are not sufficiently comprehensive to form a basis for the preparation of high quality financial statements.
1.3 Research Questions
In order to achieve the objective, the following research questions are asked:
1. Is there any relationship between accounting standard and the content and presentation of financial statement?
2. Does financial reporting information has a positive impact on the effective management of Nigeria banks?
3. Does the neglect of financial reporting information have effect on the banking activities?
1.4 Objective of the study
The broad objective of this study is to find out the impact of accounting standards on financial reporting in Nigerian banks. The sub-objectives are to;
1. ascertain if there is relationship between accounting standard and the content and presentation of financial statements,
2. find out if financial reporting information has a positive impact on the effective management of Nigeria banks,
3. determine if neglect of financial reporting information have effect on the banking activities.
1.5 Statement of hypothesis
The following hypotheses are formulated in null (HO) and alternative (HI) forms.
Hypothesis One
HO: There is no positive relationship between accounting standard and the content and presentation of financial statements.
HI: There is a positive relationship between accounting standard and the content and presentation of financial statements.
Hypothesis Two
Ho: Financial reporting information has a negative impact on the effective management of Nigerian banks.
HI: Financial reporting information has a positive impact on the effective management of Nigeria banks.
Hypothesis Three
Ho: Neglect of financial reporting information will not have any effect on the banking activities.
HI: Neglect of financial reporting information will have effect on the banking activities.
1.6 Significance of the study
This study will be relevant to the following parties:
Business organization: Every business organization uses financial statement to communicate information about its performance, resources and obligation and interested parties. The report, are prepared in such away to meet different needs of the parties.
Bank Managers: It is expected that at the end of the research work solutions would be provided to the problems and recommendations on the content and presentation of financial statement and the influence of standards on financial statement in the Nigeria banking sector.
Shareholders: It will give more enlightenment to shareholders on the impact of accounting standards on their financial reporting and presentation.
Researchers: It will serve as a reference point for the future researchers’ interest.
1.7 Scope of the study
This study attempts to access and evaluate the impact of accounting standards on financial statements in the Nigeria banking sector. The study covers the Statement of Accounting Standard (SAS), the Nigeria Accounting Standard Board (NASB) now referred to as Financial Reporting Council of Nigeria (FRCN), the relevant International Accounting Standard Board (IASB) and the International Financial Reporting Standard (IFRS). The study is concentrated in Benin City, Edo State. The study is strictly within the time frame of 5 years (2011 to 2015). However, a sample size of 14 banks was used for effective result.
1.8 Limitations of the study
The following are the limitations encountered during the course of this project.
1. 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.
2. Inability to obtain necessary information due to administrative bottleneck, couples with the fact that some information were considered as confidential those do not encourage sound research.
1.9 Definition of Terms
1. Accounting: Is a principle that guides and standardizes accounting practices.
2. Financial Statement: Is a formal record of the financial activities and position of a business, person or other entity.
3. Financial Position: It is another name for balance sheet and it reports an entity’s assets, liabilities and the difference in their total.
4. Financial Reporting: This is the process of producing statements that disclose an organization’s financial status to management, investors and the government.
5. Comparability: The condition of related objects.
6. Reliability: The quality of being reliable, dependable or trustworthy.
7. Transaction: The act of conducting or caring out business negotiations, plans.
8. Management: The judicious use of means to accomplish an end.
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