THE EFFECTS OF ACCOUNTING CONCEPT AND CONVENTION ON THE PREPARATION OF FINANCIAL STATEMENT

ABSTRACT
The accountants in Nigeria have over the years through their professional body the Institute of certified Public Accountants of Nigeria championed the adoption of Public sector accounting standard in Nigeria. However much talking had been in boardrooms, conferences and seminars, it was only until 2014 when treasury, auditor general and Ernest and Young teamed up together to steer the IPSAS adoption in the Central Government that the implementation actually commenced. The research specifically assesses the effect of accounting concept and convention on preparation of financial statement in Nigeria since adoption and more specifically how the implementation of IPSAS has improved accountability, comparability and reliability of Public sector financial reporting in Nigeria. The study mainly focused on the IPSAS adoption in Central Government and forty-seven States Nigeria. The research used qualitative methodology through a questionnaire sent to accountants in the Government ministries and States in Nigeria. The population size for the study is Ministries and States under the central government of Nigeria. Data for the study was primarily and secondarily sourced. Data collected was then summarized, coded and tabulated using statistical package for social sciences software package (SPSS) version. Data containing the study results was then presented using pie charts, bar charts, and graphs. The study concluded that adoption of public sector accounting standards would improve accountability, comparability of financial statements and increase user satisfaction by enhancing their confidence on relying on them for economic decision making and therefore improving financial reporting in Nigeria.

CHAPTER ONE
INTRODUCTION
• Background of the study
Sound government accounting system is an essential ingredient of a country‟s economic development. Government accounting is commonly perceived as a bureaucratic and business unfriendly. Better accounting systems can quite readily lead to improvements in a government’s financial management. Effective government accounting makes it possible to manage the government‟s finances smoothly and provides audit trails to prevent and detect financial misconduct. However, the accounting system‟s contribution to the achievement of higher-order goals, such as poverty reduction, is necessarily indirect and long-term. The accounting system is in effect the “nerves of government” because it is the core of a government‟s financial command and control centre. A government accounting system can be rudimentary or sophisticated. A good government accounting system at the minimum keeps accurate financial scores, advanced government accounting system directs the attention of policy makers and managers to problem areas; and at its best, and a government accounting system provides information useful for decision making (IPSAS 2005).

The stakeholders, especially donors need an assurance that their funds are properly accounted for and have facilitated financial reforms. Fragmented and uncoordinated computerization has resulted in a plethora of systems that have increased the variations in how financial information is processed and presented, thereby increasing the already difficult task of meeting Government‟s statutory obligations for financial reporting.

According to a report of the Government of Nigeria on strengthening Government finance and Accounting functions 20 June 1997, the Accountant General‟s Department (AGD) with assistance from KPMG, who were commissioned by the then overseas Development Administration (ODA), undertook a review to assess the current functioning of the Accountant General‟s Department within the Government of Nigeria (GON). The factors which have been universally identified as affecting IPSAS includes;-The more correspondent the public administrators culture with the culture upon which the governmental accounting system is premised, the more easily change occurs; Support from leaders in the public sector, both political and within the bureaucracy, support from professional and academic bodies; establishment of intensive communication strategy; Willingness and qualifications of the staff required to develop and implement the accounting changes; consultation and co-ordination with the governmental entities that will apply the accrual accounting; estimation of the adoption costs is critical in determining the financing required for the implementation process; overcoming and tackling of some specific accounting issues in initial phase and building an appropriate information technology capacity (Ouda, 2004).

In poor countries, government accounting reform poses a moral dilemma. Because of its costs, such reforms compete with food for the hungry, medicine for the sick and clean water for urban slum dwellers. In such an environment, how can one justify spending money to improve the way a government keeps its accounts and produces annual financial reports? This moral predicament is resolved by the social benefits of government accounting. Government accounting itself does not reduce poverty.

Government accounting contributes to a country‟s socioeconomic development through its effect on public financial management and accountability. Effective government accounting makes it possible to manage the government‟s finances smoothly and provides audit trails to prevent and detect financial misconduct. In light of the pervasiveness and severity of government corruption in many developing countries (Rose-Ackerman, 1999), financial integrity assurance is a critically important function of their government accounting systems.

Accounting concept and convention
Accounting concept and convention are a full suite of standards, designed for the public sector set by an independent, international standard setter. IPSAS is held up as the best government accounting ideas that the global accounting profession has to offer. IPSAS therefore has become recognized benchmark for evaluating and improving government accounting in developing countries. IPSAS are primarily intended for adoption by developing countries. The World Bank for example has endorsed the use of IPSAS in accounting for its financial assistance to developing countries. IFAC believes that in order to change the paradigm for government reporting, governments should adopt the accrual-based IPSASs, set by the IPSAS Board. Over 40 Countries apply Accrual IPSAS (Kara, 2012).

In recent years, the IPSAS Board has addressed developing countries in two ways. First, it issued a set of comprehensive “cash basis IPSAS” in 2003 which were more closer to traditional Government Accounting practice and are less costly to implement. Secondly, the IPSAS board has issued the standard on the disclosure of external assistance under the cash basis of accounting. The cash basis standard excludes the recognition of grants receivable and loans payable, and other non-cash assets and liabilities (IFAC, 2005).

Preparation of financial statement
The public sector administration has been criticized in Nigeria and all over the world, tax payers want to see an efficient and effective functioning government and a government that is transparent, comparable and consistent with best practices and most importantly citizens want an accountable government. Externally the pressure for high quality public sector report is even more intense for developing countries who want to issue financial instruments in the financial markets. Further, there exist various crises in many developing countries especially in Africa; with government debt levels sitting at very precarious levels. It is therefore imperative that government finances need to be managed very carefully. Many practioners believe this can be achieved by adoption of IPSAS (Ouda, 2004).

Annual financial reporting to the public is not the only function of a government‟s accounting system; the accounting system is responsible for producing reports in response to requests by department managers, political executives, and parliamentary committees or members. IPSAS regards these internal “special purpose reports” as outside of its scope and emphasizes only on the outputs of a government‟s accounting system, paying little attention to its “through-puts” (operating procedures) and inputs. Business firms annually prepare consolidated financial statements under the accrual basis, and there is no reason why governments should not do the same. Consolidated financial statements cover a primary organization and its subsidiaries in which the primary organization has a majority ownership interest. In public sector consolidation of Government financial statements will incorporate financial statements of States and ministries.

• Problem Statement
The conceptual foundation of corporate financial reporting is the theory of the firm that emphasizes managers as agents of the owners of the firm. On the other hand, government accounting needs a broader theory of accountability, which can be derived from Herbert Simon's organization theory (1945). When applied to the public sector, the substance of the theory states that a variety of stakeholders have a vested interest in a financially viable government. Their incentive to use a government's financial statements is their desire to know the amount, timing and degrees of uncertainty of the benefits they expect to receive from government. General purpose financial reporting reduces the information asymmetries between the stakeholders and government officials in control of government financial accounting system. Standard setting is therefore a political process with increasing participation by financial statements users.

The last few years have seen dramatic development and changes on the International standards setting scene. There has been rapid adoption of IPSAS in a number of countries which previously had their own National standards and financial reporting framework. A number of developing countries have either adopted or are in process of adopting IPSAS standards including but not limited to Southern Africa, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. There is therefore a need to review this process with a view of comparing and contrasting various implementation approach adopted by these countries and development of a framework for adoption of IPSAS in these developing countries.

According to (Hamisi 2010), Nigeria it is widely acknowledged that there are fundamental problems that currently inhibit the efficiency and effectiveness of the GON‟s finance and accounting functions. This is due to poor performance of basic financial functions, poor supervision, inadequate financial information and decision support, poor staff motivation and attitudes to accounting and accountability. These inherent problems have suggested as contributing to the slow progress by the Government of Nigeria in implementing its Public sector reforms in Particular the IPSAS compared to other Countries of the World. The consequences are lack of management information for decision support; lack of confidence in the information is available because it is not compatible with the Donors and other Partners, lack of credibility and generally overall poor performance. It is therefore necessary to carry this study in order to understand the factors which have contributed to these shortfalls with the current system Reporting/Accounting.

The public has always demanded a more relevant and reliable financial statements from central Government, a financial statements which captures and encapsulates all useful information required by various users of these financial statements. The adoption of IPSAS concern very important matter because it improves the capacity of governments to provide the legislative bodies, citizens, media, Taxpayers, donors, employees and other stakeholders with understandable, relevant, reliable, and comparable financial statements. Therefore, the study seek to answer the following research question: what is the effect of the implementation of the IPSAS in the preparation of financial statement in Nigeria?

• Research Objectives
The main research objective of the study is to determine the effect of the implementation of the Accounting concept and convention in the preparation of financial statement in Nigeria.

• Research Questions
• Does IPSAS contribute to realistic budgeting in the public sector?

• Does IPSAS enhance information accountability for the general public?

• Research Hypothesis
H0: Quality of financial report has a significant joint relationship with transparency, financial statement disclosure, comparability and timeliness.

• Significance of the Study
The study would provoke thought on aligning financial reporting to Government format and presentation of Annual estimates of revenue and expenditure for ease of comparison and to ensure that funds are prioritized towards the achievement of organization core mandate and realization of key results areas under vision 2030 flagship projects.

The study on harmonization of public sector reporting would go a long way in improving the Public Finance Management principles and reporting guidelines of public resources by critically examining the generally accepted accounting and financial standards for maintenance of proper books of account for government and prescribe quality control procedures. It would also examine the prescribed formats for financial statements and reporting by all state organs and public entities with an intention of identifying its strengths and weaknesses.

The adoption of IPSAS concern very important matter because it improves the capacity of governments to provide the legislative bodies, citizens, media and other stakeholders with understandable, relevant, reliable, and comparable financial statements; this study therefore will improve the quality of financial accountability, governance and preparation of financial statement. In addition, this study would improve the public financial management and decision-making of the government by making Government accounting more transparent and improving its governance framework. The study would provide chronological history of the adoption path of IPSAS in Nigeria, thus providing the historical perspective of IPSAS adoption in Nigeria.

1.7 Limitations of the Study
The study had no control of other variables that may affect financial reporting.

Also the researcher was short on time as he was engaged in other academic works in school.

Finances too was a great challenge in carrying out this work, mainly on transportation to the selected organization.

1.8 Scope of the Study
The study was limited to business organizations in Lagos state. The respondents for the study include accountants and managers. The study focused on IPSAS and financial statement reports. The study used questionnaires, interview schedule and observation checklist to collect data from the respondents The findings of the study cannot be generalized to other parts of the country unless a similar study is done in areas with similar characteristics.

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Item Type: Project Material  |  Attribute: 77 pages  |  Chapters: 1-5
Format: MS Word  |  Price: N3,000  |  Delivery: Within 30Mins.
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