A Comparative Analysis of the Public and Private Sector's Financial Reporting Practices in Nigeria

BAYERO UNIVERSITY, KANO.

FINANCIAL REPORTING A Comparative Analysis of the Public and Private Sectors Financial Reporting Practices in Nigeria

OLUSEGUN OLOWU AMOS

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A COMPARATIVE ANALYSIS OF THE PUBLIC AND PRVATE SECTORS FINANCIAL REPORTING PRACTICES IN NIGERIA

BY

OLUSEGUN OLOWU AMOS SMS/06/ACC/04040

BEING A RESEARCH WORK SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, BAYERO UNIVERSITY KANO, IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF BACHELOR OF SCIENCE (B.sc) IN ACCOUNTING

FEBRUARY, 2011

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A comparative analysis of the public and private sectors financial reporting practices in Nigeria

A COMPARATIVE ANALYSIS OF THE PUBLIC AND PRVATE SECTORS FINANCIAL REPORTING PRACTICES IN NIGERIA

BY

OLUSEGUN OLOWU AMOS SMS/06/ACC/04040

BEING A RESEARCH WORK SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, BAYERO UNIVERSITY KANO, IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF BACHELOR OF SCIENCE (B.sc) IN ACCOUNTING

FEBRUARY, 2011

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APPROVAL PAGE

This project title “ A Comparative Analysis of the Public and Private Sector Financial

Reporting Practices Practices in Nigeria” has been carefully read and approved as adequate in scope and contents for acceptance in partial fulfilment of the requirements for the award of a Bachelor of Science (B.sc) Degree of Bayero University, Kano Nigeria.

PROJECT SUPERVISOR

DATE

PROF. KABIRU ISA DANDAGO

PROJECT COORDINATOR

DATE

DR JUNAIDU MUHAMMAD KURAWA

HEAD OF DEPARTMENT

DATE

DR BASHIR TIJJANI

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DEDICATION

This research is dedicated to God Almighty who has seen me through the course of my studies. And also to my beloved mother who in all she could contributed generously towards the successful completion of this program and who pioneered my enrolment to acquire western education.

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DECLARATION

I hereby declare that this project title “a comparative analysis of the public and private

sectors financial reporting practices in Nigeria ” is solely a handiwork of my effort and has been submitted to the Department of Accounting, Bayero University Kano for the award of Bachelor of Science (B.sc) Degree in accounting.

OLUSEGUN OLOWU AMOS

DATE

SMS/06/ACC/04040

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ACKNOWLEDGEMENT

The heavens declare the glory of God; and the firmament showed his handiwork. To God be the glory great things he hath done. My utmost vote of thanks goes to God Almighty, the maker of heavens and the earth. Words alone cannot show my deepest appreciation to the Lord; for without God, there wouldn’t have been this work; to Him alone all glory, honour and adoration be ascribed unto. My special thanks also goes’ to my beloved mother, MRS JANET OLOWU, a mother of five, a woman of virtue and uprightness. Mother, without you I wouldn’t have come this far. I truly appreciate all that you have done. Words alone cannot quantify how much you mean to me. May God in his mercies reward you and bless you, and make you live to enjoy the fruits of your labour. I also want to show my appreciation to my dear Father, Mr. AMOS AKINOLA OLOWU; your prayers and support has made me. Daddy you are the best, how lucky I am having a father like you. Father I love you, and thank you. My appreciation again goes to my supervisor, Prof. KABIRU ISA DANDAGO who has in everything made tremendous impetus towards the successful completion of this project, to you sir, I owe vote of thanks. I will not but acknowledge the effort of my beloved elder sister, MRS GRACE OMOKORE for her tremendous encouragement and support – financially, morally and spiritually. I just want to say big THANK YOU. May God increase you abundantly and bless you in all your ways. I want to say thank you to the rest members of my family; my two other elder sisters, DORIS COMFORT OLOWU and YETUDE OLOWU; and my elder brother, AYODEJI MICHAEL OLOWU for all their supports and encouragement, I say THANK YOU. I cannot brush things over without acknowledging the effort of my former level coordinator Mallam HASSAN ZUBEIRU; your contributions will never be forgotten. THANK YOU SIR. To MALLAM ISHAQ ISMAIL, I want to say big THANK YOU to, for your guidance at the early stages of this project. And also to HAJIYA HANNATU SABO 6


AHMED and MALLAM B.B IBRAHIM for their assistance, May God in his riches and glory continue to favour you all in your doings. My appreciations as well goes to my friends, SIKIRU OLAIYA SALAUDEEN, NURUDEEN MUSA MASHI and UZOCHUKWU JOSHUA OJUKWU, you guys are close to my heart and dear to me. I just want to say THANK YOU to you all. And to all of my friends and course mates, space may not permit me to start mentioning all of you one after the other, but i truly appreciate all of you and i say THANK YOU.

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ABSTRACT

Financial reporting has been the order of the day in the financial spheres in recent times. It is a means of communicating the performances of enterprises to all those who have stakes in the organizations. This study sought to do a comparative analysis of the public and private sectors financial reporting practices in Nigeria. The study has adopted the descriptive analysis to come up with a powerful analysis of the both sectors’ financial reporting practices. The study found out that, government institution use both the cash base and accrual base accounting systems in reporting financial information (the ratio of usage found by this study in the public sector is to a 1:1 bases, i.e. for every one public sector enterprise that uses cash base accounting system, there is equally one public sector entity using the accrual base accounting system). Whereas some public entities adhere to the provisions of the Statement of Accounting Standards (SASs) in the preparation of financial statements, others comply with the provisions of the International Public Sector Accounting Standards (IPSASs). In the private sector, however, financial statements are prepared in accordance with the statement of accounting standards which is applicable in Nigeria and in manner required by the Companies and Allied Matters Act, the Bank and Other Financial Institutions Act (BOFIA) and relevant CBN circulars. At some specific years, some listed companies contravened some of the provisions of the Banks and Other Financial Institution Act (BOFIA). Some companies were found to have adopted the International Financial Reporting Standards (IFRSs) in a bid to further strengthen the corporate governance standards and enhance transparency and disclosure in financial reports.

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TABLE OF CONTENTS Pages

Title page

i

Approval page

ii

Dedication

iii

Declaration

iv

Acknowledgement

v

Abstract

vii

CHAPTER ONE

INTRODUCTION 1.1

Background to the Study

1

1.2

Statement of the Problem

4

1.3

Objectives of the Study

6

1.4

Research Questions

6

1.5

Significance of the Study

7

1.6

The Scope of the Study

8

1.7

Limitations of the Study

9

1.8

Definitions of key Terms

10

CHAPTER TWO

CONCEPTUAL FRAMEWORK AND LITERATURE REVIEW 2.1

Introduction

12

2.2

Conceptual Framework of Financial Reporting

12

2.2.1

The concept of financial reporting

12

2.2.2

The concept of financial statements

14

2.2.3

Users of financial statements

15 9


2.3

Generally Accepted Accounting Principles (GAAP)

15

2.4

Public Sector Financial Reporting in Nigeria

17

2.4.1

Legal framework of government in Nigeria

20

2.4.2

Objectives of government accounting

23

2.4.3

Global trend in public sector financial reporting

25

2.5

Private Sector Financial Reporting in Nigeria

26

2.5.1

Objectives of private sector financial reporting

27

2.5.2

The regulatory aspect of the private sector financial reporting in Nigeria

27

2.5.3

The Companies and Allied Matters Act

29

2.5.4

Statement of Accounting Standards

31

2.5.5

International Financial Reporting Standards

31

CHAPTER THREE

METHODOLOGY 3.1

Introduction

34

3.2

The Population of the Study

34

3.3

Sample Size and Sampling Techniques

34

3.4

Sources and Methods of Data Collection

35

3.5

Method Data Presentation and Analysis

36

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION 4.1

Analysis of Administered Questionnaires

37

4.2

Aligning public sector financial reporting practices in Nigeria

38

4.3

Assessment of Financial Reporting Practices in Nigeria

41

4.3

The Need to Adopt International Financial Reporting Standards

43

CHAPTER FIVE 10


SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 5.1

Summary

47

5.2

Conclusion

48

5.3

Recommendations

49

BIBLIOGRAPHY

50

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CHAPTER ONE INTRODUCTION 1.1

BACKGROUND TO THE STUDY

It is an undisputable fact that the major aim of financial reporting is the conveyance of relevant information useful to the various categories of users of such information. Financial reports must be clear and understandable. They are based on accounting policies which vary from enterprise to enterprise, both within a country and among countries. Whatever the case, accounting should contain facts that are comprehensible to those who have a reasonable understanding of business economic activities and willing to study the information with reasonable diligence. An important component of the information system of an economy is financial reporting, through which an enterprise conveys information about its financial performance and condition to external users, often identified with its actual and potential claimants. Financial reporting is often used as an umbrella term to cover both financial statements themselves and the additional types of information. Financial reporting and international accounting standards are hot topics at the moment. Most of the focus has been on the private sector and the fall-out from the massive commercial collapses that have recently occurred. However, the public sector has its own debates raging on the adoption of a universal public sector accounting standard and a shift to accrual basis of accounting. Most people by now accept that it is desirable for accounting standards to be harmonized for both public and private sectors as much as possible around the world. But there is no unanimous agreement on which standards and basis to be used as a benchmark or how similar public sector accounting concepts and standards should be to their private sector counterparts (Ado, 2009, p.31). 12


There are laws and bodies for the regulation of accounting, financial reporting, and auditing requirements of companies, including differential financial reporting requirements for small companies in Nigeria, however, the accounting and auditing practices in Nigeria suffer from institutional weaknesses in regulation, compliance, and enforcement of standards and rules (World Bank and International Monetary Fund, Report on the Observance of Standards and Codes Accounting and Auditing, 2004). The body that has the primary responsibility of regulating financial reporting practices in the private sector in Nigeria is the Nigerian Accounting Standard Board (NASB) and has to date (from 1982 – 2010), issued 30 standards – known as Statements of Accounting Standards (SASs). According to an assessment of accounting and auditing environment in Nigeria conducted by the World Bank in 2004, although Nigerian Statement of Accounting Standards (SASs) have been developed based on the International Financial Reporting Standards (IFRSs), SAS have not been reviewed or updated in line with current IFRS, and in many cases there are no equivalent SAS to current IFRS. Compliance with more lenient national accounting standards is achieved, however with some exceptions. These factors, as well as poor accounting education and training, have contributed to weaknesses of the financial reporting regime (Nigeria – Accounting and Auditing ROSC, 2004, p.12). Financial reporting in the public sector is mostly based on the cash-based accounting system. Thus, comparison between the financial performance of the public sector and that of the private are difficult to make because the public sector organizations are multi-purpose, their basis of accounting is different from that of the private sector, and have different sources of finance (Adams, 2006, p.1). The president of the Institute of Chartered Accountants of Nigeria (ICAN), Prof. Owuama in a news report dated Sept. 9, 2010, argues that, the cash basis of accounting has been a factor of money laundering, terrorism financing and corruption. And that, with cash accounting system the complete picture and real financial 13


position of the nation are often unknown at any particular point in time (African Newspaper of Nigeria, Sept. 9, 2010). Public sector financial reporting is regulated by the International Public Sector Financial Reporting Standards (IPSASs) issued by the International Public Sector Accounting Standards Board (IPSASB) of International Federation of Accountants (IFAC). In Nigeria, there is no body responsible for issuing standards for public sector financial reporting. Hence, financial statements (perhaps at the federal level) are prepared by the Accountant-General of the federation (or of the state, as the case may be) based on the prescription of the Minister/Commissioner for Finance. Financial reporting in the public sector is regulated by the Constitution of the Federal Republic of Nigeria 1999 as amended, the Finance (Control and Management Act) of 1958, Audit Ordinance Act of 1956, and Financial Regulations issued from time to time by the Minister for Finance (Anyafo, 2000).

Companies in Nigeria prepare financial statements on the accrual basis of accounting. The main legal framework for corporate accounting is the Companies and Allied Matters Act (CAMA) 1990; which stipulates the requirement for the formation/registration of companies, how companies are to conduct their affairs, the type of accounting records and financial statements that is required of companies, how the life of companies may be brought to an end, and so on. It requires that financial statements comply with the Statement of Accounting Standards (SAS) issued by the Nigerian Accounting Standards Board (NASB) and that the audit be carried out in accordance with generally accepted auditing standards. In addition to CAMA 1990, other statutes have been enacted by government to

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govern economic activities in specialized areas of the Nigerian economy (Nigeria – Accounting and Auditing ROSC, 2004). The Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange regulate financial reporting and disclosures by listed companies on the Nigerian Stock Exchange Market. The Central Bank of Nigeria is the main statutory regulator of banks and nonbanking financial institutions under the terms of the Banks and Other Financial Institutions Act (1991). The National Insurance Commission regulates financial reporting practices of insurance companies under the Nigerian Insurance Act of 2003 (Nigeria – Accounting and Auditing ROSC, 2004) However, the intent of this study is to compare public sector and private sector financial reporting practices in Nigeria. Despite the current trends in financial reporting systems, financial information users and other stakeholders needs to be abreast of the progress of their various stakes, either in the public or the private sector. This will, perhaps, enable managers in the public sector to measure their performances using private sector models. The study will enable the local standard setting body to better focus on the adoption of the International Financial Reporting Standard (IFRS) to regulate financial reporting practices and to ease global financial information uses, thus, culminating into the adoption of the IPSASs in the Nigerian public sector.

1.2

STATEMENT OF THE PROBLEM

Financial statements are prepared in accordance with the Statements of Accounting Standards (SASs) which are based on the International Financial Reporting Standards (IFRSs); however, differences exist. Although SASs issued by the Nigerian Accounting Standards Board (NASB) are based on IFRSs, they have not been updated to conform with the revisions made to IFRSs, and do not cover some accounting areas. Besides this, a review of published financial statements in Nigeria, initiated by the World Bank and the 15


International Monetary Fund in 2004 revealed some compliance gaps, meaning there are differences between local accounting standards and actual practices in the private sector, thus culminating into noncompliance with the SASs in Nigeria (Nigeria – Accounting and Auditing ROSC, 2004).

Secondly, the usefulness of the accrual-based financial information is still the subject of ongoing debate in the Nigerian public sector. The need to review financial reporting system in the Nigerian public sector has been a pressing issue for many years now; this is with a view to align the system with global best practices.

Aruwa (2004) opines that the use of the cash-based accounting system in the Nigerian public sector in presenting economic information is fundamentally flawed, and its establishment has been argued by some interests to be a factor used for fraud perpetration, money laundering, terrorism financing and corruption. Henceforth, there is the need for a transition from cash accounting to accrual accounting in the public sector. Ngwu (1999) also argues that the cash basis accounting system is inadequate for good financial management; hence, the accrual accounting provides for a better perspective of performance management of public funds and presents a more complete basis for assessment of the financial performance of activities. More so, comparison of performance is mostly not possible in the public sector using private sector models – since the private sectors use accrual basis of accounting while the public sector mostly uses the cash basis. The resultant consequences of insisting on the cash basis of accounting in the public sector will perhaps retard the economy’s financial reporting system, as this will leave Nigeria backward in terms of global practices. And also, polluted public officers who already have 16


the intention of looting public money will be having more edge to do just that which they have purported. Likewise in the private sector, what will be evident is lack of confidence in the financial statements of local companies by international investors who may want diversify their investment portfolios, comparability may not be feasible if the IFRS is not fully adopted by both the public and private sector organizations in preparing their financial statements.

1.3

OBJECTIVES OF THE STUDY

The aim of this study is to compare financial reporting practices in the private and public sectors in Nigeria. The specific objectives the study seeks to achieve are:

a. To find out how public sector financial reporting practices in Nigeria could align with global best practices.

b. To assess the financial reporting practices of private sector companies and public sector entities as against the generally acceptable accounting principles.

c. To explain and re-emphasize on the need for adopting IFRSs and the accrual-based accounting system in the Nigerian public sector, in the process of presenting economic information to users and other stakeholders.

1.4

RESEARCH QUESTIONS

This study has sought to do a comparative analysis of the public and private sectors financial reporting practices in Nigeria and has been guided by the following research questions to help facilitate the attainment of the research objectives.

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a. Could financial reporting in the Nigerian public sector be aligned with global best practices?

b. Do private and public corporations in Nigeria comply with set standards and pronouncements (GAAPs) in reporting financial information?

c. Are there needs to adopt the IFRSs and IPSASs accrual-based accounting system for financial reporting by both companies and state owned entities in Nigeria?

1.5

SIGNIFICANCE OF THE STUDY

The significance of this study has slightly been enumerated in the background to the work. The study purports to benefit accountants preparing financial statements in both the private and public sectors; managers in the public sector; prospective international and local investors in both sectors; future researchers; and standard setters. Accountants: public sector accountants and private sector accountants will benefit from this study, because the study will bring a better understanding of the need to have uniform global accounting standards which will perhaps make them global accountants. It will also help them appreciate better, the need to adhere strictly with the application of these standards in practice. Managers in public sector: this study seeks to create an environment where public sector managers will be able to evaluate and compare their performances using private sector models as basis for comparison. Investors and Stakeholders in both sectors: this study will somehow emphasize on the need to have a universal accounting standards, which is hoped to bring about international investors from all over the countries of the world to operate in the Nigerian market. 18


Future Researchers: the research is to be of better use to further researchers who may want to conduct further studies on financial reporting practices in either the public or private sectors in Nigeria; the findings of this study should be a springboard for them. Standard setting agencies – like the Nigerian Accounting Standard Board (NASB) – Federal Government, State Governments and Local Governments in Nigeria, interested in accounting and reporting practices and responsible for establishing financial reporting requirements will also benefit from this study in a way that will ensure quick adoption of IFRSs, and towards visualizing the NASB’s objectives of 2012 – that is, towards ensuring that all quoted companies in Nigeria and other significant public interest entities that are yet to be quoted, but can cope with IFRS, will fully converge to the application of the IFRS. While other medium companies as well as small enterprises will join the train through time; hopefully by 2014.

1.6

THE SCOPE OF THE STUDY

The study will be restricted to the comparative analysis of the public and private sector financial reporting practices in Nigeria. There are quite a number of problems surrounding financial reporting practices in both sectors of the Nigerian economy; considerable exertions will be made to address these problems. Henceforth, the focus of this research is on how financial performances of government entities are disseminated to those interested in the way the entities are managed, and how those of privately owned organisations are equally conveyed to their stakeholders. For the purpose of this study, a period of three (3) years, i.e. from 2007 to 2009, will be considered, in order to evaluate the financial reporting practices of companies and organizations both in the public and private sectors, to see whether or not reporting practices has been in compliance with stipulated standards and requirements for the periods chosen. 19


1.7

LIMITATIONS OF THE STUDY

This study is likely to encounter funding problem. A research of this kind demands much to be invested. In some cases, research projects are funded by research institutions, corporate organisations, governmental agencies and many other non-governmental organizations – a good example are World Bank, International Monetary Fund (IMF) etc. Most at times, these projects are commissioned projects, but since this study is an academic research, and not a commissioned one, the cost involve could discourage an in-depth comparative analysis of public and private sectors financial reporting practices in Nigeria. These costs range from cost of transportation to gather data (both primary and secondary) from the targeted subjects – since most companies’ Head Offices are not situated in Kano state, cost of assessing online articles, journals as well as other authoritative documents, and cost of posting questionnaires to respondents. However, even with all these constraining factors, the researcher will resort to using the internet for sending the questionnaires via email to the respondents, scheduling online meeting with respondents where interview is necessary, try sourcing for funds from parents, brothers and relatives for meeting other costs involved. Another limitation that could confront this study is lack of adequate data. Since questionnaires will be sent via emails, the risk that the respondents will not disclose all information required, due to confidentiality, or the fair that the researcher wants to use the information for reasons harmful to the organization, is inevitable. And where they are so answered, the possibility that not all questionnaires sent will be received. In this case, the researcher will increase the sample size of the work, making provisions for those questionnaires that may probably bounce.

1.8

DEFINITION OF KEY TERMS

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Accounting period: this is a period for which a company prepares its account

showing the financial position and results of operations of the company as at that particular point in time. Accounting Policies: Accounting policies are specific bases used by a particular

business and regarded as appropriate to the circumstances of the business and suitable for the fair presentation of its results and financial position.

Accrual based accounting: this is an accounting basis under which revenue are

recorded when earned and expenditures are recorded as the result in liabilities is known or when benefits are received notwithstanding the fact that the receipt or payment of cash could take place wholly or partly in another accounting period. Cash-Based accounting: an accounting basis under which revenue are recorded only

when cash is received, and expenditures recorded only when cash is paid, irrespective of the fact that the transaction leading to the receipt or payment of cash now may have occurred in previous accounting period.

Financial reporting: financial reporting is a process whereby an entity prepares and

communicates economic information about the affairs of the entity for a particular period of time, usually annually, semi-annually or quarterly. IFRS: international financial reporting standards (IFRS), which are set of accounting

standards developed by the International Accounting Standard Board (ISAB) that is becoming the global standard for the preparation of public companies financial statements.

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SASs: these are set of accounting standards issued by the Nigerian Accounting

Standard Board (NASB) from time to time to govern and regulate financial reporting practices by all companies registered in Nigeria.

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CHAPTER TWO CONCEPTUAL FRAMEWORK AND LITERATURE REVIEW 2.1

INTRODUCTION

This chapter deals with the review of related conceptual literature on financial reporting, many of which suggest that, financial reporting is a process of disseminating information about the activities of an enterprise to the users of the information, to enable them make informed decisions and judgements about the performances of the reporting entity. The chapter also reviewed related empirical literature, studies that have been conducted in the area of financial reporting; these studies reveal that actual reporting practices in most organizations do not always comply with the set standards. It examined financial reporting in the corporate and public sector: and makes conclusion on the reviews done so far.

2.2

CONCEPTUAL FRAMEWORK OF FINANCIAL REPORTING

2.2.1

The Concept of Financial Reporting: Financial reporting, the predominant

occupation of the accounting profession is the process through which information about organizational performance and financial position is presented to the users. It is often believed to be precise and factual in its contents and, attested to by external person(s) (Independent Auditors) confirming its validity (Kantudu and Atabs, 2007, p.155).

Financial reporting is the process that creates stewardship assertions in the form of financial and non-financial business information statements reflecting the results of activities and transactions of an entity for a period of time (Anumaka, 2010). Anumaka further argues that financial reporting is to a large extent a studied assessment of the operational

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performance of an entity expressed in financial terms to reflect the economic exercise of fiduciary obligation.

According to Crockett (1996: p.56), “financial reporting covers the mechanism for providing information about the financial condition, performance and importantly, risk profile of firms to all potential users. It is, therefore one of the most basic elements of the financial infrastructure”.

Kieso and Weygandt (1980) defies financial reporting as that branch of accounting which focuses on the general purpose report on the financial position and results of operations known as financial statements, which provide a continual history quantified in money terms of economic activities that change these resources and obligations. The process which culminates into preparation and presentation of financial reports relative to the enterprise as a whole; for use by parties both external and internal to the enterprise, is referred to as financial reporting. Similarly, accounting has been defined as the process of identifying, measuring and communicating socio-economic information to permit informed judgements and decisions by the user of the information (Glautier and Underdown, 1978).

Kieso and Weygandt (1980) state that the principal means of communicating financial information to those outside an enterprise are the financial statements. The financial statements most frequently provided are the balance sheet, the income statement of changes in financial position, and statement of changes in stockholders’ equity with corresponding appropriate footnotes disclosures.

Financial reporting essentially involves the preparation and issuing of financial statements. These are formal records of financial activities of entities showing their financial

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condition for a given period of time. They are usually expected to comply with regulatory and professional requirements.

Financial statements are defined to be a subset of financial reporting, but no limits are provided on a number of elements of financial reporting that one may include in financial statements, Dopuch and Sunder (1980). All of the accounting information developed within an organization is available to management. However, much of the company’s financial information also is distributed to people outside of the organization. These “outsiders” may include investors, creditors, financial analysts, labour unions, and the general public – even the company’s competitors. Each of these groups supplies money to the business or has some other interest in the company’s financial activities (Meigs et.al, 1996). The process of supplying general-purpose financial information to people outside the organization is termed financial reporting. In the United States and most other industrialized countries, publicly owned corporations are required by law to make much of their financial information “public” – that is available to everyone. These countries also have enacted laws to ensure that the public information provided by these companies reliable and complete (Meigs et.al, 1996).

2.2.2

The Concept of Financial Statements: Financial statements serve as a means for

assessing management's performance in terms of how efficient and effective or otherwise it had used available resources in the course of trying to achieve set goals. The degree of the usefulness of the financial statements as a tool for such assessment is dependent to a great extent, on the level of accuracy and reliability of the statements. The basic purpose of financial statements is to assist users in evaluating the financial position, profitability, and future prospects of the reporting entity.

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Meigs et.al (1996) suggest that, the principal means of reporting general-purpose financial information to persons outside a business organization is a set of accounting reports called financial statement statementss. The persons receiving these reports are termed the users of the financial statements.

2.2. 2. 2.3 3

User Us erss of th thee Fi Fina nanc ncia iall St Stat atem emen ents ts:: The list of users of financial statements is

inexhaustive. Each group examines the financial statements based on areas of their needs. The basic users include shareholders, board & management, regulatory authorities, creditors, suppliers, financial Analysts, researchers, prospective investors, etc. The users mentioned above are skewed towards the private sector. In the public sector they include executives (such as president of the country and state governors) and their advisers, top administrators of govern gov ernmen ments, ts, the civ civil il ser servic vicee uni union, on, the nat nation ional al ass assemb embly, ly, gov govern ernmen mentt oth other er tha than n the repo re porti rting ng go gove vern rnme ment nt,, fo forei reign gn fin finan anci cial al an and d no nonn-fin finan anci cial al in inst stit itut utio ions ns – su such ch as th thee Internationa Intern ationall Monetary Fund (IMF) (IMF) and World Bank, UN and UNESCO UNESCO etc. These users users expect the financial statements to contain information that would enable them among other things evaluate the performance and earning power of a business enterprise, compare its perfo performa rmance nce ove overr tim timee or wit with h oth other er ent enterp erpris rises es wit within hin the ind indust ustry, ry, pre predic dictt its fut future ure performance and continuity to enable them make investment decisions etc (Omorokpe, 2006: p.5).

2.3 2. 3

GENR GE NRAL ALLY LY AC ACCE CEPT PTED ED AC ACCO COUN UNTI TING NG PR PRIN INCI CIPL PLES ES (G (GAA AAP) P)

In deciding where to invest limited resources investors and creditors often compare the financial statements of many different entities. For such comparisons to be meaningful the financial statements of these different entities must be reasonably comparab comparable le – that is, they mustt be pre mus presen sentt sim simila ilarr inf inform ormati ation on in sim simila ilarr for format mat.. To ach achiev ievee thi thiss goa goal, l, fin financ ancial ial

26


statements are prepared in conformity with a set of “ground rules” called Generally Accepted Accounting Principles (GAAP).

Genera Gen erally lly acce accepte pted d acco account unting ing pri princi nciple pless (or GAA GAAP) P) are the “gr “groun ound d rul rules” es” for financ fin ancial ial rep report orting ing.. The These se pri princi nciple pless pro provid videe the gen genera erall fram framewo ework rk det determ ermini ining ng wha whatt information is to be included in financial statements, and how this information is to be presented. presented. The phras phrasee “gen “generally erally accepted accou accounting nting principles” principles” encom encompasse passess the basic objectives of financial reporting, as well as numerous broad concepts and many detailed rules; (Meigs et.al, 2003). The information that results from financial accounting activity is usually prepared by management manag ement – the very group whose whose succe successes sses and failur failures es are docum documented ented in the financial reports of an accounting entity. This is why outside parties or stakeholders usually want to be assured that the information they receive is objective and is consistently presented. Objective here refers to whether the information fairly depicts what actually happened. Consequently, GAAPs were developed for collec collecting ting and report reporting ing financial information information to extern external al users. Busine Bus iness ss and not not-fo -for-p r-prof rofit it org organi anizat zation ionss us usual ually ly eng engage age the serv service icess of ind indepe epende ndent nt Chart Ch arter ered ed Ac Acco coun untan tants ts to de deter termi mine ne an and d ce cert rtify ify th that at th thes esee pr prin inci cipl ples es ha have ve fai fairl rly y an and d consistently applied in reporting the financial activity of the organization (Omorokpe, 2003). In the words of Omorokpe (2003), GAAPs are broad concepts or assumptions or guidel gui deline iness and det detail ailed ed pra practic ctices, es, inc includ luding ing all con conven ventio tions, ns, rul rules es and pro proced cedure uress tha thatt together make up accepted practices at a given time. The International Accounting Standards Committee (IASC), now IASB, recognizes three fundamental accounting assumptions underlying the preparation of financial statements and which are not necessary to disclose although there must be disclosure and an explanation if financial statements are not based on the assumptions (this is skewed towards the private 27


sector). These fundamental assumptions according to IAS 1 are the Going concern: which suggests that enterprise is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations. Secondly is the accounting assumption of Consistency: which assumes that accounting policies are consistent from one period to another. And lastly, the assumption of Accrual Basis: which states that revenues and cost are accrued, that is, recognized as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the periods to which they are related. This is also called ‘matching concept’ (Omorokpe, 2006: p.9). 2.4 2. 4

PUBL PU BLIC IC SEC SECTO TOR R FINA FINANC NCIA IAL L REPO REPORT RTIING IN IN NIGE NIGERI RIA A

The public sector is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal local/municipal (Wikipedia, 2010). The public sector of a sovereign nation nation compri comprises ses the govern governmen mentt and the organi organizati zations ons throu through gh which which the govern governmen mentt underta undertakes kes its functi functions ons.. These These are the Civil Civil Service, Service, Statut Statutory ory corpor corporati ations ons and other other government-controlled enterprise which provide public utility services (Anyafo, 2000). Government accounting as presently practised in Nigeria is based on cash basis of accounting and fund accounting. Cash basis of accounting recognizes transactions and events when cash is received or paid. It measures the overall financial results for a period as the difference between cash received and cash paid. It provides readers with information about the sources of cash raised during the period, the uses to which those funds were applied and the cash balance at the reporting date. The measurement measurement foci are cash balances balances and changes changes therein (Report on Standardization of Federal, State and Local Governments Accounts in Nigeria, 2002). 28


A close examination of the governments’ financial statements by the Technical SubCommittee of the Federation Account Allocation Committee reveals deficiencies in the existing financial reporting system. They found out that, governments financial statements are not only too many, but also disjointed, unrelated and lack summation. Consequently, they are cumbersome and very difficult to understand. Reporting requirement are also absent; the legal requirement is for the Accountant-General to prepare and submit to the Auditor-General the actual and budgeted expenditure as well as the revenue of a given year. The best approach to meeting this legal requirement had been a matter of choice by the Accountant-General. The end product is varied and numerous approaches by the Accountant-General, both at the State and Federal levels. Consequently, no meaningful comparison could be made. The present financial statement is a voluminous document of nearly over 350 pages of printed papers. The sheer volume adds to the delay in production which makes timely presentation of information totally impracticable. Understandably, the information was stale by the time it was produced (which is some cases ran into two or more years in arrears) and hence cannot be used for meaningful planning and decision making process. A cursory look at the financial statements reveals that the supporting sub-statements, both in formats and contents, have little or no use to many end users. The financial statements do not reach a broad range of constituents, because they are targeted at a small specialist audience. The statements do not provide the basic information that easily measures the stewardship role of our leaders. Thus activities are not summarized and adequately analysed to reflect the cost benefit received. There is lack of standards of what should be reflected in respect of certain items like Crown Agents, Foreign Account etc. Most of the Accounting concepts are ignored. The matching concept as a test of efficiency is not recognized. Revenues are not directly matched to their related expenditure. Materiality of transactions is not properly evaluated thereby allowing every transaction to have a separate sub-head of revenue/expenditure. Following from the 29


above, certain items such as capital assets, debtors and creditors are not effectively reflected in the financial statements. Essentially, this calls for additional disclosure requirements. The current financial statements contain many outstanding balances, such as some below-the-lines items e.g. Treasury Clearance Funds, etc, which are ought to have been written off considering their ages and nature in the accounts (Report on the Standardization of Federal, State and Local Governments Accounts in Nigeria, 2002). The public sector is made up of several statutory corporations and parastatals functioning within the confines of the government. The public sector can be said to consists of the Health sector, Agricultural sector, Educational sector, Civil Service, Annual reporting in the Agro-Sector parastatals, River basin development authorities are required to prepare and submit to the federal executive council, through the minister of water resources, not later than march 31 st in each year, a report in such a form as the minister may direct on the activities of the parastatal during the immediately preceding financial year and to include in such report a copy of the audited accounts of the Authority for that year end of the auditor’s report thereon (Anyafo, 2000) The financial reporting requirements of universities, polytechnics and tertiary-level collegiate institutions are usually spelt-out, unambiguously, in the enabling laws establishing each of them. Each institution is accorded certain financial powers and its governing council is authorized to perform specified financial functions in order to accomplish its prescribed mandate. Furthermore, a committee of council referred to as the Finance and General Purposes Committee is created and assigned some clearly spelt-out responsibilities. To ensure probity and accountability, the enabling statute makes a provision for appointment and duties of auditors (Anyafo, 2000).

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2.4.1

Legal Framework of Government Accounting In Nigeria: The public sector

accounting in Nigeria is rooted in a number of legal instruments, which sets the general framework for the total financial management, government accounting and financial reporting. The legal instruments at the federal level include: The Constitution of the Federal Republic of Nigeria, 1999, the Finance (Control and Management) Act), 1958, the Audit Ordinance No. 28, 1956; and the Annual Appropriation and Supplementary Appropriation Acts.

Anyafo (1994:1) notes that these legal instruments constitute the statutory bed rock upon which the government accounting manuals, treasury circulars, and federal financial regulations and states financial instructions are founded. However, financial regulations and financial instructions provide for the control and management of public finances at the federal level and for the audit of the accounts of individual states, respectively. The financial memoranda regulate the local governments’ accounting.

According to Oshisami (1992), the Constitution covers the following key areas in government accounting: The operation of funds, the external controls for operating the accounting system in terms of audit and investigations, and the appropriation procedure.

Finance (Control and Management) Act 1958 governs the management and operation of government funds. In addition the Act regulates the accounting system, the books of accounts to be maintained and the procedures to be followed in the preparation of accounts and government financial statements (Anyafo, 1994:79). Perhaps, the most important aspect of the Act is that it regulates the accounting format and basis of accounting for the preparation of government accounts.

31


The Audit Ordinance, 1956 as amended by Audit Act 1988 provides for the Audit and accountability for the public funds of government in Nigeria. Section 7 sets out the duties of the Auditor-General for the federation. Section 13 mandates the Accountant-General of the federation to sign and present, within a period of seven months after the close of each financial year, to the Auditor-General for the federation the accounts showing the financial position of the federation of Nigeria on the last day of such financial year. The Audited financial statements are thereafter presented to the public accounts committees of the National Assembly (section 85(5) of the Constitution).

Appropriation Acts are enacted annually for the purpose, not only for regulating financial and accounting matters, but principally to provide for the issue from the Consolidated Revenue Fund such sums of money as demanded justifiable for the recurrent expenditure including contribution to the Development Fund for capital projects for the service of the federation. Section 81(2) of the Constitution authorises the President to make withdrawals from the Consolidated Revenue Fund of the sum necessary to meet the expenditure and the appropriation of those sums for the purpose specified therein.

The legal instruments of Government accounting are not without criticisms in respect of certain stipulations. The mandatory use of cash basis accounting as specifically mandated by Finance (Control and Management) Act, have been criticised variously by Ngwu (1999:200), Chan (1992:1), Oshisami (1992:130), Gary (1992), and National Council on Governmental Accounting (NCGA, 1981) of USA. This provision in its present state makes the accrual basis of accounting illegal. They posit that the present general application of cash basis of accounting may not entirely permit the Government financial reports to achieve its objectives. They contend that Cash basis of accounting is adjudged useful for short term fiscal control whereas Accrual basis of accounting is the superior method for the economic 32


resources of any organisation; it results in accounting measurements based on the substance of transactions and events rather than merely when cash is received and disbursed, and thus enhances their relevance, neutrality, timeliness, completeness and comparability. NCGA recommends use of the accrual basis to the fullest extent practicable in the Government environment. However, the report of research conducted by Likireman and Vass (1984) on government expenditure recommended continued adoption of cash basis of accounting by government.

The Finance (Control and Management) Act 1958 also requires the preparation of government accounts on fund basis. In essence, all funds of a government must be classified into one of three fund categories: Governmental, proprietary, and fiduciary, or expendable and non-expendable funds. The category of a fund determines the type of accounting and financial reporting that is accorded the activities conducted, assets owned or held, and liabilities incurred by that particular fund (Brooks, 1992:41).

A question arose as to whether each fund should also constitute a reporting entity, considering the voluminous annual report resulting from this practice. Critics further argue that reporting by fund creates a fragmentary and incomprehensible picture of government finances. Chan (1992:1) opines that this practice, however justifiable on grounds of stewardship, legal and contractual compliance, certainly, it is not ‘user-friendly’- it produced comprehensive reports that are not comprehensible.

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2.4.2

Objectives of Government Accounting: Nigerian system of government accounting

has its roots from the British colonialists who were confronted with accounting and reporting problems that required resolution without the assistance of professional accounting standardsetting organisations (Anyafo, 1994:61).

The primary focus of financial accounting and

reporting in those early days was determining whether cash, usually generated from general tax levies support current operating activities, was collected in amounts that at least equalled the cash paid for those purposes and whether laws restricting the collection and expenditure of public funds were followed by those who administered the programmes. Holder (1992:41) submits that the primary users of such reports were the administrators and legislative representatives of government that were guided by that information in performing their duties. Holder (1992:41) opines that little thought was originally given to the usefulness of the information content of Government Financial Statements for external accountability. In the light of Financial (Control and Management) Act No. 33 1958, Anyafo (1994: p.64) states the objectives of government accounting is to ensure that a full account is made to the legislature on management of public finances and that its financial control as prescribed by the Minister of Finance in accordance with the provisions of the Constitution of the Federal Republic of Nigeria (section 5); and to enable the Accountant-General to present to the Auditor-General for audit purposes, the accounts showing fully the financial position as at the last day of each financial year of the Consolidated Revenue Fund and all other Government funds (Section 24). In essence, the purpose of government accounting is to provide information about the economic and financial affairs of government agencies, institutions and units. It is tailored to emphasize the use of funds provided to accomplish objectives designed in the best interest of

34


tax payers. However, use of funds requires stewardship reporting, which preclude external reporting by the government. Similarly, Glyn (1987: p.7) reports that in Australia, the report of the committee on Public Sector Accounting stated the primary objectives of accounting in the public sector organisations as provision of information necessary for management controls and public accountability. Glyn (1987:8) relates these objectives to include: providing information that is useful for determining and predicting the flows, balances and requirements of short-term financial resources of the government unit; to provide information useful for determining and predicting the economic condition of the government unit and changes therein; to provide financial information useful for monitoring performance under terms of legal, contractual and judicial requirements; to provide financial information useful for planning and budgeting and allocation of resources on the achievement of operational objectives; and to provide information useful for evaluating managerial and organisational performances. Comparatively, lacking in the legal requirement of financial reporting in the Nigerian context is the external reporting by government. After considering the governmental environment and users needs, Governmental Accounting Standard Board (GASB) of USA (1987) proposed the following objectives: that financial reporting should assist in fulfilling government’s duty to be publicly accountable and should enable users to assess that accountability; it should assist users in evaluating the operating results of the government entity for the year; and should assist users in assessing the level of services that can be provided by the government entity and its ability to meet its obligations as they become due (Aruwa, 2004: p.9). A comparison of Nigerian Governmental Accounting system and the United Nations’ model for Government Accounting further highlights the areas of discrepancies (Ngwu, 35


1999:200): Cash accounting seems to constrain the realization of Accounting system being capable of serving the basic financial information needs of development, programme planning and appraisal of performance in physical and financial terms, planning programming budgeting system (PPBS) and the accrual basis of accounting need to be firmly implemented for the accounts to provide financial data useful for economic analysis and reclassification of government transactions to assist in development of national accounts (Aruwa, 2004: p.10).

2.4.3

Global Trend in Public Sector Financial Reporting

As the whole world is moving towards having a single set of global financial reporting standards for private sector organizations, efforts are currently been made for public sector organization in the same direction. Various International Development organizations like European Union (EU), the organization for Economic Co-operation and Development (OECD), North Atlantic Treaty Organization (NATO etc have adopted International Public Sector Accounting Standards (IPSAS). These are high quality independently developed standards issued by IPSASB (formerly IFAC Public Sector Committee), an integral part of International Federation of Accountants (IFAC).

The IPSAS standards for adoption require accounting on a ‘full accruals’ basis. Full accrual is considered best accounting practices by international organizations for the public as well as the private sector. IPSAS include detailed requirements and guidance, which provide considerable support for financial statement consistency and comparability. They are the only international accounting standards applicable to public sector and other not-for-profit organizations.

36


IPSASB has made considerable programs over the last few years in developing a set of International Public Sector Accounting Standards for public sector financial reporting on the accrual basis of accounting (Sutcliffe, 2003). However, as the Standards are not comprehensive, there are as yet no agreed standards for significant areas as taxation and social policy obligations (for example, state pensions). In addition there is no universally agreed approach to the valuation of particular sets of assets such as heritage, infrastructural or military assets. As a results, individual governments that wish to improve to the accrual basis will have to develop their own standards or, for some public sector activities such as for the treatment of tax revenues and social policy obligations, either inventing new country standards or acting in a way that effectively ignores the problems that exist. 2.5

PRIVATE SECTOR FINANCIAL REPORTING IN NIGERIA

The importance of financial reporting cannot be over-emphasized by any means. It has been described by several scholars and researchers as the process of conveying information about the performances of an entity to the stakeholders. It enables shareholders and other parties to be abreast of the activities of the reporting entity. It guides towards investment decisions, performance evaluation by the managers of the company, serve as a tool to which creditors rely to make credit decisions, and lots more. There are several statutes enacted by the government to govern the conduct of economic activities in the private sector. The main one which is the Companies and Allied Matters Act (CAMA) 1990; these statutes provides the requirements for the registration and/or formation of companies, how the companies life may be brought to an end, how they are to prepare their accounts, etc. The oversight of financial reporting in Nigeria are the Nigerian Accounting Standard Board (NASB), Securities and Exchange Commission (SEC), financial institutions – regulatory agencies like the CBN, NDIC, NAICOM, PENCOM, etc, the Nigerian Stock Exchange 37


(NSE), the accounting profession (ICAN, ANAN), the judiciary (courts, tribunals etc) (Nigeria – Accounting and Auditing ROSC, 2004).

2.5.1

Objectives of Private Sector Financial Reporting: As mentioned earlier, financial

reporting essentially involves preparing and issuing financial statements. The purpose of financial reporting is to tell a company’s economic story, its financial position and the results of its operations, as completely, clearly and faithfully as possible. Therefore, the objectives of financial reporting are that: to exact accountability from the stewards with whom capital resources have been entrusted; to provide information useful in making investment and credit decisions; to enable users of financial report make assessment of the cash flow prospects of the entity; to provide information about an entity’s resources; claims to those resources, and changes in resources and claims during the period under review; one of the most fundamental obligations of the public company is the full and fair public disclosure of corporate information, including financial results (Dopuch and Sunder, 1980, p.2).

2.5.2

The Regulatory Aspect of the Private Sector Financial Reporting in Nigeria:

Financial accounting is regulated in an attempt to ensure that the resulting reports are understandable, reliable and relatively consistent between comparable reporting periods. The principal regulatory body is the Securities and Exchange Commission (SEC) – especially for limited liability companies. In addition, the Institute of Chartered Accountants of Nigeria (ICAN) and other recognized similar bodies set ethical standards for their members in Accounting Profession, while the Nigeria Accounting Standard Board (NASB), an independent standard-setting body, sets procedural standards (Omorokpe, 2006). The NASB pronouncements on accounting matters have come to be recognised as Generally Accepted Accounting Principles (GAAP). As a result of the SEC’s and the professional body’s efforts, all of an organization’s financial statements must meet minimum 38


standards of disclosure and show a degree of uniformity in the reporting of transactions that are the same or similar. Of necessity, the information must be summarized in the financial statements – rather than reported in full – because so many transactions occur during the course of a reporting period. Regulation of accounting information is aimed at ensuring that users of financial statements receive a minimum amount of information that will enable them take meaningful decisions regarding their interest in a reporting entity. The bodies responsible for these regulations are often statutory agencies such as the Accounting Standards Board, Securities and Exchange Commission and the Stock Exchange. The bulk of this framework is usually contained in Accounting Standards. The Nigerian Accounting Standards Board is the body responsible for the issuance of Accounting Standards in Nigeria. This Board was initially an advisory body responsible for the production of standards that will serve as a guide to Accountants in the preparation of financial statements. Until 2003, when the Nigerian Accounting Standards Board Act was enacted, which now makes it mandatory for accountants preparing corporate reports to adhere strictly to the provisions of the Accounting Standards issued by the board, the standards were treated as just generally accepted accounting principles. This mandatory approach arises from the fact that there is the need to ensure uniformity in the preparation and presentation of corporate reports throughout the country; ensure that accountants comply with the Generally Accepted Accounting Principles in the discharge of their functions; ensure that the standards comply with existing regulatory frameworks; and to ensure that the standards comply with the domestic accounting need of our country (Financial Reporting and Ethics, 2010). With the passing into law of the NASB Act 2003, the NASB is now the only body recognized by law for the development, issuance and review of accounting standards for preparers and users of financial statements. Other institutions responsible for the regulation of 39


accounting information in Nigeria include: the Central Bank of Nigeria (CBN); the Nigerian Insurance Commission (NAICOM); and the Securities and Exchange Commission (Financial Reporting and Ethics, 2010). Each of these regulatory authorities has an enabling law that guides the activities of the various institutions operating in the sector. The CBN has the Banks and Other Financial Institutions Act (BOFIA) 1991; NAICOM has the Nigerian Insurance Act 2003, while the Securities and Exchange Commission has the Investment and Securities Act, 1999. These Acts provide some specific requirements relating to the Accounts of every corporate entity within its fold. BOFIA, for instance provides specific requirements relating to the minimum paid up capital, statutory reserves, lending limit, classification of assets, returns and publication of annual accounts by banks. The Insurance Act also provides for the minimum paid up capital, types and classification of insurance businesses, statutory deposit, books and accounting records to be kept, maintenance of technical reserves and solvency margin required by all insurance businesses in Nigeria. The Investment and Securities Act on the other hand makes provision for the registration of capital market operators, public offer and sale of securities and mergers, take-over and acquisitions. All these requirements are made to supplement the elaborate provisions of the Nigerian Accounting Standards (Financial Reporting and Ethics, 2010).

2.5.3

The Companies and Allied Matters Act (CAMA) 1990: the companies and allied

matters act is the principal statute governing the regulation of enterprises in Nigeria. This is the governing body for companies formed in Nigeria. Amongst other things, the enactment of the companies and allied matters act in 1990 paved the way for effective and streamlined economic and commercial activities in Nigeria. With the post-registration requirements as contained in the act is aimed at protecting the public from misleading and fraudulent use of corporate and business names as well as boosting economic activities in the country. 40


Schedule 2 of CAMA prescribes specific formats for financial statements, specifically the balance sheet and profit and loss account. Other requirements of CAMA in relation to financial reporting include the following:

2.5.3.1

Financial year end : Section 334 (4) requires that the directors of a company

shall at their first meeting after the incorporation of the company, determine to what date each financial statements shall be made up, and they shall give notice of the date to the Corporate Affairs Commission within 14 days of the determination.

2.5.3.2

Timeline for the preparation of the financial statements : Section 345 (1)

requires that in respect of each year, the directors shall at a date not later than 18 months after incorporation of the company and subsequently once at least in every year, lay before the company in general meeting copies of the financial statements of the company made up to date not exceeding nine months previous to the date of the meeting.

2.5.3.3

Approval of financial statements : Section 343 (1) requires that a company’s

balance sheet and every copy of its financial statements laid before the company in general meeting or delivered to the Commission shall be signed on behalf of the Board by the two directors of the company of the company.

2.5.3.4

Payment of dividend : Section 379 (2) requires that the dividends shall be

payable to shareholders only of the distributable profits of the company.

2.5.3.5

Other requirements : Section 342 requires directors of a company to include in

the financial statements a directors report containing the following: Fair view of the development of business of the company; Stating the amount (if any) which they recommend should be paid as dividend and the amount which they propose to carry to reserves; Names of persons who at any time during the year, were directors of the 41


company, the principal activities of the company in the course of the year and any significant change in those activities during the year; Director’s obligation to notify his interest in the company and companies in the same group, and the policy and performance of the company (CAMA, 1990).

2.5.4

Statement of Accounting Standards: these are statements issued by the Nigerian

Accounting Standard Board on specific area or topic in financial accounting, the acceptance/applicability of which is mandatory by users and preparers of financial statements. To date, there are 30 standards which have been issued by the Board, setting out the framework and responsibilities for the presentation of financial statements; defining the components of financial statements; providing guidelines for minimum content requirements; and dealing with the basis for recognising, measuring and disclosing specific transactions (NASB, 2010).

2.5.5

International Financial Reporting Standards: the International Financial Reporting

Standards prescribe the basis for the preparation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. Basically, the provisions are that an entity whose financial statements comply with IFRSs shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with IFRSs unless they comply with all the requirements of IFRSs. The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. An entity shall prepare financial statements on a going 42


concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties. An entity shall present separately each material class of similar items. An entity shall present separately items of a dissimilar nature or function unless they are immaterial. An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by an IFRS. An entity shall present a complete set of financial statements (including comparative information) at least annually. Except when IFRSs permit or require otherwise, an entity shall disclose comparative information in respect of the previous period for all amounts reported in the current period’s financial statements. An entity shall include comparative information for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements. When the entity changes the presentation or classification of items in its financial statements, the entity shall reclassify comparative amounts unless reclassification is impracticable. An entity shall clearly identify the financial statements and distinguish them from other information in the same published document. IAS 1 requires an entity to present, in a statement of changes in equity, all owner changes in equity. All non-owner changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). Components of comprehensive income are not permitted to be presented in the statement of changes in equity. An entity shall recognise all items of income and expense in a period in profit or loss unless an IFRS requires or permits otherwise. The notes shall present information about the basis of preparation of the financial statements and the specific accounting policies used in accordance with paragraphs 117–124; disclose the information required by IFRSs that is not 43


presented elsewhere in the financial statements; and to provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them. An entity shall disclose, in the summary of significant accounting policies or other notes, the judgements, apart from those involving estimations (see paragraph 125), that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. An entity shall disclose information that enables users of its financial statements to evaluate the entity’s objectives, policies and processes for managing capital. An entity shall also provide additional disclosures on puttable financial instruments classified as equity instruments (IASB, 2010).

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CHAPTER THREE RESEARCH METHODOLOGY

3.1

INTRODUCTION

This part of the study will consider the research methodology the present study employs. It defines the population of the study, the sample size and the sampling techniques that are adopted in the research work. It went further to explain the sources and method of data collection, as well as the justification of the method used. 3.2

POPULTION OF THE STUDY

The population of this study consists of all companies listed on the Nigerian Stock Exchange as at 31 st December, 2009, and government institutions in Nigeria. The population, as well, covers offices of the Auditor-General for the Federation and the States.

3.3

SAMPLE SIZE AND SAMPLING TECHNIQUES

A total number of twenty (20) organizations will be selected for the purpose of this study. Ten (10) organizations will be selected each from the private sector and public sector to assist come up with a credible comparative analysis of financial reporting practices in both sectors in Nigeria. These organizations will be selected using the judgemental sampling techniques. Judgmental sampling is a sampling technique that is based on the selection of a sample of appropriate size on the basis of the researcher’s judgement of what is desired. The judgemental sampling method is used, because the researcher considers some subjects of the population as typical cases which are most likely to provide the requisite information. On the other hand, the researcher intends to get smattering idea about the problem under study. Most 45


of all, the researcher is operating with a little budget. The judgemental sampling technique will be employed because the population of the study is to an extent enormous, and any attempts to cover substantial part of the population may not be feasible. Hence, the need for the judgmental sampling technique is necessary. The listed companies and government institutions to be included in the sample are as follows: Table 1: S/N 1 2

3 4 5 6 7 8 9 10

Listed Companies Guarantee Trust Bank Plc. First Bank Plc.

Nigerian Aviation Handling Company Plc. Aric Airlines Dangote Group Plc Ashaka Cement Plc Total Nigeria Plc Oando Plc Corner Stone Insurance Plc African Alliance Insurance Plc

Government Institutions Federal Mortgage Bank Nigerian Agricultural and Co-operative Bank Ltd. Nigeria Export and Import Bank

Nigerian National Petroleum Corporations Nigerian Deposit insurance Corporation Nigerian Postal Services Federal Inland Revenue Service Power Holding Company (PHCN) Nigerian Social Insurance Trust Fund National Agricultural Insurance Co.

Source: Researcher’s compilation, 2011.

3.4

SOURCES AND METHOD OF DATA COLLECTION

This study will use both primary and secondary sources of data. The primary sources will involve developing questionnaires to be sent to the selected organizations for completion. Questionnaires will also be designed and addressed to the Auditor-General for the Federation and for the States, selected companies and government parastatals included the sample size. The secondary data shall involve using annual reports of the government, financial statements of selected companies and government parastatals,

journals, articles and

46


publications most of which could be obtainable from the Nigerian Stock Exchange secretariat and the offices of the Auditor-General either for the Federation or for the State. 3.5

MATHOD OF DATA PRESENTATION AND ANALYSIS

This study shall in the course of presenting the data collected, employ the tabulation method of data presentation. And for the analysis, the descriptive analysis will be used to come up with a detail analysis of financial reporting practices in the private and public sectors organizations in the Nigerian economy. The descriptive analysis deals with the study of the distribution of the variables of the study in relation to subjects such as the profiles of the respondents, organisation, groups or any other subject. Descriptive analysis is used to summarize the information generated in the research usually by the use of percentages and tables.

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CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND INTERPRETATION 4.1

ANALYSIS OF ADIMINISTERED QUESTIONNAIRE

Table 4.2

Questionnaires Administered and Response Rate

Respondents Private Sector Org. Public Sec. Org Office of the AGF Accountancy Firms Total

Questionnaire Administered 10 10 1 2 23

Questionnaire Returned 8 6 0 0 14

Response Rate 80% 60% 0% 0%

Source: Researchers compilation, 2011.

The table above shows that, a total number of twenty three (23) questionnaires were administered, out of which only fourteen (14) of them were completed and returned. These questionnaires were administered via email (internet) and via post (postal services) to their head offices at the Federal Capital Territory (Abuja) and Lagos state. Ten questionnaires were administered to selected public sector entities, and out of these questionnaires, only eight (8) were turned over, while the remaining two (2) questionnaires bounced back. Ten questionnaires were also administered to the sampled private sector organizations, and only six (6) questionnaires were returned, while four (4) were not returned. One (1) questionnaire was sent to the Auditor-General’s office, but it never received the attention that it deserved. Two (2) more questionnaires were designed and sent to two (2) different accountancy firms with a view to finding out the position of financial reporting of firms and other public sector enterprises, since they are the persons (recognized by law) to audits the financial statements of these companies and corporations.

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4.2

ALIGNING

PUBLIC

SECTOR

FINANCIAL

REPORTING

PRACTICES IN NIGERIA WITH GLOBAL PRACTICES: This study has sought to find out whether or not financial reporting in the public sector could be aligned with international public sector financial reporting practices. However, evidences from this study give the following details: Table 4.3:

Analysis of Public Sector Entities’ Questionnaires

Particulars Accounting system in use Compliance with Standards Type and Standard complied with Criticism against the cash base system of accounting Adoption of IPSASs Possibility of Convergence with IPSASs Weakness of the current practice in the presentation of government information The need to switch from Cash Base to Accrual Base Establishment of Regulatory Body in the public sector.

Cash Base 4

Accrual Base IFRSs SASs IPSASs Agree 4 8

6

Disagree

0

2 8 7

0 1

7

1

6

2

8

0

8

0

Source: Field survey, 2011.

The table above shows a breakdown of the responses received from the public sector entities in respect of the questions raised by the researcher. The study shows that, out of the eight (8) corporations that responded to the questionnaire, four (4) corporations representing 50% of the total response received, are using the cash system of accounting in preparing financial information; while the other four (4) (constituting another 50%) use the accrual base accounting system to prepare their financial reports. The table also shows that all the public sector entities are complying with accounting standards in the preparation and presentation of accounting information for the organizations. 49


Six (6) corporations representing 75% of the sampled size use the Statement of Accounting Standards (SASs) in preparing reports; while the remaining two (2) constituting 25% comply with International Public Sector Accounting Standards (IPSASs) in presenting their financial information. It shows that the arguments filed against the use of cash basis accounting system, by local and international critics was also supported by these corporations. It has been observed that the cash base system is major factor of money laundering financing, fraud perpetration and corrupt practices, these views was also shared by some of the corporations surveyed. As a matter of fact, all the eight (8) public sector organizations surveyed for the study representing 100% of the sample agree with the view that the cash base accounting system is fundamentally flawed and are often used as a tool for carrying out sharp practices. In the same vein, the study shows that seven (7) of the corporations suggested that there is a need for Nigeria to adopt the International Public Sector Accounting Standards (IPSASs) in order to accelerate the pace of financial reporting in the public sector in Nigeria. Whereas, one (1) public sector entity disagreed with the idea that Nigeria should adopt the IPSASs, perhaps the fear is that, when Nigeria adopts the IPSASs this could result in the country relinquishing its authoritative powers of reporting to the west – this is another form of colonialism as they said. However, seven (7) of the organizations share that, it is possible for Nigeria to adopt and converge to the International Public Sector Accounting Standards; the reasons put forward are that, the Nigerian Accounting Standard Board is currently making efforts to ensure that Nigeria fully adopts the International Financial Reporting Standards (IFRSs) and in doing so, the Board will be divided into seven directorates, out of which one of the directorates will be for the regulation of public sector financial reporting in Nigeria. 50


Consequently, a corporation in the survey suggests a different opinion on the possibility that Nigeria’s adoption and convergence with the IPSASs is likely not feasible, given the Nigerian situation, they claimed. Evidences in the past shows that, government financial information are mostly untimely, lacks correlation, and in most cases, they are too voluminous thereby making it difficult for users and other stakeholders to make informed judgment and decision. This study also holds the same position with the previous researches. Six (6) corporations in the survey confirm that government information is found to be wanting in the area of timeliness, and that government information is mostly bulky in nature. They also posit that financial information do not present the true position of government operations at any particular point in time, as the use of the cash base accounting system has undermined the ‘matching’ concept. They argue that expenses incurred, and incomes earned may not necessarily relate to the period under review, thereby transferring the inefficiency of other periods into the current reporting period. Whilst, two (2) organizations suggest a divergent opinion with the others; they claim that the procedures followed in preparing and presenting the statements are quite necessary – this statements are thoroughly scrutinized and audited, with an increasing desire to ensure that there has been the economy, efficiency and effectiveness in the use of public money (i.e. Value for Money Audit). Attempt to make these statements timelier than what they are presently, may breed sharp practices in the public sector and intense fraud perpetration. In response to the question raised by the researcher on whether Nigeria need adopt the IPSASs, all the surveyed public sector entities consented to the notion that Nigeria needs to adopt the IPSASs, and that this will create international opportunities for Nigeria; international investors; carrying out operation in global financial markets; international creditors and so on. 51


All the corporations consented to the idea that there are needs to establish a regulatory body in the public sector that will be responsible for the regulation and imposition of sanctions on non-compliance with financial reporting rules and regulations. However, it is quite pertinent to note at this point that, other laws and subordinating standards regulating financial reporting practices in the public sector are the Constitution of the Federal Republic of Nigeria, Financial Memorandum, Finance (Control and Management Act), and Audit Ordinance, circulars issued by the Central Bank of Nigeria (CBN) and so on.

4.3

ASSESSMENT OF THE FINANCIAL REPORTING PRACTICES IN NIGERIA.

Table 4.4

Analysis of Private Sector Entities Questionnaires:

Particulars Accounting System in use Compliance with Standards The Need to adopt IFRSs Actions against noncompliance

Cash Base

Accrual Base

0

6

SASs

IFRSs

Agree

Disagree

5

1

6

0

6

0

Source: Field Survey, 2011.

The table above shows that the entire private sector entities surveyed used the accrual base accounting system. This is said to be adequate for financial reporting because it reflects the true position of a business at any particular point in time. Incomes earned for a period and the expenses incurred in the course of earning that income are matched for that same period. This is in recognition of the ‘matching concept’. Although, debates for the usage of the accrual base accounting system in the public sector in Nigeria has lingered for quite a time now. In times past, speaking of the last ten years, the predominantly used accounting system in the Nigerian public sector is the cash base system. It is however interesting to know that,

52


the public sector in Nigeria is making the transition from the cash base to accrual base accounting system. This study shows that, the rate of usage of the cash base and accrual base systems is to a 1:1 bases, i.e. for every one public sector entity using the cash base system, there is one public sector entity that uses accrual base system. The table also shows that all the surveyed private sector companies comply with an accounting standard in preparing and presenting reports about the performance of the companies. Five (5) companies comply with the Statement of Accounting Standards (SASs), while one (1) company adopts the International Financial Reporting Standards (IFRSs) and complement the standard with the Statement of Accounting Standards (SASs) – in a bid to further strengthen the corporate governance standards and enhance transparency and disclosure in financial reports. Table 4.4 shows that the need to adopt the International Financial Reporting Standards (IFRSs) in Nigeria is necessary, as all the surveyed companies are in agreement with the adoption. In recent times, Nigeria has been using the IFRS on the basis of adaptation, but this seems not to be working; because IFRSs states that an entity whose financial statements comply with IFRSs shall make an explicit and unreserved statement of such compliance in the notes; and that an entity shall not describe financial statements as complying with IFRSs unless they comply with all the requirements of IFRSs. The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. In view of this statement, the companies’ strongly recommends the full adoption of the standard. Other than these standards, the Companies and Allied Matters Act (CAMA) 1990 is the main legal framework for corporate accounting practices in Nigeria. This study finds out

53


that, all the surveyed companies prepare their reports and accounts on the principles of the CAMA – this is perhaps a law, not a standard. For the surveyed banks, the study shows that banks do comply with the provisions of the Banks and Other Financial Institutions Act (BOFIA) in making reports. It reveals that, at some specific years (particularly in 2009) some of the banks are in violation of the provisions of the BOFIA. Similarly, the Central Bank of Nigeria (CBN) also issue CBN circulars for the banks to comply with. The National Insurance Commission Act (NAICOM) is not left out in the regulation of insurance companies’ financial reporting practices. 4.4

THE NEED TO ADOPT THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs).

The basic principle behind the move towards IFRS by many Nations is the need by the global marketplace to translate and determine the actual value of a firm. Foreign Investors need a reporting mechanism that allows them to compare and contrast the performance of two firms. IFRS will allow investor firms to capture material deficiencies in management practices and provide a reasonably impartial basis for making informed decisions. Look at it this way; if all companies utilize the same set of rules from an accounting and reporting perspective; one would expect a reduction in arbitrage opportunities caused by information rationing. Moving towards IFRS conveys a level of trust for the information being reported in the financial statements of many companies. This would also increase the level of foreign direct investment (FDI) in countries like Nigeria.

Current standards for reporting financial statements in Nigeria, is described as fictional. Specifically, financial statements reported in Nigeria currently, are not capable of revealing the precise financial health of organizations because issues like inflation and risks,

54


which matter a lot to business operations, are not reported. Other countries like Brazil and Netherlands have a way of reporting effect of inflation in their financial statements but in Nigeria, there is yet to be a provision for reporting “inflation", attributing this backwardness to low influx of foreign investments in Nigeria. However, advocates of IFRS have suggested that the adoption of International Financial Reporting Standards (IFRSs) is pertinent, because presently, the standard of reporting financial statements in Nigeria allows external auditors to post a clean bill of health on a company's financial statement while in reality, calamity and failure are knocking. The adoption will, however, stimulate Direct Foreign Investment (FDI); and will not only help Nigeria’s industry but also enable Accountants to practice their profession anywhere in the world.

The NASB has consequently been mandated by the Federal Executive Council (FEC) to immediately create a centre of excellence to cater for regulators, auditors and other professional accountants in the understanding of the I FRS. According to Nigeria's Minister of Commerce and Industry, Senator Jubril Martins Kuye, NASB has been directed to ensure that the action plan and framework of targeted activities that will enable a smooth transition to IFRS by all stakeholders are effectively coordinated and communicated. These include creating awareness on the potential impact of the conversion identifying regulatory synergies to be derived and communicating the temporary impact of the transition on business performance. Other activities are education and training, public sector financial reporting and applicable financial reporting standards as well as the future role of the NASB after the adoption of IFRS. This task is really a big one for NASB to cope with, given its inadequacies. And it, therefore, calls to mind the need for the National Assembly (NA) to urgently pass the Bill for the Financial Reporting Council (FRC). This is meant to comprehensively regulate financial matters in the country. The Bill was prompted by the drive towards common global

55


public sector accounting standards of which the International Federation of Accountants (IFAC) and such international agencies like the World Bank are on the forefront.

No doubt, the adoption of the IFRSs is a welcome initiative which has inherent merits for the economic growth and development of the country. Essentially, this would enthrone transparency in the conduct of business in the public and private sectors of the economy; it will bring about “International Language” understood and trusted by both local and foreign investors. It is when this is done that economically; the world becomes really a global village where cross-border deals could easily be sealed, thereby enhancing the businesses of multinational foreign direct investors, local entrepreneurs as well as the SMEs.

Business Hallmark (2008) is of the candid opinion that once the reporting entities in the country adopt globally accepted, high-quality accounting standards by converging Nigeria's national accounting standards, the economy stands to immensely benefit. Most importantly, the action would engender great confidence in foreign investors, and equally attract Foreign Direct Investments (FDIs). This is the time for such investor-friendly bills as the Financial Reporting Council (FRC), the Leasing Bill and the likes to be quickly passed for our national good.

The global experience of the financial crisis of the 1990s had opened the eyes of the International Community. It had informed the need to observe and enforce a standard code of best practices in financial reporting for all countries of the world. At least, the new dispensation would prevent a repeat of the “Cadbury scandal” which, amongst others, arose due to differences in accounting standards and creative accounting or fraudulent accounting practices. The study also finds out that the NASB currently sets accounting standards and enforce compliance, for only the private sector. The public sector is on its own. But the FRC Act is expected to be robust and comprehensive, with five distinct directorates to be charged 56


with setting of specific standards for both public and private sectors. Those directorates are for private sector, public sector, the Actuarial Standard Board, Inspection as well as corporate governance. The scenario captures even those at the helm of affairs in the three-tiers of government who are not held accountable by the NASB. But the FRC Act would inevitably evolve an appropriate system which will ensure responsive and accountable stewardship even in government.

The level of fraudulent practices being perpetrated at the three-tiers of government is to say the least, horrendous. Nobody seems to care to find out, except a few instances where the anti-graft agencies such as the Economic and Financial Crimes Commission (EFCC) and Independent and Corrupt Practices Commission (ICPC) wade into alleged financial misconduct to unearth what happened and how it happened once in a while. Business Hallmark believes that with the Financial Reporting Council (FRC), it would be easier for the public to know how the public sector institutions are run. Even the political parties and countless donor agencies that raise money for various projects would be captured such that those who use them as conduit pipes to line their pockets with public resources could be easily checked.

57


CHAPTER FIVE SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 5.1

SUMMARY

The importance of financial reporting cannot be over-emphasized by any means. The concept refers to the process of revealing the financial position and the result of operations of businesses. Through this means, shareholders and other stakeholders are informed on the performances and activities of the firm. This chapter is however a recap of the entire research project. The study begins with chapter one (1) where issues like the background to the study; problem statement; objectives; research questions; significance of the study; scope and limitations of the study were all discussed. Chapter two (2) constitute the review of related literature which are relevant to the area of the present study. Matters in chapter two consist of the conceptual framework of financial reporting; concepts, definitions and views of scholars and past researchers on the subject matter. It highlights and discussed public sector financial reporting in Nigeria; and other issues therein like the global trend of financial reporting. It also talks about private sector financial reporting in Nigeria; the laws and standards regulating financial reporting in the corporate sector; objectives of financial statements, users and stresses the importance of financial reporting. The third phase of this study dwelt on the methodology on which the research was conducted. Chapter 3 begins by identifying the population of the study; it proceeds further to define the sample size and sampling techniques that was used; the sources and methods of

58


data were also identified in this phase. Consequently, the chapter also discussed the method of data analysis used by the study as well as their justification. At the conclusion of chapter 3, the study proceeds to chapter 4 where all data generated were presented, interpreted and analysed. Basically, chapter 4 deals with the presentation, interpretation and analysis of the data collected from the field and those generated online as well as other authoritative documents and news reports. In this phase, the researcher made relentless effort to gather the required data within the shortest possible time, and has also made exerts to ensure that the data were analysed objectively – all forms of subjectiveness were reduced to the barest minimum.

5.2

CONCLUSION / FINDINGS

After doing all the researches and analysing all data, this study has finally come up with the conclusion that the cash base system of accounting is still used by public sector entities in Nigeria, even though some entities were found to be using the accrual base system, the cash base system is no longer ideal for reporting in the public sector; reason being that it undermines the ‘matching’ concept; used to perpetrate fraud and sharp practice; and do not present a true picture of financial position. Statements of Accounting Standards (SASs) are in wide usage by public sector entities as when compared to those using the International Public Sector Accounting Standards (IPSASs).

This study also concludes that all companies incorporated under the Companies and Allied Matters Act by the Corporate Affairs Commission (CAC) in Nigeria use the accrual base system. Companies comply mostly with the Statement of Accounting Standards in the preparation and presentation of financial statements; while few prepare their statements in line with International Financial Reporting Standards (IFRSs). The Companies and Allied

59


Matters Act (CAMA) is the main law/statute governing the conduct of economic activities and also specifying the way companies prepare their annual and interim accounts. The Central Bank of Nigeria (CBN) Act also plays a role in regulating the reporting of banks, both in the public and private sector, the Banks and Other Financial Institutions Act (BOFIA) and the National Insurance Commission (NAICOM).

5.3

RECOMMENDATIONS

On the basis of the conclusions drawn, the following recommendations were made:

1. Nigeria should transit from cash accounting to the accrual base accounting in the public sector in Nigeria. This could however be achieved through compliance with the International Public Sector Accounting Standards (IPSASs).

2. Nigeria should adopt the International Financial Reporting Standards (IFRSs) if she must enjoy the benefits of complete global business – the benefits of having global investors, strong capital markets and easy direct investments (FDI).

3. There should be established an independent body set up by the Nigerian government that will be responsible for ensuring strict compliance with the standards so adopted.

60


BIBLIOGRAPHY

Adams, R.A. (2006): Public Sector Accounting and Finance, Maryland Lagos, Corporate Publishers Ventures. Anumaka, N. M. (2010): Historical Background, Due Process in Standard Setting and Future Outlook, Nigerian Accounting Standard Board (NASB). Anyafo, A. M. O. (2000): Nigerian Public Accounting and Budgeting; Government and Public Sector Accounting, Enugu; GOPRO Foundation press. Companies and Allied Matters Act (CAMA) 1990: Dopuch, N. and Sunder, S. (1980): FASB’s Statements on Objectives and Elements of

Financial Accounting : the Accounting Review; vol. 1 p.2 American accounting association, George Banta

Company Inc., Menasha,

Wisconsin. Federal Republic of Nigeria (1958): the Constitution of the Federal Republic of Nigeria

1999. Lagos: Federal Government Press. Federal Republic of Nigeria (1999): Finance (Control and Management Act 1958. Lagos: Federal Government Press. Glautier, M.W.E. and Underdown, B. (1986): Accounting Theory and Practice, ELBS/Pitman publishing London. Iyika, P.I (2009): the Adaptability of Accrual Accounting in the Public Sector, Nigerian Accounting Standard Board (NASB).

61


Kantudu, A. S. and Atabs, T. I. (2007): Role of SAS 10 in Reducing Creative Financial Reporting Practices by Banks in Nigeria. Journal of Social and

Management Studies , Bayero University Kano, Vol. 12, pg. 155 – 167. Kieso D.E. and Weygandt J.J (1980), Intermediate Accounting, John Wiley and Sons Inc. Meigs, R; Bettner M; Washington, R; and Meigs, M.A. (1996): Accounting; the basis for business decisions, New York, Mc-Graw Hill Book Company. Omorokpe, R.O. (2006): Financial Accounting Practice in business and not-for profit

organization , Lagos, Mareh Publisher. Oshisami, K. (1992): Government Accounting and Financial Control . Lagos-Nigeria: Megavons (W.A.), Plc. Report on the Observance of Standards and Codes (ROSC) 2004, Accounting and Auditing. Nigeria. Report on the Standardization of Federal, States and Local Government Accounts in Nigeria (2002): Executive Summary and Financial Reporting M odel. Vol.2 Report on the Standardization of Federal, States and Local Government Accounts in Nigeria (2002): Main Report. Vol.1, Financial Reporting and Ethics; Regulatory Framework of Financial Reporting (2010)

62


INTRODUCTORY PAGE

Department of Accounting, Faculty of Soc. & Mgt. Sci., Bayero University Kano, P.M.B 3011, Kano state, Nigeria. 17th January, 2011.

Dear Respondent, My name is Olusegun Olowu Amos. I am a 400 level student of Bayero University

Kano studying

Accounting.

In

partial

fulfilment

of

the

requirement of a B.sc Degree in Accounting, it is customary for students to carry out research on an area of accounting, which is of interest to the students, with a view to adding new ideas to the existing body of knowledge. For this purpose, I am conducting a research on the topic, “a comparative analysis of the public and private sectors financial reporting practices in Nigeria” .

The

importance

of

financial

reporting

cannot

be

over-

emphasized by any means. Financial reporting is a means whereby owners and outsiders get to be abreast of the activities of an entity. It is an undisputable fact that the major aim of financial reporting is the conveyance of relevant information useful to the various categories of users

of

such

information.

Financial

reports

must

be

clear

and

understandable. They are based on accounting policies which vary from enterprise to enterprise, both within a country and among countries. Whatever

the

case,

accounting

should

contain

facts

that

are

comprehensible to those who have a reasonable understanding of business economic activities and willing to study the information with reasonable diligence. 63


I’m counting on your maximum cooperation as you respond to the questions that follow. I assure you that the information supplied by you will strictly be used for the purpose of this research and for no any other purpose. The confidentiality of the information is as well assured. Thanks.

64


APPENDIX 1 QUESTIONNAIRE Please tick as appropriate; 1. Do you have an accounting unit in the organisation? a. Yes b. No 2. Do you have internal audit unit in the organization? a. Yes b. No 3. Are internal control systems in place in the organisation? a. Yes b. No 4. How can you rate the effectiveness of the controls in place? a. Satisfactory b. Unsatisfactory. 5. When transactions take place in the organisation, how are they recorded? a. On a double entry system b. On a single entry system 6. What system of accounting does the organisation use? a. Cash Based accounting system b. Accrual Based accounting system 7. Does the organisation comply with any standard when recording transactions carried out in the organization? a. Yes b. No

65


8. If your answer above is Yes, then what standard is been complied with? a. International Financial Reporting Standards (IFRSs) b. Statement of Accounting Standards (SASs) c. International Public Sector Financial Accounting Standards (IPSASs)

d. Others specify

9. The cash basis of accounting has been criticized to have many problems, and these critics have suggested that the accrual basis of accounting be adopted by public institutions. What is opinion on this statement? a. Agree b. Disagree 10.

The International Public Sector Accounting Standard Board

(IPSASB) has been making efforts to develop accounting standards that are applicable by public sector entities around the world; some countries of the world have now adopted these standards. Should Nigeria also adopt these standards? a. Agree b. Disagree 11.

Could public sector financial reporting practices in Nigeria be

aligned with global public sector financial reporting? a. Yes b. No

66


12.

Do you agree that, when Nigeria adopts the International

Public Sector Accounting Standards (IPSASs), accounting information could be harmonized with those of other countries? a. Agree b. Disagree 13.

It is argued that, government financial statements are mostly

untimely, lacks correlation, and in most cases, they are too voluminous making it difficult for its users to analyse and make meaningful decision. Is this true? a. Yes b. No 14.

Do you agree with the view that, when public sector entities

switch from the cash basis of accounting to the accrual basis, comparison between private and public sector entities will be made a lot easier? a. Yes b. No 15.

Do you think in your opinion, there is a need to set up a body

(like the NASB) that will be responsible for issuing standards for the regulation of financial reporting practices in the public sector in Nigeria, and to also ensure that public sector entities will comply with such standards? a. Agree b. Disagree 16.

From your own point of view, suggest some steps that need to

be taken to remedy the problems of financial reporting in the public sector? 67


............................................................................................................ ............................................................................................................ ............................................................................................................ ............................................................................................................ ............................................................................................................ ............................NB: use extra sheets where necessary.

68


APPENDIX 2 QUESTIONNAIRE It is my assumption that the person(s) completing this questionnaire accounting

have

the

required

standards

and

background

other

of

regulatory

pronouncements governing financial reporting in Nigeria and abroad. And that he/she (or the group of persons completing

the

questionnaire)

is

familiar

with

the

provisions of the Nigerian Statements of Accounting Standards

(SASs)

and

the

International

Financial

Reporting Standards (IFRSs). Please tick as appropriate 1. Do you have an accounting unit in your organization? a. Yes b. No 2. Do you have internal audit unit in the organization? a. Yes b. No 3. Are internal control systems in place in your organization? a. Yes b. No 4. How can you rate the effectiveness of the controls in place? a. Satisfactory b. Unsatisfactory. 5. What accounting system is used by the organization?

69


a. Cash Based accounting system b. Accrual based accounting system 6. Which accounting standards does the organisation use in preparing its annual and interim financial statements? a. Statement of Accounting Standards (SASs) b. International Financial Reporting Standards (IFRSs)

c. Others specify 7. To what extent does the organization comply with such standards? a. Full compliance b. Partial compliance

c. Others specify 8. Do you think in your opinion, when Nigeria fully adopts the IFRSs, comparison of performance among companies around the world will be made a lot easier? a. Agree b. Disagree

9. If you agree to the above assertion, do you think, this will be bring about international opportunities (such as international investors, international capital markets, international creditors, and so on) for Nigerian local companies? a. Agree b. Disagree 10.

Are there actions taking against the company for non-

compliance with laid down standards and other pronouncements by the relevant standard setting bodies? 70


a. Yes b. No

71


11.

If your answer above is yes, what are they?

............................................................................................................ .................................. You can use extra sheets where necessary.

12. The International Accounting Standard Board (IASB) has, over the years, made effort, and is still making efforts to develop acceptable and applicable standards (i.e. IFRSs) for users and preparers of financial statements around the world; this is done with a view to ensuring uniform financial reporting by firms all around the countries of the world. Kindly suggest other reasons why Nigeria should be a part of this development? ............................................................................................................ ............................................................................................................ ............................................................................................................ ............................................................................................................ ............................................................................................................ ............................ You can use extra sheets where necessary.

72


A Comparative Analysis of the Public and Private Sector's Financial Reporting Practices in Nigeria

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