This project work was carried out in order to
determine whether financial reports are prepared accordingly to accounting
concepts and conventions. It also aim at pointing out the benefits of adopting
accounting concepts and conventions in preparing financial statements. In
gathering data relating to the research questionnaires were administered and
personal interviews were equally conducted. While related literature on
accounting concepts and conventions in financial reporting were reviewed. It
was discovered that accounting concepts and conventions are the bedrocks on
which financial accounting rests. Finally, it was recommended that financial
information should therefore be reported in a way which users will easily
understand, interpret and apply.
TABLE OF CONTENTS
of Contents vi
Background to the Study 1
Statement of Problems 2
Research Questions 3
Objectives of the Study 4
Statement of Hypothesis 6
Significance of the Study 7
Scope of the Study 8
Limitation of the Study 9
Definition of Terms 10
Two: Review of Related Literature
Nature of Financial Reporting 15
Uses of Accounting Information System Shareholder
or Investors 17
Three: Research Method and Design 38
Research Design 38
Description of Population of the Study 38
Sample Size 39
Sampling Techniques 39
Sources of Data Collection 39
Method of Data Presentation 41
Method of Data Analysis 41
Four: Data Presentation, Analysis and Interpretation 43
4.1 Introduction 43
4.2 Data Analysis 43
4.3 Hypothesis Testing 50
Chapter Five: Summary
of Findings, Conclusion and Recommendations 57
5.1 Introduction 57
5.2 Summary of Findings 57
5.3 Conclusion 59
5.4 Recommendations 60
Background to the Study
Financial accounting includes
the accumulation of historical records technically referred to as stewardship
accounting. These historical records form the embodiment of financial
like any other subject rest on the
foundation of certain fundamental rudiments, assumptions, concepts, conventions
and principles which provide the
essential frame for expressing accounting information.
These concepts and
conventions which includes entity concept, going concern, accrual, periodicity,
consistency and historical cost concept etc, are seldom disclosed on the
financial statements, because they are generally accepted as being the bedrock
underling the period of preparation and presentation of financial statements.
However, where there
are squarely acceptable alternative methods or approaches that may be accepted or
adopted in preparing the financial statement to where the foundation concept on
which the financial statement is based must be disclosed. Unless financial statements
are reviewed against the background of these fundamental concepts and
principles the user would be in a twilight world, where some things are clear
while others are not. It is therefore essential to the understanding,
interpretation and meaningful analysis of financial statement that these basic
concept assumption principles and convention used in preparation must be
constantly borne in mind.
Statement of the Problem
Accounting is primarily
concerned with the preparation of financial information for the various parties
connected with the enterprises for the purpose of improving their decision
However, the following
problems are encountered in achieving these objectives. As the information need
to these various interest groups, do not tally, there is conflict of interest
among the various users of financial statement.
This is also the
problem of subjectively in preparing the financial statements, thus it becomes
necessary that in preparing the financial statements, the accounting should be
guided by some basic assumptions in order to ensure a high degree of
standardization in financial reporting.
In order to access
whether or not that these accounting concepts and conventions are being applied
by entities in preparing financial statements, this research work will be
answering the following questions:
institution use accounting concepts and conventions in evaluating financial
Do management of
bank and other financial institution use accounting concept and conventions in
presenting their financial report to shareholders?
concept and conventions serve as a guideline in preparing financial statements?
reports of companies and other financial institution present their accounts
base on accounting concept and convention?
Objectives of the Study
Businesses are often
owned by more than just one person, more so, there are many users of accounting
information which includes shareholder, creditors, potential investors, bankers
and the government.
statements are prepared for the benefit of them all. If different financial
statement were to be prepared for separate purpose so that one type is given to
the bankers, another to the owners etc, then accounting would be different from
what it is today.
However, it is deemed
necessary to give copies of the same financial statement to all the various
parties so that the bankers, owners, the tax officer and other people involved
see the same financial statement. This is not an idea situation as the interest
of each party are different and really demand different kinds of information
from that possessed by others.
Yet only one set of
financial statement are multi-purpose document and to be of any use, the
various parties have to agree to the way they are drawn up. The use of measures
which gains a consensus of opinion rather than the uses of one’s own measures
might conflict with people, is said to be objective. The desires to provides
the same set of account for any different parties and thus to provides a
measure that gain their consensus of opinion means that objectivity is sought
in financial reporting. The purpose of this study is therefore to access the
relevance and importance of accounting concepts and conventions in financial reporting
and the effects which are derived from these concepts and conventions may have
on the financial statements.
The objective of this
study is therefore:
To find out how
accounting concept and conventions, can help in resolving the conflict of
interest among the various users of financial statements.
To examine the
extent to which accounting concepts and conventions can assist in solving the
problem of subjectivity and hence in achieving the objectivity in financial
Statement of Hypotheses
hypotheses are to be tested.
Ho: Null hypothesis
H0: Financial institutions do not use accounting
concepts and conventions in evaluating financial transaction.
H1: Financial institutions use accounting concepts and
conventions in evaluating financial transaction.
H0: Management of banks and other financial institutions
do not use accounting concepts and conventions in presenting their financial
report to shareholders and creditors.
H1: Management of banks and other financial institutions
uses accounting concepts and conventions in presenting their financial report
to shareholders and creditors.
H0: Accounting concepts and conventions do not serve as
guideline in preparing financial statements.
H1: Accounting concepts and conventions serves as
guideline in preparing financial statements.
H0: Annual report of companies and other financial
institutions are not presented based on accounting concepts and conventions.
H1: Annual report of companies and other financial
institutions are presented based on accounting concepts and conventions.
Significance of the Study
As stated earlier, the
understanding of the basic principles, concepts assumptions and conventions and
their relevance to the preparation of financial statement is essential to the
understanding, interpretation and meaningful analysis and importance of these
concepts and conventions in financial reporting, thus enhancing a better
understanding of the usefulness of financial statement to the various users of
Secondly, it is
fervently hope that at the end of this study, many of the apparent
contradictions will be cleared. This stems from the fact that this study will
provide a better understanding of this desires for objectivity which is often
at the heart of the financial accounting methods in use at the present time.
The study would also be
of great use to the intending researchers in this aspect of accounting. From
the foregoing, one can affirm that this project work will be of immense use to
various parties within the business and academic setting.
Scope of the Study
In this study, the
researcher will take a look at the historical development of financial
statement, development of financial
statement, the meaning and objective of financial statement, the various
principles, assumptions, concepts and conventions and their relevance in the
preparation of financial statement and their uses. The study will also look at
some written down legislative and regulatory principles in Nigeria which assist
the accounting, concepts and conventions in achieving standardization and
enhanced objectivity in financial reporting.
Limitation of the Study
In the course of this
study, a number of problems were encountered. In the first place the study was
carried out in a tight academic schedule, thus frequent interactions with lecturers,
text and private readings was not uncommon.
Consequently, only a
limited time was available for this study. Secondly, financial constraint was a
major setback, my financial means were grossly inadequate as a result, and the
compass of my movement and the study was circumscribed. Thirdly, in the course
of personal interviews conducted, it was difficult to obtain some information
as they were deemed to be confidential by the companies and persons visited.
In the faces of the
above limitations, it was virtually impossible to carry out an in-depth study.
However, every attempt possible has been made to capture the main purpose and
objectivity of this study.
Definition of Terms
For the purpose of
clarity and understanding, it is deemed expedient to define some technical
terms used in this project work.
Accounting Concept: A concept is defined as general assumptions which
are taken for granted in the preparation of periodic financial accounts.
Accounting Convention: The concept of accounting having becomes accepted
in the business world. However, the concepts are capable of being interpreted
in many ways. Therefore, what has grown up in accounting are generally accepted
approached to the application of the concept.
Assets are economical resources which are owned by a business and expected to
benefit future operations. Assets may have definite future physical forms such
as building and machinery. On the other hand, some asset exist in form of
valuable legal clams or rights as amount due for customer, investment etc.
Non Current Assets: They are assets of a relatively permanent in
nature, used in the operation of the business an not intended for resale, such
asset, include land and building, plants and machinery furniture and fittings
etc which are expected to always carried out in the financial statement at cost
less accumulated depreciation.
These are assets without bodily substance and whose values i.e. only with owner.
Intangible assets include goodwill, patient right, trade-marks and other
similar asset, having value because of the right inherent in them.
These are asset which are expected to be converted into cash within a year on
the normal operating level or cycle whichever is longer. The operating cycle
varies from one form to another. Current assets includes cash, marketable
securities, account receivables, stock and prepaid expenses. Current assets are
listed in the balance sheet (statement of financial position) in their order or
These include debtor temporary investment and cash. They re called liquid asset
because they are equally realizable.
A liability is the obligation of a business to other entities or person in
respect of monies owing, for goods and services already received.
Current Liabilities: These are obligation whose liquidation (settlement)
is reasonably expected to require the use of current asset or the substitutions
to be paid within one year are classified as current. In general, they are
listed in their portable order of liquidation. Example includes account payable
Non-Current Liabilities: These are some falling due for payment after one
year from the statement of financial position. Examples are items of bank loan
or overdraft, trade creditor or taxation not falling within one year.
The term capital has many connotations, it is therefore considered necessary to
discuss the importance.
Owners Equity: This
kind of equity results from funds received from investors, either shareholders
of a corporation owner of a partnership or proprietorship. Also earnings of the
forms that did not pay out dividend are added to this equity.
This is the amount of capital that is available for production, it represent
the total asset less current liability employed in the business.
This capital is the available amount for day-to-day running of the business. It
represents the difference between the current asset and the current liability,
the solvency or insolvency of an enterprises depend on the size of its working