The aim of this study is to
examine The Role of Accounting in the Development of
the Economy. A Case Study of Nigeria as a Developing Economy: that is the
impact accounting played in the overall development of the economy, with a view
to making useful suggestions and recommendations as a way of enhancing the
development the economy. The population for this study includes workers in the
Ikeja axis and the sampling method adopted for this study is the random
sampling in order to ensure adequate representation of the population. In order
to achieve the objective of making useful suggestions that would improve the
economy, a hypothesis was made and tested. Samples of thirty-five responses
were collected and analyzed using the chi-square (x2) testing method. It was
discovered that most public concerns in Nigeria are faced with many negative
factors such as mismanagement of public funds, wastage of resources,
misinterpretation of financial statements and lack of proper accounting and
financial control. Finally, it was recommended that accountants should be
involved in auditing of companies’ accounts, qualified staff should be employed
by public enterprises and accountants should be employed to help potential
investors in knowing the best industry for them to invest their capital.
TITLE PAGE i
TABLE OF CONTENT vii
CHAPTER ONE: INTRODUCTION
Background of the study 1
Statement of the problem 2
Research questions 3
Objectives of the Study 3
Statement of hypothesis 3
Significance of the study 4
Justification of the study 4
Scope of the study 4
Definition of terms 4
CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual clarification 10
2.1.1 The role of accounting in government and control of public
2.1.2 Analysis and interpretation of financial statements 13
2.1.3 Budget and budgetary control 17
2.1.4 Management and control of public concern 20
2.1.5 Public enterprises and inefficiency 20
2.1.6 Public enterprises and subsidies 22
2.1.7 Waste of public resources 22
Accountability and social objectives responsibility 27
2.2 Theoretical framework 27
2.3 Review of empirical studies 27
3.1 Research design 31
3.2 Sources of data 31
and sampling technique 31
3.4 Method of data collection 31
3.5 Operationalization of variables 31
3.6 Method of data analysis 32
3.7 Limitations of the study 32
DATA PRESENTATION AND RESULTS
4.2 Results 34
of findings 40
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary of findings 41
5.2 Conclusion 41
5.3 Recommendations 42
5.4 Suggestions for further research 42
BACKGROUND OF THE STUDY
The basic economic
problem that confronts an under developed or a developing country and
especially the new independent ones is how to attain sustainable development
within a relatively short period, a notable increase in the rate of economic
growth which is envisaged will bring it to the level of perpetual real income
comparable to those of more admired economics of the world. In order to attain
this oval, the country would have to;
Provide those basic government services especially in education, public
health and transport. These services will serve as fertile soil to advancing
the nation’s economy.
Stimulate a higher rate of capital formation in production facilities
either in government or private sectors. The first accomplishment requires
transportation on needed factors or resources to the governmental sector of the
economy for the production of those services or facilities required by the
entire populace. The second accomplishment requires transfer of resources to
capital formation either strictly in the private sector or through the
These resources may come from:
o Outside the control.
o Present use for
o Present use in
production of capital or types regarded as not contributing to economic growth.
o Idle or partially
idle resources primarily manpower. The above four sources off varying
opportunity growth and it actually does it only by transfer existing resources
to the appropriate quarter and profitable application of these to production
attains within that relatively short period a level of standard of living
comparable to those of other more
advanced countries of the world.
Accounting come in as
the tool that measures the profitability/viability of a project with an economic
defines accounting as the systematic collection, summarization, and analysis
and reporting of data in a form suitable and under stable to prospective users.
involves some other related discipline as budgetary control taxation, cost and
management accounting, financial management, auditing and quantitative
project entails projection into the future, it is essential that public
officers and employees in the private sector appreciate the need a transaction
and necessary statistics as to enable the proper evaluation of past records
with what obtains presently in order to reasonably project into the
future. Some of the practical ways in
which accounting can be and is known to have been used not only for a decision
making but also importantly to achieve desired results include;
Accounting for social purposes.
provide information that may be used within the business and which may be
relied on by businessmen while making investment decisions.
STATEMENT OF PROBLEM
The basic economic
problem that confronts an under developed or a developing country and
especially the new independent ones, as contained in the introduction, is how
to attain sustainable development within a relatively short period, a notable
increase in the rate of economic growth which is envisaged will bring it to the
level of perpetual real income comparable to those of more admired economics of
The government is
required to provide those basic services especially in education, public health
and transport. These services will serve as fertile soil to advancing the nation’s
economy. Also the government is required to stimulate a higher rate of capital
formation in production facilities either in government or private sectors.
Another problem is
that most potential investors in the development nations is they are mostly illiterates
and therefore required the services of accountants and financial analysts to
help access possible areas of investment.
is another vital area where accounting knowledge is essential. Most budgets are
stated in accounting formula and their implementation will require that
knowledge that will enable officials read the budget as it affects their sector
and even reflect on how other sectorial outlay may affect them. It is due to the perennial lags in our civil
service that the researcher decided to carry out an investigation into what are
likely lags in the wheel program or growth of the civil service and thereby the
nation. The private sector employees are
also caught in this lapses but however, there seems to be more commitment on
their part due to obvious reasons of ownership and direct supervision by
entrepreneurs. The proper functioning of
financial system of a company determines to a good extent the viability of her
economic structure. That is why he
researcher decided to show set of accounts viz (profit and loss account and
value added statement) from Unipetrol Nigeria PLC Annual Report and Account
1999. This financial statements help
users of such statements ascertain the viability of the company and it is
prepared by chartered Accountant.
To achieve the
earlier stated objectives, the following research questions become pertinent:
Do accountants play a major role in national development?
What is the role of accounting in government and control of public
What effect does proper analysis and interpretation of financial
statements have on the economy?
How efficiency in public enterprises can contribute to economic
Are there any relationships between budgetary control and economic
Are accountants adequately involved in budget preparation and development
planning in Nigeria?
How does proper management and control of public concern can improve
Are foreign investors encouraged to invest in Nigeria?
Is wastage of public resources is harmful to economic development?
The objective of this
project is to identify;
The role of accounting in economic planning
The role of accountants in government accounting.
The role of accounting in controlling public expenditure.
The duties of accounting management and control of public concerns.
1.5 STATEMENT OF HYPOTHESIS
For the purpose of
direction and clarity of issues raised in this study, the hypothesis formulated
have a major role to play in national development
H1: Accountants have no major role to play in
1.6 SIGNIFICANCE OF THE STUDY
The study which is an
attempt to diagnose the accounting system in a developing economy is of immense
importance to future researchers. This will serve as a secondary data to future
researchers who intends to carry on research on accounting role in nation
development. It will also help students
in the school of financial studies in having an in-depth knowledge of control
It will enable the
researchers know more about the role of an accountant in government accounting
and where there are lapsed or breakdown in management and control of public
concerns, appropriate suggestions are made to the management.
1.7 RUSTICATION OF THE STUDY
Nigeria has been facing a difficult problem trying to achieve
sustained economic growth through formulation and implementation of development
plans. Such development plans are dependent, among other things, upon availability
of relevant and reliable economic information. However, the availability of
accounting information to help implement economic decisions have been widely
criticized as deficient, irrelevant and often lacking credibility. This has
been due to the absence of well-defined reporting practices and procedures
whereby such requirements, whether statutory or legal are strictly followed and
enforced. The sooner the importance of
maintaining accounting records by instituting a competent accountant in an organization
is realized, the better for such organization. This will help in enhancing
accurate decision making for planning, profit forecasting and even national
1.8 SCOPE OF THE STUDY
This project will
cover some vital aspect of an accountant’s role in government accounting and
control of public expenditure analysis and interpretations of financial
statements, budgetary control, management and control of public concerns in
developing economy. It will also show a
company’s financial statement prepared by an accountant.
DEFINITION OF TERMS
Accounting: American accounting
association committee define accounting as ‘‘the process of identifying, measuring
and communicating economic information to permit informed judgment and decision
by users of the information.
Debts: An amount owed to a company
that will not be paid. An account becomes a bad debt when the company
recognizes that the debt won’t be paid. Sometimes bad debts are written off
when recognized. Other times a reserve is set up to provide for possible bad
debts. This is usually called reserve or allowance for bad debts, or reserve or
allowance for doubtful accounts. The write-off of a bad debt is an expense. Any
addition to the reserve or allowance is also an expense. When there is a
reserve or allowance, recognition of an actual bad debt will not result in an
expense, because it has already been allowed for in expenses. Unrecognized bad
debts for which no allowance or reserve has been set up are an important factor
to consider in evaluating a company’s value.
Total assets minus total
liabilities. Book value also means the value of an asset as recorded in the
company’s books or financial reports. Book value is often different from the
true value. True value may be more or less than book value. The book value of a
share of stock is the company’s total book value divided by the total number of
shares of stock outstanding.
Budget: A budget according
to chartered institute of accountants is a plan quantified in monetary term,
prepared and approved prior to a defined period of time, usually showing
planned inform to be generated and or expenditure to be incurred during that
period and the capital to be employed to attain a given objective.
Control: According to Haper (1974),
budgetary control can defined as the establishment of budget relating the
responsibilities of executives to the requirements of a policy, and continuous
comparison of actual with budgeted.
flow: The amount of actual
cash generated by business operations within a period of time. Cash flow
differs from profits shown because the accrual method of accounting is used and
because noncash expenses are deducted from profits.
Current Assets: Converted into cash over the next 12 months; typically include cash,
pledges, prepaid expenses, due from affiliates.
Current Liabilities: Commitments that are due over the next 12 months; typically include
accounts payable, accrued expenses, current portion of mortgage and notes
payable, due to affiliates, deferred revenue.
Depreciation: A method of converting an expenditure into an expense. It is an expense
that is supposed to reflect the loss in value of a fixed asset. For example, if
a machine will completely wear out after ten years of use, the cost of the
machine is charged as an expense over the ten-year life rather than all at once
when the machine is purchased. Straight-line depreciation would charge an equal
amount each year. A machine costing $1,000 depreciated over ten years by the
straightline method would have $100 charged to expense each year for ten years.
Accelerated depreciation charges more to expense in the early years and less in
later years. Under one accelerated depreciation formula the first-year charge
for the $1,000 machine might be $181.82, the fifth-year charge $109.09, and the
tenth-year charge $18.18. The choice of depreciation periods and methods is
regulated by accounting standards and the IRS.
Financial Statements - records that outline the financial activities of a business, an
individual or any other entity.
cost: A cost or expense that
does not change as sales volume changes (in the short run). Fixed costs
normally include such items as rent, depreciation, interest, and any salaries
unaffected by ups and downs in sales. Of course, fixed costs are fixed only for
the short run. (Leases can be canceled and executives fired.) Extreme shifts in
sales volume cause many fixed costs to become unfixed. Fixed costs are a factor
in determining breakeven.
Independent Auditor’s Report: By law, an independent audit can be conducted only by
an outside certified public accountant (CPA). In a letter to the board of
directors, the auditor describes his or her analysis of the fairness of the
financial statements and states whether they conform to generally accepted
An increase in prices or
reduction in the value of money that has a major effect on companies and their
financial reports. Because assets are shown at original cost, they do not
reflect inflated value or the inflated cost of replacing them. Inflation of
selling prices can result in increased dollar sales with reduced unit sales,
and possibly reduced market share. Sales must go up faster than inflation if a
company is to move ahead. Inflation distorts all financial reports. It also
results in extra taxes being paid on the inflated income, which drains cash needed
to pay for the higher costs. Inflation corrodes all business. Its effects can
Control: According to Horngren (1982) ‘’Internal control is the set of accounting
and administrative controls and practices that helps ensure that approved and appropriate decisions are
made in an organization.
Liabilities: Liabilities of shareholders are limited to just their shares in the
company (paid up and unpaid) if the business goes bankrupt.
Long Term Assets: Assets expected to be usable for more than I year. Typically include
assets that are depreciated (i.e. building improvements, equipment), restricted
cash and reserves, property under development, notes receivable and any
financing fees, net of amortization.
Long Term Liabilities: Liabilities with a future benefit over one year or more. Typically
include mortgage and notes payable (long-term portion), tenant security
deposits, accrued interest, deferred developer fees).
value: A concept that compares
the value of money available in the future with the value of money in hand
today. The present value of money is compared to the future value. For example,
$100 in hand today is worth more than $100 to be available in five years. This
is because the $100 in hand today can be invested and earn money. If it is
invested at 5 percent, the $100 will grow to $127.63 in five years. To put it another
way, $78.35 invested at 5 percent for five years will grow to $100. Thus, the
present value of $100 received five years in the future is $78.35. The concept
of present value is used to analyze investment opportunities that have a future
payoff. All the investment and all the return can be computed at present value
to see if the percentage rate of return on the investment is acceptable.
Company: J. C. Odike in Managerial Economics for Nigerian Polytechnics II (2200) defined
private company as a limited liability company owned by the minimum of 2 shareholders
and previously a maximum of 50 persons but now in Nigeria, a maximum of 100.
Company: J. C. Odike in Managerial Economics for Nigerian Polytechnics II (200) is a limited liability corporate body with
previous minimum of shareholders but now in Nigeria a minimum of 2 since the
1990 Companies and Allied Matters Decree (CAMD) there is no minimum of shareholders.
Financial ratio analysis is one tool used to improve financial decision making
and alert management about “issues.” Ratios use financial data to summarize
organizational performance and see how one organization’s financial indicators
stack up against its peers.
Statement of Cash Flows – reports information about the cash receipts and cash payments of an
organization during the reporting period. The statement of cash flows
categorizes revenue and expenditures based on three types of activity:
operating, investing and financing.
A company owned or controlled
by another company. A subsidiary is a separate legal entity. A division is not.
Tax: An amount paid to a government body.
Income tax is a portion or percentage of the net profit before taxes.
Franchise tax is a tax paid on the right to do business. It
may be a flat sum or be related to something like the amount of original
capital. It is not related to profits. Property tax is a tax levied on
the value of a company’s property or assets.
Sales tax is a tax collected by business as a percentage of the sales price and
then sent to the taxing government. The business acts as the tax collector. The
kinds of taxes are many and are limited only by the ingenuity of government
bodies. Taxes have a major impact on business results. As a general principle,
don’t make any decision for tax reasons that would not be a good decision
without tax considerations.
Capital: Current assets minus
current liabilities. In most businesses the major components of working capital
are cash, accounts receivable, and inventory minus accounts payable. As a
business grows, it has more accounts receivable and needs more inventory. Thus,
its need for working capital increases. Increases in working capital can come
from retained earnings, borrowing, or selling more stock.