ABSTRACT
Research
project examined the significance of accounting standard (SAS) in the
preparation of financial statement with special reference to Guinness Nig Plc,
Lagos. The most common report from external use are the financial statement
included in the annual report to shareholders (owners) and potential investors.
These
financial statement are prepared to confirm with generally accepted accounting
principles such principles have evolved over time or have been made acceptable
by decree from rule making body.
Accounting
principles result from an essentially political process.
The
government through the Securities and Exchange Commission (SEC) prescribes the
methods of accounting profession through its board, Nigeria accounting
standards boards also issue statements of accounting standards as guide for
preparing financial statements.
In
explanation of the above, the researcher examined the significance of -the
statement produced by the accounting profession's organ (NASB) and how they are
being complied with, its achievements and problems, hypotheses was also
conducted. However, form the findings of the study, it was discovered form the findings that accounting; standard
application in preparing financial statement have come to conclusion that it
contributes numerously not to the company Guinness Nig PIc, also on the nation's
economy as a whole.
TABLE OF CONTENTS
Cover page
Title page
Approval page
Dedication
Acknowledgement
Abstract
CHAPTER ONE:
INTRODUCTION
1.1 Background
of the study
1.2 Historical
background of the study
1.3 Statement
of the problem
1.4 Objective
of the study
1.5 Significance
of the study
1.6 Research
questions
1.7 Research
hypotheses
1.8 Scope
and limitation of the study
1.9 Definition
of terms
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
2.2 Conceptual
clarification
2.3 The
current FASB process in developing accounting standards
2.4 Standard
of financial accounting and reporting
2.5 Reconciliation
of recognized loss contingencies
2.6 Exemption
from disclosing prejudicial information
2.7 Effective
date and transition
2.8 Modification
to the standard setting process to improve private company financial reporting
2.9 Appropriateness
of particular accounting standards
CHAPTER THREE: RESEARCH METHODOLOGY
INTRODUCTION
3.1 Restatement of the research questions
3.2 Restatement of research hypotheses
3.3 Research design
3.4 Population of the study
3.5 Sample
size and sampling technique
3.6 Sample design and procedure
3.7 Data
collection instrument
3.8 Validation of instrument
3.9 Reliability of instrument
3.10 Method of
data analysis
3.11 Research
limitation
CHAPTER FOUR: PRESENTATION AND
ANALYSIS OF DATA
4.1 Introduction
4.2 Respondents
characteristics and classification
4.3 Test of hypotheses.
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.0 Summary
of findings
5.1 Conclusion
5.2 Recommendations
5.3 Suggestions
for further studies
REFERENCES
APPENDIX
CHAPTER ONE
INRODUCTION
1.1 Background to the Study
The basic
purpose of accounting standards is to facilitate the provision of financial
information about entities to enable investors, analysts, creditors and the
entities themselves to make informed decisions about the allocation of
resources. Accounting standards are essentially about disclosure and, in many
respects, are at the heart of market efficiency. Clearly, while accounting standards
assist preparers of financial statements by providing' a framework within which
to construct the statements, their prime importance is to assist users of the
statements to make meaningful assessments about the financial position of an entity. Users of financial statements
range from directors to investors, through to credit rating agencies.
Effective
financial reporting, which is essential to investor confidence, can only be
achieved if it is underpinned by relevant and well-designed accounting standards. As
the detail of financial reporting requirements is increasingly being left by
legislation to be filled in by accounting standards, the importance of
accounting standards is becoming accentuated.
Accounting
standards facilitate both the efficient day-to-day operations of individual
business entities and contribute to the efficient operation of capital markets.
At the firm
level, accounting standards improve the
accountability of individual business enterprises and their managements to investors and creditors. By promoting
accurate reporting, accounting standards assist the management of a business
entity to maximize the wealth of the entity Find to put in place effective and
efficient corporate governance arrangements. At a broader level, accounting
standards are central to the provision of accurate, transparent and reliable
information to the market as a whole. In this regard, a well-informed market
will generally be an efficient one.
Accounting
standards that result in the provision of accurate and comparable information
about the true financial performance and position of business entities promote
investor confidence and market integrity, thereby ultimately reducing the costs
of capital throughout the economy. Public confidence m the integrity of the financial
reporting framework is central to maintaining
and expanding a sophisticated domestic capital market.
1.2
Historical Background of the Study
Historically,
the debate over International Accounting
Standard
Commission standards has centered on qualitative issues. International accounting
standards commission have been perceived at times to be:
·
inferior in terms of underlying accounting policies;
·
incomplete and incapable of adoption without substantial support from
national standards and national regulatory bodies;
·
incapable of achieving the same
level of investor protection that currently exists in Australia;
·
Relaxed in terms of allowing alternative accounting methods to be used
thereby reducing the comparability of financial information; and have allowed the use of too many options in
the preparation of financial reports; are
incomplete there are gaps in the standards.
In light of
the above, the International Accounting Standard Commission agreed with in 1995
to a new work program designed to address the criticisms of
international standards particularly regarding gaps in their coverage. The work
program aims to produce a complete core set of standards by March 1998, and to
re-examine a substantial number of existing standards. The core set of standards being
developed are primarily for cross-border offerings and listings.
International
has indicated that its endorsement or International Accounting Standard
Commission standards will be withheld until such time as a core set of
acceptable standards are in place.
International
has given the International Accounting Standard Commission a deadline of the end of 1998
in this regard.
In the US
context, it is interesting to note that the US Congress recently passed the
National Capital Efficiency Act 1996, which
draws attention specifically to the accounting problems facing issuers seeking
to raise capital across international borders. The US Securities and Exchange
Commission (SEC) is to report back to Congress later this year on the progress
of the development of accounting standard.
The
development of accounting standards that enhance efficiency, Expansion and international
competitiveness of Australian business while at the same time maintaining investor
confidence;
The
composition and funding of the Australian Accounting Standard Board (AASB) and
the need for greater industry and user participation;
The
relevance and usefulness of existing accounting standards to contemporary conditions.
The extent
to which accounting standards should be strictly prescribed and whether there is scope for individual companies to be permitted or
required to determine the level and type of disclosure which is appropriate for
those companies; and whether Australia should continue to develop its own set
of standards or whether international standards should be used as a basis and
adapted to Australian conditions where necessary.
This paper
proposes an accounting standard setting framework for Australia which requires
the involvement and support of all stakeholders in financial reporting. The restructuring
of the existing regime gives rise to a range of associated issues including
consideration of the role of accounting standards, the institutional
arrangements tor standard setting in Australia, the funding of the accounting standard
setting process, compliance with accounting standards, the separation of the
setting of accounting standards for public and private sector entities and future
developments.
Effective
financial reporting, which is essential to investor confidence, can
only be achieved if it is underpinned by relevant and Whilst
Australian accounting standards have sometimes been criticized as being too
detailed and complex, this does not
necessarily mean that they are fundamentally flawed. Feedback to the Government
from business and international standard setters suggests that the form arid
content of Australian accounting standards are broadly consistent with those existing
in other countries with sophisticated capital markets.
Accordingly,
it would be inappropriate to consider a wholesale or fundamental change in the
way standards are written. However, there may be scope for better targeting and
design of particular standards. Just as financial reporting must be dynamic and
responsive to the needs of users, so must be the accounting standards upon
which the financial reporting framework is based. The question, therefore,
arises as to how to ensure that accounting standards are meeting the needs of
users who are increasingly demanding a higher level of sophistication and
reliability of financial reports.
The
legislation that establishes the Australian Accounting Standard Board, the
Australian Securities Commission Act 1989, does not provide any indication to the Australian Accounting Standard Board
as to the purposes of or the objectives to be achieved by, the accounting standards it is required to prepare. In
this regard, it is desirable that the standard setter be given
greater guidance as to what accounting standards should be designed to achieve.
Whilst clarification of the objectives of accounting standards would not
guarantee the production of high quality and relevant standards, it could go a
fair way down that track. In light of the above, and to ensure that the
standard setter has regard to the objectives of accounting standards, it should
be specifically stated, either in the charter of the standard setter or in the
legislation under which it is established, that in designing accounting
standards, the standard setter should seek to ensure that compliance with
accounting standards leads to the production of relevant, reliable, neutral and
comparable financial information for users of financial statements.
Accounting
standards are becoming more prescriptive, partly because of the tendency for
them to be interpreted from a. strictly legal perspective rather than a commercial one.
It seems that a vicious circle is being created in this regard because
preparers of financial statements are increasingly relying on adherence to the
black letter of the standard s to protect themselves legally, rather than
following the spirit of the standards.
A way of
addressing this issue could be to explicitly provide in legislation that
accounting standards should be interpreted from a commercial-perspective and
not just a purely literal 0" legal one. By a commercial
perspective, it is intended that more weight should be given to the objectives of the
standards and what is generally considered in the relevant market to be good
commercial practice. This may give comfort to the preparers of financial
statements who might then more willingly follow more principled-based
standards. The standard setter may also be more inclined to set less
prescriptive standards if it does not feel the pressure of having to foresee every eventuality
or address every possible evil when developing a standard.
1.3 Statement of Problem
Having
identified the background to the research study, it is considered necessary to
get the problem stated:
(1) The problem of the significance
of accounting standard on organization corporate reputation.
(2) The problem of the significance
of accounting standard contribution toward the organization growth and
development.
(3) The problem of the effect of
significance of accounting standard on the creation of competitive advantages.
1.4 Objective
of the Study
The purpose
of the study IS to carryout findings on the analyzed
problems with a view of recommending a progressive course of actions
(1) To
determine the effect of significance of accounting standard on the creation of
competitive advantages.
(2) To
determine the effect of significance of accounting standard on the creation of
competitive advantage.
(3) To
ascertain the effect of significance of accounting standard on the
profitability level of an organization.
(4) To evaluate the extent to which
corporate reputation of the organization is being improved by significance of
accounting standard.
1.5
Significance of the Study
The various
importance of this study is outlined below:
It should
be specifically stated, either in the charter of the standard setter or in the
legislation under which it is established that, in designing accounting
standards, the standard setter should seek to ensure that the standards lead to
the production of:
·
relevant;
·
reliable;
·
neutral; and
·
comparable
·
Financial information for the users of financial statements.
A
cost/benefit analysis should be undertaken by the standard setter in the
development of each accounting standard. In undertaking the cost/benefit analysis, consideration
should be given to whether the proposed standard is suitable for all entities
required by legislation to prepare financial statements in accordance with
accounting standards, or whether the proposed standard should only apply to a
specific class of entity.
It should be made clear in legislation
that accounting standards should be interpreted from a commercial perspective
to promote compliance by preparers of accounts, not only with the black letter
of the standard, but also its overall purpose.
1.6 Research Questions
The
fundamental research questions include the following:
(i) To what
extent has significance of accounting standard improved the profitability level
in the organization?
(ii) What effect does significance of
accounting standard have on the corporate reputation of the organization?
(iii) What are the significances of
accounting standard in creation of competitive advantages in the organization?
1.7
Research Hypotheses
The research
hypothesis includes the following:
Hypothesis
One
Ho:' Accounting standard does not improve
the profitability level of the organization.
Hi:
Accounting standard Improves the profitability level
of the organization.
Hypothesis
Two
Ho: Accounting standard does not improve the corporate
reputation of the organization.
Hi: Accounting standard improves the corporate reputation of
the organization.
Hypothesis
Three
Ho: Accounting standard does not create competitive
advantages in the organization.
Hi: Accounting standard create
competitive advantages in the organization.
1.8 Scope and Limitation of Study
This
research work will be limited in depth and coverage to the bank in view,
Guinness Nigeria plc operating in Lagos area. The business environment in this case shall
include the employees, customers or clients, competitors and
vendors while such other variable like economic, social and political
environment will not be considered in the study area regarded as fixed.
The
research work shall Endeavour to make both the descriptive and empirical
analysis of the efficient and effective significance of accounting standard in
the organization with special emphasis being placed of Guinness Nigeria plc.
The
limitation of the study shall be time constraint, inability of customers to
provide relevance information.
1.9 Definition of Terms
This part
of the chapter will be focused on bringing out a better understanding of the
term which has been used in the process of the writer up of these chapter.
Accounting:
is the art of recording transactions
in the best manner possible, so as to enable the reader to arrive at judgments
/ come to conclusions, and in this regard it utmost necessary that there are
set guidelines. These guidelines are generally called accounting policies. The
intricacies of accounting policies permitted Companies to alter their
accounting principles for their benefit. This made it impossible to make
comparisons. In order to avoid the above and to have a harmonized accounting
principle, Standards needed to be set by recognized accounting bodies. This
paved the way for Accounting Standards to come into existence.
Disclosure
of Accounting Policies: Accounting Policies refer to specific accounting principles and the method
of applying those principles adopted by the enterprises in preparation and
presentation of the financial statements.
Valuation
of Inventories: The objective of this standard is to formulate the method of computation of
cost of inventories / stock, determine the value of closing stock / inventory
at which the inventory is to be shown in balance sheet till it is not sold and
recognized as revenue.
Cash Flow
Statements: Cash flow statement is additional information to user of financial
statement. This statement exhibits the flow of incoming and outgoing cash. This
statement assesses the ability of the enterprise to generate cash and to
utilize the cash. This statement is one of the tools for assessing the
liquidity and solvency of the enterprise.
Net Profit
or Loss for the Period, Prior Period Items and change in Accounting Policies: The objective of this accounting
standard is to prescribe the criteria for certain items in the profit and loss
account so that comparability of the financial statement can be enhanced.
Depreciation
Accounting: It is a measure of wearing out, consumption or other loss of value of a
depreciable asset arising from use, passage of time. Depreciation is nothing
but distribution of total cost of asset over its useful life.
Construction
Contracts: Accounting for long term construction contracts involves question as to
when revenue should be recognized and how to measure the revenue in the books
of contract of construction starts in one year and is completed in another year
or after 4-5 years or so. Therefore question arises how the profit or loss of
construction contract by contractor should be determined.
Revenue
Recognition: The standard explains as to when the revenue should be recognized in profit
and loss account and also states the circumstances in which revenue recognition
can be postponed. Revenue means gross resources by other yielding interest,
dividend and royalties. In other words, revenue is a charge made to customers /
clients for goods supplied and services rendered.
Accounting
for Fixed Assets: It is an asset, which is:- Held with intention of being used for the
purpose of producing or providing goods and services. Not held for sale in the
normal course of business. Expected to be used for more than one accounting
period.
Accounting
for Investments: It is the assets held for earning income by way of dividend, interest and
rentals, for capital app recitation or for other benefits.
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