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THE COMPLIANCE OF ACCOUNTING STANDARDS AND ITS SIGNIFICANCE IN THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

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 Format: MS WORD ::   Chapters: 1-5 ::   Pages: 81 ::   Attributes: Questionnaire, Data Analysis,abstract, table of content, references ::   199 people found this useful

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CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

The prevailing environment that business enterprises operate in and the factors that influence their activities in contemporary times differ from what was obtainable a few years back. In the past accountants predominantly concerned themselves with written expression of the arrangements of business affairs to enable owner of businesses evaluate how well or badly such businesses were doing as well as keeping financial records and curbing incidences of fraud.

        Globalization of the world economy and the internationalization of business activities resulted in an unprecedented increase in the scope and complexity of business activities which in turn broaden the roles of the accounting profession. The scope and uses of financial statements had to be expanded to meet the emerging needs of users for purposes such as comparison, forecasting and decision making.

        The changes and continued development in accounting techniques, methods, principles and thoughts are thus by no means accidental or by chance rather, they are responses to the growth and development of business activities. While it is important that accounting remains responsive to prevailing changes, it is of equal importance that such responsiveness do not in any way compromise the credibility and reliability of information contained in financial statements.

        This unfortunately seemed to be the case as accountants prepared financial statements and treated similar transactions with a wide range of differences since there was no body of rules that governed and stipulated how financial transactions were to be recorded and treated in the course of preparing financial statements.

        It was common to hear of instances where with similar financial data of a particular period relating to the same business organizations, accountants prepared financial statements and arrived at conflicting results ranging from profits to losses. The take over bid made by General Electric Company (GEC) on Associated Electric Industry (AEI) illustrates how misleading financial statements were. AEI had made a pretax profit forecast in 1976 of $10 million, ten months into the year the profit was supposed to have been realized indicating that much of the money had already been realized. When GEC eventually took over AEI, GEC now prepared a financial statement with the same data which showed a loss of $4.5 million. A staggering difference of $14.5 million (Clarke, 1986.36).

        Users of information contained in financial statements made their displeasure at the situation known, and it did not take long before they unanimously clamoured for a solution. The following comments credited to captains of some world class companies in excepts reported in the 1993 Annual Review of the International Accounting Standards Committee (IASC) reflected users level of dissatisfaction. “The degree of divergence in accounting policies and levels of disclosures (by the world’s major airlines) complicates analyses and may lead to incorrect interpretations and conclusions” – KPMG. “Information in different country financial statements generally is not immediately comparable because the statements are using different methods of accounting” – Patricia McConnell, Managing Director, Bear Stearns, U.S.A.

        Michael Lafferly and David Laons (1980) in their world survey and Annual Reports were straight forward in their demands by saying “a need for common and generally accepted accounting and reporting standards is painfully obvious. For it is extremely difficult and in very many cases impossible, for fair comparisons to be made between companies from different countries”.

        In response to such agitation and in order to remain the language of business, it became imperative that the information accountants communicate to interested parties via financial statements be understandable, comparable, reliable and useful in making decisions. The harmonization and convergence exercise of the accounting profession that followed capitulated in what is now referred to as Accounting Standards.

1.2   STATEMENT OF THE PROBLEM                

The quality of financial statements depend on the accounting standards on which they are based (European Central Bank 2006:9). A good financial reporting system must meet the requirement of accounting standards both in the preparation and compilation stages.

        Although there has been improvement in the level of control regulators of the country’s financial sector such as the Central Bank of Nigeria (CBN), The Nigerian Accounting Standards Board (NASB), The Securities and Exchange Commission (SEC) and the various professional bodies exercise today over stakeholders in the financial sector, more need to be done to reduce drastically unethical practices that have over the years undermined financial reporting on the country.

        As soon as confidence from the local community and more importantly the international community can be secured, the investment climate and business environment can be properly studied and appraised using financial statements prepared in the country in making decisions that would have tremendous positive impact on the economic growth and development of the country.


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Paper Information

Format:ms word
Chapter:1-5
Pages:81
Attribute:Questionnaire, Data Analysis,abstract, table of content, references
Price:₦3,000
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