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
Title Page i
Table of Contents vi
Chapter One: Introduction 1
Chapter Two: Review of Related Literature 14
Shareholder or Investors 17
Chapter Three: Research Method and Design 38
Chapter Four: Data Presentation, Analysis and
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
Financial accounting includes the accumulation of historical records technically referred to as stewardship accounting. These historical records form the embodiment of financial statement.
Financial accounting 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.
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 making process.
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:
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.
The financial 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:
The following hypotheses are to be tested.
Ho: Null hypothesis
Hi: Alternative 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.
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 accounting information.
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.
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.
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.
For the purpose of clarity and understanding, it is deemed expedient to define some technical terms used in this project work.