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CHAPTER ONE
1.0
INTRODUCTION
1.1BACKGROUND OF THE STUDY
Every business organization whether in the public or private sector is
established to achieve certain objectives. This could be profit maximization
as in the case of the private sector or efficient and timely provision of
essential services at a reduced price, as in the case of the public sector.
The performance of such business organization has to be reported in
monetary terms to the owners of the business. (For example, shareholders in
the case of private organization or the government as in the case of public)
Accountancy plays a vital role in the stewardship of an organization.
Accounting has been defined as the process of recording, classifying,
reporting and interpreting the financial data of an organization. While it is
important for the accountant to have a sound knowledge of this phase of
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accounting process, it is often a relatively minor part of his total attention to
the management reporting and interpretation of the meaningful implication
of the data. (Welgenbad and Dittrich 1973:4)
Accounting is therefore basically regarded as a language of communication
in an organization like every system of communication; its main purpose is
to give different types of information to interested persons. Because of this
main purpose, accounting forms a major part of the total information system
in any entity, be it business or non-business. (Inanga 1983)
However, the following problems are encountered in the process of
communicating this information.

As the information needs of these various groups do not tally,
there are conflicts of interest among the various users of financial
statements.
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
The problem of subjectivity in preparing the financial
statements. Thus, it becomes necessary that in preparing the financial
statement, the accountant be guided by some basic assumptions,
principles, concepts and conventions in other to ensure a high degree
of standardization in financial reporting.

Financial accounting involves the accumulation of historical
records which is technically referred to as stewardship accounting.
These historical records for the embodiment of financial statement.
Financial statements are the means of communicating to understand
parties’ information on the resources, obligations and performance of
the reporting entity. (SAS2).
In preparation of these financial statements, certain assumptions, concepts,
conventions and principles which provide the essential framework for
expressing accounting information are used. This include:o
The money measurement concept
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o
The going concern concept
o
The business entity concept
o
The realization concept
o
The dual aspect concept
o
The accruals concept
o
Prudence concept
o
Consistency concept (Frame word 1998:82-85)
These accounting concepts and conventions are seldom disclosed on the
financial statement because they are generally accepted as being the
undertaking of periodic preparation and presentation of financial statement;
but, if in preparation and presentation of this financial statement, the
fundamental concepts and conventions are not followed, problems will arise
in analysis, interpreting and reporting financial statements. It is therefore
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essential for the understanding that the interpretation and meaningful
analysis of financial statement that these basic concepts, assumptions,
principles and conventions used in the preparation must be constantly borne
in mind.
1.2
STATEMENT OF THE PROBLEMS
The following problems are encountered in the process of communicating
information.

They will be problem of having more meaningful and reliable
financial report.

It will lead to misunderstanding of how transactions are
accounted for.

There will be problem of having useful information for making
economic decision.
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
It can lead to conflict of interest among the various users of
financial statements, if their information needs do not tally.
To this end, the problem of the study is that most accountants do not use
accounting concepts and conventions properly in the preparation of financial
statement.
1.3 THE OBJECTIVE OF THE STUDY
The importance of accounting concepts and conventions in the preparation
of financial statement could be seen in the assessment of financial viability
of an organization. The accountant prepares the financial statement of most
organization. Accounting concepts and conventions help the accountant in
giving relevant financial report to the management of any organization as
regards financial report to the management of any organization. In order to
demonstrate the role of accounting concepts and convention producing a
viable financial report of any going concern, the following objectives are set
out in this study:-
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
To determine whether accounting concepts and conventions
serve as a guide in the preparation of financial statement.

To ascertain if accounting concepts and conventions assist the
provision of useful information for making economic decision.

To determine whether accounting concepts and convention help
in the understanding of how transactions are accounted for.

To determine whether accounting concepts and conventions
make financial reports more meaningful and reliable.
1.4 SCOPE OF THE STUDY
These examines how accounting concepts and convention help in the
preparation of financial statement which are used in decision making and for
evaluation of financial strength, profitability, and future protection of the
organization.
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However, it was not possible to cover all organization that use accounting
concepts and convention in Nigeria. This is because much energy is
required, it is expensive as well as time consuming.
The Nigeria Breweries PLC having been selected, the researchers’ attention
was focused on the accounting department of the company. The purpose
being to see how the accountant, prepares financial statement and to
determine the effectiveness of the use of accounting concepts and
convention in the preparation of financial statement, in other to attain
corporate goals.
1.5
SIGNIFICANCE OF THE STUDY
As stated earlier, an understanding of the basic principle, concept,
assumptions and conventions and their role, relevance to the preparation of
financial statement is essential to the understanding, interpretation and
meaningful analysis of financial statement. This study highlights the
relevance and importance of these concepts and convention in financial
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reporting, thus enticing a better understanding of the usefulness of the
financial statement to the various users of accounting information. These are
the benefits the various users of financial statements gets;

It provides the framework for constructing financial report.

It provides useful information for making economic decision.

Is useful for analysis of the Organizational financial statements.

Is useful in making financial reporting and useful tool for
decision making.
Furthermore, this study provides a better understanding of the desire for
objectivity which is often at the desire for objectivity of the financial
accounting method in use at the present time
1.6
RESEARCH QUESTIONS
The research questions are as follows:-
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
Does accounting concepts and conventions provide framework
for constructing financial report?

Does accounting concepts and conventions allow for
consistency in the preparation of financial report?

Does accounting concept and convention make financial report
useful for decision making?
1.7
DEFINTION OF TERM
The following words are defined as to be used in the study:
ACCOUNTING CONCEPTS: Accounting Concepts are
concepts that are associated with measurement of the elements of
financial statements. These are various concepts and convention in
accounting all of which are useful in solving practical accounting
problems.
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
ACCOUNTING CONVENTIONS: They are the generally
accepted approaches in applying the accounting concept.

CAPITAL EMPLOYED: This is the amount available for
production. It represents the total less current liabilities employed in
the business.
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CHAPTER TWO: LITERATURE REVIEW
2.1
FINANCIAL REPORTING – AN OVERVIEW
Accounting began as a purely practical exercise of stewardship. Double
entry bookkeeping evolved in Italy in the 13th century, but spread over
Europe after Bacioli, a Franciscan Irion published sun made arithmetical in
1404 a book which include some chapters in accountancy.
The growth of large scale business in the 19th century and government
legislation to control them had the development of accounting for income,
expenditure and asset was required.
In the early 20th century, the information needs of share holders assumed an
increasing importance especially in the wake of the Wall Street crash of
1929. In Britain, the legal requirement of set of published accounts were
imposed by the companies’ act of 1948, while in Nigeria it was the 1968
companies’ act and the later adapted (CAMA) 1990.
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Major items to be disclosed in these accounts were specified (ACCA study
text 1987:3). The act did not state the study by which these items should be
valued or treated. Accounts were expected to apply Generally Accepted
Accounting Principles (GAAP) which is embodiments of rules, conventions
and practice developed over time by the accounting profession. They serve
as general guideline in the preparation of financial report.
2.2
DEFINITION OF ACCOUNTING
According to Ubaka (1998:13), Accountancy is defined as the measurement
and communication system used to provide economic and social information
decision leading to maximum allocation of resources and accomplishment of
the entities’ objective.
John, (1974:19) One aspect of accounting involves the systematic recording,
classifying and summarizing of the transaction that affect a business unit and
this transactions serves as the basis for the company’s finance which are
called financial statement.
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Nwabueze(1997) includes that accounting is a systematic means of writing
an economic history and plans of an organization in both quantitative and
financial manner so that facts can be revealed and properly analyzed such
that facts for the purpose for advising management.
The accountant is responsible for directing, controlling and coordinating the
work of the book-keeping staff. It is a post of his duty to prepare periodical
account such as trading, profit and loss account and other financial statement
in a form, which will be of assistance to the management not only in
appraising past result but in formulating future policy.
Mill champ (1990:482) defines accounting as a set of theories and
techniques by which financial data are processed into information for
reporting, planning, controlling and decision making purposes.
In the researchers view, accounting can be simply seen as a systematic
recording of business transaction in such a way to show the financial
position of the business at the end of the year (transaction year).
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2.3
ACCOUNTING CONCEPTS AND CONVENTIONS
Accounting concepts and conventions or principles represent uniform guide
to action while procedures are the methods by which action is taken
(Kennedy at al 1973:14). According to Ajilege, Adelife and Oluwasani
(1997: 3), accounting concepts and conventions are “the basic assumptions
that underline the periodic financial statement of business enterprises IASI
SASII. They are the rules regulating the manner in which transactions are
recorded. They are the basic ideas to a proper understanding of accounting.
The trading and profit and lost account with the balance are prepared for
these general accepted assumptions
THE BASIC ACCOUNTING CONCEPT
They are seven basic concepts which form the bedrock in our present system
of accounting. They are: Historical cost concept
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 The money measurement concept
 The going concern concept
 The business entity concept
 The realization concept
 The dual aspect concept
 The accrual concept
HISTORICAL COST CONCEPT: Cost concept is a means through which
assets are normally shown as cost price and this is the basis for assessing the
future usage of the asset.
THE MONEY MEASUREMENT CONCEPT: Accounting is only
concerned with those that can be measured in monetary terms with a fair
degree of objective. This means that accounting can never show the whole of
the information needed for the business or how well it is being conducted.
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THE GOING CONCERN CONCEPT: Accounting always assumes that the
business will continue to operate for an indefinitely long period of time.
Past experiences indicate that the continuation of operation, the future is
highly probable for most companies. Thus it is assumed that the business
will continue to operate at least long enough to carry out the existing plans
and commitment (Helm alp ET al1986:499).
IASI explains this going concept to mean that an enterprise will continue in
operational existence for the foreseeable future .It is assumed that enterprise
has neither the intention nor the necessity of liquidation of curtailing
significantly the scale of its operation (ISAI).
THE BUSINESS ENTITY CONCEPT: The business entity exists to enable
accounting statements to be complied in respect of an accounting entity, the
entity must be deemed to separate and whether or not the entity actually
enjoys a district, Personality in law. (ANAO 1989:20x21).He further
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explained that the entity concept and its owner as a fundamental importance
in accounting and the presentation of meaningful statement.
THE REALIZATION CONCEPT: In accounting profit is normally regarded
as being earned at the time when the goods or services are passed to the
customer and the incurred liabilities are passed to the customers and the
incurred liabilities for them i.e. this is the point at which the profit is treated
as being realized. Note that it is dependent on waiting until the customer
pays for the goods and services.
DUAL ASPECT CONCEPT: This states that there are two aspects of
accounting, one represented by the assets of the business as the other by the
claims against the concept states that these two aspects are always equal to
each other. In other words, assets = liabilities + capital.
THE ACCURAL CONCEPT: The net profit is said to be difference between
revenue and expenses rather than between cash receipts and expenditure is
known as the accrual concept, people not well versed in accounting
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particularly misunderstand these concepts to many of them, the accrual
payment of an item in a period is taken as being matched against revenue of
the period when the net profit is calculated.
The concept hold that for any accounting period, the revenue and the costs
incurred must be matched and reported for the period. If revenue is carried
out over from a point period or differed to future period all elements of cost
and expenses relating to the revenue are usually carried over or differed
(IAS ISS).
THE BASIC PRINCIPLES/CONVENTIONS
Eight basic convention or principles constitute the basis for development of
accountancy practice and procedures.They are:

The objectivity convention

The historical cost convention

The revenue convention
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a.

The consistency convention

The matching convention

The conversation convention

The full-disclosure convention
OBJECTIVITY CONVENTION: This concept hold that an
accounting statement should not be influenced by personal bias on the part
of the accountant who complies it(PRR en 1985:15).Figures presented are
real and can be proved by documentation and recording the transaction.
Although accountant use judgment when drawing up a set up for account,
such enterprise are applied to ensure a current result.
Financial statement figures should rely as possible on estimates or subjective
decision.
An example of the objectivity convention is the assets of what is recorded in
the book which also is consonants with the historical cost convention.
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b.
HISTORICAL COST CONVENTION: According to the cost
principle, the acquisition cost or historical cost convention is the
appropriation valuation basis for recognition of the acquisition of all goods
and services expenses cost and equities. This implies that items are valued at
the exchange price at the data of acquisition and is recorded in the financial
statement at cost is the amount measured in money of cash expended or
other property transferred capital stock issued, services recorded or to be
received (Belkaou 1985:22)
c.
REVENUE CONVENTION: This includes all changes in the net
assets resulting from the revenue producing activities and other gains or loss
resulting from the sales of fixed assets and investments. Applying this view
accounting terminology bulletin No.2 AICPA (1955) defines revenue as
follows: Revenue results from the sales of goods and the rendering of
services and is tenets for goods and the services furnished to them. It also
includes gains from the sales or exchange of assets (other than stock in
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trade) interest and dividends earned on investments and other increase in the
owner’s equity except those arising from the contribution and capital
adjustment. The SASI gave a clear view of the convention by stating that the
role for the period recognition of revenue is as soon as:

It is capital of objective measurement and

The value assets received or receivable in exchange is reasonable
certain. It is possible to recognize revenue at a variety of point e.g. when
goods are produced, when goods are delivered or when the transaction is
competed events. Only when this event is passed can revenue be legitimately
recognized.
d.
CONSISTENCY CONVENTION: This convention tools that have
similar economic events should be recorded and reported in a consistent
manner from period to period. The convention implies that the same
accounting procedure will be applied similar items over time. Application of
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the consistency convention makes financial statement in that similar
procedure are used over time (Belkai 1985)
e.
CONSERVATION CONVENTION: In reading a decision,
accountants rely in the convention described earlier as efforts to make a fair
presentation of the factual effects of the transaction. A situation where this
approach fails and doubt exists; accountants apply the convention of
conservation, which states in essence, when in doubt choose the solution that
is least likely to overstate net assets and net income for the current period
reporting of factual report over application procedures in current and
misleading results both in the current and future accounting period
(Helmkamp et al 1986:58)
f.
THE MATCHING CONVENTION: The purpose of the matching
sometimes called Accrual Convention is to match efforts to
accomplishments by setting the cost of resources used up by a certain
activity against the revenue or benefits received from the activity, profit
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statement should be complied in a manner that expenses and revenue are
matched up with which concern the same goods and time period for true
profit to be computed (Pizzy 1985:18)
Cost affecting a future period must be carried forward as pre-payment of that
period while expenses of the current period not yet entered in the book of
accounts is estimated and inserted as accruals.
SSAP? Stresses that conservation convention prevails over the matching
convention where conflicts exists.
g.
MATERIALITY CONVENTION: This concept, calls for the
recording of transactions of which is worthwhile. Certain items like stamp
pad ink pencil etc are usually cheap and they last long before they are used
up. They cannot be compared with more tangible assets like motor vehicle;
equipments and furniture etc.The cost of the former items are used up each
time a person makes use of them. It happens that their prices are so small
that the efforts of having to record such use is not worthwhile.Thus, they are
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regarded as not being material items. For this reason, the incurred as
expenses in the period of purchase at once, even though they may last for
many years.
h.
FULL-DISCLOSURE CONVENTION: The general consensus of
accounting is that there should be “full”, “fail” and “adequate” disclosure of
benefits received from that accounting activity against the revenue received
from that activity data. Full disclosure requires that financial statement be
designed and prepared to portray accurately the economies events that have
affected the firm for the period and to contain sufficient information to make
this useful and not misleading to the average investor. Full-disclosure
convention explicitly implies that no information of substance or of interest
to the average investor will be concealed (Belkaoni 1988:237)
2.4 THE MEANING OF FINANCIAL STATEMENT
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According to Walter and Robert (1981) financial statements are means of
(accounting) conveying to management and to the interested outsiders, a
concise picture of the profitability and financial position of the business.
The Statement of Accounting Standard (SAS2) define financial statement as
the means of communicating to interested parties information on the
resources, obligation and performances of the reporting entity.
In the same view, Eugene (1974: 17) define financial statements as that
which represent information about the result of the company’s activities and
operation for a specific period for use in decision making.
The American Institute of Certified Account Act (AICPA) (Issued Opinion
1936:1) said that that the purpose of presenting a periodic review or report
on progress by the management and deal with status of investment in the
business and results achieved during the period under review.
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In researcher’s view, financial statement is means of conveying financial and
related information about the activities of an interested parties or users in
making sound informal economic decision. It cal also be understood that
financial statement is also a clue to reports of management to indicate the
resource owned by a company, the claims of the creditors against those
resources expressed as company’s’ debts and the financial interest that the
owner or owners has in the resources.
2.5 CLASIFICATION OF FINANCIAL STATEMENT
According to Glean and Robert (1977:19) financial statement often
classified as:
 Internal(i.e. management Accounting Statement)
 External (i.e. Financial Accounting)
2.5.1INTERNAL FINANCIAL STATEMENT
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These are not given to parties outside the entity. They are used exclusively
by the organization and are prepares the direction of managers of the entity
therefore there are prepared to meet separate and specific internal policies
and guidelines established by these managers.
2.5.2 EXTERNAL FINANCIAL STATEMENT
They are the end product of an accounting system. They are given to parties
(i.e. external decision makers) outside the entity which include stakeholders
and creditors. External parties are unable to specify guidelines for
preparation of statement. The information presented on external financial
statement must present information that is relevant to economic decision, i.e.
they must be useful for predicting the future success and failures of the
business.
2.6 OBJECTIVES OF FINANCIAL STATEMENT
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Financial reporting has it not been for the problem created by the grant of
joint stock company status to business and the separation of ownership and
management of such companies which resulted. Having it root in law, the
early objective of financial reporting were concerned with the prevention of
funds by the promoters and managers of joint stock companies and giving
some protection to creditors and shareholders against the possibility of
malpractice by company managers.
Though financial reports are published for the benefit of shareholders, other
user groups may use the information they set in.
According to Granter and Under down (1978: 549-550), The study and
objectives of financial statement which was established in 1977 by the
American Institute of certified public accountant (AICPA) stated in the true
blood report of !975 that accounting is not an end in itself. As an information
system, the justification for accounting can be found only in how well
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accounting information served those who use it. Thus, the study group with
the conclusion drawn by many other study group that:
 The basic objective of financial statement is to provide information
useful for making economic decision.
 To service primarily those users who have limited authority (ability or
resources to obtain information their principal source of information
about an enterprise economic resources, the claim to those resources),
the claims to those resources (obligations) and the effects and
circumstances that change resource and claim to resources.
 To provide understandable information which will aid investors and
creditors in predicting, comparing and evaluating potential cash flows
of a firm in terms of amount, timing and related uncertainty.
 To provide users with information for predicting, comparing and
evaluating enterprise earning power.
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 To supply information used for judging management ability to utilize
enterprise resources effectively in achieving the primary enterprise
goal.
2.7 CHARACTERISTICS OF FINANCIAL INFORMATION
If financial report is to be useful and to fulfill their fundamental objective, it
is believed that it must possess some essential qualities. The following show
in the diagrammatic form the structure adopted. The numbers in each box
refer to an observation.
THE QUALITATIVE
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CHARACTERISTICS OF ACCOUNTING INFORMATION
WHAT MAKES ACCOUNTING INFORMATION SYSTEM USEFUL
Quality
Materiality (9)
Information which s material cannot be useful
RELEVANCE (2)
RELIABILITY(3)
More of one may mean less of other
MATERIALITY: Materiality means that if omission or misplacement of
an information would influence a decision then it is material’s information
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which is non-material and is therefore not useful and beyond the threshold
for decision.
RELEVANCE: To be useful, information must be relevant to decision
taking needs of the users. Relevance relates to the influence of information
on the users’ evaluation events past, present or future. This evaluation can be
influenced by the way items in an account are presented.
RELIABILITY: Reliability means errors and bias which users conform to
description which they can rely on. It is clear that information may be very
relevant but unreliable. Example: A betting at a horse raise. Reliability may
not ensure relevance example, with table analysis of last year’s performance
may exclude every important indicators of future potential, such as new
management in position. Relevance and reliability are primary
characteristics of accounting information.
PREDICTIVE OR CONFIRMATION VALUE: Predictive value means
an analysis of current or past performances to predict a future outcome. The
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same information can be used to confirm whether predictions in the past
have come to true. Confirmatory value is the secondary i.e. checking past
predictions.
CHOICE OF ASPECT: The term “choice of aspect” implies that they may
be significant choice for the preparation of account as to which aspect of
transaction to represent. For example, business might be a new building in a
good position for trading and on which it owns the threshold. Another
relevant piece of information is that property is in an area proposed for a
new motor way and could well be the subject of a compulsory purchase
order. To be relevant, a user who wishes to value the business for future
prospect, both aspect of the information are relevant. Note that a simple
statement that the property was owned and showing its purchase price would
be a valid description and measurement and therefore reliable, so far at it
went.
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SUBSTANCE: Substance indicates that information should represent the
events in which its purpose is to represent initially. Sometimes, complex
legal arrangement may be centered into to obscure the ownership of assets.
To be reliable, the true operation and ownership of the asset and the
substance must be reflected in the accounts. Artificial legal transaction
should now obscure the substance.
VALID DESCRIPTION AND MEASUREMENTS: Although the title
indicate the intention, it is important to relate this aspect of reliability to note
5 “choice of aspect”. Valid description and measurement need applied to the
appreciate aspect of event.
COMPLETENESS: This indicates that information may be false or
misleading and as such not relevant.
PRUDENCE: Prudence implies a degree of caution (anticipating losses) in
the valuation of assets. In many cases, his is subjective as it relates to the
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future e.g in predicting doubtful debt, this aspect should not be used to overestimate potential losses and this misrepresent the effort of an organization.
In the second part of the chart, secondary characteristics, which if lacking,
would limit the usefulness of the information are shown the titles of are self
explanatory and are not discussed further in this text.
2.8.1 TYPES OF FINANCIAL STATEMENT
Financial statement is the means of communicating to interested parties
information on the resources, obligation and performances of the reporting
entity (SAS2). Financial statement consists of the balance sheet, profit and
loss account, sources and application of fund, statement and value added
statement, and historical financial summary.
THE BALANCE SHEET: According to Warboko (1993:1), “the balance
sheet, presents assets and liabilities of a firm as given data “. This view is
37
similar to that preferred by Anno (1981) “a balance sheet can be viewed in
two ways, both of which amount essentially to the same thing.
 It may be referred to as a summary of the assets held by an accounting
entity showing the manner in which these has been financed either
through owners fund or debt.
 Various parties and various classes of aspect which these amounts
invested or entrusted to an accounting entity.
 In conclusion (SAS2), seen in the balance sheet as a statement which
shows that assets, liabilities, and properties interest at a point in time.
In researcher’s own view, balance sheet can sometimes be called the
statement of financial position, lists of company’s assets, liabilities,
stakeholders, equity and stakeholder’s equity as at any specific moment in
time.
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THE PROFIT AND LOSS ACCOUNT: This statement is designed to
measure the result of transaction which has taken place between two sheet
dates. Since it shows the result of operations for periods of time, it is not a
statement as at, but for the year ended. It is the summary of all transaction
which has taken place during the period, not a statement to show the position
at one moment in time. (Pizzey 1985:31). The SAS2 sees the profit and loss
or income statement as a statement that revenue earning turnover and the
expenses of an enterprise for a given accounting period. The statement
summarizes the revenues and expenditure items and the difference between
them is called profit and loss. The basic objective of the profit and loss
account is to ascertain the net profit and loss of an accounting period. a net
profit would be obtained if the gross profit is greater than all expenses and
necessary provisions made on the other hand when the gross profit is less
than the expenses. Then the result is the less.
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THE NOTE TO THE ACCOUNT: They are integral part of the financial
statement. They usually give detailed information in respect of the item
disclosed in the profit and loss account and the balance sheet that cannot be
conveniently disclosed in these statements and also present information that
cannot be expressed in monetary terms and description of accounting
policies. Note to financial statement are required to be concise and clear and
exact.
Section 335(7) (AMD 1990) states “if the balance sheet or profit and loss
account drawn up in accordance with CAMD 1990 requirement would not
provide sufficient information, necessary additional information could be
provided in the balance sheet and profit and loss account.
SOURCES AND APPLICATION OF FUND: It is mainly designed to
report on the sources and the uses of fund section 335(3) that states
“statement of source and application of funds shall provide information on
the generation and utilization of funds by the company during the year.
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When the statement of sources and application of funds is taken together
with the balance sheet and the profit at the beginning and the end of a
financial period, it discloses movement in capital, liabilities and assets.
Jennings (1990:518) defines statement of source and application of funds as
“effectively classified list of changes both in the source of supply of funds
and the uses to which these funds are applied”. Explanatory note SSAD 10
stated that the objective of statement of sources and application of fund is to
show he manner in which the operation of a company has been financed and
in which its financial resources has been used. In a statement of source and
application of fund, the following are disclosed.
A.
SOURCES OF FUNDS

Fund generated from position

Adjustment for item not involving movement of cash

Funds from other sources
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B.
APPLICATION OF FUNDS
 Loan repayment
 Payment of taxation
 Payment of dividend
 Fixed asset acquisition
C.
NET INFLOW OF FUND
Represented by: Increase or decrease in working capital in respect of
 Stock
 Debtors and repayment
 Creditors and accruals
D.
MOVEMENT IN NET LIQUID FUNDS
 Cash (increase or decrease)
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 Bank overdraft (increase or decrease)
VALUE ADDED STATEMENT: The profit of an enterprise is seen as the
product of the combination of capital, labor and materials. The value added
statement is the wealth created by the effort of managers, employees and
shareholders. It provides a fund, which shareholders, employees, the
government and through reinvestment, received a share. It evaluates the
economic performance of an entity for a while. It shows the amount retained
in the business, amount distributed to the employees and the government are
also shown. The value added statement of one company cannot be compared
with that of others because of diversity in practice (as regards such items as
taxation and depreciation).
HISTORICAL FINANCIAL SUMMARY: The historical financial
summary, enable an instant comparison over a period usually five years of
vital information about an enterprise, particularly with regards to its
turnover, profit before and after taxation, dividend, assets employed, issued
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and paid up capital, reserves medium and long term liabilities, earnings and
dividend per share. Yearly financial summary is required to provide a report
or comparison over a period of five years or more on vital financial
information.
THE INCOME STATEMENT: According to Herman son, Edward and
Ray born (1989:180), “this sometimes called and earning statement report of
the profitability of a business organization for a stated period of time such as
month or year by comparing the revenue generated with the expenses
incurred to produce this revenue.
The income statement show sales, cost of sales, profit and tax while the
balance sheet show the total of fixed asset, current asset, current liabilities,
long term debts and equity values.
THE STATEMENT OF RETAINED EARNINGS: This is to explain the
change in retained earnings that occurred between two balance sheets. These
44
changes usually consist of the additional of net income and deduction of
dividend.
2.9 THE USES OF FINANCIAL STATEMENT
Financial statements are the means of communication to interested parties
information on the resources, obligation and performance of the reporting
entity or enterprise. The basic purpose of financial statement is to assist
decision makers in evaluating the financial strength, profitability and future
prospect of the business entity. Thus managers, investors, major customers
and laborers all have a direct interest in this report.
In 1974 The Accounting Standard Committee (ACS), set up a working party
to examine the scope and main aim of the published financial report in the
light of modern needs and condition. The conclusion published in June 1995
titled “the corporate report” clearly listed serve user groups which is adopted
for the benefit of this project work. They are:-
45
a.
The equity-investor group
b.
The loan – creditor
c.
The employee – group
d.
The analyst – advisor group
e.
The business – contact group
f.
The public
g.
The government
A. THE EQUITY-INVESTOR GROUP: This group includes existing
and potential shareholders as well as holders of convertible securities,
opinion and warrants.
B. THE LOAN – CREDITOR: They consist of existing potential holders
of the ventures and loan stock as well as provide short term secured
and unsecured loan.
46
C. THE EMPLOYEE – GROUP: This group is made up of existing
potential and past employees
D. THE BUSINESS – CONTACT GROUP: this group is composed of
customers, trade creditors and suppliers, competitors; business reveals
those interested in the mergers amalgamation and takeover.
E. THE ANALYST – ADVISOR GROUP: This group includes financial
analyst and journalist as well as other providers of advisory service
such as credit rating agencies.
F. THE GOVERNMENT: This includes tax authorities, local authorities
and those departments and agencies concerned with the supervision of
commerce and industry.
G. THE PUBLIC: This is perhaps the most controversial group and
includes, according to authors of corporate report, taxpayers,
consumers and other special interest group such as political parties. It
47
might be said that it constitutes a separate group since they advice one
or more of the main user group.
2.10 THE ROLE OF ACCOUNTING CONCEPT AND CONVENTION
IN THE PREPARATION OF PROFIT AND LOSS ACCOUNT AND
THE BALANCE SHEET
According to Harrison (1956:9) the double entry principle is the basis for
every proper accounting system throughout the whole world. The dual
aspect ensures that the balance sheet is correct always. He argued that the
accounting concepts and convention effects the preparation and presentation
of the balance sheet in various ways. The materiality concept for instance
enables certain items of expenses which are insignificant in nature that might
be recorded separately to be combined with other insignificant items and
classified as sunny or general expenses.
In order to ensure that personal transaction of the owner of a business is not
mixed up with the business transaction, the business entity concept provides
48
that the business is separated from its owner in the preparation and
presentation of balance sheet and other financial statements.
Mill champ (1989:415).Stressed that assets and liabilities are arbitrarily
included in a balance sheet on a subjective view of these assets and liabilities
and properly those of the business. Some assets e.g. motor cars are both
business and private assets. The balance sheet and profit and lost account
are drawn upon the assumption that there is no intention of necessity to
liquidate or curtail significantly the scale of operation in the near future.
Lee (1987:271-272), said under historical cost, assets are carried in the
balance sheet on he basis of actual or allocation sacrifice incurred and their
dates of acquisition are not limited to items expected with a high degree of
probability to produce for benefit.
49
2.11 THE PROFIT AND LOSS ACCOUNT
In the preparation of profit and loss account, accountants are expected to
take a conservative attitude of the concept of conservation when reporting
profit. This concept provided should not be anticipated but rather losses
should and allowances for such made in the accounts. The consistency
convention makes the method of recording and valuing used in the
preparation of profit and loss account to be consistence year after year. This
allows effective comparison to be made between different periods.
The accrual convention or the matching convention emphasize that the profit
and loss account is debited not with the amount actually paid as expenses but
also the amount due for that period in question.
It is not only by observing this role can a business be said to be with
working realistic profit and loss figure. Mill champ (1989:418) sees the
accrual convention as a consequence of the periodicity convention, revenue
and cost are recognized and included in the profit and loss as they are paid or
50
received in cash. The consequence is that there is inclusion of pre-payment
and accruals in the profit and loss account and balance sheet.
In conclusion it should be noted that a true knowledge of those concepts
would enhance understanding on how individual transactions are accounted
for and why they are handled in a specific way. Often, accountants are faced
with new or unusual complex transactions. Almost invariable the accountant
falls back in the concept and convention transaction (Fammer, 1981:352).
This is an understanding of these concepts and convention is essential in
understanding difficult accounting issues.
51
CHAPTER THREE
3.1 RESEARCH METHODOLOGY AND DESIGN
According to Osuala (1993:1) research is simply the process of arriving at
dependable solutions to problem analysis through a planned and systematic
collection, analysis and interpretation of data. Research is an important tool
for advancing knowledge, for promoting progress and for enabling man to
relate more effectively to his environment to accomplish his purposes and to
resolve his conflicts.
Research is oriented towards the discovery of the relationships that exist
among the phenomenon of the world. Research is devoted to finding the
condition under which a certain phenomenon occurs in what might appear to
be similar circumstance.
52
In the word of (Baryon, 1986) research methodology is the activity of
investigating the phenomenon of human experience which leads to new
knowledge using methods of enquiries which are accepted.
3.2 RESEARCH DESIGN
Research method adopted for this study is the simple survey method for
collecting data.
This method was used because the population for the study as senior and
management categories of staff in the company, who are to express their
views in the concepts contained in the questionnaire. It also gave the
respondent a chance of thinking out the answer at their own pace and
convenience.
Since this study is intended to obtain reliable scientific data on the role of
accounting concepts and convention in financial reporting of the Nigeria
53
Breweries Plc Enugu, the various finance and accounting department were
studied and that made the survey method most appropriate to the study.
3.3 POPULATION OF THE STUDY
The population which this study took was made up of 45 senior and
management categories staff of the Nigeria Breweries Plc Enugu this being
the overall population, a target sample was drawn from the population.
3.4 SAMPLE SIZE
A sample size of 40 senior and management category staff (respondent) was
systematically selected from the population. In all, a total of 40
questionnaires were distributed to 40 respondents.
Out of all the 40 questionnaires sent out, a total of 40 were returned.
54
DETERMINATION OF SAMPLE SIZE
The researcher used Yaro Yammane’s formula to arrive at the sample size
which is given as
S=
N
1 +N (e) 2
Subsisting for the formula
n=
45
1+45(0.05)2
=45
1+45(0.0025)
45
1+0.11.25
45
1.1125
Answer= 40.4
A total of 40 copies of questionnaire were distributed to the selected size.
55
INSTRUMENT USED IN DETERMINING THE SAMPLE SIZE
In order to determine the sample size of the research population, the
researcher used the Yaro Yamme statistical formula. This is a simple
mathematical method for determining sample size of a population. The
formula is expressed as follows;
n= N
1+N(e)2
Where; N=Total population
e=Error
n=Sample Size
3.4.1 SAMPLING TECHNIQUES
The selection of sample arises as a result of the bulky nature of the
population, as it would amount to wastage of scarce resources to conduct
100% study of the whole population.
56
The researcher adopted random sampling technique to ensure that authentic
findings are recorded.
3.5 SOURCE OF DATA
To make sure that relevant information is obtained, the researchers adopted
both primary and secondary data collection.
PRIMARY DATA
The primary data was collected from various categories of senior and
management staff of the NB PLC, Enugu.
The appropriate survey instrument used was the questionnaire. Another
survey instrument used was personal interview which was used to elicit
responses from related staff of the management category.
57
SECONDARY DATA
Secondary data were mainly published literature on the object of study. They
are collected from
a) Libraries
b) Accounting Journals
c) Various Books
d) Unpublished books e.g. Seminar Paper etc
3.6 RESEARCH INSTRUMENT USED
PERSONAL INTERVIEWS: The researcher conducted face to face
interview with the Accounting/Senior Management Staff of the Nigeria
Breweries Plc, Enugu.
58
QUESTIONNAIRE: A total number of 40 questionnaires was produced and
distributed according to the sample size of this for completion by the
respondents.
3.7 DATA ANALYSIS METHOD
In the processing and carrying out of this study, the data collected through
responses given in the questionnaire, were analysis and interpreted with the
following method.
TABULATION METHOD: This involves putting of the collected data into
similar and meaningful groups. From this, it can be understandable and its
significant value appreciates.
PERCENTAGE METHOD: The data collected from the respondents given
in questionnaire were analyzed on percentage basis. The percentage of
collected data in respect of each alternative was calculated against the total
response.
59
CHAPTER FOUR
PRESENTAION AND ANALYSIS OF DATA
This researcher topic “the role of accounting concept and convention in
financial reporting “allowed for the use of questionnaire and personal
interview for data collection. In analyzing the questionnaire all data co all
the responses that have closer explanation to the study will be analyzed.
4.1 ANALYSIS AND INTERPRETATION OF DATA
The analysis of data is a vital part of the research work. It series as the core
of research for the fact that it gives and sharp to raw data collected during
the data collection stage.
This is going to focus on the role of accounting concepts and convention in
financial reporting as tools for the attachment of organizational goals,
problems associated with accounting concepts and convention in financial
reporting are also going to be addressed in the analysis. A total of 40
60
respondents completed and submitted the questionnaire out of the 40 given
out.
The formula of the percentage method is = A/N X 100/1
Where A is the number of response
N is the sample size
TABLE4.1: Shows that random sampling distribution of the questionnaire
SAMPLING
SIZE
NUMBER
GIVEN
NUMBER
RETURNED
PERCENTAGE
(%)
Senior and
management
category of staff
(target
population)
40
40
100
TOTAL
40
40
100
TABLE 4.2
61
Question 1: What is your level of education?
AGE RANGE
FSLC
RESPONSE
PERCENTAGE (%)
-
-
WSCE/GCE
15
37.5
OND
10
25
BSc/MBA etc
15
37.5
TOTAL
40
100
This question shows that most of the respondents fall under WASCE/GCE
and B.Sc/MBA etc
TABLE 4.3
Question 2: What is the post you hold in the company?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
Manager
-
-
Accountant
8
20
Auditor
-
-
Supervisor
12
30
Account officer
20
50
62
TOTAL
40
100
This question shows that most of the respondents post in the firm is account
officer and supervisor.
TABLE 4.4
Question 3: Is there an account department in your company?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
40
100
NO
-
-
TOTAL
40
100
Hence all 40 respondents agreed in the company that there is an accounts
department. If therefore that there is exist an account department in the
organization that is charged with the responsibility of rendering accounting
and financial services to an on behalf of the company.
TABLE 4.5
Question 4: Is the account department sectionalized?
63
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
38
95
NO
2
5
TOTAL
40
100
This analysis shows that the accounts department is sectionalized.
TABLE 4.6
Question 5: Are you aware of accounting concepts and conventions?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
40
100
NO
-
-
TOTAL
40
100
The above analysis shows that all respondents are aware of accounting
concepts and conventions.
TABLE4.7
Question 6: Does your organization use Accounting Concept and
Convention?
64
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
38
95
NO
2
5
TOTAL
40
100
Based on the above analysis, it was observed 95% of the represents are
accounting concepts and convention.
TABLE4:8
Question 7: How often are Financial reporting prepared?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
QUARTERLY
10
25
ANNUALLY
24
60
MONTHLY
6
15
TOTAL
40
100
This question reveals that more than half of the respondents (i.e. 60%) are of
the opinion that financial statements are prepared annually. 25% out of the
total respondents stated that financial statement are prepared monthly, from
the analysis we can conclude hat most respondents annually based on the
60% prepare financial statement.
65
TABLE 4.9
Question 8: Do accounting concepts and convention provide framework for
constructing financial report?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
32
80
NO
8
20
TOTAL
40
100
The above analysis, provide that 80% of the respondents are of the idea that
accounting concepts and convention provide framework for constructing
financial report.
TABLE 4.10
Question 9: Do accounting concepts and conventions provide basis for the
analysis of your organizational financial statement?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
31
77.5
NO
9
22.5
TOTAL
40
100
Based on the above, 77.5% of the total respondents concluded that
accounting concepts and convention provide basis for the analysis of the
organizational financial statement while 22.5%of the total respondents
concluded that accounting concepts and convention do not provide basis for
organizational financial statement.
66
It can therefore be concluded that accounting concepts and convention
provide basis for the analysis of the organization financial statement based
on the 77.5%
TABLE 4.11
Question 10: Do accounting concepts and convention make financial reports
more meaningful and reliable?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
33
82.5
NO
7
17.5
TOTAL
40
100
From the above analysis 82.5% of the total respondents are of the view that
accounting concepts and conventions make financial reports more
meaningful and reliable while 17.5% of the total respondent’s disagreed.
One can conclude logically that accounting concepts and conventions make
financial reports more meaningful and reliable.
TABLE 4.12
Question 11: Do accounting concepts and convention allow for consistency
in the preparation of financial report?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
30
75
NO
10
25
67
TOTAL
40
100
The above analysis shows that 75% of the total respondents are in support of
the fact that accounting concept and convention allow for consistency in the
preparation of financial report while 25% conclude that the reverse is the
case. This view of the 75% is therefore accepted here.
TABLE 4.13
Question 12: Do accounting concepts and convention help in understanding
how transactions are accounted for?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
32
80
NO
8
20
TOTAL
40
100
From the analysis above, one can see that 80% of the respondents are in
support of the fact that accounting concepts and conventions help in
understanding how transaction are accounted for while 20 % do not agree
that accounting concepts and convention help in the understanding how
68
transaction are accounted for. Reasonably, the researcher concludes that
accounting concepts and convention help in understanding how transactions
are accounted for based on the 80%.
TABLE 4.14
Question 13: Do accounting concepts and conventions serve as guide in the
preparation of financial statement?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
40
100
NO
-
-
TOTAL
40
100
The above analysis show that all the respondents maintain that the
accounting concepts and convention serve as guide in the preparation of the
financial statements.
TABLE 4.15
Question 14: Do accounting concepts and convention make financial report
a useful tool for decision making?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
34
85
NO
6
15
TOTAL
40
100
The above analysis shows that 85% of the total respondents are in support of
the fact that accounting concepts and conventions make financial report a
69
useful tool in decision making while 25% do not agree that accounting
concepts and conventions make financial report a useful tool in decision
making.
Based on the 85%, it can be concluded that accounting concepts and
convention make financial report a useful tool in decision making.
TABLE 4.16
Question 15: Do the existence of accounting concepts and conventions as a
basis for the preparation of financial statement result in improved decision
made by the management?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
30
75
NO
10
25
TOTAL
40
100
From the analysis it follows that 75% of the total respondents are in support
of the fact that the existence of accounting concepts and convention are basis
for the preparation of financial statement which result in improved decision
made by the management while 25% concluded that the existence of the
accounting concepts and convention are not basis for the preparation of
70
financial statement resulting in improved decision making of the
management.
This view of the 75% proves that the existence of accounting concepts and
convention are basis for preparation of financial statement which results in
improved decision made by the management.
TABLE 4.17
Question 16: Is accounting concepts s and convention relevant in financial
statement preparation?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
38
95
NO
2
5
TOTAL
40
100
For the above analysis, it was observed that 95% of the respondents agreed
that accounting concepts and conventions are relevant in financial
preparation which 5% do not agree.
TABLE 4.18
71
Question 17: Does your organization encounter any difficulty in the use
accounting concepts and conventions?
DESCRIPTION
RESPONSE
PERCENTAGE (%)
YES
6
15
NO
34
85
TOTAL
40
100
85% of the total respondents agree that they don’t encounter any difficulty in
the use of accounting concepts and convention, while 15% agreed that they
do encounter difficulties.
4.2 TESTING THE RESEARCH QUESTION
1. Do accounting concepts and conventions provide framework for
constructing financial report?
2. Do accounting concepts and convention allow for consistency in the
preparation of financial report?
3. Do accounting concepts and convention make financial report a useful
tool for decision making?
RESEARCH QUESTION ONE
Do accounting concepts and conventions provide framework for
constructing financial report? This will be tested with question 8, 13,
& 16
TABLE 4.19
72
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
YES
32
80
NO
8
20
TOTAL
40
100
From table 19, it has been observed that 80% of the respondents ascertained
that accounting concepts and convention provide the framework for
constructing financial report which can not be overlooked in this research
work. The indication of the respondents proved the immense importance of
accounting concepts and convention in the organizational framework of the
Nigerian Breweries Plc Enugu.
Question 13: Do accounting concepts and convention serve as a guide in the
preparation of financial statement.
TABLE 4.14
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
YES
40
100
NO
-
-
TOTAL
40
100
The above analysis shows that all respondents maintain that the accounting
concepts and convention serves as a guide in the preparation of the financial
statement which confirmed that accounting concepts and convention is really
of great importance in financial report preparation.
73
Question 16: Are accounting concepts and conventions relevant in financial
preparation?
TABLE 4.17
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
YES
38
95
NO
2
5
TOTAL
40
100
From the above analysis, it was gathered that 95% of the total respondents
agree that accounting concepts and convention are relevant in financial
preparation while 5% do not agree.
All the above analysis and data supported the research question which
proved that accounting concepts and convention provide the framework for
constructing financial statement and reports in the management decision of
the Nigerian Breweries plc Enugu.
The research question is therefore accepted and the statement upheld.
RESEARCH QUESTION TWO
Do accounting concepts and conventions allow for consistency in the
preparation of financial report?
This will be tested with question 11, 13, and 16
Question 11: Do accounting concepts and convention allow for
consistency in the preparation of financial report?
TABLE 4.12
74
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
YES
30
75
NO
10
25
TOTAL
40
100
The above table shows that 75% of the total respondents are in support and
therefore testify that accounting concepts and convention allow for
consistency in the preparation of financial report as it result in the
improvement of the organizational accounting standard.
Question 13: Do accounting concepts and convention serve as a guide in the
preparation of financial statement?
TABLE 4.14
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
YES
40
100
NO
-
-
TOTAL
40
100
From the above table, the analysis shows that all the respondents maintained
that the accounting concepts and conventions serve as a guide in the
preparation of financial statement and reports for adequate accounting
information.
Question 16: is accounting concepts and convention relevant in financial
preparation?
75
TABLE 4.17
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
YES
38
95
NO
2
5
TOTAL
40
100
95% of the total respondents agree that accounting concepts and convention
are relevant in financial preparation. This above analysis observed that the
use of accounting concepts and convention is relevant to financial reports
and preparation and it allow for consistency in the organizational financial
reports.
The research question is therefore accepted and the statement upheld.
RESEARCH QUESTION THREE
Do accounting concepts and convention make financial report useful
tool for decision making this will be tested with question 9, 10, 12, 14
and 15
Question 9: Do accounting concepts and convention provide for the
basis for the analysis of your organizational financial statement?
TABLE 4.10
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
YES
31
77.5
76
NO
9
22.5
TOTAL
40
100
Based on the above, 77.5% of the total respondents concluded that
accounting concepts and convention provide basis for the analysis of the
organizational financial statement and report.
Question 10: Do accounting concepts and convention make financial report
more meaningful and reliable?
TABLE 4.11
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
YES
33
82.5
NO
7
17.7
TOTAL
40
100
From the above table, 82.5% of the total respondents are of the view that
accounting concepts and convention make financial report more meaningful
and reliable. It is concluded that accounting concepts and convention make
financial reports more meaningful and reliable.
Question 12: Do accounting concepts and conventions help in understanding
how transactions are accounted for?
TABLE 4.13
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
77
YES
32
80
NO
8
20
TOTAL
40
100
The above analysis shows that 80% of the total respondents are in support of
the fact that accounting concepts and convention help in understanding how
transaction are accounted for.
Question 14: Do accounting concepts and conventions make financial report
a useful tool for decision making
TABLE 4.15
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
YES
34
85
NO
6
15
TOTAL
40
100
Table 15 above, shows that 85% of the total respondents are in support that
accounting concepts and convention make financial report a useful tool for
decision making. As it helps the management to decide on the vital issues
that will contribute to the growth of the organization.
Question 15: Do the existence of accounting concepts and convention as a
basis for preparation of financial statement result in improved decision made
by the management?
78
TABLE4.16
DESCRIPTION
RESPONSE
PERCENTAGE
(%)
YES
30
75
NO
10
25
TOTAL
40
100
From the above table, it follows that 75% of the total respondents are in
support of the fact that the existence of accounting concepts and convention
are basis for preparation of financial statement which result in improved
decision made by the management.
Logically from the above data and analysis one can understand the impact
accounting concepts and convention made for the improved decision by the
management of Nigerian Breweries plc Enugu. Accounting concepts and
conventions are therefore accepted as a useful tool for decision making of
the management. The research question is therefore accepted and the
statement upheld.
4.3 DISCUSSION OF FINDINGS
After detailed and comprehensive questionnaire analysis, the following facts
were found.
79
Accounting concepts and convention help in the understanding how
transaction are accounted for. This is accepted because from the findings
made, it was observed that 80% of the above stated fact. Reasonable, the
researcher concludes that accounting are accounted for based on the 80% .
Accounting concepts and convention provide basis for the analysis of
organizational financial statement report, from the findings 77.5% of the
total respondents agreed that accounting concepts and convention provide
basis for analysis of the organizational financial statement while 22.5% of
the total respondents do not agree. It can therefore be concluded that
accounting concepts and convention provide basis for the analysis of the
organizational financial statement based on the 77.5%
The existence of accounting concepts and conventions is a means which
provide useful information for the preparation of financial statement for
making economic decision made by the management. The finding showed
that 75% of the total respondents are in support of the stated fact while 25%
80
disagree that accounting concepts and conventions are not the basis for the
preparation of financial statement resulting in improved decision made by
management. The view of the majority is therefore accepted.
Accounting concepts and convention make financial reports more
meaningful and reliable from the finding, it was observed that 82.5% of the
total respondents are of the view that accounting concepts and conventions
make financial reports more meaningful and reliable while 17.5% of the
respondents disagreed. One can conclude that accounting concepts and
convention make financial reports more meaningful and reliable. It was
observed that various organization use different months as the end of
financial period. This end of financial period depends on the decision of the
directors of the organization, companies, once and accounting period is
decided the company remains consistent with it. But finding showed that
most companies prepare their financial statement at the end of the year.
81
Majority of the respondents (85%) agreed that they do not encounter any
difficulty in the use of accounting concepts and conventions while minorities
(15%) do not agree. So it can be concluded that accounting concepts and
conventions can be used without encountering problems.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS
This project work was carried out to determine the role of accounting
concepts and convention in financial reporting based on the extensive and
intensive review of literature and careful presentation, analysis and
interpretation of data collected through questionnaires and personal
interview, the following facts were brought to light.
82
After detailed and comprehensive questionnaire analysis, it was discovered
that the organization visited have accounting departments which are
sectionalized. The companies prepare financial statements annually rather
that quarterly and monthly.
It was also gathered that accounting concepts and convention are not new to
the organization and they are being used by the organization without
difficulties. The need of accounting concepts and conventions are relevant
and serve as guide in the preparation of financial statements.
Accounting concepts and convention are seen by the organization as basis
for the analysis of financial statement which make it more meaningful and
reliable thus help in understanding how transaction are accounted for. It was
also observed that there is consistency in the application of the accounting
concepts and conventions.
The overall observations gathered centered on the gains of accounting
concepts and convention as it provides the framework in constructing
83
financial reports of the company. It also provides the basis for the
preparation of financial statement that result in improved decisions made by
the management of the Nigerian Breweries Plc Enugu.
5.2 CONCLUSION
For the foregoing, it is apparent that accounting concepts and conventions
are the bedrock on which financial accounting rests. They ensure a high
degree of standardization in financial reporting by narrowing down in limits
within which the accounts can exercise judgment thus achieving objectivity
in financial reporting.
When we recall that financial reports are user oriented, the conclusion is
inescapable that these concepts and conventions are also of immense value
of the various users in the interpretation of the reported figures and hence in
the decision made.
84
Thus one can safely conclude that in the view of the centrality of accounting
concepts and conventions in the reporting and decision making process, the
financial roles of these concepts and conventions should be given the price
of place in financial reporting.
5.3 RECOMMENDATIONS
In as much as information are the bedrock of any organization, accounting
concepts and conventions should serve as information provider to help
management in making vital economic decisions. The organization should
follow the same method of accounting concepts and convention always and
this could help in providing a framework in constructing financial report.
Accounting concepts and conventions should provide useful information for
making economic decision and with this any organization that needs
improvement in the economic decision making should make accounting
concepts and conventions as a basis for financial report preparations.
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Organizations should see accounting concepts and conventions as useful
tools in understanding how transactions are accounted for. Organizations
should make adequate provision so that financial report should be prepared
annually and monthly.
It is very important to note that the use of accounting concepts and
convention should act as a basis for the preparation of financial statements
that result in improved decision making of the management.
86
BIBLIOGRAPHY
ACCA Study Text. (1987). Regulatory Framework of Accounting. London:
BPP publishing limited.
Anav A.R. (1989). An Introduction to Financial Accounting, Ibadan:
Longman Nig. Ltd.
Belkaoui A. (1985). Accounting Theory. New York: Harcourt Brace
Jonaorch Inc.
Bernanos Edwards & Salmon son .(1987). Accounting Principles. United
States of America: Business Publication Ltd.
Engine M. N. (1974). Financial Accounting. A Division Information
System. California: Good Year Publishing Company.
Gautier M.W.E, Under-down B. (1978). Accounting Theory and Practice.
87
London: Pitman Publishing Ltd.
Glenn A.W. & Robert N.A. (1987). Fundamental of Financial Accounting.
Fifth Edition,Home Wood Illinois: Richard D’irwin Inc.
Helm amp G.J, Indieke L.F, Smith E.R .(1986). Principle of Account. New
York:John Wiley & Sons Ltd.
Hendrickson S.E .(1970). Accounting Theory. 1st edition, Homewood
Illinois: Richard D’irwin.
Jennings A.R. (1990). Financial Accounting. London: D.P Publications Ltd.
John R. Caremark .(1974). Accounting for Business. Columbus Ohio:
Charles E. Merry Publishing Company.
Joyede A. (1982). Financial Accounting Principle & Practice. Lagos: F&S
Publishers Ltd.
Kennedy R.D., Macmillan S.Y. (1973). Financial Statement Horns Analysis
88
& Interpretation.10th Edition Homewood Illinois: Richard D’irwin Inc.
Lee T.A. (1987). Development in Financial Reporting. London Philip: Allan
Publishers Ltd.
Mill champ A.A. (1990). Foundation Accounting An Instruction Manual For
Accounting Students. London: D.P Publications Ltd.
Appendix A
ACCOUNTANCY DEPARTMENT,
FACULTY OF MANAGEMENT AND SOCIAL SCIENCES
CARITAS UNIVERSITY,
AMORJI –NIKE, ENUGU.
July, 2010
89
To whom it may concern,
Sir/ Madam/Miss
Research questionnaire
I, Ugwu Chioma Pamela a final year student of the above named institution
is undertaking a study aimed at determining the Role of Accounting
Concepts and Convention in financial reporting. This work is in partial
fulfillment of the requirement for the award of a Bachelor of Science (B.Sc)
Degree in accounting.
Your kind co-operation will be highly appreciated by responding to the
questions below as honestly as possible.
Please for the open-ended questions; fill in the gaps provided, and for the
multiple choice questions, ticks (<) in the box of the appropriate answer.
Thanks
Yours faithfully,
Ugwu Pamela Chioma
APPENDIX B
QUESTIONNAIRE
Please Sir/Madam
90
Fill in Answer Yes or NO or mark (<) where applicable
1. What is the name of your company?
2. What is your level of education? WASC/ GCE
BSC/MBA
FSLC
3. What is the post you hold in the company?
4. Is there account department in the company? Yes
No
5. If your answer to the question 4 is yes, is the account department
sectionalized? Yes
No
6. Are you aware of accounting concepts and conventions? Yes
No
7. Does your organization use accounting concepts and conventions? Yes
No
8. How often are financial reports prepared? Quarterly
monthly
annually
91
9. Do accounting concepts and conventions provide framework for
constructing financial report? Yes
No
10.Do accounting concepts and conventions provide useful information for
making economic decision? Yes
No
11.Do accounting concepts and conventions provide basis for the analysis of
your organizational financial statement? Yes
No
12.Do accounting concepts and conventions serve as a guide in the preparation
of financial report? Yes
No
13.Do you consider accounting concepts and conventions relevant in financial
statement preparation? Yes
No
14.Do accounting concepts and convention help in understanding how
transactions are accounted for? Yes
No
15.Do accounting concepts and convention make financial reporting a useful
tool for decision making? Yes
No
92
16.Do the existence of accounting concepts and convention as a basis for
preparation of financial statement result in improved decision made by the
management? Yes
No
17.Do accounting concepts and convention make financial reports more
meaningful and reliable? Yes
No
18.What factors determine the concepts and conventions to be used or applied
in preparing financial report in the company?
19.Who determines the concepts and conventions to be used or applied in
preparing financial report in our company?
Manager
accountant
supervisor
accounts officer
20.Does your company encounter any difficulty in the use of accounting
concepts and conventions? Yes
21.How are such difficulties corrected?
No
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22.Does your company prepare its accounts with shareholders in mind? Yes
NO
23.Does your company follow the same method of accounting concepts and
conventions from the previous year when preparing financial statement?
Yes
No