a comparative analysis of the public and private sector's financial reporting practices in...
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BAYERO UNIVERSITY, KANO.
11
FINANCIAL REPORTING
A Comparative Analysis of the Public and Private Sectors Financial Reporting Practices in Nigeria
OLUSEGUN OLOWU AMOS
A COMPARATIVE ANALYSIS OF THE PUBLIC AND PRVATE SECTORS
FINANCIAL REPORTING PRACTICES IN NIGERIA
BY
OLUSEGUN OLOWU AMOS
SMS/06/ACC/04040
BEING A RESEARCH WORK SUBMITTED TO THE DEPARTMENT OF
ACCOUNTING, BAYERO UNIVERSITY KANO, IN PARTIAL FULFILMENT OF THE
REQUIREMENTS FOR THE AWARD OF BACHELOR OF SCIENCE (B.sc) IN
ACCOUNTING
FEBRUARY, 2011
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
APPROVAL PAGE
This project title “A Comparative Analysis of the Public and Private Sector Financial
Reporting Practices in Nigeria” has been carefully read and approved as adequate in
scope and contents for acceptance in partial fulfilment of the requirements for the
award of a Bachelor of Science (B.sc) Degree of Bayero University, Kano Nigeria.
PROJECT SUPERVISOR DATE
PROF. KABIRU ISA DANDAGO
PROJECT COORDINATOR DATE
DR JUNAIDU MUHAMMAD KURAWA
HEAD OF DEPARTMENT DATE
DR BASHIR TIJJANI
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
DEDICATION
This research is dedicated to God Almighty who has seen me through the course of my
studies. And also to my beloved mother who in all she could contributed generously towards
the successful completion of this program and who pioneered my enrolment to acquire
western education.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
DECLARATION
I hereby declare that this project title “a comparative analysis of the public and private
sectors financial reporting practices in Nigeria” is solely a handiwork of my effort and has
been submitted to the Department of Accounting, Bayero University Kano for the award of
Bachelor of Science (B.sc) Degree in accounting.
OLUSEGUN OLOWU AMOS DATE
SMS/06/ACC/04040
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
ACKNOWLEDGEMENT
The heavens declare the glory of God; and the firmament showed his handiwork. To
God be the glory great things he hath done. My utmost vote of thanks goes to God Almighty,
the maker of heavens and the earth. Words alone cannot show my deepest appreciation to the
Lord; for without God, there wouldn’t have been this work; to Him alone all glory, honour
and adoration be ascribed unto.
My special thanks also goes’ to my beloved mother, MRS JANET OLOWU, a mother
of five, a woman of virtue and uprightness. Mother, without you I wouldn’t have come this
far. I truly appreciate all that you have done. Words alone cannot quantify how much you
mean to me. May God in his mercies reward you and bless you, and make you live to enjoy
the fruits of your labour.
I also want to show my appreciation to my dear Father, Mr. AMOS AKINOLA
OLOWU; your prayers and support has made me. Daddy you are the best, how lucky I am
having a father like you. Father I love you, and thank you.
My appreciation again goes to my supervisor, Prof. KABIRU ISA DANDAGO who
has in everything made tremendous impetus towards the successful completion of this
project, to you sir, I owe vote of thanks.
I will not but acknowledge the effort of my beloved elder sister, MRS GRACE
OMOKORE for her tremendous encouragement and support – financially, morally and
spiritually. I just want to say big THANK YOU. May God increase you abundantly and bless
you in all your ways.
I want to say thank you to the rest members of my family; my two other elder sisters,
DORIS COMFORT OLOWU and YETUDE OLOWU; and my elder brother, AYODEJI
MICHAEL OLOWU for all their supports and encouragement, I say THANK YOU.
I cannot brush things over without acknowledging the effort of my former level
coordinator Mallam HASSAN ZUBEIRU; your contributions will never be forgotten.
THANK YOU SIR.
To MALLAM ISHAQ ISMAIL, I want to say big THANK YOU to, for your
guidance at the early stages of this project. And also to HAJIYA HANNATU SABO 6
A comparative analysis of the public and private sectors financial reporting practices in Nigeria
AHMED and MALLAM B.B IBRAHIM for their assistance, May God in his riches and
glory continue to favour you all in your doings.
My appreciations as well goes to my friends, SIKIRU OLAIYA SALAUDEEN,
NURUDEEN MUSA MASHI and UZOCHUKWU JOSHUA OJUKWU, you guys are close
to my heart and dear to me. I just want to say THANK YOU to you all. And to all of my
friends and course mates, space may not permit me to start mentioning all of you one after the
other, but i truly appreciate all of you and i say THANK YOU.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
ABSTRACT
Financial reporting has been the order of the day in the financial spheres in recent
times. It is a means of communicating the performances of enterprises to all those who have
stakes in the organizations. This study sought to do a comparative analysis of the public and
private sectors financial reporting practices in Nigeria. The study has adopted the descriptive
analysis to come up with a powerful analysis of the both sectors’ financial reporting
practices. The study found out that, government institution use both the cash base and
accrual base accounting systems in reporting financial information (the ratio of usage found
by this study in the public sector is to a 1:1 bases, i.e. for every one public sector enterprise
that uses cash base accounting system, there is equally one public sector entity using the
accrual base accounting system). Whereas some public entities adhere to the provisions of
the Statement of Accounting Standards (SASs) in the preparation of financial statements,
others comply with the provisions of the International Public Sector Accounting Standards
(IPSASs). In the private sector, however, financial statements are prepared in accordance
with the statement of accounting standards which is applicable in Nigeria and in manner
required by the Companies and Allied Matters Act, the Bank and Other Financial Institutions
Act (BOFIA) and relevant CBN circulars. At some specific years, some listed companies
contravened some of the provisions of the Banks and Other Financial Institution Act
(BOFIA). Some companies were found to have adopted the International Financial Reporting
Standards (IFRSs) in a bid to further strengthen the corporate governance standards and
enhance transparency and disclosure in financial reports.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
TABLE OF CONTENTS
Pages
Title page i
Approval page ii
Dedication iii
Declaration iv
Acknowledgement v
Abstract vii
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the Problem 4
1.3 Objectives of the Study 6
1.4 Research Questions 6
1.5 Significance of the Study 7
1.6 The Scope of the Study 8
1.7 Limitations of the Study 9
1.8 Definitions of key Terms 10
CHAPTER TWO
CONCEPTUAL FRAMEWORK AND LITERATURE REVIEW
2.1 Introduction 12
2.2 Conceptual Framework of Financial Reporting 12
2.2.1 The concept of financial reporting 12
2.2.2 The concept of financial statements 14
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
2.2.3 Users of financial statements 15
2.3 Generally Accepted Accounting Principles (GAAP) 15
2.4 Public Sector Financial Reporting in Nigeria 17
2.4.1 Legal framework of government in Nigeria 20
2.4.2 Objectives of government accounting 23
2.4.3 Global trend in public sector financial reporting 25
2.5 Private Sector Financial Reporting in Nigeria 26
2.5.1 Objectives of private sector financial reporting 27
2.5.2 The regulatory aspect of the private sector financial reporting in Nigeria 27
2.5.3 The Companies and Allied Matters Act 29
2.5.4 Statement of Accounting Standards 31
2.5.5 International Financial Reporting Standards 31
CHAPTER THREE
METHODOLOGY
3.1 Introduction 34
3.2 The Population of the Study 34
3.3 Sample Size and Sampling Techniques 34
3.4 Sources and Methods of Data Collection 35
3.5 Method Data Presentation and Analysis 36
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Analysis of Administered Questionnaires 37
4.2 Aligning public sector financial reporting practices in Nigeria 38
4.3 Assessment of Financial Reporting Practices in Nigeria 41
4.3 The Need to Adopt International Financial Reporting Standards 43
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary 47
5.2 Conclusion 48
5.3 Recommendations 49
BIBLIOGRAPHY 50
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
It is an undisputable fact that the major aim of financial reporting is the conveyance of
relevant information useful to the various categories of users of such information. Financial
reports must be clear and understandable. They are based on accounting policies which vary
from enterprise to enterprise, both within a country and among countries. Whatever the case,
accounting should contain facts that are comprehensible to those who have a reasonable
understanding of business economic activities and willing to study the information with
reasonable diligence.
An important component of the information system of an economy is financial
reporting, through which an enterprise conveys information about its financial performance
and condition to external users, often identified with its actual and potential claimants.
Financial reporting is often used as an umbrella term to cover both financial statements
themselves and the additional types of information. Financial reporting and international
accounting standards are hot topics at the moment. Most of the focus has been on the private
sector and the fall-out from the massive commercial collapses that have recently occurred.
However, the public sector has its own debates raging on the adoption of a universal public
sector accounting standard and a shift to accrual basis of accounting. Most people by now
accept that it is desirable for accounting standards to be harmonized for both public and
private sectors as much as possible around the world. But there is no unanimous agreement
on which standards and basis to be used as a benchmark or how similar public sector
accounting concepts and standards should be to their private sector counterparts (Ado, 2009,
p.31).
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
There are laws and bodies for the regulation of accounting, financial reporting, and
auditing requirements of companies, including differential financial reporting requirements
for small companies in Nigeria, however, the accounting and auditing practices in Nigeria
suffer from institutional weaknesses in regulation, compliance, and enforcement of standards
and rules (World Bank and International Monetary Fund, Report on the Observance of
Standards and Codes Accounting and Auditing, 2004). The body that has the primary
responsibility of regulating financial reporting practices in the private sector in Nigeria is the
Nigerian Accounting Standard Board (NASB) and has to date (from 1982 – 2010), issued 30
standards – known as Statements of Accounting Standards (SASs). According to an
assessment of accounting and auditing environment in Nigeria conducted by the World Bank
in 2004, although Nigerian Statement of Accounting Standards (SASs) have been developed
based on the International Financial Reporting Standards (IFRSs), SAS have not been
reviewed or updated in line with current IFRS, and in many cases there are no equivalent
SAS to current IFRS. Compliance with more lenient national accounting standards is
achieved, however with some exceptions. These factors, as well as poor accounting education
and training, have contributed to weaknesses of the financial reporting regime (Nigeria –
Accounting and Auditing ROSC, 2004, p.12).
Financial reporting in the public sector is mostly based on the cash-based accounting
system. Thus, comparison between the financial performance of the public sector and that of
the private are difficult to make because the public sector organizations are multi-purpose,
their basis of accounting is different from that of the private sector, and have different sources
of finance (Adams, 2006, p.1). The president of the Institute of Chartered Accountants of
Nigeria (ICAN), Prof. Owuama in a news report dated Sept. 9, 2010, argues that, the cash
basis of accounting has been a factor of money laundering, terrorism financing and
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
corruption. And that, with cash accounting system the complete picture and real financial
position of the nation are often unknown at any particular point in time (African Newspaper
of Nigeria, Sept. 9, 2010).
Public sector financial reporting is regulated by the International Public Sector Financial
Reporting Standards (IPSASs) issued by the International Public Sector Accounting
Standards Board (IPSASB) of International Federation of Accountants (IFAC). In Nigeria,
there is no body responsible for issuing standards for public sector financial reporting. Hence,
financial statements (perhaps at the federal level) are prepared by the Accountant-General of
the federation (or of the state, as the case may be) based on the prescription of the
Minister/Commissioner for Finance. Financial reporting in the public sector is regulated by
the Constitution of the Federal Republic of Nigeria 1999 as amended, the Finance (Control
and Management Act) of 1958, Audit Ordinance Act of 1956, and Financial Regulations
issued from time to time by the Minister for Finance (Anyafo, 2000).
Companies in Nigeria prepare financial statements on the accrual
basis of accounting. The main legal framework for corporate accounting is
the Companies and Allied Matters Act (CAMA) 1990; which stipulates the
requirement for the formation/registration of companies, how companies
are to conduct their affairs, the type of accounting records and financial
statements that is required of companies, how the life of companies may
be brought to an end, and so on. It requires that financial statements
comply with the Statement of Accounting Standards (SAS) issued by the
Nigerian Accounting Standards Board (NASB) and that the audit be carried
out in accordance with generally accepted auditing standards. In addition
to CAMA 1990, other statutes have been enacted by government to
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
govern economic activities in specialized areas of the Nigerian economy
(Nigeria – Accounting and Auditing ROSC, 2004).
The Securities and Exchange Commission (SEC) and the Nigerian Stock
Exchange regulate financial reporting and disclosures by listed companies
on the Nigerian Stock Exchange Market. The Central Bank of Nigeria is the
main statutory regulator of banks and nonbanking financial institutions
under the terms of the Banks and Other Financial Institutions Act (1991).
The National Insurance Commission regulates financial reporting practices of insurance
companies under the Nigerian Insurance Act of 2003 (Nigeria – Accounting and Auditing
ROSC, 2004)
However, the intent of this study is to compare public sector and private sector financial
reporting practices in Nigeria. Despite the current trends in financial reporting systems, financial
information users and other stakeholders needs to be abreast of the progress of their various
stakes, either in the public or the private sector. This will, perhaps, enable managers in the public
sector to measure their performances using private sector models. The study will enable the local
standard setting body to better focus on the adoption of the International Financial Reporting
Standard (IFRS) to regulate financial reporting practices and to ease global financial information
uses, thus, culminating into the adoption of the IPSASs in the Nigerian public sector.
1.2 STATEMENT OF THE PROBLEM
Financial statements are prepared in accordance with the Statements of Accounting
Standards (SASs) which are based on the International Financial Reporting Standards
(IFRSs); however, differences exist. Although SASs issued by the Nigerian Accounting
Standards Board (NASB) are based on IFRSs, they have not been updated to conform with
the revisions made to IFRSs, and do not cover some accounting areas. Besides this, a review
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
of published financial statements in Nigeria, initiated by the World Bank and the
International Monetary Fund in 2004 revealed some compliance gaps, meaning there are
differences between local accounting standards and actual practices in the private sector, thus
culminating into noncompliance with the SASs in Nigeria (Nigeria – Accounting and
Auditing ROSC, 2004).
Secondly, the usefulness of the accrual-based financial information is still the subject
of ongoing debate in the Nigerian public sector. The need to review financial reporting
system in the Nigerian public sector has been a pressing issue for many years now; this is
with a view to align the system with global best practices.
Aruwa (2004) opines that the use of the cash-based accounting system in the Nigerian
public sector in presenting economic information is fundamentally flawed, and its
establishment has been argued by some interests to be a factor used for fraud perpetration,
money laundering, terrorism financing and corruption. Henceforth, there is the need for a
transition from cash accounting to accrual accounting in the public sector.
Ngwu (1999) also argues that the cash basis accounting system is inadequate for good
financial management; hence, the accrual accounting provides for a better perspective of
performance management of public funds and presents a more complete basis for assessment
of the financial performance of activities.
More so, comparison of performance is mostly not possible in the public sector using
private sector models – since the private sectors use accrual basis of accounting while the
public sector mostly uses the cash basis.
The resultant consequences of insisting on the cash basis of accounting in the public
sector will perhaps retard the economy’s financial reporting system, as this will leave Nigeria 16
A comparative analysis of the public and private sectors financial reporting practices in Nigeria
backward in terms of global practices. And also, polluted public officers who already have
the intention of looting public money will be having more edge to do just that which they
have purported.
Likewise in the private sector, what will be evident is lack of confidence in the
financial statements of local companies by international investors who may want diversify
their investment portfolios, comparability may not be feasible if the IFRS is not fully adopted
by both the public and private sector organizations in preparing their financial statements.
1.3 OBJECTIVES OF THE STUDY
The aim of this study is to compare financial reporting practices in the private and
public sectors in Nigeria. The specific objectives the study seeks to achieve are:
a. To find out how public sector financial reporting practices in Nigeria could align with
global best practices.
b. To assess the financial reporting practices of private sector companies and public
sector entities as against the generally acceptable accounting principles.
c. To explain and re-emphasize on the need for adopting IFRSs and the accrual-based
accounting system in the Nigerian public sector, in the process of presenting
economic information to users and other stakeholders.
1.4 RESEARCH QUESTIONS
This study has sought to do a comparative analysis of the public and private sectors
financial reporting practices in Nigeria and has been guided by the following research
questions to help facilitate the attainment of the research objectives.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
a. Could financial reporting in the Nigerian public sector be aligned with global best
practices?
b. Do private and public corporations in Nigeria comply with set standards and
pronouncements (GAAPs) in reporting financial information?
c. Are there needs to adopt the IFRSs and IPSASs accrual-based accounting system
for financial reporting by both companies and state owned entities in Nigeria?
1.5 SIGNIFICANCE OF THE STUDY
The significance of this study has slightly been enumerated in the background to the
work. The study purports to benefit accountants preparing financial statements in both the
private and public sectors; managers in the public sector; prospective international and local
investors in both sectors; future researchers; and standard setters.
Accountants: public sector accountants and private sector accountants will benefit
from this study, because the study will bring a better understanding of the need to have
uniform global accounting standards which will perhaps make them global accountants. It
will also help them appreciate better, the need to adhere strictly with the application of these
standards in practice.
Managers in public sector: this study seeks to create an environment where public
sector managers will be able to evaluate and compare their performances using private sector
models as basis for comparison.
Investors and Stakeholders in both sectors: this study will somehow emphasize on the
need to have a universal accounting standards, which is hoped to bring about international
investors from all over the countries of the world to operate in the Nigerian market.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
Future Researchers: the research is to be of better use to further researchers who may
want to conduct further studies on financial reporting practices in either the public or private
sectors in Nigeria; the findings of this study should be a springboard for them.
Standard setting agencies – like the Nigerian Accounting Standard Board (NASB) –
Federal Government, State Governments and Local Governments in Nigeria, interested in
accounting and reporting practices and responsible for establishing financial reporting
requirements will also benefit from this study in a way that will ensure quick adoption of
IFRSs, and towards visualizing the NASB’s objectives of 2012 – that is, towards ensuring
that all quoted companies in Nigeria and other significant public interest entities that are yet
to be quoted, but can cope with IFRS, will fully converge to the application of the IFRS.
While other medium companies as well as small enterprises will join the train through time;
hopefully by 2014.
1.6 THE SCOPE OF THE STUDY
The study will be restricted to the comparative analysis of the public and private
sector financial reporting practices in Nigeria. There are quite a number of problems
surrounding financial reporting practices in both sectors of the Nigerian economy;
considerable exertions will be made to address these problems. Henceforth, the focus of this
research is on how financial performances of government entities are disseminated to those
interested in the way the entities are managed, and how those of privately owned
organisations are equally conveyed to their stakeholders.
For the purpose of this study, a period of three (3) years, i.e. from 2007 to 2009, will
be considered, in order to evaluate the financial reporting practices of companies and
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
organizations both in the public and private sectors, to see whether or not reporting practices
has been in compliance with stipulated standards and requirements for the periods chosen.
1.7 LIMITATIONS OF THE STUDY
This study is likely to encounter funding problem. A research of this kind demands
much to be invested. In some cases, research projects are funded by research institutions,
corporate organisations, governmental agencies and many other non-governmental
organizations – a good example are World Bank, International Monetary Fund (IMF) etc.
Most at times, these projects are commissioned projects, but since this study is an academic
research, and not a commissioned one, the cost involve could discourage an in-depth
comparative analysis of public and private sectors financial reporting practices in Nigeria.
These costs range from cost of transportation to gather data (both primary and secondary)
from the targeted subjects – since most companies’ Head Offices are not situated in Kano
state, cost of assessing online articles, journals as well as other authoritative documents, and
cost of posting questionnaires to respondents. However, even with all these constraining
factors, the researcher will resort to using the internet for sending the questionnaires via email
to the respondents, scheduling online meeting with respondents where interview is necessary,
try sourcing for funds from parents, brothers and relatives for meeting other costs involved.
Another limitation that could confront this study is lack of adequate data. Since
questionnaires will be sent via emails, the risk that the respondents will not disclose all
information required, due to confidentiality, or the fair that the researcher wants to use the
information for reasons harmful to the organization, is inevitable. And where they are so
answered, the possibility that not all questionnaires sent will be received. In this case, the
researcher will increase the sample size of the work, making provisions for those
questionnaires that may probably bounce. 20
A comparative analysis of the public and private sectors financial reporting practices in Nigeria
1.8 DEFINITION OF KEY TERMS
Accounting period: this is a period for which a company prepares its account
showing the financial position and results of operations of the company as at that
particular point in time.
Accounting Policies: Accounting policies are specific bases used by a particular
business and regarded as appropriate to the circumstances of the business and suitable
for the fair presentation of its results and financial position.
Accrual based accounting: this is an accounting basis under which revenue are
recorded when earned and expenditures are recorded as the result in liabilities is
known or when benefits are received notwithstanding the fact that the receipt or
payment of cash could take place wholly or partly in another accounting period.
Cash-Based accounting: an accounting basis under which revenue are recorded only
when cash is received, and expenditures recorded only when cash is paid, irrespective
of the fact that the transaction leading to the receipt or payment of cash now may have
occurred in previous accounting period.
Financial reporting: financial reporting is a process whereby an entity prepares and
communicates economic information about the affairs of the entity for a particular
period of time, usually annually, semi-annually or quarterly.
IFRS: international financial reporting standards (IFRS), which are set of accounting
standards developed by the International Accounting Standard Board (ISAB) that is
becoming the global standard for the preparation of public companies financial
statements.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
SASs: these are set of accounting standards issued by the Nigerian Accounting
Standard Board (NASB) from time to time to govern and regulate financial reporting
practices by all companies registered in Nigeria.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
CHAPTER TWO
CONCEPTUAL FRAMEWORK AND LITERATURE REVIEW
2.1 INTRODUCTION
This chapter deals with the review of related conceptual literature on financial
reporting, many of which suggest that, financial reporting is a process of disseminating
information about the activities of an enterprise to the users of the information, to enable
them make informed decisions and judgements about the performances of the reporting
entity. The chapter also reviewed related empirical literature, studies that have been
conducted in the area of financial reporting; these studies reveal that actual reporting
practices in most organizations do not always comply with the set standards. It examined
financial reporting in the corporate and public sector: and makes conclusion on the reviews
done so far.
2.2 CONCEPTUAL FRAMEWORK OF FINANCIAL REPORTING
2.2.1 The Concept of Financial Reporting: Financial reporting, the predominant
occupation of the accounting profession is the process through which information about
organizational performance and financial position is presented to the users. It is often
believed to be precise and factual in its contents and, attested to by external person(s)
(Independent Auditors) confirming its validity (Kantudu and Atabs, 2007, p.155).
Financial reporting is the process that creates stewardship assertions in the form of
financial and non-financial business information statements reflecting the results of activities
and transactions of an entity for a period of time (Anumaka, 2010). Anumaka further argues
that financial reporting is to a large extent a studied assessment of the operational
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
performance of an entity expressed in financial terms to reflect the economic exercise of
fiduciary obligation.
According to Crockett (1996: p.56), “financial reporting covers the mechanism for
providing information about the financial condition, performance and importantly, risk
profile of firms to all potential users. It is, therefore one of the most basic elements of the
financial infrastructure”.
Kieso and Weygandt (1980) defies financial reporting as that branch of accounting
which focuses on the general purpose report on the financial position and results of
operations known as financial statements, which provide a continual history quantified in
money terms of economic activities that change these resources and obligations. The process
which culminates into preparation and presentation of financial reports relative to the
enterprise as a whole; for use by parties both external and internal to the enterprise, is
referred to as financial reporting. Similarly, accounting has been defined as the process of
identifying, measuring and communicating socio-economic information to permit informed
judgements and decisions by the user of the information (Glautier and Underdown, 1978).
Kieso and Weygandt (1980) state that the principal means of communicating financial
information to those outside an enterprise are the financial statements. The financial
statements most frequently provided are the balance sheet, the income statement of changes
in financial position, and statement of changes in stockholders’ equity with corresponding
appropriate footnotes disclosures.
Financial reporting essentially involves the preparation and issuing of financial
statements. These are formal records of financial activities of entities showing their financial
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
condition for a given period of time. They are usually expected to comply with regulatory and
professional requirements.
Financial statements are defined to be a subset of financial reporting, but no limits are
provided on a number of elements of financial reporting that one may include in financial
statements, Dopuch and Sunder (1980). All of the accounting information developed within
an organization is available to management. However, much of the company’s financial
information also is distributed to people outside of the organization. These “outsiders” may
include investors, creditors, financial analysts, labour unions, and the general public – even
the company’s competitors. Each of these groups supplies money to the business or has some
other interest in the company’s financial activities (Meigs et.al, 1996).
The process of supplying general-purpose financial information to people outside the
organization is termed financial reporting. In the United States and most other industrialized
countries, publicly owned corporations are required by law to make much of their financial
information “public” – that is available to everyone. These countries also have enacted laws
to ensure that the public information provided by these companies reliable and complete
(Meigs et.al, 1996).
2.2.2 The Concept of Financial Statements: Financial statements serve as a means for
assessing management's performance in terms of how efficient and effective or otherwise it
had used available resources in the course of trying to achieve set goals. The degree of the
usefulness of the financial statements as a tool for such assessment is dependent to a great
extent, on the level of accuracy and reliability of the statements. The basic purpose of
financial statements is to assist users in evaluating the financial position, profitability, and
future prospects of the reporting entity.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
Meigs et.al (1996) suggest that, the principal means of reporting general-purpose
financial information to persons outside a business organization is a set of accounting reports
called financial statements. The persons receiving these reports are termed the users of the
financial statements.
2.2.3 Users of the Financial Statements: The list of users of financial statements is
inexhaustive. Each group examines the financial statements based on areas of their needs.
The basic users include shareholders, board & management, regulatory authorities, creditors,
suppliers, financial Analysts, researchers, prospective investors, etc. The users mentioned
above are skewed towards the private sector. In the public sector they include executives
(such as president of the country and state governors) and their advisers, top administrators of
governments, the civil service union, the national assembly, government other than the
reporting government, foreign financial and non-financial institutions – such as the
International Monetary Fund (IMF) and World Bank, UN and UNESCO etc. These users
expect the financial statements to contain information that would enable them among other
things evaluate the performance and earning power of a business enterprise, compare its
performance over time or with other enterprises within the industry, predict its future
performance and continuity to enable them make investment decisions etc (Omorokpe, 2006:
p.5).
2.3 GENRALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
In deciding where to invest limited resources investors and creditors often compare
the financial statements of many different entities. For such comparisons to be meaningful the
financial statements of these different entities must be reasonably comparable – that is, they
must be present similar information in similar format. To achieve this goal, financial
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
statements are prepared in conformity with a set of “ground rules” called Generally Accepted
Accounting Principles (GAAP).
Generally accepted accounting principles (or GAAP) are the “ground rules” for
financial reporting. These principles provide the general framework determining what
information is to be included in financial statements, and how this information is to be
presented. The phrase “generally accepted accounting principles” encompasses the basic
objectives of financial reporting, as well as numerous broad concepts and many detailed
rules; (Meigs et.al, 2003).
The information that results from financial accounting activity is usually prepared by
management – the very group whose successes and failures are documented in the financial
reports of an accounting entity. This is why outside parties or stakeholders usually want to be
assured that the information they receive is objective and is consistently presented. Objective
here refers to whether the information fairly depicts what actually happened. Consequently,
GAAPs were developed for collecting and reporting financial information to external users.
Business and not-for-profit organizations usually engage the services of independent
Chartered Accountants to determine and certify that these principles have fairly and
consistently applied in reporting the financial activity of the organization (Omorokpe, 2003).
In the words of Omorokpe (2003), GAAPs are broad concepts or assumptions or
guidelines and detailed practices, including all conventions, rules and procedures that
together make up accepted practices at a given time.
The International Accounting Standards Committee (IASC), now IASB, recognizes
three fundamental accounting assumptions underlying the preparation of financial statements
and which are not necessary to disclose although there must be disclosure and an explanation
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
if financial statements are not based on the assumptions (this is skewed towards the private
sector). These fundamental assumptions according to IAS 1 are the Going concern: which
suggests that enterprise is normally viewed as a going concern, that is, as continuing in
operation for the foreseeable future. It is assumed that the enterprise has neither the intention
nor the necessity of liquidation or of curtailing materially the scale of its operations. Secondly
is the accounting assumption of Consistency: which assumes that accounting policies are
consistent from one period to another. And lastly, the assumption of Accrual Basis: which
states that revenues and cost are accrued, that is, recognized as they are earned or incurred
(and not as money is received or paid) and recorded in the financial statements of the periods
to which they are related. This is also called ‘matching concept’ (Omorokpe, 2006: p.9).
2.4 PUBLIC SECTOR FINANCIAL REPORTING IN NIGERIA
The public sector is a part of the state that deals with either the production, delivery
and allocation of goods and services by and for the government or its citizens, whether
national, regional or local/municipal (Wikipedia, 2010). The public sector of a sovereign
nation comprises the government and the organizations through which the government
undertakes its functions. These are the Civil Service, Statutory corporations and other
government-controlled enterprise which provide public utility services (Anyafo, 2000).
Government accounting as presently practised in Nigeria is based on cash basis of
accounting and fund accounting. Cash basis of accounting recognizes transactions and events
when cash is received or paid. It measures the overall financial results for a period as the
difference between cash received and cash paid. It provides readers with information about
the sources of cash raised during the period, the uses to which those funds were applied and
the cash balance at the reporting date. The measurement foci are cash balances and changes
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
therein (Report on Standardization of Federal, State and Local Governments Accounts in
Nigeria, 2002).
A close examination of the governments’ financial statements by the Technical Sub-
Committee of the Federation Account Allocation Committee reveals deficiencies in the
existing financial reporting system. They found out that, governments financial statements
are not only too many, but also disjointed, unrelated and lack summation. Consequently, they
are cumbersome and very difficult to understand. Reporting requirement are also absent; the
legal requirement is for the Accountant-General to prepare and submit to the Auditor-General
the actual and budgeted expenditure as well as the revenue of a given year. The best approach
to meeting this legal requirement had been a matter of choice by the Accountant-General.
The end product is varied and numerous approaches by the Accountant-General, both at the
State and Federal levels. Consequently, no meaningful comparison could be made. The
present financial statement is a voluminous document of nearly over 350 pages of printed
papers. The sheer volume adds to the delay in production which makes timely presentation of
information totally impracticable. Understandably, the information was stale by the time it
was produced (which is some cases ran into two or more years in arrears) and hence cannot
be used for meaningful planning and decision making process. A cursory look at the financial
statements reveals that the supporting sub-statements, both in formats and contents, have little
or no use to many end users. The financial statements do not reach a broad range of
constituents, because they are targeted at a small specialist audience. The statements do not
provide the basic information that easily measures the stewardship role of our leaders. Thus
activities are not summarized and adequately analysed to reflect the cost benefit received.
There is lack of standards of what should be reflected in respect of certain items like Crown
Agents, Foreign Account etc. Most of the Accounting concepts are ignored. The matching
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
concept as a test of efficiency is not recognized. Revenues are not directly matched to their
related expenditure. Materiality of transactions is not properly evaluated thereby allowing
every transaction to have a separate sub-head of revenue/expenditure. Following from the
above, certain items such as capital assets, debtors and creditors are not effectively reflected
in the financial statements. Essentially, this calls for additional disclosure requirements. The
current financial statements contain many outstanding balances, such as some below-the-lines
items e.g. Treasury Clearance Funds, etc, which are ought to have been written off
considering their ages and nature in the accounts (Report on the Standardization of Federal,
State and Local Governments Accounts in Nigeria, 2002).
The public sector is made up of several statutory corporations and parastatals functioning
within the confines of the government. The public sector can be said to consists of the Health
sector, Agricultural sector, Educational sector, Civil Service,
Annual reporting in the Agro-Sector parastatals, River basin development authorities are
required to prepare and submit to the federal executive council, through the minister of water
resources, not later than march 31st in each year, a report in such a form as the minister may
direct on the activities of the parastatal during the immediately preceding financial year and
to include in such report a copy of the audited accounts of the Authority for that year end of
the auditor’s report thereon (Anyafo, 2000)
The financial reporting requirements of universities, polytechnics and tertiary-level collegiate
institutions are usually spelt-out, unambiguously, in the enabling laws establishing each of
them. Each institution is accorded certain financial powers and its governing council is
authorized to perform specified financial functions in order to accomplish its prescribed
mandate. Furthermore, a committee of council referred to as the Finance and General
Purposes Committee is created and assigned some clearly spelt-out responsibilities. To ensure 30
A comparative analysis of the public and private sectors financial reporting practices in Nigeria
probity and accountability, the enabling statute makes a provision for appointment and duties
of auditors (Anyafo, 2000).
2.4.1 Legal Framework of Government Accounting In Nigeria: The public sector
accounting in Nigeria is rooted in a number of legal instruments, which sets the general
framework for the total financial management, government accounting and financial
reporting. The legal instruments at the federal level include: The Constitution of the Federal
Republic of Nigeria, 1999, the Finance (Control and Management) Act), 1958, the Audit
Ordinance No. 28, 1956; and the Annual Appropriation and Supplementary Appropriation
Acts.
Anyafo (1994:1) notes that these legal instruments constitute the statutory bed rock upon
which the government accounting manuals, treasury circulars, and federal financial
regulations and states financial instructions are founded. However, financial regulations and
financial instructions provide for the control and management of public finances at the
federal level and for the audit of the accounts of individual states, respectively. The financial
memoranda regulate the local governments’ accounting.
According to Oshisami (1992), the Constitution covers the following key areas in
government accounting: The operation of funds, the external controls for operating the
accounting system in terms of audit and investigations, and the appropriation procedure.
Finance (Control and Management) Act 1958 governs the management and operation of
government funds. In addition the Act regulates the accounting system, the books of accounts
to be maintained and the procedures to be followed in the preparation of accounts and
government financial statements (Anyafo, 1994:79). Perhaps, the most important aspect of
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
the Act is that it regulates the accounting format and basis of accounting for the preparation
of government accounts.
The Audit Ordinance, 1956 as amended by Audit Act 1988 provides for the Audit and
accountability for the public funds of government in Nigeria. Section 7 sets out the duties of
the Auditor-General for the federation. Section 13 mandates the Accountant-General of the
federation to sign and present, within a period of seven months after the close of each
financial year, to the Auditor-General for the federation the accounts showing the financial
position of the federation of Nigeria on the last day of such financial year. The Audited
financial statements are thereafter presented to the public accounts committees of the
National Assembly (section 85(5) of the Constitution).
Appropriation Acts are enacted annually for the purpose, not only for regulating financial and
accounting matters, but principally to provide for the issue from the Consolidated Revenue
Fund such sums of money as demanded justifiable for the recurrent expenditure including
contribution to the Development Fund for capital projects for the service of the federation.
Section 81(2) of the Constitution authorises the President to make withdrawals from the
Consolidated Revenue Fund of the sum necessary to meet the expenditure and the
appropriation of those sums for the purpose specified therein.
The legal instruments of Government accounting are not without criticisms in respect of
certain stipulations. The mandatory use of cash basis accounting as specifically mandated by
Finance (Control and Management) Act, have been criticised variously by Ngwu (1999:200),
Chan (1992:1), Oshisami (1992:130), Gary (1992), and National Council on Governmental
Accounting (NCGA, 1981) of USA. This provision in its present state makes the accrual
basis of accounting illegal. They posit that the present general application of cash basis of
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
accounting may not entirely permit the Government financial reports to achieve its
objectives. They contend that Cash basis of accounting is adjudged useful for short term
fiscal control whereas Accrual basis of accounting is the superior method for the economic
resources of any organisation; it results in accounting measurements based on the substance
of transactions and events rather than merely when cash is received and disbursed, and thus
enhances their relevance, neutrality, timeliness, completeness and comparability. NCGA
recommends use of the accrual basis to the fullest extent practicable in the Government
environment. However, the report of research conducted by Likireman and Vass (1984) on
government expenditure recommended continued adoption of cash basis of accounting by
government.
The Finance (Control and Management) Act 1958 also requires the preparation of
government accounts on fund basis. In essence, all funds of a government must be classified
into one of three fund categories: Governmental, proprietary, and fiduciary, or expendable
and non-expendable funds. The category of a fund determines the type of accounting and
financial reporting that is accorded the activities conducted, assets owned or held, and
liabilities incurred by that particular fund (Brooks, 1992:41).
A question arose as to whether each fund should also constitute a reporting entity,
considering the voluminous annual report resulting from this practice. Critics further argue
that reporting by fund creates a fragmentary and incomprehensible picture of government
finances. Chan (1992:1) opines that this practice, however justifiable on grounds of
stewardship, legal and contractual compliance, certainly, it is not ‘user-friendly’- it produced
comprehensive reports that are not comprehensible.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
2.4.2 Objectives of Government Accounting: Nigerian system of government accounting
has its roots from the British colonialists who were confronted with accounting and reporting
problems that required resolution without the assistance of professional accounting standard-
setting organisations (Anyafo, 1994:61). The primary focus of financial accounting and
reporting in those early days was determining whether cash, usually generated from general
tax levies support current operating activities, was collected in amounts that at least equalled
the cash paid for those purposes and whether laws restricting the collection and expenditure
of public funds were followed by those who administered the programmes. Holder (1992:41)
submits that the primary users of such reports were the administrators and legislative
representatives of government that were guided by that information in performing their
duties. Holder (1992:41) opines that little thought was originally given to the usefulness of
the information content of Government Financial Statements for external accountability.
In the light of Financial (Control and Management) Act No. 33 1958, Anyafo (1994:
p.64) states the objectives of government accounting is to ensure that a full account is made
to the legislature on management of public finances and that its financial control as
prescribed by the Minister of Finance in accordance with the provisions of the Constitution of
the Federal Republic of Nigeria (section 5); and to enable the Accountant-General to present
to the Auditor-General for audit purposes, the accounts showing fully the financial position as
at the last day of each financial year of the Consolidated Revenue Fund and all other
Government funds (Section 24).
In essence, the purpose of government accounting is to provide information about the
economic and financial affairs of government agencies, institutions and units. It is tailored to
emphasize the use of funds provided to accomplish objectives designed in the best interest of
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
tax payers. However, use of funds requires stewardship reporting, which preclude external
reporting by the government.
Similarly, Glyn (1987: p.7) reports that in Australia, the report of the committee on Public
Sector Accounting stated the primary objectives of accounting in the public sector
organisations as provision of information necessary for management controls and public
accountability. Glyn (1987:8) relates these objectives to include: providing information that is
useful for determining and predicting the flows, balances and requirements of short-term
financial resources of the government unit; to provide information useful for determining and
predicting the economic condition of the government unit and changes therein; to provide
financial information useful for monitoring performance under terms of legal, contractual and
judicial requirements; to provide financial information useful for planning and budgeting and
allocation of resources on the achievement of operational objectives; and to provide
information useful for evaluating managerial and organisational performances.
Comparatively, lacking in the legal requirement of financial reporting in the Nigerian
context is the external reporting by government. After considering the governmental
environment and users needs, Governmental Accounting Standard Board (GASB) of USA
(1987) proposed the following objectives: that financial reporting should assist in fulfilling
government’s duty to be publicly accountable and should enable users to assess that
accountability; it should assist users in evaluating the operating results of the government
entity for the year; and should assist users in assessing the level of services that can be
provided by the government entity and its ability to meet its obligations as they become due
(Aruwa, 2004: p.9).
A comparison of Nigerian Governmental Accounting system and the United Nations’
model for Government Accounting further highlights the areas of discrepancies (Ngwu, 35
A comparative analysis of the public and private sectors financial reporting practices in Nigeria
1999:200): Cash accounting seems to constrain the realization of Accounting system being
capable of serving the basic financial information needs of development, programme-
planning and appraisal of performance in physical and financial terms, planning
programming budgeting system (PPBS) and the accrual basis of accounting need to be firmly
implemented for the accounts to provide financial data useful for economic analysis and
reclassification of government transactions to assist in development of national accounts
(Aruwa, 2004: p.10).
2.4.3 Global Trend in Public Sector Financial Reporting
As the whole world is moving towards having a single set of global financial reporting
standards for private sector organizations, efforts are currently been made for public sector
organization in the same direction.
Various International Development organizations like European Union (EU), the organization
for Economic Co-operation and Development (OECD), North Atlantic Treaty Organization
(NATO etc have adopted International Public Sector Accounting Standards (IPSAS). These
are high quality independently developed standards issued by IPSASB (formerly IFAC
Public Sector Committee), an integral part of International Federation of Accountants
(IFAC).
The IPSAS standards for adoption require accounting on a ‘full accruals’ basis. Full accrual
is considered best accounting practices by international organizations for the public as well as
the private sector. IPSAS include detailed requirements and guidance, which provide
considerable support for financial statement consistency and comparability. They are the only
international accounting standards applicable to public sector and other not-for-profit
organizations.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
IPSASB has made considerable programs over the last few years in developing a set of
International Public Sector Accounting Standards for public sector financial reporting on the
accrual basis of accounting (Sutcliffe, 2003). However, as the Standards are not
comprehensive, there are as yet no agreed standards for significant areas as taxation and
social policy obligations (for example, state pensions). In addition there is no universally
agreed approach to the valuation of particular sets of assets such as heritage, infrastructural or
military assets. As a results, individual governments that wish to improve to the accrual basis
will have to develop their own standards or, for some public sector activities such as for the
treatment of tax revenues and social policy obligations, either inventing new country
standards or acting in a way that effectively ignores the problems that exist.
2.5 PRIVATE SECTOR FINANCIAL REPORTING IN NIGERIA
The importance of financial reporting cannot be over-emphasized by any means. It
has been described by several scholars and researchers as the process of conveying
information about the performances of an entity to the stakeholders. It enables shareholders
and other parties to be abreast of the activities of the reporting entity. It guides towards
investment decisions, performance evaluation by the managers of the company, serve as a
tool to which creditors rely to make credit decisions, and lots more. There are several statutes
enacted by the government to govern the conduct of economic activities in the private sector.
The main one which is the Companies and Allied Matters Act (CAMA) 1990; these statutes
provides the requirements for the registration and/or formation of companies, how the
companies life may be brought to an end, how they are to prepare their accounts, etc. The
oversight of financial reporting in Nigeria are the Nigerian Accounting Standard Board
(NASB), Securities and Exchange Commission (SEC), financial institutions – regulatory
agencies like the CBN, NDIC, NAICOM, PENCOM, etc, the Nigerian Stock Exchange
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
(NSE), the accounting profession (ICAN, ANAN), the judiciary (courts, tribunals etc)
(Nigeria – Accounting and Auditing ROSC, 2004).
2.5.1 Objectives of Private Sector Financial Reporting: As mentioned earlier, financial
reporting essentially involves preparing and issuing financial statements. The purpose of
financial reporting is to tell a company’s economic story, its financial position and the results
of its operations, as completely, clearly and faithfully as possible. Therefore, the objectives of
financial reporting are that: to exact accountability from the stewards with whom capital
resources have been entrusted; to provide information useful in making investment and credit
decisions; to enable users of financial report make assessment of the cash flow prospects of
the entity; to provide information about an entity’s resources; claims to those resources, and
changes in resources and claims during the period under review; one of the most fundamental
obligations of the public company is the full and fair public disclosure of corporate
information, including financial results (Dopuch and Sunder, 1980, p.2).
2.5.2 The Regulatory Aspect of the Private Sector Financial Reporting in Nigeria:
Financial accounting is regulated in an attempt to ensure that the resulting reports are
understandable, reliable and relatively consistent between comparable reporting periods. The
principal regulatory body is the Securities and Exchange Commission (SEC) – especially for
limited liability companies. In addition, the Institute of Chartered Accountants of Nigeria
(ICAN) and other recognized similar bodies set ethical standards for their members in
Accounting Profession, while the Nigeria Accounting Standard Board (NASB), an
independent standard-setting body, sets procedural standards (Omorokpe, 2006).
The NASB pronouncements on accounting matters have come to be recognised as
Generally Accepted Accounting Principles (GAAP). As a result of the SEC’s and the
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
professional body’s efforts, all of an organization’s financial statements must meet minimum
standards of disclosure and show a degree of uniformity in the reporting of transactions that
are the same or similar. Of necessity, the information must be summarized in the financial
statements – rather than reported in full – because so many transactions occur during the
course of a reporting period.
Regulation of accounting information is aimed at ensuring that users of financial
statements receive a minimum amount of information that will enable them take meaningful
decisions regarding their interest in a reporting entity. The bodies responsible for these
regulations are often statutory agencies such as the Accounting Standards Board, Securities
and Exchange Commission and the Stock Exchange. The bulk of this framework is usually
contained in Accounting Standards. The Nigerian Accounting Standards Board is the body
responsible for the issuance of Accounting Standards in Nigeria. This Board was initially an
advisory body responsible for the production of standards that will serve as a guide to
Accountants in the preparation of financial statements. Until 2003, when the Nigerian
Accounting Standards Board Act was enacted, which now makes it mandatory for
accountants preparing corporate reports to adhere strictly to the provisions of the Accounting
Standards issued by the board, the standards were treated as just generally accepted
accounting principles. This mandatory approach arises from the fact that there is the need to
ensure uniformity in the preparation and presentation of corporate reports throughout the
country; ensure that accountants comply with the Generally Accepted Accounting Principles
in the discharge of their functions; ensure that the standards comply with existing regulatory
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
frameworks; and to ensure that the standards comply with the domestic accounting need of
our country (Financial Reporting and Ethics, 2010).
With the passing into law of the NASB Act 2003, the NASB is now the only body
recognized by law for the development, issuance and review of accounting standards for
preparers and users of financial statements. Other institutions responsible for the regulation of
accounting information in Nigeria include: the Central Bank of Nigeria (CBN); the Nigerian
Insurance Commission (NAICOM); and the Securities and Exchange Commission (Financial
Reporting and Ethics, 2010).
Each of these regulatory authorities has an enabling law that guides the activities of
the various institutions operating in the sector. The CBN has the Banks and Other Financial
Institutions Act (BOFIA) 1991; NAICOM has the Nigerian Insurance Act 2003, while the
Securities and Exchange Commission has the Investment and Securities Act, 1999. These
Acts provide some specific requirements relating to the Accounts of every corporate entity
within its fold. BOFIA, for instance provides specific requirements relating to the minimum
paid up capital, statutory reserves, lending limit, classification of assets, returns and
publication of annual accounts by banks. The Insurance Act also provides for the minimum
paid up capital, types and classification of insurance businesses, statutory deposit, books and
accounting records to be kept, maintenance of technical reserves and solvency margin
required by all insurance businesses in Nigeria. The Investment and Securities Act on the
other hand makes provision for the registration of capital market operators, public offer and
sale of securities and mergers, take-over and acquisitions. All these requirements are made to
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
supplement the elaborate provisions of the Nigerian Accounting Standards (Financial
Reporting and Ethics, 2010).
2.5.3 The Companies and Allied Matters Act (CAMA) 1990: the companies and allied
matters act is the principal statute governing the regulation of enterprises in Nigeria. This is
the governing body for companies formed in Nigeria. Amongst other things, the enactment of
the companies and allied matters act in 1990 paved the way for effective and streamlined
economic and commercial activities in Nigeria. With the post-registration requirements as
contained in the act is aimed at protecting the public from misleading and fraudulent use of
corporate and business names as well as boosting economic activities in the country.
Schedule 2 of CAMA prescribes specific formats for financial statements, specifically the
balance sheet and profit and loss account. Other requirements of CAMA in relation to
financial reporting include the following:
2.5.3.1 Financial year end: Section 334 (4) requires that the directors of a company shall at
their first meeting after the incorporation of the company, determine to what date each
financial statements shall be made up, and they shall give notice of the date to the
Corporate Affairs Commission within 14 days of the determination.
2.5.3.2 Timeline for the preparation of the financial statements: Section 345 (1) requires that
in respect of each year, the directors shall at a date not later than 18 months after
incorporation of the company and subsequently once at least in every year, lay before
the company in general meeting copies of the financial statements of the company
made up to date not exceeding nine months previous to the date of the meeting.
2.5.3.3 Approval of financial statements: Section 343 (1) requires that a company’s balance
sheet and every copy of its financial statements laid before the company in general
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
meeting or delivered to the Commission shall be signed on behalf of the Board by the
two directors of the company of the company.
2.5.3.4 Payment of dividend: Section 379 (2) requires that the dividends shall be payable to
shareholders only of the distributable profits of the company.
2.5.3.5 Other requirements: Section 342 requires directors of a company to include in the
financial statements a directors report containing the following: Fair view of the
development of business of the company; Stating the amount (if any) which they
recommend should be paid as dividend and the amount which they propose to carry to
reserves; Names of persons who at any time during the year, were directors of the
company, the principal activities of the company in the course of the year and any
significant change in those activities during the year; Director’s obligation to notify
his interest in the company and companies in the same group, and the policy and
performance of the company (CAMA, 1990).
2.5.4 Statement of Accounting Standards: these are statements issued by the Nigerian
Accounting Standard Board on specific area or topic in financial accounting, the
acceptance/applicability of which is mandatory by users and preparers of financial
statements. To date, there are 30 standards which have been issued by the Board, setting out
the framework and responsibilities for the presentation of financial statements; defining the
components of financial statements; providing guidelines for minimum content requirements;
and dealing with the basis for recognising, measuring and disclosing specific transactions
(NASB, 2010).
2.5.5 International Financial Reporting Standards: the International Financial Reporting
Standards prescribe the basis for the preparation of general purpose financial statements to
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
ensure comparability both with the entity’s financial statements of previous periods and with
the financial statements of other entities. It sets out overall requirements for the presentation
of financial statements, guidelines for their structure and minimum requirements for their
content. Basically, the provisions are that an entity whose financial statements comply with
IFRSs shall make an explicit and unreserved statement of such compliance in the notes. An
entity shall not describe financial statements as complying with IFRSs unless they comply
with all the requirements of IFRSs. The application of IFRSs, with additional disclosure
when necessary, is presumed to result in financial statements that achieve a fair presentation.
When preparing financial statements, management shall make an assessment of an entity’s
ability to continue as a going concern. An entity shall prepare financial statements on a going
concern basis unless management either intends to liquidate the entity or to cease trading, or
has no realistic alternative but to do so. When management is aware, in making its
assessment, of material uncertainties related to events or conditions that may cast significant
doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those
uncertainties. An entity shall present separately each material class of similar items. An entity
shall present separately items of a dissimilar nature or function unless they are immaterial.
An entity shall not offset assets and liabilities or income and expenses, unless required or
permitted by an IFRS. An entity shall present a complete set of financial statements
(including comparative information) at least annually. Except when IFRSs permit or require
otherwise, an entity shall disclose comparative information in respect of the previous period
for all amounts reported in the current period’s financial statements. An entity shall include
comparative information for narrative and descriptive information when it is relevant to an
understanding of the current period’s financial statements. When the entity changes the
presentation or classification of items in its financial statements, the entity shall reclassify
comparative amounts unless reclassification is impracticable. An entity shall clearly identify
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
the financial statements and distinguish them from other information in the same published
document. IAS 1 requires an entity to present, in a statement of changes in equity, all owner
changes in equity. All non-owner changes in equity (i.e. comprehensive income) are required
to be presented in one statement of comprehensive income or in two statements (a separate
income statement and a statement of comprehensive income). Components of comprehensive
income are not permitted to be presented in the statement of changes in equity. An entity
shall recognise all items of income and expense in a period in profit or loss unless an IFRS
requires or permits otherwise. The notes shall present information about the basis of
preparation of the financial statements and the specific accounting policies used in
accordance with paragraphs 117–124; disclose the information required by IFRSs that is not
presented elsewhere in the financial statements; and to provide information that is not
presented elsewhere in the financial statements, but is relevant to an understanding of any of
them. An entity shall disclose, in the summary of significant accounting policies or other
notes, the judgements, apart from those involving estimations (see paragraph 125), that
management has made in the process of applying the entity’s accounting policies and that
have the most significant effect on the amounts recognised in the financial statements. An
entity shall disclose information about the assumptions it makes about the future, and other
major sources of estimation uncertainty at the end of the reporting period, that have a
significant risk of resulting in a material adjustment to the carrying amounts of assets and
liabilities within the next financial year. An entity shall disclose information that enables
users of its financial statements to evaluate the entity’s objectives, policies and processes for
managing capital. An entity shall also provide additional disclosures on puttable financial
instruments classified as equity instruments (IASB, 2010).
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 INTRODUCTION
This part of the study will consider the research methodology the present study
employs. It defines the population of the study, the sample size and the sampling techniques
that are adopted in the research work. It went further to explain the sources and method of
data collection, as well as the justification of the method used.
3.2 POPULTION OF THE STUDY
The population of this study consists of all companies listed on the Nigerian Stock
Exchange as at 31st December, 2009, and government institutions in Nigeria. The population,
as well, covers offices of the Auditor-General for the Federation and the States.
3.3 SAMPLE SIZE AND SAMPLING TECHNIQUES
A total number of twenty (20) organizations will be selected for the purpose of this
study. Ten (10) organizations will be selected each from the private sector and public sector
to assist come up with a credible comparative analysis of financial reporting practices in both
sectors in Nigeria. These organizations will be selected using the judgemental sampling
techniques.
Judgmental sampling is a sampling technique that is based on the selection of a
sample of appropriate size on the basis of the researcher’s judgement of what is desired. The
judgemental sampling method is used, because the researcher considers some subjects of the
population as typical cases which are most likely to provide the requisite information. On the
other hand, the researcher intends to get smattering idea about the problem under study. Most 45
A comparative analysis of the public and private sectors financial reporting practices in Nigeria
of all, the researcher is operating with a little budget. The judgemental sampling technique
will be employed because the population of the study is to an extent enormous, and any
attempts to cover substantial part of the population may not be feasible. Hence, the need for
the judgmental sampling technique is necessary.
The listed companies and government institutions to be included in the sample are as
follows:
Table 1:
S/N Listed Companies Government Institutions1 Guarantee Trust Bank Plc. Federal Mortgage Bank 2 First Bank Plc. Nigerian Agricultural and Co-operative Bank
Ltd.3 Nigerian Aviation Handling
Company Plc.Nigeria Export and Import Bank
4 Aric Airlines Nigerian National Petroleum Corporations5 Dangote Group Plc Nigerian Deposit insurance Corporation6 Ashaka Cement Plc Nigerian Postal Services7 Total Nigeria Plc Federal Inland Revenue Service 8 Oando Plc Power Holding Company (PHCN)9 Corner Stone Insurance Plc Nigerian Social Insurance Trust Fund10 African Alliance Insurance Plc National Agricultural Insurance Co.
Source: Researcher’s compilation, 2011.
3.4 SOURCES AND METHOD OF DATA COLLECTION
This study will use both primary and secondary sources of data. The primary sources
will involve developing questionnaires to be sent to the selected organizations for
completion. Questionnaires will also be designed and addressed to the Auditor-General for
the Federation and for the States, selected companies and government parastatals included the
sample size.
The secondary data shall involve using annual reports of the government, financial
statements of selected companies and government parastatals, journals, articles and
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
publications most of which could be obtainable from the Nigerian Stock Exchange secretariat
and the offices of the Auditor-General either for the Federation or for the State.
3.5 MATHOD OF DATA PRESENTATION AND ANALYSIS
This study shall in the course of presenting the data collected, employ the tabulation
method of data presentation. And for the analysis, the descriptive analysis will be used to
come up with a detail analysis of financial reporting practices in the private and public
sectors organizations in the Nigerian economy. The descriptive analysis deals with the study
of the distribution of the variables of the study in relation to subjects such as the profiles of
the respondents, organisation, groups or any other subject. Descriptive analysis is used to
summarize the information generated in the research usually by the use of percentages and
tables.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 ANALYSIS OF ADIMINISTERED QUESTIONNAIRE
Table 4.2 Questionnaires Administered and Response Rate
RespondentsQuestionnaire Administered
Questionnaire Returned Response Rate
Private Sector Org. 10 8 80%Public Sec. Org 10 6 60%Office of the AGF 1 0 0%Accountancy Firms 2 0 0%Total 23 14
Source: Researchers compilation, 2011.
The table above shows that, a total number of twenty three (23) questionnaires were
administered, out of which only fourteen (14) of them were completed and returned. These
questionnaires were administered via email (internet) and via post (postal services) to their
head offices at the Federal Capital Territory (Abuja) and Lagos state. Ten questionnaires
were administered to selected public sector entities, and out of these questionnaires, only
eight (8) were turned over, while the remaining two (2) questionnaires bounced back. Ten
questionnaires were also administered to the sampled private sector organizations, and only
six (6) questionnaires were returned, while four (4) were not returned. One (1) questionnaire
was sent to the Auditor-General’s office, but it never received the attention that it deserved.
Two (2) more questionnaires were designed and sent to two (2) different accountancy firms
with a view to finding out the position of financial reporting of firms and other public sector
enterprises, since they are the persons (recognized by law) to audits the financial statements
of these companies and corporations.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
4.2 ALIGNING PUBLIC SECTOR FINANCIAL REPORTING
PRACTICES IN NIGERIA WITH GLOBAL PRACTICES:
This study has sought to find out whether or not financial reporting in the public
sector could be aligned with international public sector financial reporting practices.
However, evidences from this study give the following details:
Table 4.3: Analysis of Public Sector Entities’ Questionnaires
ParticularsCash Base
Accrual Base IFRSs SASs IPSASs Agree Disagree
Accounting system in use 4 4Compliance with Standards 8 0Type and Standard complied with 6 2Criticism against the cash base system of accounting 8 0Adoption of IPSASs 7 1Possibility of Convergence with IPSASs 7 1Weakness of the current practice in the presentation of government information 6 2The need to switch from Cash Base to Accrual Base 8 0Establishment of Regulatory Body in the public sector. 8 0
Source: Field survey, 2011.
The table above shows a breakdown of the responses received from the public sector
entities in respect of the questions raised by the researcher. The study shows that, out of the
eight (8) corporations that responded to the questionnaire, four (4) corporations representing
50% of the total response received, are using the cash system of accounting in preparing
financial information; while the other four (4) (constituting another 50%) use the accrual
base accounting system to prepare their financial reports.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
The table also shows that all the public sector entities are complying with accounting
standards in the preparation and presentation of accounting information for the organizations.
Six (6) corporations representing 75% of the sampled size use the Statement of Accounting
Standards (SASs) in preparing reports; while the remaining two (2) constituting 25% comply
with International Public Sector Accounting Standards (IPSASs) in presenting their financial
information.
It shows that the arguments filed against the use of cash basis accounting system, by
local and international critics was also supported by these corporations. It has been observed
that the cash base system is major factor of money laundering financing, fraud perpetration
and corrupt practices, these views was also shared by some of the corporations surveyed. As
a matter of fact, all the eight (8) public sector organizations surveyed for the study
representing 100% of the sample agree with the view that the cash base accounting system is
fundamentally flawed and are often used as a tool for carrying out sharp practices.
In the same vein, the study shows that seven (7) of the corporations suggested that
there is a need for Nigeria to adopt the International Public Sector Accounting Standards
(IPSASs) in order to accelerate the pace of financial reporting in the public sector in Nigeria.
Whereas, one (1) public sector entity disagreed with the idea that Nigeria should adopt the
IPSASs, perhaps the fear is that, when Nigeria adopts the IPSASs this could result in the
country relinquishing its authoritative powers of reporting to the west – this is another form
of colonialism as they said.
However, seven (7) of the organizations share that, it is possible for Nigeria to adopt
and converge to the International Public Sector Accounting Standards; the reasons put
forward are that, the Nigerian Accounting Standard Board is currently making efforts to
ensure that Nigeria fully adopts the International Financial Reporting Standards (IFRSs) and 50
A comparative analysis of the public and private sectors financial reporting practices in Nigeria
in doing so, the Board will be divided into seven directorates, out of which one of the
directorates will be for the regulation of public sector financial reporting in Nigeria.
Consequently, a corporation in the survey suggests a different opinion on the possibility that
Nigeria’s adoption and convergence with the IPSASs is likely not feasible, given the Nigerian
situation, they claimed.
Evidences in the past shows that, government financial information are mostly
untimely, lacks correlation, and in most cases, they are too voluminous thereby making it
difficult for users and other stakeholders to make informed judgment and decision. This study
also holds the same position with the previous researches. Six (6) corporations in the survey
confirm that government information is found to be wanting in the area of timeliness, and that
government information is mostly bulky in nature. They also posit that financial information
do not present the true position of government operations at any particular point in time, as
the use of the cash base accounting system has undermined the ‘matching’ concept. They
argue that expenses incurred, and incomes earned may not necessarily relate to the period
under review, thereby transferring the inefficiency of other periods into the current reporting
period. Whilst, two (2) organizations suggest a divergent opinion with the others; they claim
that the procedures followed in preparing and presenting the statements are quite necessary –
this statements are thoroughly scrutinized and audited, with an increasing desire to ensure
that there has been the economy, efficiency and effectiveness in the use of public money (i.e.
Value for Money Audit). Attempt to make these statements timelier than what they are
presently, may breed sharp practices in the public sector and intense fraud perpetration.
In response to the question raised by the researcher on whether Nigeria need adopt the
IPSASs, all the surveyed public sector entities consented to the notion that Nigeria needs to
adopt the IPSASs, and that this will create international opportunities for Nigeria;
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
international investors; carrying out operation in global financial markets; international
creditors and so on.
All the corporations consented to the idea that there are needs to establish a
regulatory body in the public sector that will be responsible for the regulation and imposition
of sanctions on non-compliance with financial reporting rules and regulations. However, it is
quite pertinent to note at this point that, other laws and subordinating standards regulating
financial reporting practices in the public sector are the Constitution of the Federal Republic
of Nigeria, Financial Memorandum, Finance (Control and Management Act), and Audit
Ordinance, circulars issued by the Central Bank of Nigeria (CBN) and so on.
4.3 ASSESSMENT OF THE FINANCIAL REPORTING PRACTICES
IN NIGERIA.
Table 4.4 Analysis of Private Sector Entities Questionnaires:
ParticularsCash Base
Accrual Base SASs IFRSs Agree Disagree
Accounting System in use 0 6Compliance with Standards 5 1 6 0The Need to adopt IFRSs 6 0Actions against non-compliance
Source: Field Survey, 2011.
The table above shows that the entire private sector entities surveyed used the accrual
base accounting system. This is said to be adequate for financial reporting because it reflects
the true position of a business at any particular point in time. Incomes earned for a period and
the expenses incurred in the course of earning that income are matched for that same period.
This is in recognition of the ‘matching concept’. Although, debates for the usage of the
accrual base accounting system in the public sector in Nigeria has lingered for quite a time 52
A comparative analysis of the public and private sectors financial reporting practices in Nigeria
now. In times past, speaking of the last ten years, the predominantly used accounting system
in the Nigerian public sector is the cash base system. It is however interesting to know that,
the public sector in Nigeria is making the transition from the cash base to accrual base
accounting system. This study shows that, the rate of usage of the cash base and accrual base
systems is to a 1:1 bases, i.e. for every one public sector entity using the cash base system,
there is one public sector entity that uses accrual base system.
The table also shows that all the surveyed private sector companies comply with an
accounting standard in preparing and presenting reports about the performance of the
companies. Five (5) companies comply with the Statement of Accounting Standards (SASs),
while one (1) company adopts the International Financial Reporting Standards (IFRSs) and
complement the standard with the Statement of Accounting Standards (SASs) – in a bid to
further strengthen the corporate governance standards and enhance transparency and
disclosure in financial reports.
Table 4.4 shows that the need to adopt the International Financial Reporting
Standards (IFRSs) in Nigeria is necessary, as all the surveyed companies are in agreement
with the adoption. In recent times, Nigeria has been using the IFRS on the basis of
adaptation, but this seems not to be working; because IFRSs states that an entity whose
financial statements comply with IFRSs shall make an explicit and unreserved statement of
such compliance in the notes; and that an entity shall not describe financial statements as
complying with IFRSs unless they comply with all the requirements of IFRSs. The
application of IFRSs, with additional disclosure when necessary, is presumed to result in
financial statements that achieve a fair presentation. In view of this statement, the companies’
strongly recommends the full adoption of the standard.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
Other than these standards, the Companies and Allied Matters Act (CAMA) 1990 is
the main legal framework for corporate accounting practices in Nigeria. This study finds out
that, all the surveyed companies prepare their reports and accounts on the principles of the
CAMA – this is perhaps a law, not a standard.
For the surveyed banks, the study shows that banks do comply with the provisions of
the Banks and Other Financial Institutions Act (BOFIA) in making reports. It reveals that, at
some specific years (particularly in 2009) some of the banks are in violation of the provisions
of the BOFIA. Similarly, the Central Bank of Nigeria (CBN) also issue CBN circulars for the
banks to comply with. The National Insurance Commission Act (NAICOM) is not left out in
the regulation of insurance companies’ financial reporting practices.
4.4 THE NEED TO ADOPT THE INTERNATIONAL FINANCIAL REPORTING
STANDARDS (IFRSs).
The basic principle behind the move towards IFRS by many Nations is the need by
the global marketplace to translate and determine the actual value of a firm. Foreign Investors
need a reporting mechanism that allows them to compare and contrast the performance of two
firms. IFRS will allow investor firms to capture material deficiencies in management
practices and provide a reasonably impartial basis for making informed decisions. Look at it
this way; if all companies utilize the same set of rules from an accounting and reporting
perspective; one would expect a reduction in arbitrage opportunities caused by information
rationing. Moving towards IFRS conveys a level of trust for the information being reported in
the financial statements of many companies. This would also increase the level of foreign
direct investment (FDI) in countries like Nigeria.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
Current standards for reporting financial statements in Nigeria, is described as
fictional. Specifically, financial statements reported in Nigeria currently, are not capable of
revealing the precise financial health of organizations because issues like inflation and risks,
which matter a lot to business operations, are not reported. Other countries like Brazil and
Netherlands have a way of reporting effect of inflation in their financial statements but in
Nigeria, there is yet to be a provision for reporting “inflation", attributing this backwardness
to low influx of foreign investments in Nigeria. However, advocates of IFRS have suggested
that the adoption of International Financial Reporting Standards (IFRSs) is pertinent, because
presently, the standard of reporting financial statements in Nigeria allows external auditors to
post a clean bill of health on a company's financial statement while in reality, calamity and
failure are knocking. The adoption will, however, stimulate Direct Foreign Investment (FDI);
and will not only help Nigeria’s industry but also enable Accountants to practice their
profession anywhere in the world.
The NASB has consequently been mandated by the Federal Executive Council (FEC)
to immediately create a centre of excellence to cater for regulators, auditors and other
professional accountants in the understanding of the IFRS. According to Nigeria's Minister of
Commerce and Industry, Senator Jubril Martins Kuye, NASB has been directed to ensure that
the action plan and framework of targeted activities that will enable a smooth transition to
IFRS by all stakeholders are effectively coordinated and communicated. These include
creating awareness on the potential impact of the conversion identifying regulatory synergies
to be derived and communicating the temporary impact of the transition on business
performance. Other activities are education and training, public sector financial reporting and
applicable financial reporting standards as well as the future role of the NASB after the
adoption of IFRS. This task is really a big one for NASB to cope with, given its inadequacies.
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And it, therefore, calls to mind the need for the National Assembly (NA) to urgently pass the
Bill for the Financial Reporting Council (FRC). This is meant to comprehensively regulate
financial matters in the country. The Bill was prompted by the drive towards common global
public sector accounting standards of which the International Federation of Accountants
(IFAC) and such international agencies like the World Bank are on the forefront.
No doubt, the adoption of the IFRSs is a welcome initiative which has inherent merits
for the economic growth and development of the country. Essentially, this would enthrone
transparency in the conduct of business in the public and private sectors of the economy; it
will bring about “International Language” understood and trusted by both local and foreign
investors. It is when this is done that economically; the world becomes really a global village
where cross-border deals could easily be sealed, thereby enhancing the businesses of
multinational foreign direct investors, local entrepreneurs as well as the SMEs.
Business Hallmark (2008) is of the candid opinion that once the reporting entities in
the country adopt globally accepted, high-quality accounting standards by converging
Nigeria's national accounting standards, the economy stands to immensely benefit. Most
importantly, the action would engender great confidence in foreign investors, and equally
attract Foreign Direct Investments (FDIs). This is the time for such investor-friendly bills as
the Financial Reporting Council (FRC), the Leasing Bill and the likes to be quickly passed
for our national good.
The global experience of the financial crisis of the 1990s had opened the eyes of the
International Community. It had informed the need to observe and enforce a standard code of
best practices in financial reporting for all countries of the world. At least, the new
dispensation would prevent a repeat of the “Cadbury scandal” which, amongst others, arose
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due to differences in accounting standards and creative accounting or fraudulent accounting
practices. The study also finds out that the NASB currently sets accounting standards and
enforce compliance, for only the private sector. The public sector is on its own. But the FRC
Act is expected to be robust and comprehensive, with five distinct directorates to be charged
with setting of specific standards for both public and private sectors. Those directorates are
for private sector, public sector, the Actuarial Standard Board, Inspection as well as corporate
governance. The scenario captures even those at the helm of affairs in the three-tiers of
government who are not held accountable by the NASB. But the FRC Act would inevitably
evolve an appropriate system which will ensure responsive and accountable stewardship even
in government.
The level of fraudulent practices being perpetrated at the three-tiers of government is
to say the least, horrendous. Nobody seems to care to find out, except a few instances where
the anti-graft agencies such as the Economic and Financial Crimes Commission (EFCC) and
Independent and Corrupt Practices Commission (ICPC) wade into alleged financial
misconduct to unearth what happened and how it happened once in a while. Business
Hallmark believes that with the Financial Reporting Council (FRC), it would be easier for the
public to know how the public sector institutions are run. Even the political parties and
countless donor agencies that raise money for various projects would be captured such that
those who use them as conduit pipes to line their pockets with public resources could be
easily checked.
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CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 SUMMARY
The importance of financial reporting cannot be over-emphasized by any means. The
concept refers to the process of revealing the financial position and the result of operations of
businesses. Through this means, shareholders and other stakeholders are informed on the
performances and activities of the firm.
This chapter is however a recap of the entire research project. The study begins with
chapter one (1) where issues like the background to the study; problem statement; objectives;
research questions; significance of the study; scope and limitations of the study were all
discussed.
Chapter two (2) constitute the review of related literature which are relevant to the
area of the present study. Matters in chapter two consist of the conceptual framework of
financial reporting; concepts, definitions and views of scholars and past researchers on the
subject matter. It highlights and discussed public sector financial reporting in Nigeria; and
other issues therein like the global trend of financial reporting. It also talks about private
sector financial reporting in Nigeria; the laws and standards regulating financial reporting in
the corporate sector; objectives of financial statements, users and stresses the importance of
financial reporting.
The third phase of this study dwelt on the methodology on which the research was
conducted. Chapter 3 begins by identifying the population of the study; it proceeds further to
define the sample size and sampling techniques that was used; the sources and methods of
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data were also identified in this phase. Consequently, the chapter also discussed the method
of data analysis used by the study as well as their justification.
At the conclusion of chapter 3, the study proceeds to chapter 4 where all data
generated were presented, interpreted and analysed. Basically, chapter 4 deals with the
presentation, interpretation and analysis of the data collected from the field and those
generated online as well as other authoritative documents and news reports. In this phase, the
researcher made relentless effort to gather the required data within the shortest possible time,
and has also made exerts to ensure that the data were analysed objectively – all forms of
subjectiveness were reduced to the barest minimum.
5.2 CONCLUSION / FINDINGS
After doing all the researches and analysing all data, this study has finally come up
with the conclusion that the cash base system of accounting is still used by public sector
entities in Nigeria, even though some entities were found to be using the accrual base system,
the cash base system is no longer ideal for reporting in the public sector; reason being that it
undermines the ‘matching’ concept; used to perpetrate fraud and sharp practice; and do not
present a true picture of financial position. Statements of Accounting Standards (SASs) are in
wide usage by public sector entities as when compared to those using the International Public
Sector Accounting Standards (IPSASs).
This study also concludes that all companies incorporated under the Companies and
Allied Matters Act by the Corporate Affairs Commission (CAC) in Nigeria use the accrual
base system. Companies comply mostly with the Statement of Accounting Standards in the
preparation and presentation of financial statements; while few prepare their statements in
line with International Financial Reporting Standards (IFRSs). The Companies and Allied
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Matters Act (CAMA) is the main law/statute governing the conduct of economic activities
and also specifying the way companies prepare their annual and interim accounts. The
Central Bank of Nigeria (CBN) Act also plays a role in regulating the reporting of banks,
both in the public and private sector, the Banks and Other Financial Institutions Act (BOFIA)
and the National Insurance Commission (NAICOM).
5.3 RECOMMENDATIONS
On the basis of the conclusions drawn, the following recommendations were made:
1. Nigeria should transit from cash accounting to the accrual base accounting in the
public sector in Nigeria. This could however be achieved through compliance with the
International Public Sector Accounting Standards (IPSASs).
2. Nigeria should adopt the International Financial Reporting Standards (IFRSs) if she
must enjoy the benefits of complete global business – the benefits of having global
investors, strong capital markets and easy direct investments (FDI).
3. There should be established an independent body set up by the Nigerian government
that will be responsible for ensuring strict compliance with the standards so adopted.
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BIBLIOGRAPHY
Adams, R.A. (2006): Public Sector Accounting and Finance, Maryland Lagos, Corporate
Publishers Ventures.
Anumaka, N. M. (2010): Historical Background, Due Process in Standard Setting and Future
Outlook, Nigerian Accounting Standard Board (NASB).
Anyafo, A. M. O. (2000): Nigerian Public Accounting and Budgeting; Government and
Public Sector Accounting, Enugu; GOPRO Foundation press.
Companies and Allied Matters Act (CAMA) 1990:
Dopuch, N. and Sunder, S. (1980): FASB’s Statements on Objectives and Elements of
Financial Accounting: the Accounting Review; vol. 1 p.2 American
accounting association, George Banta Company Inc., Menasha,
Wisconsin.
Federal Republic of Nigeria (1958): the Constitution of the Federal Republic of Nigeria 1999.
Lagos: Federal Government Press.
Federal Republic of Nigeria (1999): Finance (Control and Management Act 1958. Lagos:
Federal Government Press.
Glautier, M.W.E. and Underdown, B. (1986): Accounting Theory and Practice, ELBS/Pitman
publishing London.
Iyika, P.I (2009): the Adaptability of Accrual Accounting in the Public Sector, Nigerian
Accounting Standard Board (NASB).
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Kantudu, A. S. and Atabs, T. I. (2007): Role of SAS 10 in Reducing Creative Financial
Reporting Practices by Banks in Nigeria. Journal of Social and
Management Studies, Bayero University Kano, Vol. 12, pg. 155 – 167.
Kieso D.E. and Weygandt J.J (1980), Intermediate Accounting, John Wiley and Sons Inc.
Meigs, R; Bettner M; Washington, R; and Meigs, M.A. (1996): Accounting; the basis for
business decisions, New York, Mc-Graw Hill Book Company.
Omorokpe, R.O. (2006): Financial Accounting Practice in business and not-for profit
organization, Lagos, Mareh Publisher.
Oshisami, K. (1992): Government Accounting and Financial Control. Lagos-Nigeria:
Megavons (W.A.), Plc.
Report on the Observance of Standards and Codes (ROSC) 2004, Accounting and Auditing.
Nigeria.
Report on the Standardization of Federal, States and Local Government Accounts in Nigeria
(2002): Executive Summary and Financial Reporting Model. Vol.2
Report on the Standardization of Federal, States and Local Government Accounts in Nigeria
(2002): Main Report. Vol.1,
Financial Reporting and Ethics; Regulatory Framework of Financial Reporting (2010)
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INTRODUCTORY PAGE
Department of Accounting,
Faculty of Soc. & Mgt. Sci.,
Bayero University Kano,
P.M.B 3011,
Kano state,
Nigeria.
17th January, 2011.
Dear Respondent,
My name is Olusegun Olowu Amos. I am a 400 level student of Bayero
University Kano studying Accounting. In partial fulfilment of the
requirement of a B.sc Degree in Accounting, it is customary for students
to carry out research on an area of accounting, which is of interest to the
students, with a view to adding new ideas to the existing body of
knowledge.
For this purpose, I am conducting a research on the topic, “a comparative
analysis of the public and private sectors financial reporting practices in
Nigeria”. The importance of financial reporting cannot be over-
emphasized by any means. Financial reporting is a means whereby
owners and outsiders get to be abreast of the activities of an entity. It is
an undisputable fact that the major aim of financial reporting is the
conveyance of relevant information useful to the various categories of
users of such information. Financial reports must be clear and
understandable. They are based on accounting policies which vary from
enterprise to enterprise, both within a country and among countries.
Whatever the case, accounting should contain facts that are
comprehensible to those who have a reasonable understanding of
business economic activities and willing to study the information with
reasonable diligence.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
I’m counting on your maximum cooperation as you respond to the
questions that follow. I assure you that the information supplied by you
will strictly be used for the purpose of this research and for no any other
purpose. The confidentiality of the information is as well assured. Thanks.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
APPENDIX 1
QUESTIONNAIRE
Please tick as appropriate;
1. Do you have an accounting unit in the organisation?
a. Yes
b. No
2. Do you have internal audit unit in the organization?
a. Yes
b. No
3. Are internal control systems in place in the organisation?
a. Yes
b. No
4. How can you rate the effectiveness of the controls in place?
a. Satisfactory
b. Unsatisfactory.
5. When transactions take place in the organisation, how are they recorded?
a. On a double entry system
b. On a single entry system
6. What system of accounting does the organisation use?
a. Cash Based accounting system
b. Accrual Based accounting system
7. Does the organisation comply with any standard when recording
transactions carried out in the organization?
a. Yes
b. No
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
8. If your answer above is Yes, then what standard is been complied
with?
a. International Financial Reporting Standards (IFRSs)
b. Statement of Accounting Standards (SASs)
c. International Public Sector Financial Accounting Standards
(IPSASs)
d. Others specify
9. The cash basis of accounting has been criticized to have many
problems, and these critics have suggested that the accrual basis of
accounting be adopted by public institutions. What is opinion on this
statement?
a. Agree
b. Disagree
10. The International Public Sector Accounting Standard Board
(IPSASB) has been making efforts to develop accounting standards
that are applicable by public sector entities around the world; some
countries of the world have now adopted these standards. Should
Nigeria also adopt these standards?
a. Agree
b. Disagree
11. Could public sector financial reporting practices in Nigeria be
aligned with global public sector financial reporting?
a. Yes
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b. No
12. Do you agree that, when Nigeria adopts the International
Public Sector Accounting Standards (IPSASs), accounting information
could be harmonized with those of other countries?
a. Agree
b. Disagree
13. It is argued that, government financial statements are mostly
untimely, lacks correlation, and in most cases, they are too
voluminous making it difficult for its users to analyse and make
meaningful decision. Is this true?
a. Yes
b. No
14. Do you agree with the view that, when public sector entities
switch from the cash basis of accounting to the accrual basis,
comparison between private and public sector entities will be made
a lot easier?
a. Yes
b. No
15. Do you think in your opinion, there is a need to set up a body
(like the NASB) that will be responsible for issuing standards for the
regulation of financial reporting practices in the public sector in
Nigeria, and to also ensure that public sector entities will comply
with such standards?
a. Agree
b. Disagree
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16. From your own point of view, suggest some steps that need to
be taken to remedy the problems of financial reporting in the public
sector?
............................................................................................................
............................................................................................................
............................................................................................................
............................................................................................................
............................................................................................................
............................NB: use extra sheets where necessary.
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APPENDIX 2
QUESTIONNAIRE
It is my assumption that the person(s) completing this
questionnaire have the required background of
accounting standards and other regulatory
pronouncements governing financial reporting in Nigeria
and abroad. And that he/she (or the group of persons
completing the questionnaire) is familiar with the
provisions of the Nigerian Statements of Accounting
Standards (SASs) and the International Financial
Reporting Standards (IFRSs).
Please tick as appropriate
1. Do you have an accounting unit in your organization?
a. Yes
b. No
2. Do you have internal audit unit in the organization?
a. Yes
b. No
3. Are internal control systems in place in your organization?
a. Yes
b. No
4. How can you rate the effectiveness of the controls in place?
a. Satisfactory
b. Unsatisfactory.
5. What accounting system is used by the organization?
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
a. Cash Based accounting system
b. Accrual based accounting system
6. Which accounting standards does the organisation use in preparing
its annual and interim financial statements?
a. Statement of Accounting Standards (SASs)
b. International Financial Reporting Standards (IFRSs)
c. Others specify
7. To what extent does the organization comply with such standards?
a. Full compliance
b. Partial compliance
c. Others specify
8. Do you think in your opinion, when Nigeria fully adopts the IFRSs,
comparison of performance among companies around the world will
be made a lot easier?
a. Agree
b. Disagree
9. If you agree to the above assertion, do you think, this will be bring
about international opportunities (such as international investors,
international capital markets, international creditors, and so on) for
Nigerian local companies?
a. Agree
b. Disagree
10. Are there actions taking against the company for non-
compliance with laid down standards and other pronouncements by
the relevant standard setting bodies?
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
a. Yes
b. No
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
11. If your answer above is yes, what are they?
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You can use extra sheets where necessary.
12. The International Accounting Standard Board (IASB) has, over
the years, made effort, and is still making efforts to develop
acceptable and applicable standards (i.e. IFRSs) for users and
preparers of financial statements around the world; this is done with
a view to ensuring uniform financial reporting by firms all around
the countries of the world. Kindly suggest other reasons why Nigeria
should be a part of this development?
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You can use extra sheets where necessary.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria
Thank you for your raft attention.
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A comparative analysis of the public and private sectors financial reporting practices in Nigeria