Financial Reporting in Nigeria, Problem and Solution
Financial reporting is principally concerned with the communication of financial Information relating directly or indirectly or indirectly to an enterprises resource, Obligations, earnings e.t.c.
The principal reporting medium is normally financial statement financial statements are important measure of communicating for useful purpose. The usage of scare economic resources by an enterprise. As such, they need to contain all relevant information to be realized, and be reality understood by the well-informed reader.
When different accounting treatment and disclosures are used for essentially the same transaction or when information is omitted, the chances of the information provided in the financial statements being misleading or maunders are insured. Although there may sometimes be good reasons for differences in accounting standards, principles, applications or disclosures that evolved at national level or otherwise over turn now with the introduction of MIDF and the level of public interest developing in financial reporting may be a good tome to look at our local reporting form an over all perspective.
These issues of validity and credibility from the care of my of my topic “financial Reporting in Nigeria: problems and solution.” The objectives of my speech is to identify and define the problems in financial reporting in Nigeria at present and thereafter to offer or suggest solutions or recommendations. Thereon.
In this regard, a brief over view of the evolution of financial reporting. Its objectives and the over all challenges facing if will be conducted.
OBJECTIVE OF THE STUDY
The need for information on which to base investment credit and similar decision underlies the objective of financial reporting. If information provided is not useful for decision making, there would be no benefits form providing it to set against related costs.
The objectives issued by the U.S financial Accounting standard board (FASB) on financial reporting are as follows:
1. Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making national investment, credit and similar decisions.
2. The information should be Comprehensive to those who have a reasonable understanding of business and economic events.
3. Financial reporting should proved information to help present and potential investors and creditors and the other users in assessing the account, firming and ascertaining of prospective cash receipts from cash out flows of a business ability to generate sufficient cash to meet existing obligations as and when due, reinvest in the business for further growth and pay dividends to shareholders.
4. To assist existing and potential investors in assessing.
5. To provide information about economic resource of an enterprise claims to those resources and the effect of transactions or economic events.
6. To provide information about how enterprises obtain an utilizes cash resources about its borrowing and repayment of borrowing.
7. Financial reporting should provide information about how management has to use the resources of the enterprise entrusted to it by owners of the business.
8. Finally, financial reporting should provide information that is useful to management in making decision in the interest of the business.
This seems fairly comprehensive definition to the objective of financial reporting. It of course leads us to the question of whether Nigeria financial reporting meets such objectives.
SIGNIFICANT OF THE STUDY
The whole essence of financial report as noted is to serve as a tool in decision making, partially decision affecting shift in resources to better opportunities. Three principal users of the financial reporting are shareholder the send. (Normally the Bank) and the potential investor. There is no doubt that the extent of financial literacy of these people/parties invariably shapes the quality of financial reporting.
STATEMENT OF PROBLEM
The problem of financial reporting in Nigeria can be defined according to the extend to which the objective of financial reporting are met.
1. Mixed timeless and value: On timeliness, our local performance in mixed. Most Companies do issue their account within six months of the year-end and while most banks written four months. As it regards to value most companies do discover or disclose what is required by law and accounting standard. For from perfect, while in some areas a little out of data fairly comprehensive.
2. Reliability in terms of reliability noted in the objective the measure rest on the quality of verification and neutrality. How would financial reporting in Nigeria for on the reliability score-eard/ an evolution of recent trends in financial reporting system would provide some incomparability sights on this issue, where sadly it think we score very.
3. Comparability and consistency: We identified that benefits are firm companies information across companies and between years.
In order words, companies stand to go gain from financial analysis.
However, it is common knowledge to those of us that conduct (or attempt to conduct) financial analysis that key limitation exist in such exercises.
SCOPE AND LIMITATION OF THE SUDY
The scope of my study covered library and some institution with record on financial report across the country.
Limitation encountered in respect of carrying out the study is numerous with multiplications. When limitation includes: Transport, Time constrain communication gap, short of material and most especially, restricted access to available material for the study.
DEFINITION OF TERMS:
BALANCE SHEET:
This is a statement showing a summary of the assets and liability of a business.
DOUBLE ENTRY BOOK KEEPING
This is a general accepted method of accounting which demands every transaction must be recorded device in the book of account to go complete information about the given and receiver of values in that single transaction.
ACCOUNTING STANDARD:
This is the codification of accounting application to remove subjectivity from accounting practices.
FINANCIAL ACCOUNTING STANDARD BOARD (FASB)
Issue statement of financial accounting standard which be considered as authoritative expresses of generally accepted accounting principle.
QUALITIES OF FINANCIAL REPORTING
Can the current reporting framework cope with the challenges of the 21st Century what with the rapid change in modern business, technological advancement, and ever increasing complexity? Even worldwide, this is a question which is very hard to answer.
As noted, decision making judge what information is useful and this judgment is influenced by a number of under specified factors. There is a need to carter for the many different users of financial reporting in order to ensure that optimum definition of what and how to account for and discloses is inevitability required. To this end a disregarding of qualities of financial reporting has evolved as follows:
RELEVANCE:
Okechi, S O. In his book: financial reporting in Nigeria its role in capital market operation “ noted that subject to constraints of cost and materiality, relevance is a primary quality that makes financial information useful for decision making. To be relevant, information shall be timely, that is it should be make available to the user before it loses its ability to influence the decision making process. In addition, financial information should posses what is termed productive/feedback value-that is it should assist the decision making kin predicting the future or in providing feedback on earlier expectations. It is often said that without knowledge of the need for production will usually be backing and without an interest in the future, knowledge of the past is sterile.
RELIABILITY
Paul F.C. in his book, “Auditing principles and practices” posits that reliability of a measure rests on the faithfulness with which it represents what it intended to represents. Comply with insurance for the user of its representational quality. Hence the term representation faithfulness, bearing in mind that accounting measure are not execute or precise but approximates sometimes estimates, the question of reliability cannot be view in the light of white or black but only in shade. To this end reliability related to the extent to which accounting measures are veritable and representationally faithful.
It is clear that the information value of an enterprise financial reporting is enhanced by adopting some common framework or set of standard.
MATERIALITY
The concept of materiality goes round the entire financial reporting. This concept reorganizes that some matters are more significant or important than other to the fair presentation of financial statements.
The FASB statement of financial accounting concept No 2 defines materiality as the magnitude of a omission or misstatement of accounting information, that in the light of surrounding circumstances makes it problem that the judgments of a reasonable person relying on the information would have been charged or influenced by the omission or misstatement” similar definitions can be found in the professional literature.
Magnitude by itself, without regard to the nature of the transaction and circumstances surrounding economic events, will not be a sufficient basic for determining materiality it must therefore be but in poor contact and required a good measure of professional judgment, clearly financial statement most include everything that material and not dwell on immaterial items.
COST AND BENEFITS
Home Van, F.C. state in his look book “fundamentals of financial management “ that the final quantity financial reporting must have that benefit or value associated with each element must not exceed related cost.
Every thing must have a cost on the other hard, perception of value is relative and differs and information impacted by the ever-fluctuating relationship between the associated cost (to the user of the information) of financial statement.
He stressed that the challenges for financial reporting are to meet the vote judgment while remaining relevant, reliable including all and only material information and not being excessively costly.
The major challenges for financial reporting in Nigeria in meeting the note objective is the over riding need to prove its credibility and ensure its continue relevant for decision making does our local financial reporting meet the stated objective and its relevant and reliable with proper regard to materiality and its cost exceeding its benefits.
—-This article is not complete———–This article is not complete————
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Financial Reporting in Nigeria, Problem and Solution
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