The Role of Accounting in Government Control of Public Enterprises

The Role of Accounting in Government Control of Public Enterprises

An essential analytical  preludes to an understanding of the problems facing developing economics in the nature of the state of participation is the accumulation process.  This is necessary if only to dispel ;the many phrases mostly confusing and sometimes irrelevant which are being bandies around in relationship to the type of economics which exist in developing counties.

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By accumulation process, we mean the zeal in which within a given structure of ownership of the means of production, needs of the populace is extracted, mobilized through financial and accounting arrangements and re-invested in the form of productive investment that for any economic planning and development strategies to succeed in any parameter,’ accounting must be the key factor’.

Where ownership lies essentially within private initiative government and accounting plays a supportive role which will be the provision of infrastructure and development of finance respectively.  It is however, doubtful whether any serious developing nation can afford to take this back word look position at other extreme where ownership is wholly in the hands of government and its agencies (parastatals) and here the state provides infrastructure and the accountant provides the acceptable centralized financial planning any partially or wholly as necessary for sustained high rate of economic growth.  The task and significant of accounting the government is assessed in terms of heavy financial involvement in the affords of the country and every aspect that has accounting implications.

The extent of which accounting is involved in the various activities of government depends on the understanding of the role which it can play in aiding government to prosecute its business economically, efficiently and effectively.

In Nigeria and most other developing nation where government has significant ownership and control of concerns in virtually all sector of the economy, the need for proper government accounting manifest itself.

The role of accounting in government accounting is jointly performed by both accounting and non accounting officers and government accounting report provide financial information to the following  interest groups.

–         Government units, administrative and its legislative body

–         Investors – bother local and foreign

–         Students – especially those of public finance

–         Political scientists

–         The general public

Accounting is essential to any government in the following reports:

–         Taxation

–         Accountability

–         Project Evaluation

–         Capital formations

–         Budget implementation

The companies Act 1985 as amended provide for all incorporated business organizations in Nigeria to submit their years account  to the Registrar of companies from which their tax liability will be defined.  These accounts must be properly audited by external auditors (who must be chartered accountants) to confirm that the accounts represent a true and fair view of the organizations financial position for the period under review.  This ensures that adequate tax are levied on these origination’s registered and conducting business in Nigeria.

Individual taxes are computed on the basis of their annual accounts.  It is important to state at this point that taxation does not only serve to accumulate income to the government but also facilitate the transfer of resources within an economy, enable redistribution of income, provide incentive in certain sectors by law taxation or granting tax holiday and protecting infant industries from external competition by charging high import duties on the import  of similar product that can be obtained locally.

Well intended and articulated economic recovery measures taken by government in periods of adverse economic condition may be exploited by unscrupulous individuals to their own benefit where there is no accounting or that the system adopted is not adequate in design and effective in operation.

Accounting can also be of help in combating some serious social problems that may befall a nation such problem as inflation and food scarcity may be reduced or brought in check with the aid of accounting since with accounting realistic projection can be made.  These projections are based on the past and present records and the availability of economic resources.

In developing economics where investment at the law ebb, this fact has been attributed to investment fear existing among possible investors and the privilege in this countries.  There is a lot of uncertainties and most deals contracted within the system have fraudulent undertones even in government circles, proper accountability is recommended to rekindle with themselves.

Accounting is also a tool in fulfilling economic planning and project evaluation and capital formations.

–         Accounting role in the control of public enterprises.

Public enterprises is a major face in the development process, the experience with the management and control of most of these enterprises in many nations have been unpleasant.  This chapter two discussed the role of  accounting in the public enterprises in Nigeria and  the impact on the development of the economy.

Generally, the spirit of the laws under which most of the public enterprises in Nigeria were established require that the concern not only must be profitable, but also be able to generate enough surplus funds for their own expansion through self financing.  This criterion of self support (price charged covering cost incurred) concurs with the spirit in many other African and Asian developing counties.  The situation  is some what deferent in the latim American countries where large number  of public concerns are unprofitably managed and where to suggest that they do is considered almost immoral. Actual practice both in Africa, Asian and Latin America Developing nations, the performance of many public concerns are equally appalling and highly deplorable.  Many public corporations waste the scarce economic resources allocated to them through perennial annual loss.

The various organization aspect of many public enterprises have must be desired though these aspects involve internal control. For the management of these concerns to function effectively. The organization must be able to provide idea prompt reports on current performance. This could  then be checked against both past performance and projections so as to isolate the problem area.

–         Control.

Problem of control of public enterprises are malt – dimensions. They are not only economic but also social-political in nature.  Thus they will be discussed in this context but the major emphasis will be founded on the following precept;  That the principles of accounts/financial and statutory acts stipulate the enterprise activities, the selection of the management board, the general policy guidelines.  Theoretically, they formulate policies relating to the administrative, staff, budge and other relevant matter.  But infant, it is invisible that the government minister or commissioner  and political initiate or influence policies formulated, this way, the government influence is rather extensive and travailing. There has been little or no difference in this regard on the civilian or military government.

Some public  enterprises are established as companies under the company laws.  A good example of this is the Nigeria Airways.  The other category of public enterprises is the departmentally run concerns such as the post and telecommunications department now Nigeria postal service Agency (NIPOST) of the  ministry of communications.  Maninly these are  run by civil servants by civil service ;codes and regulations.

This type of control system generally varies with the organizational structure of the enterprises.  Pricing and capital resources allocation budgetary control and financial prudence are basic in these enterprises irrespective of their legal structure, the organization structure must be such that it is conductive to efficient operation of the enterprises.

The appointment of the management board should be as much as possible devoid of excessive political consideration.  Once appointed the management must have independent in decision making and initiatives.  The independent must not only be apparent but also real.

The  major problem of public enterprises are generally their large nature (large than the majority of their counterparts in the private sector).

The need for control against inefficient administration, operations and other malpractices is  even given greater as a result of the large size in the public enterprises.

Analysis and interpretation of financial statements.

Financial reports combine facts and personal judgment, both of which are influence in a manner of presentation to users by accounting conventions. In attempting to interpret the information disclosed, it is necessary to be aware of the limitations imposed by accounting conventions and methods of valuation.

Ratio ;analysis is the widely used technique for interpreting and analyzing financial statements. Ratio are useful because they can be used to summarize briefly the relation and results which are significant to an appreciation of critical business  indicators of performance, for example, the ratio of net profit to assets employed.  Moreover, rations are particularly useful for the purpose of comparing performance ;from year to year, and the performance of different companies giving that aggregate figure are always differing in order of magnitude.

The collection of ratio on a systematic basis allow  trends to ;emerge and throw into relief the significant changes indicated by the analysis of current events. Since the future is uncertain, the analyst has to rely substantially on past behaviourfor predicting future changes.

In this respect, the trends indicated by ratios are very usefully for making predications.  The maintenance of the value of capital invested ;depends on the ability of  the firm to survive for shareholders, and particularly ordinary shareholder, who bear the burden of risk if the company  is  Solvency is of most important criterion of the firms ability to survive.  Solvency is the ability of the firm to meet its debts as they fall due for payment.

Solvency is related therefore, to the problem of liquidity in relation to the size of current obligation in favour of creditors and to available credit facilities.

In line with this, it follows that ratio analysis many make only a limited contribution to assessing solvency for the following reasons.

–         The firm’s total current liabilities and total current assets at the end of the last accounting period may indicate its financial stability is precarious, but solvency happens in the present and not in the past.  In this respect, a firm may be perfectly solvent on the last day of accounting period and may now be insolvent by reason of the sudden withdrawal of credit facility upon which it relied.

–         The balance sheet does not reveal sources of credit if the firm may tap, not the willingness of   creditors and investors to see the firm through a difficult time/period.

Given this limitations, we may see that the usefulness of ratio of solvency lies as indicators for predicting insolvency.  The financial stability of an enterprise in the short term is the central concern in the analysis of solvency. Nevertheless investors are also interested in the analysis of long-term implication of current financial position.  For  these reasons, we propose to discuss both short-term solvency. Short-term solvency may be classified under two common ratios namely: The current ratio and the acid test or quick ratio.

The current ratio According to Ojemba G. Agbo in small business management (200) it is the ratio of current asset to current liabilities expressed as follows:

—This article is not complete———–This article is not complete————
This article was extracted from a Project Research Work/Material Topic

“THE ROLE OF ACCOUNTING IN NATIONAL DEVELOPMENT

A FOCUS ON A DEVELOPING ECONOMY SUCH AS NIGERIA.”

Click Here To get the full Project Research Work/Material

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The Role of Accounting in Government Control of Public Enterprises

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