The Role Of Accounting Concepts And Convention In Financial Reporting

Every business organization whether in the public or private sector is established to achieve certain objectives. This could be profit maximization as in the case of the private sector or efficient and timely provision of essential services at a reduced price, as in the case of the public sector. The performance of such business organization has to be reported in monetary terms to the owners of the business.

This project work will determine the role of accounting concepts and convention in financial reporting based on the extensive and intensive review of literature and careful presentation, analysis and interpretation of data collected through questionnaires and personal interview, the following facts will brought to light.

After detailed and comprehensive questionnaire analysis, it will discovered that the organization visited have accounting departments which are sectionalized. The companies prepare financial statements annually rather that quarterly and monthly.  It was also gathered that accounting concepts and convention are not new to the organization and they are being used by the organization without difficulties. The need of accounting concepts and conventions are relevant and serve as guide in the preparation of financial statements.

This study will be made up of five chapters, chapter one deals with the introductory part of the study. It will touch on vital subjects such as statement of the problems, purpose of the study, scope of the formulation of hypotheses, theoretical framework, limitation of the study.

Chapter two highlights the literature. Chapter three will deal with the areas  that will cover by the study and the method employ in the analysis of the data that was collected through research questionnaire, design, selection of sample size, sources of research materials, the research instruments and treatment of data.

Chapter four will analyze the collected data and presented them in a simple form as to enhance proper understanding and provide correct statistical testing for the postulated hypotheses in the study using the chi-square.

Chapter five brought together the summary of findings, incorporating the observed data to make recommendations on how people should keeping proper accounting in an organization.  Finally, the researcher sincerely hopes that this study will contribute invaluable quota in understanding why government will advert on the issues of obesity, liability and insurance.

BACKGROUND OF THE STUDY

Every business organization whether in the public or private sector is established to achieve certain objectives. This could be profit maximization as in the case of the private sector or efficient and timely provision of essential services at a reduced price, as in the case of the public sector.

 The performance of such business organization has to be reported in monetary terms to the owners of the business. (For example, shareholders in the case of private organization or the government as in the case of public)

Accountancy plays a vital role in the stewardship of an organization. Accounting has been defined as the process of recording, classifying, reporting and interpreting the financial data of an organization. While it is important for the accountant to have a sound knowledge of this phase of accounting process, it is often a relatively minor part of his total attention to the management reporting and interpretation of the meaningful implication of the data. (Welgenbad and Dittrich 1973:4)

Accounting is therefore basically regarded as a language of communication in an organization like every system of communication; its main purpose is to give different types of information to interested persons. Because of this main purpose, accounting forms a major part of the total information system in any entity, be it business or non-business.  (Inanga 1983)

However, the following problems are encountered in the process of communicating this information.

• As the information needs of these various groups do not tally, there are conflicts of interest among the various users of financial statements.

• The problem of subjectivity in preparing the financial statements. Thus, it becomes necessary that in preparing the financial statement, the accountant be guided by some basic assumptions, principles, concepts and conventions in other to ensure a high degree of standardization in financial reporting.

• Financial accounting involves the accumulation of historical records which is technically referred to as stewardship accounting. These historical records for the embodiment of financial statement. Financial statements are the means of communicating to understand parties’ information on the resources, obligations and performance of the reporting entity. (SAS2).

In preparation of these financial statements, certain assumptions, concepts, conventions and principles which provide the essential framework for expressing accounting information are used. This include:-

o The money measurement concept

o The going concern concept

o The business entity concept

o The realization concept

o The dual aspect concept

o The accruals concept

o Prudence concept

o Consistency concept (Frame word 1998:82-85)

These accounting concepts and conventions are seldom disclosed on the financial statement because they are generally accepted as being the undertaking of periodic preparation and presentation of financial statement; but, if in preparation and presentation of this financial statement, the fundamental concepts and conventions are not followed, problems will arise in analysis, interpreting and reporting financial statements. It is therefore essential for the understanding that the interpretation and meaningful analysis of financial statement that these basic concepts, assumptions, principles and conventions used in the preparation must be constantly borne in mind.

The following problems are encountered in the process of communicating information.

 They will be problem of having more meaningful and reliable financial report.

 It will lead to misunderstanding of how transactions are accounted for.

 There will be problem of having useful information for making economic decision.

 It can lead to conflict of interest among the various users of financial statements, if their information needs do not tally.

To this end, the problem of the study is that most accountants do not use accounting concepts and conventions properly in the preparation of financial statement.