CHAPTER ONE
INTRODUCTION
In recent time, financial accounting on business performance of organization has been increasing due to increase in need and desire of people. This increase is also attributable to the present economic situation in the country, which prevent people from going into large-scale business.
Financial accounting is the field of accounting is concerned with the summary, analysis and reporting of financial transactions and interpretation, and recording etc. pertaining to a business. This involves the preparation of financial statements available for public consumption. Stockholders, suppliers, banks, employees, government agencies, business owners, and other stakeholders are examples of people interested in receiving such information for decision making purposes.
Financial statement are prepared detailing information about the business operations since there are many users of accounting information such as Government, Bankers, Auditors, Other organisations, individual stock holders and many stakeholders, it becomes imperative to render such financial statement in order to assist those who are not accountants. So many stakeholders use accounting information to make decisions whether to buy shares or sell them. The above provides useful guide if such financial statements are decoded for understand ability and decision making.
Financial accountancy is governed by both local and international accounting standards. Generally Accepted Accounting Principles (GAAP) is the standard framework of guidelines for financial accounting used in any given jurisdiction. It includes the standards, conventions and rules that accountants follow in the preparation of financial statements. On the other hand, International Financial Reporting Standards (IFRS) is a set of relevant accounting standards stating how particular types of transactions and other events should be reported. International Financial Reporting Standard (IFRS) are issued by the International Accounting Standards Board (IASB).With IFRS becoming more widespread on the international scene; consistency in financial reporting has become more prevalent between global organizations.
While financial accounting is used to prepare accounting information for people outside the organization or not involved in the day-to-day running of the company, managerial accounting provides accounting information to help managers make decisions to manage the business.
1.1 BACKGROUND TO THE STUDY
The impact of financial accounting on business performance of organization is becoming more apparent to users, of financial statement.
Accounting is not an exact science neither a business operations without some subjective and judgmental errors when it comes to reporting them. Financial accounting is a specialized branched of accounting that keeps track of a company’s financial transactions. Using standardized guidelines, the transaction are recorded, summarized and presented in a financial report on financial statement such as an income statement or a balance sheet.
It’s important to point out that the purpose of financial accounting is not to report the value of a company. Rather, its purpose is to provide enough information for others to assess the value of a company for themselves, financial accounting information is characterized by the following:
a) Relevance
b) Understand ability
c) Reliability
d) Completeness
e) Objectivity
f) Timeliness
Financial accounting information of an organization is to contain the information requires to prepare a financial report which shall have the above characteristics then the transaction doing the period must be recorded promptly and accurately and interpreted in conformity with the Generally Accepted Accounting Principles (GAAP), National Accounting Standard Board (NASB), international Accounting Standard Committee and the Companies and Allied Matters Act (CAMA).
Financial accounting becomes necessary with the obvious need for accounting of stewardship from which investors entrusted their financial resources.
1.2 STATEMENT OF THE PROBLEM
The study “The impact of financial accounting on the business performance of organization” aims to investigating the financial accounting information of selected company in Oyo State with a view to determining the following;
a. The extent to which financial accounting contributes to the growth or performance of a business organization
b. The extent to which the financial accounting of business organization comply with statutory provisions
c. The uniformity and conflict which exist in the financial accounting regulation given the multiplicity of regulators.
1.3 OBJECTIVES OF THE STUDY
The objectives of this study are to critically examine the financial accounting information of the selected company and to probe into the fundamental for their preparation as well as its presentation with a view to determining the following;
a. The adequacy of the basis and the fundamental that guides its preparation
b. The influence that financial accounting has impact on business performances
c. The degree to which financial accounting (information) meets the needs of its various users
d. The extent to which the financial accounting conform to the established standard
e. Finally, to present suggestions and recommendations based on our findings.
1.4 RESEARCH QUESTIONS
In order to determine the impact of financial accounting on the business performance of organization, it is pertinent to ask or test the following questions:
a) Do companies comply strictly with the statutory regulation of accounting profession?
b) Does the financial accounting information has impact on business profession?
c) Does the information disclosed in the financial statements adequate to support good financial decision making?
1.5 STATEMENT OF THE HYPOTHESIS
The following null and alternating hypothesis shall be tested in the course of this research work.
1. H0: The information provided in financial statements is not adequate to support good financial decision making.
2. H0: Business organizations do not comply with the statutory regulations of accounting profession
3. H0: Financial accounting has no impact on business organization performances
1.6 SIGNIFICANCE OF THE STUDY
This study is very important and most significant at this period when companies with impressive income statement and statement of financial position are still faced with continuity threat. Financial account is “Prima Facie” evidence on the state of affairs of companies as well as its performance and could be relied upon as a certificate because it has the auditors’ certification.
This study offers solutions to the above raised questions, it is my believe that the result of these finding will go a long way to help other researcher in this area of study. It will also enhance the understanding of the structure of published financial accounting information and accounts by the users.
The various users groups of published financial statements will benefit from this study as follows:
1. The potential investors: These are groups who are interested in committing their financial resources to the purchase of the company’s share. The set of people will benefit from this study as the result of this study will arm them with the necessary tools with which to evaluate the financial accounting of a business organization as it affects them.
2. The general public: This group shall benefit from this report by knowledge that the business organization exists for them not against them and such has to live up to its full responsibilities
3. The regulators of financial Accounting Report: This group includes the Nigerian Accounting Standard Board (NASB), the companies and Allied Matters Act (CAMA), the Banking and other financial institutions act of 1991 (BOFIA), prudential guidelines for licensed banks, the insurance act 2003. The study will help them to standardize and harmonize their operations.
4. The employee group: This include existing, potential and past employees
5. The government including Tax Authorities Department who has interest in the financial accounting of companies: The result of this work shall be of immense assistance to these user groups in the advancement of their interest.
1.7 JUSTIFICATION OF THE STUDY
The redirection of the economy towards self-sufficiency and make it to rank among the twenty largest economies in the world by AD2020 calls for industrialization and growing the economy to meet expectations. This involves grooming the small and medium scale businesses to take the center stage in driving the economy. This effort cannot produce expected result if the targeted businesses lack accountability and thus sustain perpetual losses. Studies have shown that the strength of great nations derives from the small and medium scale enterprises who work tirelessly as backbones to the industrial giants (Arowomole and Oyedokun, 2006; Olatunji, 2000; Iopev and Kwanum, 2012). How prepared are Nigeria entrepreneurs to run organizations with valid and credible financials that could encourage or stimulate investments.
1.8 SCOPE OF THE STUDY
This study could have covered the impact of financial accounting on business performance of all sectors of the Nigeria Economy but due to the challenges of such a task especially the financial resources with which to execute it, this is now limited to brewery industry. The study of Nigeria Breweries Plc Ibadan Oyo State.
1.9 DEFINITION OF TERMS
1. AUDITOR: An auditor is someone who is responsible for evaluating the validity and reliability of a company or organization’ financial statements
2. STATEMENTS OF FINANCIAL POSITION: Formerly called balance sheet. A statement that shows the state of affairs of a company by depicting its assets, liabilities as well as its equity.
3. BANK: An establishment authorized by a government to accept deposits, pay interest, clear checks make loans, act as an intermediary in financial transactions, and provide other financial transactions, and provides other financial services to its customers.
4. GOVERNMENT: An institution of the state whose responsibility is to maintain law and order in the society.
5. PRIMA FACIE: Sufficient to establish something legally until disproved later.
6. RESEARCHER: An enquirer basically concerned with search knowledge.
7. Accounting: Accounting is the systematic and comprehensive recording of financial transactions pertaining to the business, and it also refers to the process of summarizing, analyzing and reporting, these transactions to oversight agencies and tax collection entities.
8. Going Concern Threat: Is an accounting assumption that state that a business will stay in operation for the foreseeable future.
9. GAAP (Generally Accepted Accounting Principles): Is a framework of accounting standards, rules and procedures defined by the professional accounting industry.
10. Financial Regulator: Is an institution that supervises and controls a financial system. Their objective is to guarantee fair and efficient markets and financial stability.