Development Of Accounting Principles And Standards
(An Empirical Study)
The evolution of accounting principles and standards has been a dynamic process, shaped by various factors such as regulatory requirements, technological advancements, globalization, and stakeholder demands. Initially rooted in basic bookkeeping practices, accounting has transformed into a sophisticated system encompassing financial reporting, auditing, and regulatory compliance. The establishment of organizations like the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) has been instrumental in setting and refining accounting standards, ensuring consistency and comparability in financial reporting across industries and jurisdictions. Moreover, the emergence of new industries and business models has necessitated the adaptation of accounting standards to address complex transactions and structures. With the advent of digital technologies, accounting practices have increasingly incorporated automation and data analytics, enhancing efficiency and accuracy in financial reporting processes. Additionally, there’s a growing emphasis on sustainability reporting and ethical considerations, prompting the integration of environmental, social, and governance (ESG) factors into accounting frameworks. This ongoing evolution underscores the dynamic nature of accounting principles and standards, continually adapting to the changing landscape of business and finance.
The objective of this study is to access based on empirical research the exceptional qualities or otherwise of the present accounting principles and standards.
Information was drawn from both primary and secondary sources. The primary sources were held with members of institute of chartered accountants of Nigeria (ICAN) on the subject matters. During the time, question on the general field of accounting principles and development were asked. The rest of the information came from library sources. The information collected was analysis using simple tabular diagrams, percentages, ratio and statistical tools chi-square. The result obtained from this study is that the present way of evolving accounting principles and standard from the beginning which dates back to 600BC has not been very helpful. The study also revealed the economic life of business differ significantly so that the purpose or aims of financial reports are not the same everywhere. All these have resulted to display in the financial report between accounts.
Although, it is evident that a quest deal of success has been recorded by the accountancy, bodies worldwide, in standardizing existing standards. This project recommends that a standard based on contemporary problem and fashioned for the immediate or particular business environment be evolved. It is hoped that when the points mentioned above are fully implemented, the accountancy profession, especially in Nigeria which is currently being threatened by existing laws in the country, can effectively render those necessary committee it owes to the public it services. By way of reward for the this services, the future existences of the profession would be guaranteed as it would remain ever strong and reliable.`2
Title page ii
Approval page iii
Dedication iv
Acknowledgement v
Abstract vi
List of tables viii
Table of contents x
CHAPTER ONE
Introduction 1
1.1 overview of study 1
1.2 Statement of problem 5
1.3 Objective of study 6
1.4 Hypothesis of the research 7
1.5 Significance of the study 8
1.6 Limitation of the study 9
1.7 Definition of terms 9
Reference 12
CHAPTER TWO
Review of related literature 13
2.1 Historical development of accounting 13
2.1.1 The early financial accounting 13
2.1.2 The venture accounting 15
2.1.3 The joint stock company 16
2.2 Development of accounting principles and standards 18
2.3 Recent revisions to accounting standards 23
2.4 Foreign currency transaction and conversion 25
2.5 Accounting for depreciation 26
2.6 Accounting for lease and hire purchase 28
References 31
CHAPTER THREE
Research methodology 33
3.1 sources of data 33
3.1.1 Primary data 33
3.1.2 Secondary data 33
3.2 Population and sample size 34
3.3 Methodology used 35
CHAPTER FOUR
Presentation and Analysis of Data 38
4.1 presentation and analysis of an empirical research into
the accounting principle and standards 38
4.2 Testing of hypothesis 46
CHAPTER FIVE
Summary of Finding Recommendation and Conclusion 62
5.1 Recommendation 64
5.2 Conclusion 67
Bibliography 68
Questionnaire 71
OVERVIEW OF STUDY
The hall mark of a profession is its commitment to the public service. The commitment can be classified into three. Firstly, there must be satisfaction of the society being served, secondly there must be professional pride invite craft and thirdly the profession should be accorded recognition be fond its national boarders.
If we go down into memory, we discover that the need for better accounting principles and standards is a world wide phenomenon, for instance, Noel Hyndman and Robert kink (1989:20) said that one of the main reasons for the dearth of new standards and revisions of same is the fact that the accounting standard committee (ASC) like other standard setting bodies now begin to investigate accounting topics which are extremely controversial. Invariably, most of the new standards involve significant adjustments to both the profit and loss account and the valuation of assets and liabilities in the balance sheet.
Again, Noel Hyndman and Robert kink (1989:42-44) on then part saw from every practical objective level, most countries have disconvered lack of clear statement of the aims and purpose of financial reporting as the major, short coming in the standard setting processes. According to Hyndman and kink, and citing germany as an example, “financial statement are considered as one of the most important vehicles for communicating with people who have financial interest in business enterprises”. The art of accounting in this circumstances unlike the (former) is to provide a reliable and relevant information to the interested parties.
Explaining his own reaction on the global effect of clear statement of the aims and purposes called, “in the united states for example, the stock market crashes of 1929 and 1969 which was blamed on financial report by companies first triggered the estblishment of accounting standard in that country”. He went further to say that in the U.K, like Nigeria the establishment of accounting standard committee (ASC) by the six professional bodies were ignited by lack of uniform Nigerian situation was made worse by the Nigerian enterprises promotions decree which attempted to transfer ownership of companies to Nigeria”. Foreighers exploited the lack of uniform accounting procedure in valuing their equity in corporations affected by the decree. Practicing accountant is faced to go down memory lane once more, he may admit that the problem emanated from their evolvement of those principles and standards that date back to 600 B.C., when accounting as a practice came into being. Ordinarily, he may resolve that all it takes to improve on the principles is a fough body of accounting standards. But could these forestall the disasters in the accounting world most especially in our country?
Today, the disaster is becoming more real than apparent in Nigeria with the introduction of the secondary foreign exchange market (SFEM), the recent open market operation (OMD) and foreign exchange market (FEM). According to Okpechi 91990:5) this system has brought in its wake a lot of pressures on management of companies to show profits in the fact of rapidly dwindling revenues. Accounts are most likely going to be massaged and manipulated to show favourable result. Once more, it is in this regard that accounting standards of measurement and reporting and the need for more to be more responsive to developed principles assume greater importance.
If members of the profession feel that the present principles and standards have not altogether done much good, shall helplessly ching to them or find something that would be benefical to helping to achieve consistency between standard. After all December 20th century dictionary (1985:1022 AND 1261) pointed out the three major qualities of all principles and standard, it defined principles as “consistent regulation of behaviour accord go moral law” and standards as accepted authorities statement of adequacy required. According to Oxford English Dictionary second edition volume xii (1991:499) principles is defined as a “general law or rule adopted or professed as a guide to action, a settled ground or basis of conduct or action, especially one consciously recognized and followed and standards as a definite level of excellence, attainment, wealth or the lay or a definite degree of any quality, viewed as a presaribed object of ondeavour or as a measure if what is adequate for some purpose. Form the foregoing, one may deduce that principles or standard is consistency applied if it provides adequate treatment for items in question. The adequacy assume its acceptability and the circle contnues here lies our problem. The primary aim of this project, therefore is to find something we could expect would lead to a cutting back of alternative treatments in a longer term. In the short come closer to which could be regarded as our yearning principles or philosophy. Put simple a better account standard evolved to solve our immediate problems. This standard is also expected to fit into the economic like of particular place in question
1.2 STATEMENT OF PROBLEM
Okpechi statement presents one of the problems of this thesis. I have been tempted many times, to dispel certain newspaper misconception about why the Nigerian accounting standard Board was established and how. The standard developed so far are carbon copies of those produced elsewhere”…
(Okpechi 1990:2)
so, the first of the needs of this project is to see how accounting principles development based on our local problems instead of reinventing the present principles with its shortcomings.
Again, the study would take a meticutons look at the trend of standards development and revision of the world over, and seek ideal devices of providing good standards of measure and reporting that would remove distrust and attract more acceptance from the public we serve.
Finally, the urgent need to hormonize and standardize the skills and knowledge acquired by Nigerians who studied in the two contrasting economies of competitive market of the west or the planned economy for the East would be tackled. This is done to achieve uniformity in the treatment and reporting of accounting information. Among others, it hopes to introduce measures which will enhance the reliability and validity of information reporting in the financial statement.
1.3 OBJECTIVES OF THE STUDY
David Allem, (1989:35-48) made it clear that given the rapid globalization of business in recent years, it seems reasonable to predict that an effective system of accounting for danging price levels and other economic uncertainties must address the present economic situation. Taking that as on premise, this study hopes to change those practical detents which are traceable to the difficulties of narrowing areas of difference in practices. The aim is to ensure that financial statements that are presented to both local and foreign users are structurally uniform and meaningful.
Secondly, it hopes to hance accounting standards and hence accounting information that reflects our economic environment but at the same time, satisfies the anticipated needs of the users of the information. Among others, it hopes to introduce measures which will enhance the reliability and validity of information reported in the financial statements.
1.4 HYPOTHESIS OF THE RESEARCH
In order to guide the researcher in planning the course of this in quality in choosing the necessary data in deciding the appropriate statistical treatment and in examining the outcome of this study, the following hypothesis were formulated:
1. Hi: There is need for review of the accounting principles and standards to reflect contemporary problems.
2. Hi: Lack of trust in the professional competence of promulgation of the companies and allied matters Decree.
3. HI: Thirteen accounting standards launched by the Nigeria accounting standard Board were mere carbon copies of those produce elsewhere?
1.5 SIGNIFICANCE OF THE STUDY
The word ‘Empirical” attached to this study “The development of accounting principles and standard was defined in the 20th centrury chamber dictionary as the system which reflecting all knowledge, vest solely on experience and induction “(Kink Patrick 1943: 409). Taking this as premise, the meaning or importance of this project lies on the light quality thoughts of protocohe members of the profession relating to the use of present day accounting principles and standards.
As we have rightly been informed, some failure in the current standards all over the world have compelled members of the profession, to seek ways of correcting them. In the process, they discovered that lack of clear statement of the aims and purposes of financial statement is because economic life differs from other country to country. This in turn has led to disparities in the standards and quality of practice between accountants. This letter has a strong effect on the profession because it has resulted to doubt from the public which we server, as to how competent we are. Therefore, this study has its importance, very strong quest to be satisfied, and it goes thus: in the face of above divergent conditions and situations, is THERE NO MEANS WE CAN EVOLVE STANDARD FASHIONED FOR THE CONTEMPORARY PERIOD AND ALSO FOR A SPECIFIC ECONOMIC LIFE?
1.6 LIMITATION OF THE STUDY
The sample size is restricted to Nigeria only even though the study went beyond the national boarders. The reason advanced for a professed as a guide to action, especially one consciously recognized and followed; and standards as a definite level of excellence attainment, whether or the like or a definite degrees of any equality viewed as a prescribed object.
1.7 DEFINITION OF TERMS
The main thrust of this chapter is to look closely at what different authorities are saying on the topic view.
According to Okpechi (1990:3) accounting is the application of standards of procedures transactions and procedures and methods in order to reflect the impact of transactions and conditions on the financial position of an enterprise”.
On standard, we described it as reference points to which other measures are expected to confirm” (Okpechi, 1990:2).
Garbutt Douglas 91984:0101) sees accounting as a discipline concerned with the recording, analysis and forecasting of income and wealth of business and other entities. He went further to define accounting principles as the rale and conventions which have been adopted as a general guide action by the accountancy profession. “On accounting standards he regards it as methods of accounting approved by the authoritative bodies in whose departure the financial effect should be disclosed and explained’.
Besides, Lawrence Isung (1990:14) and Nwoko Chinedu (1990:1-3) have similar definitions as one above, but went beyond to distinguish between concepts and principles as contain in the statement of accounting standards.
Referring to the statement, Isung work about Accounting concept saying “concepts qualified as fundamental and are the underpinning of the preparation and presentation of financial statement and principles as the rule that accountants must follow when it becomes necessary to exercise judgment about the choice and the application of conflicting fundamental concept. The forgoing seems to be saying that accounting principles and standards are off-shoos or conventions deprived from experience of years ago
A background knowledge of those past experiences in the accounting profession becomes apparent, if one must judge contemporary issue correctly.
The development of accounting principles and standards has been a crucial aspect of the evolution of modern accounting practices. These principles and standards provide a common framework for how financial information is recorded, reported, and interpreted. They ensure consistency, transparency, and comparability in financial reporting across different entities and industries. The development of accounting principles and standards can be outlined as follows:
- Early History: Accounting has been practiced for centuries, primarily as a means of keeping records of transactions. However, the lack of standardized principles led to inconsistent practices and limited usefulness of financial information for decision-making.
- Industrial Revolution and Business Expansion: The Industrial Revolution in the 18th and 19th centuries brought about significant changes in business operations and the need for more structured and standardized accounting practices. As businesses grew larger and more complex, there was a greater demand for reliable financial information.
- Emergence of Accounting Organizations: Professional accounting organizations, such as the American Institute of Accountants (now the American Institute of Certified Public Accountants or AICPA), were established in the late 19th and early 20th centuries. These organizations played a key role in developing and promoting standardized accounting principles.
- Creation of Accounting Principles: In the United States, the AICPA developed the first set of accounting principles known as the “Generally Accepted Accounting Principles” (GAAP). These principles aimed to standardize the way financial information was recorded and reported, making it more understandable and comparable.
- Financial Crises and Regulatory Responses: Events like the Great Depression in the 1930s highlighted the need for even more rigorous accounting standards to prevent financial misreporting and manipulation. This led to the establishment of the U.S. Securities and Exchange Commission (SEC) and the development of more comprehensive accounting rules.
- Standard-Setting Bodies: Organizations like the Financial Accounting Standards Board (FASB) in the U.S. and the International Accounting Standards Board (IASB) at the international level were established to develop and issue accounting standards. These bodies work to ensure that accounting standards evolve to address new financial instruments, transactions, and business practices.
- Move Toward International Standards: With the increasing globalization of business, there was a need for globally recognized accounting standards. The IASB developed the International Financial Reporting Standards (IFRS) to create a common accounting language for companies operating in different countries.
- Convergence Efforts: In the early 21st century, there were efforts to align the U.S. GAAP with the IFRS to create a single set of high-quality global accounting standards. While complete convergence was not achieved, these efforts led to increased harmonization between the two sets of standards.
- Ongoing Updates: Accounting standards continue to evolve to address emerging issues and changes in business practices. New standards are developed to cover areas like revenue recognition, leasing, financial instruments, and more.
- Digital Transformation: The digital era has brought about changes in the way transactions are conducted and recorded. This has prompted the need for accounting standards to adapt to the digital environment and address issues related to cryptocurrencies, digital assets, and data privacy.
The development of accounting principles and standards is an ongoing process that responds to changes in the business environment, advancements in technology, and the need for transparent and accurate financial reporting. These standards play a vital role in maintaining the integrity of financial information and supporting informed decision-making by stakeholders.