The Changes in Accounting Standards and Their Impact on Financial Statements
Chapter One
Objective Of The Study
The objective of this research work is to do the following:
- To reveal that the changes in accounting standards play a vital role in the financial statements of the companies that adopted the changes.
- To determine information about the changes in the net resources of the business organization
- To find out if accounting standard is cumbersome and create problem.
- To determine whether accounting and financial statement enhance accountability, transparency and improve quality to financial results of the organization.
CHAPTER TWO
LITERATURE REVIEW
Conceptual Perspective
International Accounting Standards (IAS) means a set of standards stating how particular types of transactions and other events should be reflected in financial statements. In the past, IAS was issued by the Board of the International Accounting Standards Committee (IASC). Since 2001, the new set of standards has been known as the International Financial Reporting Standards (IFRS) and has been issued by the International Accounting Standards Board.
IAS defines the minimum level of disclosure in corporate annual reports expected by the regulatory forces. These are usually stated in a distinct section of each standard (disclosure) and prescribe what information should be presented in the financial statements. According to Buzby (1974) disclosure of information in corporate annual reports is considered ‘adequate’ if it is relevant to the needs of users, capable of meeting those needs, and timely released. Owusu (1998) defines adequate disclosure as the extent (number of items) to which mandated applicable information is presented in annual reports of firms and the degree of intensity by which a firm discloses those items in its annual report.
Theoretical Review
The Resource Based Theory through the issuance of standards as a source provides direction and guidance on how business enterprises could achieve the goal of proper record keeping, transparency, uniformity, comparability and enhancing public confidence in financial reporting. Thus, failure on the part of the firm to apply the requirements of accounting standard as resources to the company would result in inconsistencies, lack of accountability and transparency, and distortions in financial reports. This in turn results to poor financial reporting practices and dissemination of accounting information that is of less value to any particular group of users. This is because the preparation and presentation of financial statements lacks objectivity, reliability, credibility and comparability, and thus results in fraudulent business practices which subsequently lead to business failure and become devastating on the national economy.
Accounting Standards And Compliance
Izedonmi (2001) defined accounting standard as an information system through which financial and monetized information is generated for economic, social and political decisions. According to him, statements of accounting standards are developed to ensure a high degree of standardization in publishing financial statements. The procedure provides necessary guides on how accounting information should be prepared and presented in order to enhance the value of its contents and facilitate thorough understanding. Accounting standards are not only developed to ensure a high degree of standardization and uniformity in publishing of companies’ financial statement, but also useful to all users of accounting information.
Accounting standards are Generally Accepted Accounting Principles (GAAP) that makes sure that a company’s financial matters are being handled in accordance with federal laws and regulations. The purpose of GAAP is to ensure that financial reporting is transparent and consistent from one organization to another. At any point in time, a corporation should be able to provide accurate information about its accounts to its shareholders or to regulating authorities. To ensure proper accountability, it is necessary to have processes in place for recording, verifying, and reporting the value of a company’s assets, liabilities, debts, and expenses.
International Financial Reporting Standards (IFRS) are standards that explain how transactions should be accounted for and reported in the financial statements including minimum disclosures. They also provide guidelines that indicate the threshold at which reporting quality meets governance standards.
Compliance means adherence to those statutory requirements, regulations, rules, ordinances, directives or other externally-imposed requirements in respect of which non-compliance may have, or may have had a financial effect on the reporting entity.
Information about compliance is relevant to making and evaluating decisions about the allocation of scarce resources because knowledge of non-compliance with externally-imposed requirements governing the reporting entity’s operations may affect users’ assessments of the reporting entity’s performance, financial position, or financing and investing. For example, information about compliance with the following types of externally-imposed requirements may be relevant to users: conditions imposed by borrowing agreements, licensing agreements and grant arrangements; memorandum and articles of association and/or enabling legislation; spending mandates and borrowing limits; equal employment opportunity legislation; occupational health and safety legislation; environmental protection legislation; requirements to provide particular types or levels of service under a government grant programme or specific government directive; and requirements to observe specified tendering procedures for significant expenditures. Users should be able to presume that, in the absence of disclosures to the contrary, the reporting entity has complied with all externally-imposed requirements in respect of which non-compliance is relevant to assessments of the reporting entity’s performance, financial position, or financing and investing. Information about compliance is relevant to users irrespective of the sector in which the reporting entity operates or whether the reporting entity is of a business or non-business nature. Compliance to IFRs is a continuous issue.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitute of individuals or elements that are homogeneous in description.
This study was carried out to examine the Changes In Accounting Standards Its Impact On Financial Statement. Guiness Nigeria Plc Benin Branch, Edo state form the population of the study.
CHAPTER FOUR
PRESENTATION, ANALYSIS AND DISCUSSION OF THE FINDINGS
This chapter presents findings of the study with the major aim of answering the research questions and interpretation of the findings in light of the research objectives.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
This chapter presents the summary of the major findings in line with the study objectives and also presents the conclusion plus recommendations and area for further research.
Conclusions
The study revealed that Organizations to disclose an accounting change or error in its financial statements which include retrospective application of a new accounting principle (restate the financial statements of prior years, sometimes referred to as a retroactive adjustment or a restatement), this can be adjusted for the change prospectively to meet the ever increasing demands of a complex society without reference to a coherent underlying theory for true income determination.
Also, Organization have to use financial statements because they will provide various financial information that investors and creditors use to evaluate the organization’s financial performance. Because financial statements are important to company’s managers publishing financial statements, help management to communicate with interested outside parties about its accomplishment running the organization.
In Guinness Nigeria Plc Benin, Edo state accounting policy have to be disclosed, management as well have to consider whether disclosure can assist users in understanding how transactions, other events and conditions are reflected in reported financial performance and financial position. Because disclosure of particular accounting policies is useful to users when the policies are selected from alternatives as allowed in (IFRSs).
Recommendations
Guinness Nigeria Plc, there are no procedures that provides necessary guides on how accounting information should be prepared and presented in order to enhance the value of its contents and facilitate thorough understanding. Statements of accounting standards should be developed to ensure a high degree of standardization in publishing financial statements.
At any time, a corporation should provide accurate information about its accounts to its shareholders or to regulating authorities. Because the purpose of GAAP is to ensure that financial reporting is transparent and consistent from one organization to another.
The reporting entity has complied with all externally-imposed requirements in respect of which non-compliance which is relevant to assessments of the reporting entity’s performance, financial position, or financing and investing. Users should also comply with externally-imposed requirements in respect of which non-compliance be able to presume the absence of disclosures.
Information should be relevant to the users. Information is relevant if it helps users of the financial statements in predicting future trends of the business (predictive value) or confirming or correcting any past predictions they have made (confirmatory value).
Guinness Nigeria Plc, is not considering the term accounting event due to changes in an item as reflected in the company’s financial statements. Accounting events should be determined by the organization to ensure liability of assets, revenues, expenses or owner’s equity.
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