The Effect of Financial Accounting Reporting on the Management of Business (A Case Study of Nigeria Bottling Company Plc)

The Effect of Financial Accounting Reporting on the Management of Business (A Case Study of Nigeria Bottling Company Plc)

Chapter One

OBJECTIVE OF THE STUDY

The main objective of the study is to examine the effect of financial accounting reporting on the management of business. The specific objectives are to:

1. To investigate the relationship between financial accounting reporting and organization
2. To scrutinize whether financial reporting can effectively communicate financial information that will be useful for decision-making such as investment, credit, and other business decisions.
3. To examine whether financial report provides adequate information in all areas of organization and economic activities
4. To investigate whether financial reporting discloses the nature and accurate accounts of the organizations’ transactions so that the true and fair view of the financial position of the organization can be ascertained.
5. To examine the attitude of management in the allocation of resources that often leads to the achievement of profit maximization objectives.

CHAPTER TWO

LITERATURE REVIEW

THE CONCEPT OF FINANCIAL REPORTING

A written message presented on sheets of paper is known as a report (Hall 1998). Literarily, financial report is a written financial information signed, sealed and delivered.

According to Meigns (1998), financial re-porting is the process of communicating financial information to decision-makers. It provides information useful for making investment decisions. Its disclosure provides both quantitative and qualitative information for its user’s effective use and reliable decisions. In other words it presents information in a way that can be understood by users.  Financial reporting involves the disclosure of financial information to management and the public (if the company is publicly traded) about how the company is performing over a specific period of time. Financial reports are usually issued on a quarterly and annual basis. This is different from management reporting, which is financial information that is disclosed to those inside the company to be used to make decisions within the company. Financial reports are included in a public company’s annual report.

Again, the view that is more likely his opinion is that of Larson (1999), who viewed financial reporting as the communication of relevant financial information to decision-makers.

Further, the American Financial Reporting Standards Board (AFRSB) defined financial reporting as “activities which are intended to serve the information needs of external users, who lack the authority to prescribe the financial information they want from enterprise and therefore must use information that the management communicates to them”, cited by Lewis and Pendrill (1996).

Thus, the management pre pares financial reports for the use of the external users who can not but use the information at their disposal to make various decisions concerning an organization. Majority of the big companies around us have become so large that they attract investing capital from a great number of investors. Hence, these companies are required by law to prepare and present their financial reports covering a period (say 12 months) to their shareholders at their Annual General Meeting (AGM).

The small companies are not left out also. The primary means of financial reporting is by issuing a set of accounting reports called financial statements.

These statements normally are of two categories, namely:

(a) External Financial Reports: These are reports prepared for all users of financial statements irrespective of whether the user has direct access to the books and records of the business or not. These reports are usually in form of published accounts;

(b) Internal Financial Reports: There reports are usually prepared exclusively for management uses (Akintoye 2002).

If “accounting is the language of finance” (Lasher, 2008, p. 9) then financial reporting is the “communication of financial information useful for making investment, credit, and other business decisions” (Wild, Shaw, & Chiappetta, 2009, p. 681) Such communications include general purpose financial statements such as income statements, balance sheets, equity reports, cash flow reports, and notes to these statements. Additionally, items such as SEC filings, press releases, meeting minutes, and auditor’s reports are also included in financial reporting (Wild, Shaw, & Chiappetta, 2009, p. 681). Many financial reports, or the accounts and data they represent, are subject to various regulations and standards from organizations such as the Securities Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the International Accounting Standards Board (IASB) (Wild, Shaw, & Chiappetta, 2009, p. 9). Much like any language, financial statements could have their own “dialect” so to speak. For example, knowing about the use of cash-based accounting versus accrual based accounting could impact some very serious business or investment decisions. The various regulations, standards, and Generally Accepted Accounting Principles (GAAP) helps to make sure we’re all on the same page.

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CHAPTER THREE

RESEARCH METHODOLOGY

INTRODUCTION

This chapter outlines the methods and procedures used in getting the needed data that was used in solving the research problems. It will take a critical look at to the following;

RESEARCH DESIGN

In this study, the researcher used the descriptive survey method. This is because field survey was carried out and the data collected was analyzed using Chi-square. The aim of the descriptive analysis is to create understanding about the topic under study.

AREA OF THE STUDY

The study is designed to examine the effect of financial accounting reporting on the management of business organizations with particular focus on Nigeria Bottling Company Plc, Benin City. This implies that the data to be collected will be restricted to the organization.

SOURCES/METHOD OF DATA COLLECTION

In the study, the researcher used both the primary and secondary sources of data. The primary data was collected from the field using the following instruments:

1. Questionnaire
2. Interview and
3. Observation

The interview and observation method were used to support the questionnaire. The information gotten from interview and observation exercise assists the researcher to verify the information gotten from questionnaire.

The secondary source of data in the course of the research consists of textbooks, academic journals, internet materials, company’s annual reports and personnel records.

POPULATION OF THE STUDY

The population of the study is approximately estimated at 400, comprising of all the staff (management, senior and junior staff) of Nigerian Bottling Company Plc, Benin City.

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

INTRODUCTION

This chapter is designed to analyze the response to the research questions and test the hypothesis formulated from the stated problems in chapter one of this research work. It deals with the presentation, analysis and interpretation of the data collected. They were analyzed using tables with simple percentage and chi-square (X²) statistical tool.

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

 SUMMARY OF FINDINGS

Having tested the hypotheses formulated for this study in pursuance of the objective of the study which is to investigate the effects of financial accounting reporting on the management of business organization.

From the empirical analysis and findings, it was discovered that:

1. Hypothesis I reveals that financial reporting can effectively communicate financial information that will be useful for decision making such as investment, credit and other business decisions. This strongly support the idea of Lasher, (2008: p.9), Wild, Shaw, & Chiappetta, (2009, p. 681), which say: If “accounting is the language of finance” then financial reporting is the “communication of financial information useful for making investment, credit, and other business decisions”. Such communications include general purpose financial statements such as income statements, balance sheets, equity reports, cash flow reports, and notes to these statements.
2. The second hypothesis revealed that financial report provides adequate information in all areas of investments and economic activities. Investors and potential investors alike use general-purpose financial reports so frequently that companies often release them together in a bundle called “investor reports,” “annual reports,” or “shareholder reports.” Investors would use this information to help make a decision about whether they will buy, sell, or hold onto a particular company’s stock. Another large group of people who use financial reports are creditors. A creditor would use financial reports to determine their risk in loaning money to a particular company.
3. The findings also help to revealed that the information content of the financial repot of the organization under study is capable of informing a sound judgment and the financial reports reflect the true state of affairs of the company.
4. The findings also revealed the statements of accounting standard and other relevant statutes in the organization under study prescribe the standard format for financial report.
5. The findings further show that financial report of the organization under study meet the desired need of the various users of accounting information and that the financial reporting can disclose clearly the nature and accurate accounts of the organizations’ transactions.

 CONCLUSION

After a comprehensive research, the study therefore concludes that financial accounting reporting has a significant role to play in the management of business organization.  According to the hypothesis formulated and tested, the study therefore brings to a close that financial reporting significantly aids the effectiveness of investment decision making process in organizations. In the broad sense of the term, everyone uses financial reports. We all receive receipts when we make purchases from stores and we all receive bills. In a sense, these are both financial reports that communicate to us the status of our accounts or individual transactions. When we focus on business, however, we can more easily focus on managers, investors, creditors, and even the government. Managers use financial reports to make business decisions. For example, if a manager of a manufacturing firm saw from internal financial and inventory reports that product returns were high then that manager might push for increased quality control.

Conclusively, there is a significant relationship between financial accounting reporting and the effective management of business organization and this therefore means that effectiveness in financial accounting reporting positively impacts the management of business.

 RECOMMENDATIONS

Emanating from the findings, the study recommends those corporate managers, executives, directors, investment analyst, investors and other stakeholders should ensure intra and inter control system board is set up to ensure high transparency in their activities across departments and networked branches so as to avoid incidence of corporate frauds and financial reporting scandals. The system has a chance of making effective managerial issues and positions the company towards achieving its goals based on transparency and reliable information and facts from time-to-time.

The following recommendations are therefore made to enhance the effectiveness of financial reporting in planning and decision making in businesses:

1. There is the need to maintain adequate accounting records;
2. All the reporting regulations and standards in the preparation of financial statement must be complied with;
3. The accounting preparation must be consistent (that is, following the consistency concept) with the conventional standards and traditions;
4. Qualified and capable professionals should be employed for financial reports preparation and presentation; and
5. Management should create conducive working environment and incentives that can encourage workers to put in their best.

REFERENCES

• Ball,  R.  (2001).  ‘Infrastructure requirements  for  an economically efficient system  of public financial reporting  and isclosure’. Brookings-Wharton Papers on Financial Services: 127–169
• Barth,  M.E.,  W.R.  Landsman & Lang,  M.  H.(2007),  “International accounting standards  and accounting quality”, Working Paper, Stanford University and University of North Carolina
• Gassen, J. & Sellhorn,  T.  (2006).  Applying  IFRS  in  Germany-determinants   and  consequences.  Available  at  SSRN: http://ssrn.com/abstract=906802
• Hung, M. and Subramanyam, K. R. (2007) Financial statement effects of adopting international accounting standards: The case of Germany, Review of Accounting Studies, 12: 623-657.
• Barth, M., W. Landsman, & M. Lang, M..(2008). International accounting saandards and accounting quality. Journal of Accounting Research 46 (3): 467-498
• Daske,  H., Hail,L., Leuz,C.  & Verdi,R. (2007).Adopting  a  Label:  Heterogeneity   in  the economic consequences  of IFRS adoptions, Working paper, University of Pennsylvania and University of Chicago.
• Lasher, William R. (2008). Practical Financial Management (5th ed.). Thomson South-Western.
  Chiappetta, B., Shaw, K., Wild, J. (2009). Principles of Financial Accounting (19th ed.). McGraw-Hill/Irwin

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