THE USEFULNESS OF ACCOUNTING STANDARD IN THE PREPARATION OF FINANCIAL STATEMENT

By

NNODIM LILIAN OGECHUKWU

Presented To

Department of Accountancy

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgement

CHAPTER ONE

Introduction

1.1 Statement of problem of accounting standards

1.2 How accounting standard come to be in the developed world

1.3 How accounting standard come to be in Nigeria

1.4 Various bodies that regulate the development of accounting standard and accounting statesman they prepare

CHAPTER TWO

Literature review

2.1 The usefulness of accounting standard in the preparation of financial statement

2.2 The procedure for the issuance of accounting standards

2.3 Relevance of accounting statement to auditing

2.4 Effectiveness of accounting statement

CHAPTER THREE

3.1 Summary of finding

3.2 Recommendation

3.3 Conclusion

Bibliography

CHAPTER ONE

INTRODUCTION

As a result of increased commercial activities through out the world, many big business expand beyond their countries to have a share of the world market.

Therefore, established branches are translated accordingly based on exchange rates existing and at the end set of financial statements are prepared and published.

In preparing these financial statement normal accounting practices and procedures must be followed and a number of legal and other requirement observed.

In the international market, it was observed that it was possible for accounting policies to differ in one single transaction.

For instance, in a group involving foreign subsidiaries, the method of valuing stock may not be same if the Nigerian company for example use last - in - first - out (LIFO) and the other seas company uses first - in - first - out (FIFO) the result will differ.

In addition to accounting policies reporting formats and disclosure requirement may not be the same there is therefore the need for accounting policies and disclosure requirement to be international comparable and acceptable.

Accounting standard like, internationally accounting standard (IAS) statement of standard accounting practices (SSAP) financial reporting standard etc.

Constitute a set of definitive principle to be followed when preparing financial statement departures from principles and practice enunciated in these standard are permissible in exception circumstance only where adherences would fail to give a true and fair view in a specific instance or because the accounting standard world be obviously inappropriate or because exemption from disclosure is spanted by status.

1.1 STATEMENT OF PROBLEM OF ACCOUNTING STANDARD'S

Nigeria accounting standard board has issue statement of accounting standard which has compliance with international accounting standard.

The following standards has been issued in Nigeria and each of them has a particular IAS it complies with

SAS 1 - disclosure of accounting policies

IAS 5 - information to be disclosed in financial statement

SAS 2 - information to be disclosed in financial statement

IAS I - disclosure of accounting policies

SAS 3 - accounting for property, plant and equipment

IAS 16 - accounting for property, plant and equipment

SAS 4- on stocks

IAS 2 - valuation and presentation of inventories the context of the historical cost system

SAS 5 - on construction contracts

IAS 11 - accounting for construction contracts

SAS 6 - on extra - ordinary items and prior year adjustment

IAS 8 - unusual and prior period item and changes in accounting policies

SAS 7 - on foreign currency conversion and translation

IAS 81 - accounting for the effects of changes in foreign exchange rates

SAS 8 - on accounting for employees retirement benefits

IAS 19 - accounting for retirement benefit in the financial

SAS 9 - accounting for depreciation

IAS 10 - accounting deprecation

SAS 10 - accounting by banks and non bank financial institution

IAS 30 - disclosure in the finnaicl statement of banks and similar financial institution

SAS 11 - On leases

IAS 17 - accounting for leases

SAS 12 - accounting for deferred taxes

IAS 12 - Accounting for taxes on income

SAS 12 - accounting for investment

IAS 25 - accounting for investment

SAS 14 - accounting in the petroleum industry up - stream activities

Each statement of accounting standard has 6 parts namely, introduction, definition, explanatory, notes, accounting standard notes on the legal requirements, compliance with international accounting standard we are to discuss three standard.

Disclosure of accounting policies (SASP) can be summarized thus all accounting information that will assist users, to asses the viability of a reporting entity, should be disclosed and presented in a logical clear and understandable manner. The financial states.

• The name of the enterprise
• The period of time covered
• Brief description of its activities
• Its legal form
• Its relationship with its significant local and overseas suppliers including the immediate and ultimate parent associated or affiliated company.

Financial statement should include the following

• Statement of accounting polices
• Balance sheet
• Profit and loss account or income statement
• Notes of the accounts
• Statement of sources and application of funds
• Value added, statement
• Five year financial summary

Financial implication of inter - company transfer and technical management agreement between the enterprise and its significant local and overseas suppliers including its immediate and / or ultimate associated affiliated company be disclosed.

Also financial statement should show corresponding figures for the proceeding period furthermore, balance sheet or related not should disclose the following information assess (fixed assets, like plant, property and equipment. Other long term assets and current assets), capital and resources, long-term liabilities, current liabilities income statement should disclose information such as sales or turnover, other earning, interest charges, taxes on income, unusual charges, unusual credits, deprecation, auditors and directors remuneration and net income.

Source and application of funds should disclose sources of funds application of funds increase or decrease in working capital and movement in net liquid funds. Value added statement should show separately the following:

v Sales to outside

v Purchases

v Benefits to various groups

v Money refrained for maintenance and explanation of the enterprises.

Information to be disclosed in financial statement (SAS2) requires that there fundamental accounting concepts are followed in the preparation of financial statement the disclose of such concepts is not required it a fundamental accounting concept is not followed the fact should be disclosed.

Accounting principles should give the selection and application of accounting polices, accounting bases threat may be adopted, a reporting enterprise should disclosed the basic used.

Accounting policies should be prominently disclosed as an integral part of the financial statement under one captain. An adopted accenting policy should be followed consistently but where a change is made, nature, justification and effect on current year profit or loss should also be disclosed.

Accounting for property, plant and equipment (SAS3) property, plant and equipment are tangible assets that:

Have been required or construct and held for use in the production or supply of goods and services and may include those held for maintenance or repair of such asset.

Are not intended for sale in the course of business. This should be disclosed in the financial statement, the gross book value of and that of property plant and equipment

1.2 HOW ACCOUTNIGN STANDARD COMES TO BE IN THE DEVELOPED WORLD

Accounting standard are authoritative statement of how particular types of transaction and other event should be reflected in financial statement and recording compliance with accounting standard will normally be necessary for financial statement to give a true and fair view.

In the developed countries like united kingdom, Ireland, united states of American etc. the 1970s said creation of a series of statement of standard accounting practice (SSAP) which describes method of accounting approved by the major professional accounting intend to a true and fair vie of financial position and profit or loss.

The reason for the introduction was that several event s in the late 1950 is and the 1960s had highlighted member of the public faults in accounting practices.

Perhaps the most starting of these was the failure of rolls Royee LTD, which entered into major commitment with the RB211 jet engine involving fixed price sales contract that made no provision of the effects of inflation such were the problem that the development cost company was put into the hands of a receiver in 1971.

Disquiet was also caused at the time of the GEC takeover of AE in 1967 68, when AEI's profit forecast of E4.5 million principally because of change accounting policies.

Following increasable sever criticism of the relevant of financial accounting information to the accountancy profession felt that something had to be done.

The result was the agreement to develop a set of accounting standard in order to reduce the variety of alternative accounting treatment.

Accordingly the accounting standard steaming committee was set up in 1970. in 1976 this body was reconstituted under the title of the accounting standard committee and it is now composed of representative of the six major bodies of professional accountant in the United Kingdom.

1. The institute of chartered accountant in England
2. The institute of chartered accountant in Scotland
3. The institute of chartered accountant in Ireland
4. The association of certified accountant
5. The institute of cost and management accountants
6. The chartered institute of public finance and accountancy.

In December 1969, the council of he institute of chartered accountants in England and Wales produced a statement of intent on accounting standard which listed five way on which the council intended to advance accounting standard:

Narrowing the areas of deference and variety in accounting practice

Disclosure of departure from established definitude accounting standard

Disclosure of accounting bases

Wider exposure for major new proposal on accounting standard

A continuing programmes for encouraging improved accounting standard in legal and regulator measure if the necessary approval is given a definitive accounting standard is sued to the councils or controlling authorities of the six professional bodies each of these considers the standard and if it approves issues in its own name to its members and requires them where appropriate to observe it.

1.3 HOW ACCOUNTING STANDARD COME TO BE IN NIGERIA

Nigeria accounting standard board (NASB) in the organization responsible for developing standard in Nigeria.

The body started in 1982 as a private organization and later into public organization. They (member) issues statement of accounting standard (SAS). It was turned into public organization 1992.

This body was established because of things happening around. The world especially the standard board (IASB) in 1973 to issue international accounting standard which Nigeria supposed to be a member who will observe the standards.

The Nigeria accounting standard board consist of the following organization:

Central bank of Nigeria (CBN)

Chamber of commerce

Ministry of finance

Nigeria bankers employer association

Security and exchange commission (S.F.C)

Institute of chartered accountant of Nigeria (ICAF) etc.

This bodies determine what should be a standard for Nigeria. They takes cognizance of what happen in other places especially where it concerns IAS normal procedure for developing a standard are always followed and periodic reviews done.

Where there is conflict in the method of accounting stated by ICAN for treatment of the same transaction and that given by NASB, NASB stipulation will be adopted.

1.4 VARIOUS BODIES THAT REGULATE THE DEVELOPMENT OF ACCOUNTING STANDARD AND ACCOUNTING STATEMENT THEY PREPARE

• International accounting standard board (IASB) or international accounting committee (IASC) prepares or issue international accounting standard this was founded in 1973. the objective is to develop, publish and promote international accounting standard for financials they (member) also work for the improvement and harmonization of accounting practices. Ti is the accounting selling body of IFA's and hence under IFACE.
• Nigeria accounting standard board (NASB) issues statement of accounting standard this deals with standards in Nigeria since 1987 when it was founded. It carries the weight of the law in tat it has a legal backing it is a national body and constitute stock exchange trade, union, employers association etc.
• A financial accounting standard board (FASB) issue financial accounting standard (fas). This body exists in United state of America, one doing business must follow it. The objective is to codify the best practice of accounting standard committee which stated as accounting standard committee but latter turned in accounting standard board.
• Auditing standard committee (ASC) issues statement of auditing standard it gives guidance in auditing to professional and members of ICAN.
• Accounting standard committee (U.K) issues standard are deserved in United Kingdom they (Member) formulate standard on accounting and observe together with international accounting standard. This comes into existence in 1970
• Auditing practice board U.K issue statement of auditing standard. This board is formed by consultative committee of accounting bodies made up of six members it prescribes standard to member practicing auditing.
• International federation accounting committee (IFAB) issues international standard on auditing (IAS) this body loss a committee which is international auditing practice committee (IAPC) with IFAC as the parent body
• Financial and management accounting committee (FMAC) issues booklets, articles, studies practices and recommendation this is another committee of IFAC. The members are only involved in the production of booklets and guideline and do not produce standard.