THE EFFECT OF FINANCIAL ACCOUNTING REPORTING ON THE MANAGEMENT OF BUSINESS

(A CASE STUDY OF NIGERIA BOTTLING COMPANY PLC)

ABSTRACT

Effort is made to access the effect of formal accounting reporting on the management of a business financial accounting covers those activities related to the preparation of certain reports which are known as financial statements. These statement report the financial status of a firm at a particular time. The firms activities and resulting profit/losses during the most recent period and the flow of resources occurring within the firm during the same period.

I draw my research from the work of many authors. Such work done have included textbooks in all forms, magazine and Encyclopedias.

Apart from extensive use of literature, other method of research includes (a) interview with businessmen. (b) Questionnaires have been designed and distributed to some businessmen (especially at trade fair). The questionnaires have been designed for officers in management cadre in public and private companies, shareholders, staff, partners and owners in sole proprietorship  

CHAPTER ONE

INTRODUCTION

1.1            BACKGROUND OF THE STUDY

Of recent, the harmonization and international convergence of accounting standards and practices are of interest to researchers in both developed and developing countries. For the past decade, members of the accounting profession have been anticipating the adoption of the IFRS (Securities and Exchange Commission, (2010) as cited in Winney, Marshall, Bender, Swiger, 2010) and this anticipation has prompted a lot of academic research on the subject of adoption of IFRS by different countries of the world-Nigeria is not exempted. As a result of this, the Financial Reporting Council of Nigeria (FRCN) announced the transition date for adopting IFRS for business organizations in Nigeria to begin from January 1, 2012.

Financial report is a formal and comprehensive statement describing financial activities of a business organization such. For such a business entity, financial report is a statement that reports all relevant financial information, presented in a structured manner and in a form easy to understand for managerial use for taking prompt and informed decision making related to investment (IASB, 2007) and also to decision making pertaining to production planning, investment planning, expected returns and performance evaluation.

The financial reports comprises of balance sheet (for determining financial position), profit and loss statement (describes statement of comprehensive income), statement of equity changes (explain the changes of the company’s equity), and cash flow statements (reports on a company’s cash flow activities, particularly its operating, investing and financing activities). Although, these statements are often complex and may include an extensive set of notes to the financial reports and explanation of financial policies and management discussion and analysis (IASB, 2007). The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial reports are considered an integral part of the financial statements. However, the approaches that the notes and financial statement are presented and reported are critically for investment decision making by existing and prospective investors in order to earn optimal returns on their investments.

This indicates that financial reporting methods in terms of information disclosure pattern, transparency, auditing, reporting standards, regulatory control and flexibility, corporate governance, and financial scandals have influence on investment decision making in any organization, especially in manufacturing industry with extensive range of investment activities that requires comprehensive financial facts that can be obtained from a financial statement.

The perceived relevance of the financial report is to provide information about the financial position, performance and changes in financial position of a firm that is useful to a wide range of users in making management and investment decisions. These users include managers, directors, employees, prospective investors, financial institutions, government regulatory agencies, media, vendors and general public. Though, these financial reports are often prepared according to national standards, corporate governance, professional ethics, and code of ethics. This to avoid financial reporting fraud and scandals that might hinders effective decision making process by management and other users of reports.

The purpose of ethics in financial accounting reporting with expected standards is to re-orientate corporate organization on the need to abide by a code of conduct that facilitates public confidence in their services (Okafor, 2006).

In Nigeria, it has become common practice by manufacturing firms to adopt creative accounting in anticipation of sourcing for equity capital from the capital firms. Although this approach in financial reporting process often lead to over-valuation of assets and company’s net worth in the views of prospective shareholders and other stake holders. In Okoye and Alao (2008) view, “creating accounting is the transformation of financial accounting figures from what they actually are to what preparers desire by taking advantage of the existing rules and/or ignoring some or all of them".

Also, another perceived problem of financial reporting disclosure is the non-compliance to industry corporate governance, ethics, and regulatory standards which is prevalent in the manufacturing industry and the firm’s sector of Nigeria. In 2008, at the manufacturing end of the real sector of Nigerian economy, huge financial fraud and scandal occurred in Cadbury Nigeria that led to service disengagement of its Managing Director and Finance Director. This was on the account of manipulating the company's financial records, book padding scandal and corruption.

This warranted the Board of Directors to commission the audit firm, Price water House Coopers to review and investigate the company's accounting records.

The investigation confirmed a deliberate overstatement of the company's financial position over a number of years to the tune of between N13 and NI8 billion.

The over-statements are directly traceable to those systems abuses, violation of regulatory standards, in particular, deliberate breaches of our accounting systems and controls.

On the basis of the foregoing, this study examines the effect of financial reporting on the management of business organizations.

1.1.1 HISTORICAL PROFILE OF NIGERIAN BOTTLING      COMPANY (NBC)

The Nigerian Bottling Company Ltd is one of the biggest companies in the non-alcoholic beverage industry in the country and is the sole franchise bottler of The Coca-Cola Company in Nigeria.

The company serves approximately 160 million people by producing and distributing a unique portfolio of quality brands, bringing passion to marketplace implementation, and demonstrating leadership in corporate social responsibility.

NBC Ltd started operations in Nigeria in 1951. Based in the city of Lagos, they operate 13 bottling plants across the country. In addition, they channel products through 59 warehouses and distribution centers.

The company employs about 4,800 people and indirectly supports the jobs of up to more than a million more in our value chain.

The company aims to be our customers’ most preferred supplier, and conduct programmes to support more than 450,000 customers who sell our products to consumers.

The company is part of the Coca-Cola Hellenic Group, one of the largest bottlers of the Coca-Cola Company’s products in the world, and the biggest in Europe. Coca-Cola Hellenic operations span 28 countries, serving more than 570 million people. The company is headquartered in Athens and listed on the Athens, New York, and London stock exchanges.

The company produces, sells and distributes a wide range of beverages, most of which are trademark products of the Coca-Cola Company. The company product’s portfolio consists of:

• leading brands Coca-Cola, Coca-Cola light, Fanta and Sprite
• local brands such as Schweppes, Five Alive, Limca and Eva

The company continuously reviews opportunities to expand our product portfolio in order to offer consumers in Nigeria an increasing range of choices. Every measure is taken to ensure that the company’s products are of the highest quality.

1.2     STATEMENT OF THE PROBLEM

The need for formation on which to base investment credit and similar decision underlies the objective of financial reporting. If information provided is not useful for decision making, there would be no benefits form providing it to set against related costs.

Some business organizations still find it difficult to establish a certain significant relationship between financial accounting reporting and the management of the entire business.

Why is the exercise of accountability assumed to be the ultimate objective of financial reporting by most organizations? To begin with, “financial reporting is not an end in itself but is intended to provide information useful for many purposes”. Therefore, “financial reporting objectives aught to consider the needs of users and the decisions they make”.

Most organizations do not present financial accounting reporting in compliance with the Financial Reporting Council of Nigeria (FRCN), which often affects managerial decision making negatively. Again, there is no proper allocation of resources of the organization which leads to non-achievement of the profit maximization objective.

Financial reporting is the communication of financial information useful for decision making such as investment, credit and other business decisions. But the financial reporting of most organizations does not disclose clearly the nature and accurate accounts of the organization’s transactions which the true and fair view of financial position of the organization can be ascertained.

Also the inability of the management to recruit trained and professional personnel, as a result, the quality of the decision made by this organization are very poor.

1.3            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 clearly the nature and accurate accounts of the organizations’ transactions which the true and fair view of 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 objective.

1.4     RESEARCH QUESTIONS

1.     Are there considerable effects of financial accounting reporting on the management of business organizations?

2.     Can financial reporting effectively communicate financial information that will be useful for decision making such as investment, credit and other business decisions?

3.     Does financial report provides adequate information in all areas of organization and economic activities?

4.     Does financial reporting disclose clearly the nature and accurate accounts of the organizations’ transactions?

5.     What is the attitude of management in the allocation of resources that often leads to the achievement of profit maximization objective?

1.5     RESEARCH HYPOTHESIS

Because of the above research questions, the following hypotheses were formulated.

HYPOTHESES I

HO: Financial reporting can not effectively communicate financial information that will be useful for decision making such as investment, credit and other business decisions.

Hi: Financial reporting can effectively communicate financial information that will be useful for decision making such as investment, credit and other business decisions.

HYPOTHESIS II

HO: Financial report does not provide adequate information in all areas of organization and economic activities

HI: Financial report provides adequate information in all areas of organization and economic activities.

1.6     SIGNIFICANCE OF THE STUDY

The significance of this study is that, it shows the effect of financial reports in the operation of the organization. This research will be beneficial to internal and external users of financial report. The financial of this research will help managers determine the method of financial needs that will help in realization of their corporate objectives. The study will help the management to know the experts (accountants) that will be able to prepare an annual report that will enable the management to make well-informed decision that will enhance profit maximization. It will enable the external users to know whether the organization is making profit in coder to invest more. This study will also serve us resource material for other researchers for further research in related areas.

1.7     SCOPE OF THE STUDY

The research work covered the whole of business organizations, but due to certain constraints the research is restricted to Nigeria Bottling Company PLC. Therefore, the area in which data were collected is limited to Nigeria Bottling Company PLC, Benin City.

Thus, the research investigates the effect of using financial reports in the management of business organization.

1.8     LIMITATION OF THIS STUDY

The limitation of this study is the time factor. Since the researcher carried out the research of the same time with her studies, there was limited time for to cover all the necessary areas of the research study. And also lack of audience from the despondence.

1.9 DEFINITION OF TERMS

ANNUAL REPORT: this is a comprehensive report on a company’s activities throughout the preceding year. Annual reports are intended to give shareholders and interested people information about the company’s activities and financial performance.

MANAGERIAL DECISION: This is the decision concerning the operating of the firm, such as the choice of the firm size, firm growth rate, and employment.

INFORMATION: This can be seen as data which have been processed into a form meaningful to the recipient (receiver)

ORGANIZATION: Is an organized body of people working together for the pursuit of a particular purpose (s) called organization goals.