Mukoro, D. O.

Covenant University Repository

. . .  C o p y r i g h t ©  M u k o r o  2 0 1 2  A l l  r i g h t s  r e s e r v e d .  N o  p a r t  o f  t h i s  p u b l i c a t i o n  m a y  b e  r e p r o d u c e d ,  t r a n s m i t t e d ,  t r a n s c r i b e d ,  s t o r e d  i n  a  r e t r i e v a l  s y s t e m  o r  t r a n s l a t e d  i n t o  a n y  l a n g u a g e  o r  c o m p u t e r  l a n g u a g e ,  i n  a n y  f o r m  o r  b y  a n y  m e a n s ,  e l e c t r o n i c ,  m e c h a n i c a l ,  m a g n e t i c ,  c h e m i c a l ,  t h e r m a l ,  m a n u a l  o r  o t h e r w i s e ,  w i t h o u t  p r i o r  c o n s e n t  i n  w r i t i n g  o f  t h e  c o p y r i g h t  o w n e r .  A p p l i c a t i o n s  f o r  t h e  c o p y r i g h t  o w n e r ' s  p e r m i s s i o n  t o  r e p r o d u c e  a n y  p a r t  o f  t h i s  p u b l i c a t i o n  s h o u l d  b e  a d d r e s s e d  t o  t h e  p u b l i s h e r .  T h i s  b o o k  i s  s o l d  s u b j e c t  t o  t h e  c o n d i t i o n  t h a t  i t  s h a l l  n o t  b y  w a y  o f  t r a d e ,  o r  o t h e r w i s e ,  b e  l e n t ,  r e - s o l d ,  h i r e d  o u t ,  o r  o t h e r w i s e  c i r c u l a t e d  w i t h o u t  t h e  p u b l i s h e r ' s  p r i o r  c o n s e n t  i n  w r i t i n g ,  i n  a n y  f o r m  o f  b i n d i n g  o r  c o v e r  o t h e r  t h a n  i n  w h i c h  i t  i s  p u b l i s h e d  a n d  w i t h o u t  a  s i m i l a r  c o n d i t i o n ,  i n c l u d i n g  t h i s  c o n d i t i o n ,  b e i n g  i m p o s e d  o n  t h e  s u b s e q u e n t  p u r c h a s e r .  P u b l i s h e d  &  P r i n t e d  b y  H - L i n k  E x c e l  1 4 1 ,  R a i l w a y  L i n e ,  O d i - O l o w o ,  M u s h i n ,  L a g o s  S t a t e  T e l :  0 8 0 2 - 3 2 9 - 0 4 5 7  I S B N :  9 7 8 - 9 7 8 - 9 2 9 - 8 7 7 - 8  M i l e s t o n e  i n  a c c o u n t i n g  t h e o r y :  E v o l u t i o n  t o  r e v o l u t i o n  1 1  PREFACE Accounting is, essentially, an exercise concerned with the measurement and communication of useful financial information. It is also a highly complex and technical process requiring, in most instances, the professionalism of an experienced accountant to produce and report on the required data in a meaningful way. Many would also argue that accounting reports, because of their technical nature, require the professionalism of an experienced financial analyst in other that they may be used meaningfully. Whatever the merits of these arguments and assumptions, it is clear that reported accounting information is an extremely important element in economic decision making, and that it requires the measuring and reporting in the best way possible. But "what is the" and "what are the" major problems to be overcome before the best way possible is achieved? As we are not aware of any existing text which fully answers these points, the purpose of this text book is to explore, the main issues of financial reporting, delineating the major problems and offering what appear to be reasonable and Milestone in accounting theory: Evolution to revolution v ... r~ s u i t a b l e  a n s w e r s .  T h e  t e x t  i s  w r i t t e n  w i t h i n  t h e  c o n t e x t  o f  · · ·  c o m p a n y  f i n a n c i a l  r e p o r t s  b e c a u s e  w e  b e l i e v e  t h e s e  t o  b e  t h e  m a j o r  s o u r c e  o f  f o r m a l  f i n a n c i a l  i n f o r m a t i o n  a b o u t  c o m p a n i e s  a v a i l a b l e  t o  i n v e s t o r s  a n d  o t h e r  i n t e r e s t e d  p a r t i e s .  W h i l e  t h e  c o n t e x t  i s  e s s e n t i a l l y  B r i t i s h  i n  t e r m s  o f  t h e  l e g a l  a n d  f i s c a l  e n v i r o n m e n t ,  t h e  c o n t e x t  m a i n t a i n s  n e u t r a l i t y  w h i c h  s h o u l d  e n a b l e  n o n - B r i t i s h  r e a d e r s  t o  f o l l o w  i t  w i t h o u t  d i f f i c u l t y .  A f t e r  a l l ,  t h e  p r o b l e m s  a s s o c i a t e d  w i t h  p r o d u c i n g  a n d  u s 1 n g  c o m p a n y  f i n a n c i a l  r e p o r t s  a r e  n o t  u n i q u e l y  B r i t i s h .  A r g u a b l y ,  t h e  l a r g e s t  s i n g l e  p r o b l e m  i n  w r i t i n g  a  t e x t  i s  t o ;  c l e a r l y ,  h o n e s t l y  a n d  r e a l i s t i c a l l y  a c c e s s  t h e  p o t e n t i a l  r e a d e r s h i p .  T h i s  i s  n e v e r  a n  e a s y  t a s k  b u t  w e  h o p e  w e  a r e  b e i n g  f a i r  w h e n  w e  s u g g e s t  t h a t  i t  s h o u l d  b e  c a p a b l e  o f  e x t e n s i v e  u s e  b y  t h e  f o l l o w i n g  g r o u p s :  ( a )  U n i v e r s i t y  a n d  P o l y t e c h n i c  u n d e r -g r a d u a t e s  ( A c c o u n t i n g  a n d  B u s i n e s s  S t u d i e s ) ,  w h o  a r e  s e e k i n g  a  d e t a i l  s t u d y  o f  t h e  c o m p a n y  f i n a n c i a l  r e p o r t i n g  s y s t e m ,  a s  p a r t  o f  t h e i r  o v e r a l l  s t u d y  o f  f i n a n c i a l  a c c o u n t i n g  m a t t e r s ,  ( b )  P r o f e s s i o n a l  A c c o u n t a n c y  b o d i e s '  s t u d e n t s  u n d e r g o i n g  f o u n d a t i o n  o r  g r a d u a t e  c o n v e r s i o n  c o u r s e s .  ( c )  S t u d e n t s  i n  p r o f e s s i o n s  w h i c h  a r e  m a j o r  u s e r s  o f  p u b l i s h e d  a c c o u n t i n g  i n f o r m a t i o n  f o r  e x a m p l e  t r a i n e e  b a n k e r s ,  s t o c k b r o k e r s ,  i n v e s t m e n t  a n a l y s t  a n d  m a n a g e r s .  M i l e s t o n e  i n  a c c o u n t i n g  t h e o r y :  E v o l u t i o n  t o  r e v o l u t i o n  V l  ~;~KKK__ _ _ _ _ _ _ _ _  ~-----~~gf TABLE OF CONTENT 1. Introduction: The Origin of Accounting 16 Historical perspective (1844 -1979 and beyond) The historical development of accounting: 2. Financial reporting (I) 23 a. The evolution of financial reporting b. The nineteenth century c. Save guard capital/investment d. A retrograde step e. The twentieth century f. Social and economic change g. The royal mail case 3. Financial reporting (II) 66 Introduction: a. Definition and scope of financial reporting b. Financial reporting and its major objectives c. To days challenges to the financial reporting on the profession d. Internal and external users of accounting information e. Objectives of financial statement/accounting f. Conceptual framework for financial accounting Milestone in accounting theory: Evolution to revolution Xl 4 .  F i n a n c i a l  a c c o u n t i n g  ( I I I )  7 2  a .  I n t r o d u c t i o n  . .  .  b  .  C o n c e p t s ,  p o l i c i e s  a n d  a c c o u n t i n g  r e p o r t s  5 .  C o n c e p t s ,  P o l i c i e s  a n d  A c c o u n t i n g  R e p o r t s  8 1  6 .  I n t r o d u c t i o n  t o  a c c o u n t i n g  t h e o r y  8 7  a .  C o n c e p t u a l  f r a m e w o r k  f o r  f i n a n c i a l  a c c o u n t i n g  7 .  O w n e r s h i p  a n d  m a n a g e m e n t  9 0  8 .  A c c o u n t a n c y  i n  E u r o p e :  F r a n c e  9 5  9 .  A c c o u n t a n c y  i n  E u r o p e :  G e r m a n y  1 0 5  1 0 .  A c c o u n t a n c y  i n  E u r o p e :  N e t h e r l a n d s  1 1 5  1 1 .  A c c o u n t a n c y  i n  E u r o p e :  B e l g i u m  1 2 3  1 2 .  A c c o u n t a n c y  i n  E u r o p e :  I t a l y  1 3 0  1 3 .  A c c o u n t a n c y  i n  E u r o p e :  D e n m a r k  1 3 6  1 4 .  A c c o u n t a n c y  i n  E u r o p e :  L u x e m b o u r g  1 4 3  1 5 .  A c c o u n t i n g  i n  E u r o p e - A  s t e p  t o w a r d  h a r m o n i z a t i o n  1 4 8  1 6 .  P u b l i s h e d  F i n a n c i a l  R e p o r t i n g  1 6 4  a .  T h e  R o y a l  M a i l  C a s e  b .  T h e  W i n d  o f  C h a n g e  c .  P r o f e s s i o n a l  R e - a c t i o n  d .  A c c o u n t i n g  S t a n d a r d s  · M i l e s t o n e  i n  a c c o u n t i n g  t h e o r y :  E v o l u t i o n  t o  r e v o l u t i o n  x n  . . .  b .  T h e  a u d i t o r s  s t a n d a r d  r e p o r t  c .  I n t e r n a l  a u d i t o r s  d .  P r o b l e m s  o f  f i n a n c i a l  r e p o r t i n g  2 2 .  R e d  f l a g s  i n  f i n a n c i a l  s t a t e m e n t s  2 2 0  2 3 .  Q u a l i t a t i v e  f a c t o r s  c o n s i d e r e d  i n  a n a l y z i n g  f i n a n c i a l  s t a t e m e n t .  2 2 5  a .  A  t y p i c a l  c a s e  o f  f r a u d u l e n t  f i n a n c i a l  r e p o r t i n g  b .  L e s s o n  l e a r n e d  f r o m  E n r o n s  c a s e  c .  E t h i c s  i n  f i n a n c i a l  r e p o r t i n g :  B o o s t e r  t o  a i d  i n v e s t o r s  c o n f i d e n c e .  d .  A u d i t  c o m m i t t e e  r e s p o n s i b i l i t i e s  a r e  " N o w  u n d e r  S a r b a n e s - O x i e y  2 4 .  T h e  r e s t o r a t i o n  o f  p u b l i c  c o n f i d e n c e - A n  i m p e r a t i o n  ,  o f  t h e  c a p i t a l  m a r k e t  2 3 2  a .  H o w  i s  p u b l i c  c o n f i d e n c e  t h e n  a c h i e v e ?  b .  A d o p t i o n  o f  g l o b a l  f i n a n c i a l  r e p o r t i n g  f r a m e w o r k  c .  I n t e r n a t i o n a l  f i n a n c i a l  r e p o r t i n g  s t a n d a r d s  ( I F R S )  d .  B e n e f i t s  o f  g l o b a l  a c c e p t e d  i n t e r n a t i o n a l  s t a n d a r d s  e .  P e r c e p t i o n  o f  q u a l i t y  o f  f i n a n c i a l  r e p o r t i n g  2 5 .  I n t e r n a t i o n a l  a c c o u n t i n g  s t a n d a r d s  a .  R e q u i r e d  p r a c t i c e  a n d  d i s c l o s u r e  b .  l A S  ( 3 )  c o n s o l i d a t e d  f i n a n c i a l  s t a t e m e n t s  ( I s s u e d  J u n e  1 9 7 6 )  2 4 6  M i l e s t o n e  i n  a c c o u n t i n g  t h e o r y :  E v o l u t i o n  t o  r e v o l u t i o n  X I V  c. Required disclosure d. lAS ( 4) depreciation accounting (Issued October 1976) e. lASs (6, 7, 8, 9, 10,-1-1-12, 13) 26. The concept of income theory a . Concept of incomes b. Bases of valuation Qualitative factors considered in analyzing financial statements. Appendix!: Obligation for certified accountants to observe accounting standards or justify departure Appendix II Suggested discussion or essay topics. Milestone in accounting theory: Evolution to revolution XV I ABOUT THE AUTHOR Dickson 0. Mukoro, Ph. D. Accounting, London, read in London Business School and lectured in London School of Accountancy. He had previously worked for British Transport Hotel, London as Accountant. He is a member of various professional bodies by examinations. These are: Certified Internal Auditors ErpA~K Institute of Taxation (London), British association of Accountants & Auditor, Institute of Incorporated Public Accountants (Ireland), American Chartered Institute of Financial Controllers & Administrators, Association of Cost & Executive Accountants, etc. Now, at Covenant University, Ota , Ogun State, he teaches Financial Accounting , Business Accounting, Cost Accounting , Accounting Theory, Principles of Auditing , Auditing and Investigation, International Accounting , Business Ethics, Forensic Accounting and System Auditing . He teaches undergraduates, MBA, M.Sc, M.Phil., Ph.D. accounting . He has published many books and made contributions to learned journal and magazines. Other books written by him are listed in this book. Accounting is, essentially, an exercise concerned with the measurement and communication of useful financial Information. It is also a highly complex and technical process requiring, in most instances, the professionalism of an experienced accountant to produce and report on the required data in a meaningful way. Many would also argue that accounting reports, because of their l • .iliiiil•• technical nature, require the professionalism of an experienced Ill financial analyst in order that they may be used meaningfully. The purpose ofthis text book is to explore, the main issues of financial reporting, delineating the major problems and offering what appear to be reasonable and suitable answers. The text is written with in the context of company financial reports because we believe these to be major source of formal financial information about companies available to investors and other interested parties. While the context is essentially British in terms of the legal and fiscal environment, the context maintains neutrality which should enat;>le non-British readers to follow it without difficulty. After all, the problems associated with producing and using company financial reports are not uniquely British . This book is recommended for the following groups: (a) University and Polytechnic under-graduates (Accounting and Business Studies), who are seeking a detailed study .of the company financial reporting system, as part of their overall study of financial accounting matters, (b) Professional Accountancy bodies' students undergoing foundation or graduate conversion courses (c) Students in professions which are major users of published accounting information for example trainee bankers, stockbrokers, investment analyst and managers. · "The book presents a material that fills significant need in accounting education in Nigeria ... , it can be recommended as an additional reading to students of accounting in tertiary institution in Nigeria". - One of the professors who reviewed this book -------111111111111111111111111111111111111111111111111 978 - 978 - 929 -877 -8 

Milestone in Accounting Theory. Evolution to Revolution

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Milestone in Accounting Theory. Evolution to Revolution

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