1_THE IMPACT OF COMPLIANCE WITH ACCOUNTING STANDARDS ON ASSET AND PROFITABILITY OF NIGERIAN QUOTED COMPANIES

Topics: International Financial Reporting Standards, Financial statements, International Accounting Standards Board Pages: 12 (5814 words) Published: October 7, 2014
The Journal of Commerce, Vol. 3, No. 3
ISSN: 2218-8118, 2220-6043
Hailey College of Commerce, University of the Punjab, PAKISTAN

THE IMPACT OF COMPLIANCE WITH ACCOUNTING STANDARDS
ON ASSET AND PROFITABILITY OF NIGERIAN QUOTED
COMPANIES
basis with the aim of ensuring that better
business practices are enforced using the
instrument of standardization and that
standards should be better complied with by
companies.

Abubakar Sadiq Kasum, B. Sc., M. Sc., Ph.D.,
ACA1.

Abstract
The primary reason for standardization is to
protect the interests of both shareholders and
other stakeholders. The level profitability and
extent to which business assets are secured,
therefore become important items of concern to
all stakeholders. Before standardization could
be said to be effective it must protect the
important items. The objective of this study,
therefore, was to examine the impact that
compliance have on profitability and asset
value.

Key Words: Compliance; Accounting Standards;
Assets; Profitability; Nigeria Quoted Companies

INTRODUCTION
Freedom of incorporation prevails all over the
world, and that includes in Nigeria.
In the
same manner, businesses grew continuously
and more and more people continue to own
stocks. Ownership of businesses is diverse and
widely spread. The owners rarely control the
corporations, instead, managers were running
the company at their whims and accountable to
no one (Drutman, 2005). Most owners take little
interest in the manner of management of their
companies and managers had few consequences
for mismanagement. “This meant that managers
could more easily use the corporation to enrich
themselves, which they increasingly did”
(Drutman, 2005). This era began around 1844
when the English Company Act was enacted
and it continued until the stock market crash of
1926.

Forty-four companies that existed before the
beginning of standardization in Nigeria in 1984
and which have unbroken financial records with
the Nigerian Stock Exchange, were sampled for
the study. Profitability, asset and compliance
data of the companies were collected from the
Nigerian Stock Exchange and annual reports of
companies. Pearson Product Moment and
Spearman’s Rank Correlation statistics were
used to test the impact of compliance, while
student ‘T’ statistic was used to investigate the
extent to compliance.
The study showed that Nigerian companies
reasonably comply with accounting standards
but the level of compliance is below the
international benchmark. The study also
showed that compliance resulted in improved
profitability and higher net-asset, but the
improvements are not significant.

According to Giroux (1999), monopoly practices,
price
fixing,
speculation,
and
market
manipulation are part of the „Big Business‟
stories, so are the market collapse of 1929 and
the Great Depression. This massive market
failure led to bigger and increased government
regulations, including the securities markets and
on the process of financial reporting. Accounting
became highly regulated, directly, because of
government response to the perceived market
and accounting abuses.

The study therefore concluded that corporate
compliance to accounting standards still leaves
room for improvement and has not brought
about improvement that is significant enough.
The study recommended among others, that
standards should be reviewed on continuous

The depression experienced in the United States
of America‟s economy around 1929, which
witnessed companies reaping off, especially, the
dispersed investors masses, coupled with
devastating insider related manipulations could
be said to be the foundation of Accounting

1

Department of Accounting and Finance,
University of Ilorin, Ilorin, Nigeria
Email:
abubakarsk@yahoo.com
or
abusk@unilorin.edu.ng

57

The Impact of Compliance with Accounting Standards on Assets and Profitability of Nigerian Quoted...

References: Adeyemi, S. B. (2005). The Impact of Accounting
Standard on Financial Reporting, Unpublished
Drutman, L. (2003). The History of The
Corporation,
Harris, M. and K. Muller (1999). “The Market
Valuation of IAS Versus US –
Izedonmi, F. O. (2001). An Evaluation of The
level of Banks‟ Compliance with Accounting
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