CULTURE AND ACCOUNTING PRACTICE IN NIGERIA (A CASE STUDY OF HOLISTIC STUDY BETWEEN 2000-2014)

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CULTURE AND ACCOUNTING PRACTICE IN NIGERIA (A CASE STUDY OF HOLISTIC STUDY BETWEEN 2000-2014)

ABSTRACT

This study extends the literature on the impact of cultural dimensions on financial reporting practice and disclosure patterns of selected manufacturing companies in Nigeria by investigating the extent to which cultural dimensions (i.e. power distance, uncertainty avoidance, individualism and masculinity) influences financial reporting (mirrored by professionalism, uniformity, conservatism and secrecy). These cultural dimensions have served as a basis for a number of risks of material misstatements in the financial reporting process and an impediment to reducing differences in financial reporting rules that exist across countries. The study adopted a survey research design and data were collected by the use of questionnaires and analyzed using the ordinary least square (OLS) method. The results from the test of hypotheses revealed that financial reporting is significantly influenced by cultural dimensions. Finally, the study recommended that since accounting practice and financial reporting to a large extent is a product of its environment, there should be a direct link between cultural dimensions and financial reporting as it is potentially useful for users of accounting information because this provides them with supplementary information on the likelihood of material errors in financial statements. Accounting profession has been largely influenced by globalization and that has given rise to the fast growth of International Accounting. Many economic, cultural, legal, and political factors have influenced both National and International accounting practice. The study evaluates the impact of some of the factors on the practice of accounting. It borders on how environmental factors influence the practice of accounting as evidence in the financial industries as well as challenging the roles these factors play on accounting practice. Questionnaires were distributed to financial statement Preparers in Banks, Manufacturing companies and Audit firms to obtain sufficient evidence on the issue at stake. A total number of 150 questionnaires were distributed of which 140 were filled and returned by respondents. The method of analysis used was the Regression Analysis technique. The Statistical Package for Social Sciences was used to analyze data. The results of the analysis show that there is a positive relationship between environmental factors and the practice of Accounting, and that Accounting practice in the country has changed over time due to factors, which include economic, legal, and cultural. It is concluded that accounting practice in the country has changed over time due to factors, which include economic, legal, and cultural The study recommends that regulations developed should be made in a way to cope with the incessant changes in the Nigerian society to enhance the reports of financial institutions in the country and that accountants need to interact more with their counterparts in other countries for mutual benefit and National Accounting Standard Board (NASB) should relate more with International Federation of Accountants (IFAC), and International Accounting Standards Committee (IASC) to keep abreast with modern trends in the global economy. One of the major challenges of the accounting profession in Africa is the impact of

CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGRPOUND OF THE STUDY

This special issue explores the influence of culture on accounting and auditing practices in Nigeria. It is acknowledged that culture is an extremely elusive construct (Jahoda, 1984) but it includes among others, the social, political and other factors which may influence individuals’ behaviour (Hamid et al., 1993). Trompenaars (1993, pp. 3, 6) defined culture as “… the shared ways groups of people understand and interpret the world” and also “ … the way in which a group of people solves problems.”[1]. Since, accounting and auditing involve both technical and cognitive activities, the various elements of culture that prevail in the country may influence the auditing practice. Two cultural aspects that may have substantial influence on the profession are the ideology and the socio-economic structure. The former refers to societal norms and values such as collectivism, fatalism, attitude towards time, professionalism, innovation, flexibility, etc. as well as dominance of religion, sentiments, ethical principles, world-views, ethos and the like in the society’s everyday life. The latter include factors such as the political and legal system, the power of the profession, the tax system, education system, etc. inherent in the country. In short, cultural factors are important because the traditions of a nation are instilled in its people and might help explain why things are as they are (Haniffa and Cooke, 2002) including accounting and auditing practices. In multiracial countries, the prevailing societal values may not necessarily reflect the values of the nation as a whole especially if each ethnic group prefers to maintain its own identity and values. Differences between the groups may also be apparent if there is a history of conflict or when ethnic differences coincide with national socio-economic (Pettigrew, 1979) or ideological differences. Similarly, the extent of shared values and degree of co-operation is determined by organisational co-ordinating activities and formality in the various socio-economic systems. As such, it is important to acknowledge that norms and values may differ between groups even within a nation (Specter and Solomon, 1990). The papers selected for this issue should provide readers insight into various aspects of “culture” that influence the accounting and auditing practices in Nigeria. The authors of the papers are mainly Nigerian and their writing reflects their own national perspective and “personalities, national traditions and language” (Olson et al., 1998, p. 26, cited in Poullaos, 1999) within various constraints. The focus of the papers varies but there are three common themes addressed in this issue. The following sections discuss the themes raised in each of the papers and elaborate on suggestions for further research.. The accounting is a product of the environment where it is inserted (Perera, 1989). In this sense, several researchers have focused on the causes that influence the systems and accounting practices (Baydoun and Willett, 1995; Belkaoui, 1982; Doupnik and Salter, 1995, Hofstede, 2008, Gray, 1988; Nobes, 1983), registering, among others, factors of political, economic, legal, cultural, etc., sources. These factors are often seen as a difficulty to the actual comparability of financial information between countries or, in other words, as a difficulty to the further international harmonization of Accounting. This argument is supported by the International Accounting Standards Board (IASB), the organization that leads the movement of harmonization. In the preface of its Framework for the Preparation and Presentation of Financial Statements, it is noted the existence of different international standards which have probably been caused by a variety of social, economic and legal circumstances and by different countries having in mind the needs of different users of financial statements when setting the national requirements (IASB: 1989). Among the factors presented, the culture has deserved much of the attention of researchers who focused on the influences of various environmental factors on the systems and practices of international accounting. Since the hypothesis launched by Gray (1988), commonly pointed as a pioneer in this research field, numerous studies have emerged in an attempt to uncover the relationship between cultural values of accounting and professional judgment, both in terms of the preparers (Fah, 2008; Tsakumis, 2007) and in view of the auditors (Hope et al, 2008; Gul and Tsui, 1993).

In this context, one of the most visible effects of the influence of culture on professional judgment in the scope of accounting is the balance between of the qualitative characteristics of financial information that assumes more importance in each specific case (Baydoun and Willett, 1994; Obaidat, 2007). According to IASB Framework, a trade-off between qualitative characteristics is often necessary. Generally the aim is to achieve an appropriate balance among the characteristics in order to meet the objective of financial statements. The relative importance of the characteristics in different cases is a matter of professional judgment (IASB: 1989).

Harmonization provides comparability of financial information, and there is no doubt that this is its main advantage, since it promotes a significant compatibility between the international accounting practices, thus limiting and narrowing the range in which the conceptual differences tend to be accepted. Possible conflicts tend to be eliminated, and new positions will be incorporated by the majority of its members (Tarca: 2004). More than 100 countries now require or permit the use of IFRS or are converging with IFRS (IASB:2009). The previous accounting systems of countries that integrate the harmonization process, give rise to new structures, which mean changes, in some cases significant, of the accounting system then in force. In fact, the more significant these differences are, the more difficult it will be for the countries to comply with the new adopted accounting referential (Gray, 2005; Nobes, 1998).

The influence of culture in explaining the behavior of social systems has been recognized for some time. However, its impact on accounting as a social system is a relatively new study field. Any clarification on how the local values can infiltrate into the accounting treatment and disclosure of their impact on the final financial reporting is an important guarantee of comparability of financial reporting. According to Perera (1989), being a product of human activity, the accounting is constantly affected by judgments and decisions about the application of accounting concepts and principles applied. Under this view, the culture becomes one of the most crucial environmental factors on the practice of accounting, particularly with regard to norms and values shared by members of the same accounting system (Doupnik and Salter: 1995). The importance of Framework has been widely proclaimed not only by regulatory bodies, but also by many researchers (Choy and King, 2005; Demski and Christensen, 2007; McGregor and Street, 2007). Regarding in particular the formers, the stated objectives of Framework is revealed, in special, in the need of establishing a theoretical referential to guide the subsequent accounting regulation, minimizing the possible existence of conflicts and inconsistencies between the norms (FASB: 1976; IASB: 1989). According to FASB (1978), it is the issuing board itself the main beneficiary of the content required by the Framework, in a sense that they serve as a support and guidance for future norms, making the process more consensual. The Framework consider the needs of users of information, the objectives of information, the requirements and qualities that the information must meet to satisfy the needs of users and objectives of information, the definition of the elements of financial statements and the recognition and measurement criteria.

The new document, now at the discussion stage, proposes a new approach to the qualitative characteristics, classifying them in fundamental qualitative characteristics and enhancing qualitative characteristics, as has been advocated in the FASB. The issues raised by academic, professional and representative bodies of the professional work class exposed, already in the discussion phase of the project, the different interpretations for each of the concepts submitted for approval by the FASB-IASB (IASB, 2007, FASB, 2008a).

This article aims to examine, based on the model designed by Gray (1988) and in light of the concept of cultural relevance developed by Baydoun and Willett (1995), the accounting values that affect the judgment of Portuguese preparers to confirm or not to confirm the position of Portugal, as proposed by Gray (1988), in the group of least developed Latin countries, as a country with high levels of uniformity and statutory control, secrecy and conservatism.

1.2 PROBLEM OF THE STUDY

One of the major challenges of the accounting profession in Africa is the impact of

culture on accounting systems. People from different societies view accounting as an imposed idea from another continent. They also find it culturally imposing and punitive and in most cases the demands of accounting go contrary to the cultural norms in a given society. Perhaps it is the way people perceive and react to the word accounting or the ‘idea of accounting’. It is important to note that every society has its norms and standards of language use in communication. These norms and standards play a significant role in the way messages are coded (worded) by the sender, the way they are transmitted (relaying of the message) and the way the receiver of the message decodes (understands and reacts to the message). There is an apparent lack of awareness and understanding of the magnitude of the environmental costs generated by organizations, and many opportunities for cost savings through good environmental management are thus lost. Conversely, conventional management accounting practices do not provide adequate information for environmental management purposes in a world where environmental concern as well as environment-related costs, revenues, and benefits are on the rise. Using a case study of the Nigeria National Petroleum Corporation (NNPC) as an Environmental sensitive sector, this study conducts an assessment of NNPC’s practice of environmental management accounting (EMA) by investigating how the NNPC manages, account for and report its environmental risk performance? The study design will be mainly survey method, using questionnaires to collect data from managers in both the financial and environmental disciplines within the branches and strategic business units of the NNPC with specific case study of Abuja head office and branches in Port Harcourt and Lagos. The result of the study shows that NNPC managers are aware of environmental Accounting practices and that it is actively being used in practice. The findings of the study will further equip NNPC managers and similar policy makers to understand how it accounts for, manages, and reports environmental cost information.

1.3 OBJECTIVE OF THE STUDY

1. To know the influence of culture on accounting practices in Nigeria

2. To know whether culture affect audit report in corporate organizations.

3. Evaluate the various cultural practices Nigeria and how it affect account ethic of accounting profession.

4. To suggest possible ways of cutting down the culture effect on accounting profession.

1.4 RESEARCH QUESTION

1. What are undue influence of culture on accounting practices in Nigeria?

2. Is culture affect audit report of corporate organizations?

3. How is it possible evaluate the various cultural practices Nigeria and how it affect account ethic of accounting profession?

4. What are the suggest possible ways of cutting down the culture effect on accounting profession?

1.5 RESEARCH HYPOTHESIS

H0: Culture has no undue on influence accounting practices in Nigeria.

H1: Culture has undue on influence accounting practices in Nigeria.

H0: Culture does not affect audit report of corporate organizations.

H0: It is impossible evaluate the various cultural practices Nigeria and how it affect account ethic of accounting profession.

H1: It is possible evaluate the various cultural practices Nigeria and how it affect account ethic of accounting profession.

SIGNIFICANCE OF THE STUDY

The study will be significant in that, through it the researcher hopes that the importance of keeping accurate records and efficient evaluation of accounting profession being reviewed. It is hoped that the study will be an eye opener by providing issue and information which will serve as a feedback to managers of timber firms on the need to design an effective way of handling cultural issues in accounting system The result of the study will contribute immensely to the existing works in accounting.

1.7 SCOPE OF THE STUDY

This study is centered on culture and accounting practice in Nigeria (a case study of holistic study between 2000-2014)

.1.8 LIMITATION OF STUDY

Despite the limited scope of this study certain constraints were encountered during the research of this project. Some of the constraints experienced by the researcher were given below:

i. TIME: This was a major constraint on the researcher during the period of the work. Considering the limited time given for this study, there was not much time to give this research the needed attention.

ii. FINANCE: Owing to the financial difficulty prevalent in the country and it’s resultant prices of commodities, transportation fares, research materials etc. The researcher did not find it easy meeting all his financial obligations.

iii. INFORMATION CONSTRAINTS: Nigerian researchers have never had it easy when it comes to obtaining necessary information relevant to their area of study from private business organization and even government agencies. Corporate organizations find it difficult to reveal their internal operations. The primary information was collected through face-to-face interview getting the published materials on this topic meant going from one library to other which was not easy.

Although these problems placed limitations on the study, but it did not prevent the researcher from carrying out a detailed and comprehensive research work on the subject matter.

1.9 DEFINITION OF TERMS

CULTURE: Several other definitions of culture have been advocated by researchers. According to Hofstede (2008, p. 25), culture is “the collective programming of the mind which distinguishes the members of one human group from another.” Rohner (1984, p. 119) defined culture as “the totality of equivalent and complementary learned meanings maintained by a human population, or by identifiable segments of a population, and transmitted from one generation to the next.”

ACCOUNTINT: Accounting is a word by which every business organizations, establishment, firms etc, accounting terms are used by investors, bankers, management owners lawyers or accountants.

accounting is not only concerned with making records, it is concerned with more than the records making phase, in particular. what should be the interest of any one who is dealing with accounting information is financial results, financial statement, event which warrant them and alternative open by the business for his/her accounting experiment in order to aid the management to select the best plan of action for the firm

FINANCIAL STATEMENTS: These are used to convey a concise picture of the results of operations and the financial position of a business in a given accounting period usually 12 months that is a year.

PERFORMANCE: Consisting of a comparison of actual outcomes (actual costs and revenues) and planned outcomes (budgeted costs and revenues) at a regular intervals usually a 12-month that is a year.
COMPANY: Is a separate and distinct entity from its members (shareholders) with a corporate name in which it can sue and be sued, own property and enjoy contractual capacity.
AN INVESTMENT: Is regarded as the commitment of current funds in anticipation of receiving a larger future flow of funds OR is ploughing one’s funds into projects or assets with a view to increasing one’s wealth.
DECISION: Is the selection or choosing among the alternative courses of action that will enable the objective to be achieved OR as making choices between future, uncertain alternatives.
USEFULNESS: Is something which can be used for some practical purpose, serviceable, helpful or worth keeping. OR is any information kept in an organization which serve for future purpose(s) and assist in decision making.

SUSTEROUNEA

This word is used to remind us that accounting information in management decision making process can also be the foundation of every business, firms establishment, that is to say that this word is used a life wire of every business organization under the earth surface.

ABYSMALLY

This word means that if every business lack accounting information in management decision making process it means the organization would always face distress and lack of financial to build up its foundation.

INTRICATELY

A business that do not have a good accounting information in management decision making process looks complicating and for that firm to grow is under probability.

INTERWOVEN

It is good for every business to have adequate accounting information in management decision making tangled to their normal day to day activities of the establishment.

APTLY

For a business to have excellent accounting information records the chief accountants must show too much concern about the information given.

DEVASTING

This occurred if a business fails to use accounting information in running it. It would cause a great destruction to the establishment thereby making the firm slow in getting profits.

CULMINATING

This is putting the company in a specified direction by making a very good use of accounting information in management decision making process.

HEEDLESSLY

If the company has bad accounting clerk or accountant who does not keep adequate information it pay the compound very bad.

MULTIFRIOUS

If the company have too many accountant who record of entries that is having many varsities of knowledge knowing that too many cooks spoiled food.

RESTRUCTURAL

This accounting information process gives new way to a life of every establishment which is when practiced will get more profits.

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