The Role of Accounting in National Development with Reference to Nigeria
Table of Content 1.0 Introduction 2 2.0 Accountability and National Development.........3 3.0 Managing the National Revenue through Accounting.........5 4.0 Accounting and Accounting Infrastructure..5 5.0 Accessing Level of Accountability and Accounting7 6.0 Model of Accounting Infrastructure7 7.0 World Bank Assessments of Accounting Levels and Infrastructure of Nigeria, 2004 and 2011.9 8.0 Conclusion....10 9.0 References11 Table of Figures Figure 1 Model of Accounting Infrastructure..8 Abbreviations CBN Central Bank of Nigeria SEC Security and Exchange Commission A&A Accounting and Auditing NNPC Nigeria National Petroleum Corporation
Hafsat Ibrahim Bomai; International Accounting 1.0 Introduction Recently, Nigeria experienced a situation which has been the pattern since independence according to the New York Times (2014), a usual disappearance of its oil revenue. The erstwhile Central Bank of Nigeria governor Mallam Sanusi Lamido Sanusi raised an issue of a certain amount of missing public revenue amounting to $10 billion dollars after a series of initial figures that were refuted, acknowledged and admitted. In other to unearth the real situation, the Auditor General of the federation working in liaison with the Accountant General and Coordinating Minster of the Economy, Mrs Okonjo Iwueala were instructed by the Senate committee on finance and oil revenue to employ the services of a foreign accounting/audit firm to carry out a forensic audit of the accounts of the countrys oil corporation. The selected company, being PriceWaterHouseCoopers (PwC) a forensic auditor was tasked with the comprehensive audit of the books of the Nigerian National Petroleum Corporation (NNPC) (Vanguard, 2014). This incident underscores the role of accounting and accountability in the development of a developing country like Nigeria and indeed any country in the world. If the government cannot account for the national revenue, then corruption will be endemic and the result will be underdevelopment or even lack of development or retrogression from the current level. Every developing country in the world has the economic problem of how to accelerate its development within a short period of time. This economic growth is necessary to enable it come to the developed level where it is able to guarantee it citizens the type of life available in the developed part of the world where its citizens would run to in search of greener pastures. A developing country will strive to do the following in other to attain that level of development: 1. Make available service and basic needs such as education, housing and transport, public health and employment available for the economy to begin to advance. 2. Encourage capital formation, production and industrial development in government and private sectors. Hafsat Ibrahim Bomai; International Accounting 2.0 Accountability and National Development Accounting is an activity that measures the profitability/or viability of a venture in an economic system. According to Microsoft Encarta Reference Library 2004, accounting is the art of identifying, measuring, recording, and communicating economic information about an organization or other entity, in order to permit informed judgments by users of the information. This is a systematic collection, summarization, analysis and reporting of data in a form that is suitable and can be understood by prospective users. Accounting is evident in financial activities such as budgeting and budgetary control, taxation, cost management accounting, financial management, auditing and quantitative techniques. Development requires a projection into the future and this makes it necessary for public officers and employees in the private sector to recognize the need to keep and evaluate records to know the financial position of an organisation at each moment. Records show the state of affairs and evaluation in form of accounting to determine whether progress is made or not. Accounting has been instrumental in economic planning, capital formation, accountability, taxation and social purposes. Businesses depend on information provided through accounting to make investment decisions for running the business. Potential investors whether in developed or developing nations require the services of accountants or financial analyst to provide professional advice based on sound accounting principles before embarking on investments. So also do the government counterparts in areas of planning and development. For budget implementation to be feasible and successful the government has to employ sound accounting principles which are why every government organization employs accountants and in Nigeria like most countries of the world, a dedicated office, such as the office of the accountant general of Nigeria is created to handle accounting activities for government activities. National budgets follow prescribed formulas and implementation will require that officials or employees of the government are trained in the accounting profession. The role of an accountant in public expenditure and government accounting is important for national development. Hafsat Ibrahim Bomai; International Accounting Omolehinwa (2012) examined what he refers to as accounting for peoples money, a concept he used to capture the national revenue accruing to the country meant for national development in an inaugural lecture. According to him Public accountability has been a serious issue in Nigeria as has been expressed by individuals and national figures such as Abisoye (1994) who chaired a panel on the NNPC who stated that: NNPC does not respect its own budgets. NNPC does not respect its own plans The unwritten code in NNPC styles of management... would appear to be everyone to himself and God for us all make hay while the sun shines and loot all the lootables. Okigbo (1994) who investigated the activities of the Central Bank of Nigeria between 1988 and 1994 found that a culture of impunity and corruption was the order of the day, which is why the apex bank could record $12.4 billion diverted in special accounts other than paid into the stipulated accounts for keeping our national revenue and spent by the President. Omolehinwa (2012) calculated the oil export earnings from 1971 to 2010 and got a figure of $755 billion but the level of development does not tally with this huge revenue. The lack of accountability in Nigeria is reflected in the several ratings and indexes such as Transparency International, UN Human Development Index, and Corruption Index amongst others. Brimah (2013) observed that Nigeria ranks in the bottom 10 in basically every rating showing the level of chaos and lack of improvement in our national life.
3.0 Managing the National Revenue through Accounting The government collects tax, rents and all other forms of revenue through the federal agencies and parastatals using every legitimate means and these monies should be remitted into appropriate government accounts for use for the benefit of all citizens. These include funds in the federation account, loans acquired, independent revenue from ministries and parastatals, proceeds from privatization and concession, trust funds Hafsat Ibrahim Bomai; International Accounting etc. The money collected should be taken from government account through authorized and legal channels by any person usually government officials. An essential aspect of public sector accounting is corporate reporting in the management of public funds. High-quality corporate reporting is important to improving transparency, facilitating the mobilization of domestic and international investment, creating a sound investment environment and fostering investor confidence, thus promoting financial stability. A strong and internationally comparable reporting system facilitates international flows of financial resources while at the same time helping to reduce corruption and mismanagement of resources. It also strengthens international competitiveness of enterprises in attracting external financing and taking advantage of international market opportunities. In the wake of various financial crises continued efforts are being made towards improving the quality of corporate reporting as an important part of measures towards strengthening the international financial architecture. In this regard the implementation and application of internationally recognized standards, codes and good practices in the area of corporate reporting has been strongly encouraged as a reflection of the increasing pace of globalization and international economic integration. However, the effective adoption and implementation of such standards and codes remains a challenge for many developing countries and economies in transition as they lack some of the critical elements of corporate reporting infrastructure from weaknesses in their legal and regulatory frameworks, to lack of human capacity and relevant support institutions. In the face of these challenges there is a need for a coherent approach to building capacity in this area, as well as for tools to measure and benchmark progress and identify priorities for further actions. In Nigeria the adoption of International Financial Reporting Standards (IFRS) for the private sector and International Public Sector Accounting Standards (IPSA) is still ongoing with many challenges in implementation. 4.0 Accounting and Accounting Infrastructure Hafsat Ibrahim Bomai; International Accounting Building an accountancy infrastructure is a complex process because it is part of an economys legal and regulatory system. It needs to be attuned to the interests of many stakeholders and the availability of financial, educational and human resources. Capacity building helps reinforce proper legal frameworks and institutional arrangements. It is concerned with developing and upgrading certain skills, competencies and performance. It is also about enhancing the capacity of individuals, groups or institutions that are to carry out corporate reporting, for it is reporting and transparency that often drive improvements. Good-quality financial infrastructures are essential to the development of emerging economies as is enhanced physical infrastructure, such as improved roads and railways, cables for communications and secure pipelines for water and electricity. The development of robust governance and effective financial reporting in emerging economies is analogous to that of this physical infrastructure. If the resources invested in putting the plumbing in place cannot be accounted for, then what will stop the roads going nowhere, the energy disappearing, and the communications breaking down? For those investing in private businesses in these economies, the necessary corporate reporting plumbing is vital for ensuring an acceptably high level of assurance. Accountability is at the heart of capacity building, and this is certainly the case in Nigeria. A strong accountancy profession in the country is essential to economic development and also economic confidence, both in the public and the private sectors. Capacity building is also about building sustainable and ethical businesses that work in the public interest. In the current global economic climate, that is no mean feat; but it is an achievement for which we should be aiming. Iyoha and Oyerinde (2010) argued that Nigeria has made progress in instituting legislative powers and controls over public funds in the 1999 constitution but the level of accountability remains abysmal. A recent evidence is the accusations and counter accusations referenced in the introduction about missing revenue of about $10.8 billion dollars as adjusted and clarified by the Minister, Okonjo Iweala (Komolafe et al, 2014). Iyoha and Oyerinde (2010) argued further that laws and regulation to ensure accountability are in place which can be seen in the public institutions such as Hafsat Ibrahim Bomai; International Accounting Economic and Financial Crimes Commission (EFCC) and Independent Corrupt Practices and other Related Offences Commission (ICPC) but that the lack of robust accounting infrastructure and vibrant accounting profession is the problem of Nigeria. Accounting, accounting framework and public expenditure are linked and accounting serves a dual role by providing information and auditing the same information. Financial statements provide information about economic transactions and auditing acts as a check to verify that the information is accurate so that accountability is assured and corruption is detected.
5.0 Accessing Level of Accountability and Accounting World Bank stated in 1994 that countries that want to fight corruption and improve the level of accountability and systems should: Have implemented an effective and integrated financial management information system. Have a professional base of accountants. Adopt and apply internationally acceptable accounting standards. Empower a strong legal framework for supporting accounting practice. What can be drawn from the above listed requirements is that accountability and management of public expenditure cannot be done without a sound accounting system. Therefore a culture of strong accounting infrastructure is necessary for the entire public service organizations are desirable for positive developments. A weak accounting and auditing infrastructure leads behaviors which will not support accountability. 6.0 Model of Accounting Infrastructure Iyoha and Oyerinde (2010) proposed a model of accounting infrastructure as the basis for achieving accountability in management of public expenditure. They started that accounting infrastructure affects the management of public expenditure through accounting practice and budget implementation including budget implementation. The Hafsat Ibrahim Bomai; International Accounting model states that accounting practice and accountability have effects on each other and also is a determining factor on the ability of an organization to prepare and implement budget. Consequently, how successful or unsuccessful the budget implementation/performance is has direct effect on management of public expenditure.
Figure 1: Model of Accounting Infrastructure Source (Iyoha and Oyerinde - 2010) Therefore, the level of accounting infrastructure is important when accessing the level of accountability in management of public expenditure. Assessing Nigerias position as regards accounting and accountability, the World Bank recommendation highlights the following to be benchmarked. The professional base of accountants in quantity and quality terms which is needed to provide the human resources necessary to manage public expenditure. Secondly, the adoption and implementation of internationally accepted accounting standards in financial management as regards public expenditure. Thirdly, the existence of integrated financial information system which provides relevant Hafsat Ibrahim Bomai; International Accounting information for government organizations and citizens consumption provides timely and effective budget information to the citizens and important agents of government that needs such. 7.0 World Bank Assessments of Accounting Levels and Infrastructure of Nigeria, 2004 and 2011 According to World Bank assessments in 2004 and 2011, Nigeria has a weak accounting infrastructure as contained in the Observance of Standards and Codes (ROSC). In their words, Nigeria is plagued with institutional weaknesses in regulation, compliance and enforcement of standards and rules. The specific areas noted in the report include: incomplete budget information, unreliable accounting system, incomplete data to support proper financial management, obsolete/inadequate legal framework for accounting and auditing, ineffective internal audit system, ineffective supreme audit institutions, non-compliance with international public sector accounting standards (IPSASs) and other information presentation standards (Iyoha and Oyerinde, 2010).
The Government of Nigeria requested the World Bank in 2010 to conduct a second ROSC A&A review. This ROSC A&A review was conducted to assess the status of implementation of the 2004 ROSC A&A Country Action Plan and identify ways to strengthen the institutional framework underpinning accounting and auditing practices and improve financial reporting in Nigeria. The ROSC exercise was conducted through a participatory process involving key stakeholders and led by the country authorities. The report finds that there has been limited implementation of the 2004 Country Action Plan and limited improvement in financial reporting practices in Nigeria. Nigerian authorities have successfully implemented only 6 of 14 action plans emanating from the 2004 review leaving significant areas yet to be addressed. A number of banks exploiting loopholes in Nigerian accounting and auditing standards, weak capacity of the regulatory bodies and weak enforcement, employed creative accounting to boost their balance sheets These weaknesses in financial reporting, auditing and accounting contributed to Nigerias banking sector crisis. Given the magnitude of the costs of the crisis (between N1.5 - N2 trillion) government is focused on improving A&A. Since 2009 Hafsat Ibrahim Bomai; International Accounting the CBN, SEC and other bodies have taken considerable steps to improve financial reporting and disclosure standards.
The most important areas for further progress include the adoption of IFRS and promulgation of the Financial Reporting Council (FRC) bill. Government has announced the adoption of IFRS from January 1, 2012, for public listed entities and significant public interest entities. The FRC Bill has recently been passed by the National Assembly and is awaiting the assent of the President. There is greater awareness by investors, directors, managers, and auditors to improve compliance with financial reporting requirements by publicly traded companies largely through the efforts of various regulatory agencies. Monitoring and enforcement mechanisms of accounting and auditing standards and codes have improved (although international audit standards have not been implemented); errant companies and auditors have been sanctioned. The progress is an indication of Governments commitment to improving the quality of financial reporting, a key contributor to enhancing investor confidence and economic growth.
8.0 Conclusion From the analysis it can be clearly seen that accounting plays a prominent role in national development. If the government cannot account for the resources and revenue generated, then the kind of events which happened in the country early in the year 2014 where government employees and organizations could not account for huge amount of money meant for development will continue to repeat itself. Also, from World Bank assessments on accounting and auditing in 2004 and 2011, Nigeria has not made much progress in putting together the institutional framework needed to ensure accountability through accounting and auditing. The period between the two assessments is 7 years and it is expected that by 2018 when the next assessment is carried out Nigeria must have improved significantly as evidenced in commitment of the government such as the adoption of IFRS and IPSAS for the countrys accounting system and management.
Hafsat Ibrahim Bomai; International Accounting References The New York Times. 2014. The New York Times. [ONLINE] Available at: http://www.nytimes.com/2014/03/10/world/africa/nigerians-ask-why-oil-funds-are- missing.html?_r=0. [Accessed 04 August 2014]. Vanguard (2014). The $20 Billion that would not go away - Vanguard News. 2014. The $20 Billion that would not go away - Vanguard News. [ONLINE] Available at: http://www.vanguardngr.com/2014/02/20-billion-go-away/. [Accessed 04 August 2014]. Microsoft Encarta Reference Library 2004 Omolehinwa, E, O (2012). ACCOUNTING FOR PEOPLES MONEY.An Inaugural Lecture Delivered at the University of Lagos Main Auditorium on Wednesday, 8th February, 2012 Okigbo, P. (1994) The Abuse of Public Trust Newswatch, October 24 32-33. Iyoha, F. O., & Oyerinde, D. (2010). Accounting infrastructure and accountability in the management of public expenditure in developing countries: A focus on Nigeria. Critical Perspectives on Accounting, 21(5), 361-373.