MANAGEMENT ACCOUNTING PRACTICES IN NIGERIAN COMPANIES

BY

ADELEGAN, OLATUNDUN JANET (MRS), CA

Lecturer of Accounting and Business Finance in the Department of Economics

University of Ibadan, Ibadan, Nigeria,
4 Introduction
4.7 The Problem
Revised International management accounting practise 1 (IMAP #1), published in March 1998
by the Financial Management and Management Accounting Committee (FMAC) of the
International Federation of Accountants (IFAC) states that Management accounting is an activity
that is interwoven in the management processes of all organizations. Management Accounting
refers to that part of the management process which is focused on adding value to organizations
by attaining the effective use of resources by people, in dynamic and competitive contexts. It
involves distinctive technologies (modes of thought and practice.)
Management accounting, as an integral part of the management process, distinctly adds value
by continuously probing whether resources are used effectively by people and organizations - in
creating value for customers, shareholders or other stakeholders.
In this regard, resources include not only financial ones, but also all other resources created and
used by organizations as a result of financial expenditures. Thus, information and knowledge,
work processes and systems, trained personnel, innovative capacities, morale, flexible cultures,
and even committed customers may be included as resources - along with special configurations
of resources that may be identified as strategic capabilities, core competencies or intellectual
capital.
The field of organizational activity encompassed by management accounting has developed
through four evolutionary yet recognizable stages, namely; Cost determination and Financial
Control, information for management planning and control, reduction of waste of resources in
business processes and creation of value through effective resource use.
The role of Management accountants refer to the outcome of the process of evolution over the
four stages.. It is one of the organizational activities designed to manage resources strategically.
Each stage is a combination of the old and the new, with the old reshaped to fit with the new in
addressing a new set of conditions in the management environment (IFAC,1998).
For an organization to survive in the competitive, ever-changing world, it must put in
place sound management accounting practice. Managers need information for decision making.
An understanding of cost behaviour is fundamental to managerial and cost accounting, and
Management Accounting information and the way it is used can support or hinder action and
change of action in organisations. (Bescos and Mendoza, 2000, Anderson et al, 2000,
Abrahammson and Helin, 2000).
Surveys of the role of management accountants have focus mainly on companies in
developed countries. Drury, Braund, Osborne and Tayles (1993) surveyed management
accounting practices in U.K. manufacturing companies. Cropper and Drury also undertook a
study of the nature and scope of management accounting in UK Universities.
Appleyard and Pallett, 2000 examine the role played by management accounting and
management accounting differences in the process of integration in an Anglo-German setting
and identified management accounting problems and managerial problem as significant obstacle
to integration, reflecting a lack of investment in managing and controlling the new subsidiary.
Ax and Bjrnenak, 2000 in a study of how management accounting innovation is disseminated to
other locations to increase global homogenization of management accounting practices, conclude
that the trend in the world of management accounting practices may not be as homogenous and
US oriented as they seem to be.
However, in Nigeria there is apparently no empirical analysis of the role of management
accounting practices. Therefore there is a need for “triangulation” in the research by providing
evidence from developing countries like Nigeria. To remedy this we have undertaken a study
with the aim of obtaining a broad overview of the changing role of management accountants in
Nigerian Corporate firms.

1.2 Objective of the study

The specific objectives of this study are:
To obtain a broad overview of the nature and scope of management accounting in
Nigerian Corporate firms and identifies its stage in the evolution process,
To make policy recommendations on how to improve the role of management
accountants in corporate firms in Nigeria.
1.3 Research Methodology
Data was gathered principally through administration of questionaires to finance and
management staff of corporate firm, supplemented by a review of relevant documentations..
These assist the author to have an understanding of the past, present and future role of
management accountants in Nigerian Corporate firms.
1.4 The Survey
A survey of 55 Nigerian companies was conducted between September and November 1998.
However, the actual number reported in this study is 50 companies. This is accounted for by the
unwillingness of some companies to complete the questionnaire and the bureaucracy associated
with large organizations.
In the rest of this report, section 2 presents a review of literature. Section 3 presents a brief
description of Business, Economic and political environment in Nigeria.
The analysis of the survey results is presented in section 4. Section 5 concludes with a general
overview of summary of the findings, as well as policy recommendations.
5 Literature Review
2.1 Evolution and Change in Management Accounting
The field of organizational activity encompassed by management accounting has developed
through four evolutionary yet recognizable stages.
• Stage 1 - Prior to 1950, the focus was on cost determination and financial control,
through the use of budgeting and cost accounting technologies;
• Stage 2 - By 1965, the focus had shifted to the provision of information for management
planning and control, through the use of such technologies as decision analysis and
responsibility accounting;
• Stage 3 - By 1985, attention was focused on the reduction of waste in resources used in
business processes, through the use of process analysis and cost management
technologies;
• Stage 4 - By 1995, attention had shifted to the generation or creation of value through
the effective use of resources, through the use of technologies which examine the drivers
of customer value, shareholder value, and organizational innovation.
• While these four stages are recognizable, the process of change from one to another has
been evolutionary. Each stage is a combination of the old and the new, with the old
reshaped to fit with the new in addressing a new set of conditions in the management
environment. (IFAC, 1998).
The diagram below illustrates the four evolutionary stages of management accounting which
is expected to continue in the future.
• In Stage 1, it was seen as a technical activity necessary for the pursuit of organizational
objectives.
• By Stage 2, it seen as a management activity, but in a staff role; it involved staff
("management") support to line management through the provision of information for
planning and control purposes.
• In Stages 3 and 4, it is seen as an integral part of the management process. As real time
information becomes available to management directly, the distinction between staff and
line management becomes progressively blurred. The focusing of the use of resources
(including information) to create value (in the larger sense, that is for all stakeholders)
is an integral part of the management process in organizations.
 INTERNAL VIEW

Cost
Determination
and Financial Information for
Control Management
Planning and
1 Control
Reduction of
Waste of
2 Resources in
Business Creation of Value
3 Processes through Effective
Resource Use

4
CUSTOMER BASED VIEW

Figure 1: The four phases of evolution of Management Accounting

Source: IFAC, 1998: Revised International management accounting practise 1 #1, Financial
Management and Management Accounting Committee (FMAC), March, pp.6.

Management Accounting at its current evolutionary stage addresses the needs of the
organizations operating in dynamic and competitive contexts. The new organizational
context implies:
• flat structures;
• use of cross-functional teams;
• management of value chains (remove division between firm, suppliers and customers);
• understanding one's core competencies and identity within relevant value chains, by
progressively becoming more virtual and agile;
• developing delegation, trust, devolution and subsidiary through simultaneously integrated
information systems and availability of localized information in real time at points of
need;
• less reliance on financial control, by creating (real time) localized control, based on non-
financial Performance Indicators;
• acceptance of ambiguity and paradox as realities to work with and through; and
• Cultural integration through shared and accepted visions, rather than accepting the forms
of cultural separation associated with traditional forms of employment or professional
specialization (IFAC, 1998, IFAC, 2000).

2.2 Management Accounting and the Management Process

The purpose of management has been described as making people capable of joint
performance through common goals, common values, the right structure, and providing the
training and development they need to perform and to respond to change. The central
purpose, then, of the management process is to secure, as it faces change, the vitality and
endurance of an organization through the ongoing co-ordination of activities, efforts and
resources. Thus, the management process includes
• establishing organizational directions in terms of objectives and strategies;
• aligning organizational structures, processes and systems to support established
directions;
• securing the commitment at a requisite level of those contributing essential skills and
effort; and
• instituting controls that will guide an organization's progress towards the realization of its
strategies and objectives.

The pursuit and realization of organizational objectives and strategies requires the
mobilization or development of requisite capabilities through the effective deployment of
resources. Resources are deployed in structures, "control" mechanisms, and securing-
commitments to create the capabilities necessary for organizational success. Without
effective resource deployments, requisite capabilities are unlikely to be developed; and
resources are likely to be wasted in ineffective structures, controls, and commitments.

Management accounting refers to that part of the management process focused on the
effective use of resources in
• establishing strategy mixes that support organizational objectives;
• developing and maintaining the organizational capabilities necessary for strategy
realization; and
• negotiating the strategy and capability change necessary to secure ongoing organizational
success and survival.

Management accounting is only one part of the management process of organizations. It

provides a focus and distinctive perspective on one key dimension of organizational activity
- identifying, obtaining and using resources. In addition it stands beside and interacts with
other parts of the management process which focus respectively on other key dimensions of
organizational activity: direction setting, structuring securing commitment, control, and
change. It is interwoven with other parts of the management process, by being associated
from a resource perspective with
 • organizational direction setting,
• organizational structuring,
• organizational commitment building,
• organizational change,
• organizational process design,
• organizational control, and
• organizational information systems design.

Thus, that part of the management process concerned with effective resource use over time
can be referred to as the management accounting function or business process.
The management of the management accounting function will likely involve establishing
objectives and strategies for the function, structuring the work of the function, building the
capability of the function, resourcing the function appropriately, responding creatively to, or
proactively addressing new challenges bearing on the work of the function and assessing the
ongoing efficiency and effectiveness of the function (IFAC,1998).

3. The Nigerian Environment

4.7 The Nigerian Business Environment
The Nigerian business environment comprises of small, medium and large-scale enterprises.
There is however no clear-cut definition that distinguishes a small scale enterprise from a
medium scale enterprise in Nigeria, unlike in countries such as USA, Britain, Canada and Japan.
A small-scale enterprise has been defined in the monetary policy circular 22 of 1988 of the
Central Bank of Nigeria as having an annual turnover not exceeding 500,000 naira.
The federal government in the 1990 budget, defined small scale enterprises for purposes of
commercial bank loan as those with an annual turnover not exceeding 500,000 naira, and for
merchant bank loans, those enterprises with capital investments not exceeding 2 million naira
(excluding cost of land) or a maximum of 5 million naira.
The national economic reconstruction fund (NERFUND) set the maximum limit for small-scale
industries at 10 million naira.
Furthermore, section 37b(2) of the Companies and Allied Matters Decree (CAMD), 1990
defines a small company as one with:
(a) an annual turnover of not more than 2 million naira,
(b) net asset value of not more than 1 million naira only.
Ekpeyong and Nyong, 1992 defined small and medium scale enterprises in Nigeria as those with
investments in machinery and equipment not exceeding 500,000 naira and two million naira,
respectively with not more than 50 and 100 paid employees, respectively. However, the
definition relates more to medium scale businesses than small-scale enterprises.
Moreover, most of the large local businesses and strategic business units of multinationals are
listed on either the first tier or the second tier securities market. Presently, we have 170
companies listed on the first tier market and 16 companies listed on the second tier securities
market of the Nigerian Stock Exchange (NSE). For a companies listed on the First Tier
securities market are expected to have trading record of at least five years, not less than 25 per
cent shares in the hand of the public, and not less than 500 shareholders. Such companies are
also expected to give quarterly, half-yearly and yearly reports and there is no limit to the amount
of money that they can raise from the securities market.
The second tier securities market was introduced in 1986 with less stringent conditions to
accommodate more companies. Companies listed on the second tier securities market of the
Nigerian Stock Exchange (NSE) are expected to have expected to have track record of at least
three years, not less than 25 per cent shares in the hand of the public, not less than 100
shareholders and they cannot raise more than 20 million naira from the securities market.
3.2 The Nigerian Economic and Political Environment
It has been overemphasized to the government of developing countries that financial
liberalization is essential for prosperity. Instead of discouraging foreign investors, they are
advised to open up so as to have access to global savings that can be invested in order to grow
fast (The Economist, (1998).
Nigeria has joined other developing countries to attract foreign investment by removing
bottlenecks and artificial barriers. This is evidenced by the abolition of the Nigeria
indigenization decree of 1989 and Exchange Control Act of 1961 which restricted foreign
participation in ownership of corporate firms in Nigeria to a maximum of 40 per cent and
promulgation of the Nigerian Enterprises Promotion Decree 16 and 17 of 1995 and the abolition
of capital gains tax in 1998 among others. Thus foreigners can now own up to 100 per cent
shares in Nigeria firms( Adelegan, 2000).
Globalization and financial liberalization is bringing about more intense competition.
Nigerian corporate firms can no longer shy away from the challenges presented in an every
changing business environment as we move to the next millennium.
Prices must not be set too high or low. A higher than normal price result in declining sales
while, a lower than normal price may result in losses being incurred. Therefore, corporate firms
must constantly gather information from external and internal sources, analyze, process,
interpret and communicate such information within the organization to assist management in
planning, making decisions and controlling operations.
Against a background of a rapidly changing world, it is for the Nigerian Management
Accountant to continue to ensure the financial health of corporate firms.
From 1986 to 1998 corporate firms in Nigeria operated in an uncertain environment
characterized by political uncertainty under military dictatorship and frustrated democracy,
irregular power supply, poor implementation of budgets and economic policies. And frequent
changes and sometimes conflicting government monetary policies THE Federal government of
Nigeria introduced the Structural adjustment programme in 1986 to ameliorate deteriorating
economic situation. Since the strategy of liberalization and deregulation of interest rates was
implemented, interest rates have continued to increase. making it difficult for companies to
obtain credit. Consequently, industrial capacity utilization remained low and the expected
growth in corporate earnings was not achieved while naira remained further devalued.
In 1998 budget and its predecessors, the dual exchange rate was in operations and the
government preferential exchange rate was 22 naira to US 1 dollar. In 1999, the dual exchange
rate was abolished and the single official rate of 86 naira to US 1 Dollar was the prevailing
applicable rate. Furthermore naira remained further devalued to one US dollar to one hundred
naira and one UK pound to one hundred and sixty naira.
4.7 Accounting Framework and Auditing Standard in Nigeria
Only members of the Institute of Chartered Accountants of Nigeria (ICAN) are established by
the Act of parliament number 15 of 1965 are entitled to practice as accountant in Nigeria in
accordance with the provision of section 18(2) of companies Act, 1965.
Accounting practices in Nigeria is governed by the guidelines issued by the Nigerian
Accounting Standard Board (NASB). These guidelines are complementary to the requirements
of the Companies and Allied Matters Decree (CAMD), 1990, other relevant laws and regulations
in Nigeria and International accounting Standards.
Auditing standards are issued by the public practice section of ICAN to support accounting firms
in the conduct of their audit in order to improve the quality of their work and reporting system.
It sets out guidelines on basic principles guiding an audit:
Infrastructural requirements,
Pre-engagement basics of an audit,
Planning the audit, performance of the audit and quality control.
Sections 358 to 364 of the Companies and Allied Matters Decree (CAMD), 1990 clearly
specified the rights, duties and priviledges of company auditors in Nigeria. Auditing practice in
Nigeria I also controlled by International auditing guidelines
However, where there is disparity between specifications of the local standards and the
international standards, The local standards will be applied.
According to sections 4 and 5 of the guidelines of ICAN on Professional conduct of members,
“Every member must conform to the technical standards promulgated by the institute or the
Nigerian Accounting Standard Board from time to time. It is the duty of the member to carry out
efficiently and economically and, in conformity with the technical standards, the wishes and
instructions of his employer or client in so far as they are not incompatible with the requirements
of the law, independence, integrity and objectivity.
In doing so, it is the duty of the member to bring to bear on any assignment that degree of
knowledge and skill that qualifies him for the membership of the institute and the right to offer
professional accounting and related services to clients or employers.
Every member is expected to carry out his work with a high degree of technical competence. In
particular, he should approach his work with due professional skill and care having regard to
generally accepted accounting principles and practice and in conformity with standards laid
down by the institute from time to time.
He should not carry out professional work for which he is not himself competent except he
obtains adequate advice and assistance necessary for the completion”.
4. Survey Results
The main respondents are the financial Directors and Management Accountants of the
companies. However, where there is no management Accounting department, the principal
respondent is the head of finance section. Each questionnaire has thirty-six questions. Section
one focused on background information, activities of the organization, the existence or non-
existence of the management accounting function and the size of the function.
The second section contained questions related to organization structure, functions of the
management accounting units, profitability analysis, capital appraisal techniques, budgetary
control, control reporting and the present and future role of management accounting in Nigeria.

4.1 Background Data

The companies used in this study are from banking, manufacturing, agricultural.
pharmaceutical and oil and chemical marketing (see table 1). 34 percent of the companies have
turnover and profit over ten million naira (N10 million)1 while, 3 percent and 12 percent have
less than five hundred thousand naira (N0.5 million) turnover and profit respectively. 62 percent
of the companies have been in existence for more than 10 years, 22 percent for 6 to 10 years and
16 percent for 1 to 5 years. (See table 2). Majority of the companies studied have their major
activities as services and productions.
In this study, businesses are classified on the basis of turnover. The authour define small scale
businesses as companies with turnover not exceeding 1,000,000 naira, medium scale business as
having turnover between 1million and 10 million naira and large scale businesses as having
turnover of over 10 million naira.
9 per cent of the respondent companies can be categorized as small scale, 57 per cent as medium
scale and 34 per cent as large-scale businesses. (See table 3).
22 per cent of the responding firms have more than 1000 staff, 12 per cent have between 501
and 1000 staff, 44 per cent and 22 per cent have 101-500 and 1-100 staff respectively (see table
4).
Table 1
Sectoral Analysis of Responding Firms

Sector Frequency Percentages

Financial 12 24

Manufacturing 14 28

Services 20 40

Agricultural 4 8
Total 50 100
Source: Researcher’s Survey Findings, 1998

Table 2

Years of Existence of Responding Firms

Period Frequency Percentages

1-5 years 8 16

6-10 years 11 22

More than 10 years 31 62

Total 50 100
. Source: Researcher’s Survey Findings, 1998

Table 3

Business Classification of Responding Firms

Turnover Type of Business Frequency

Percentages
Less than 500,000 naira Small scale 7 3

500,000 – 999,999naira Small scale 14 6

1 – 9.99 million naira Medium Scale 143 57

Over 10 million naira Large scale 86 34

Total 250 100
Note: The total number is greater than 50 because respondents supplied their turnover for 5

years.

Source: Researcher’s Survey Findings, 1998

Table 4

Employment Structure

Number of Persons Frequency Percentages

1-100 11 22

101-500 22 44

501-1000 6 12

More than 1000 11 22

Total 50 100
 . Source: Researcher’s Survey Findings, 1998

The factors identified by the companies that they take into consideration before production or
services are availability of raw materials, marketability, profitability, market demand and
maximization of shareholders wealth. 74 percent of the companies claimed that they have a
management accounting department while, 26 percent do not have. However, an average of 98
percent of the responding companies claimed to have a section in their organization that is
responsible for formulation of policies, directing, organizing, planning and controlling of
activities. Where there is no management accounting department, such activities are carried out
in the finance or accounts section. 12 percent of respondent companies have over fifty staff in
the management accounting department (MADEP), 30 percent have between 10 and 50 staff. 38
percent of the MADEP is headed by a chartered Accountant, 18 percent by master’s holders and
26 percent by first degree/higher diploma holder. 14 percent and 52 percent of respondent
companies have 6 to 10 and 1 to 5 departments respectively. In most of the questionnaires
analyzed, the head of management accounting division reports to the financial controller who in
turn reports to the managing director.
22 per cent of the responding companies have less than 100 staff, 44 per cent have between 101
and 500 staff, 12 per cent have between 501 and 1000 staff members, while 22 per cent have
more than 1000 employees.
4.2 Present Functions of Management Accountants
Companies were given six scales (0-5) to rank the roles of management accountants in
their organizations, giving 5 to the most important and 0 to the least unimportant.
Majority of the respondent companies gave a rank of 5 (most important) to provision of
information required by management, formulation of policies, planning and controlling of
activities, disclosure to employees and decisions or taking of alternative course of actions while,
most respondents ranked disclosure to those external to the entity and safeguarding of assets as
an unimportant roles for management accountants. However, less than 4 percent ranked the six
functions as least unimportant and between 4 and 8 per cent ranked the first three functions
above as unimportant (see table 5).

Table 5 : The Role of Management Accountants

Role Unimportant Important Strongly Total
Important
(%)
Provision of information
required by management for:
Formulation of policies 4 19 77 100
Planning &Controlling
of activities 4 23 73 100
Decision/taking of alternative
action 8 38 54 100
Disclosure to those external
to the entity 50 39 11 100
Disclosure to employee 31 49 20 100
Safeguarding asset 51 28 21 100

. Source: Researcher’s Survey Findings, 1998

The responses on why management accountants participate in management is also similar to the
above. Majority of the respondents ranked as very important management accountants’
participation in management to ensure that there is effective formulation of plans to reach
objectives, formulation of short term operating plans and obtaining and controlling finances
(treasury management). Majority of the respondent also ranked effective recording of actual
transactions, corrective actions/financial control and reviewing and reporting on system of
operations as strongly important reasons for management accountant's involvement in
management (see table 6).
Table 6: Management Accounting & the Management Process
Role Unimportant Important Strongly Total
Important
(%)
Management accountants participation
in management to ensure there is effective:
formulation of plans to reach objectives 5 28 67 100
formulation of short term operating plans 5 35 65 100
Recording of transactions 18 31 51 100
Corrective actions/financial control 17 24 59 100
Treasury management 15 31 54 100
Reviewing & Reporting on system 20 24 56 100
of operations

Source: Researcher’s Survey Findings, 1998

4.3 Profitability Analysis

58 percent of the respondent claimed that they analyze profit while 34 percent never
assessed the profitability of their production or activities. Those who analyze profit claimed that
they do so monthly, quarterly and yearly. Majority of the respondent has between one and five
profit centers.
On the costing technique employed, 40 percent of respondents adopt direct costing
technique, followed by 22 percent and 14 percent who claimed that they use activity based
costing and cost-plus fixed percentage respectively. Minority of the respondent (4 percent)
favours standard costing. This shows that majority of the responding organizations are more
interested in covering their variable costs and making contributions towards fixed costs and
profit. This is a good approach in the short run. In the long run all cost must be covered for a
company to be a going concern.
4.4 Budgetary Control
Most organizations do set budgets (94 percent) only 4 percent never set budgets. This
confirmed the survey of Paul Cropper and Colin Drury (1996).
A question was asked to ascertain the policy that organizations follow in cases where the
cost estimates submitted by managers were perceived to excessive. 78 percent of respondents
indicated that reduction was achieved through upper management discretion while, 14 percent
claimed that budgets are reduced through negotiation. However 8 percent did not respond to the
question.
Majority of respondents claimed that they have between one and five budget centers.
Immediate superior monitor delegated budgets and activities. However, it is very important to
carry all managers who are responsible for each unit along in budgeting.
Of the budgetary control method available, 36 percent respondents use incremental
budgeting, followed by 28 percent and 22 percent who use previous year plus inflation method
and zero based budgeting method while, 2 percent use rolling budget. One major disadvantage
of the budgetary control techniques favoured by the respondent is that past inefficiencies are
perpetuated.
4.5 Performance Reporting
A question sought to ascertain how the performances of managers are evaluated. 36
percent place a strong emphasis on a manager's success in meeting budgets, 42 percent
emphasized manager's performance relative to others within the organization, 30 percent and 24
percent respondents favoured managers' ability to control cost and financial performance
respectively. Only 14 percent of respondents indicated that they compare their manager's
performance relative to competitors.
4.6 Appraisal of Capital Budgeting Decisions
Majority of respondents (72 percent) indicated that they appraised their capital
investment decisions. A combination of the investment appraisal techniques was favoured most.
18 percent and 14 percent of respondents favoured return on capital employed and payback
period technique respectively. Only 12 percent, 6 percent and 4 percent respondents favoured
net present value, internal rate of return and accounting rate of return respectively. A reason for
the high support of a combination of all the investment appraisal technique could be as a result
of the different kind of investment opportunities requiring different financing methods.
4.7. Evolution and Change in Management Accounting Practice in Nigeria
4.7.1 Cost Determination and Financial Control
94 per cent of the responding companies claimed that they set budgets, 36 per cent and 28 per
cent claimed that they use incremental budgeting method, previous year plus inflation method
respectively while, 22 per cent use zero based budget and 2 per cent use rolling budgets.
78 per cent use upper management discretion when cost activities is excessive.
4.7.2 Provision of Information
Environmental scanning by corporate firms for opportunities, threats, weakness and
strength, choosing between alternatives, planning, controlling and performance appraisal are
necessary and sufficient conditions for the ultimate aim of maximizing profit and shareholders'
wealth will be accomplished. Majority of the responding firms has sections providing
information for management for Planning and controlling its operations among others. Most of
the respondents see formulation of policies and planning and controlling of activities as
important roles of management accountants.
Majority of respondent does not consider disclosure to those external to the entity and disclosure
to employees as important functions of management accounting.

4.7.3 Waste Reduction through process Analysis and Cost Management Techniques
Management Accounting practice in Nigeria also involves evaluation of performance on the
basis of performance relative to others in the organization, ability to reduce cost and financial
performance.

4.8 Recent Changes

Majority of respondent (94 per cent) claimed that they perform management audit. Most
respondents (80 percent) review their management/ cost accounting system when need arises. 21
percent have upgraded their computers system, while 17 percent changed their investment
appraisal techniques. 11 percent have diversified their operations; another 11 percent have
streamlined operations. 14 percent and 13 percent have changed their performance evaluation
technique and budgeting control technique.
4.8 Expected Changes
Most respondents favoured reviewing of their management accounting system when need
arises. 22 percent favour annual review of management accounting system (MAS), while 12
percent favour a further quarterly review. 28 percent never or rarely do review.
A further question sought to ascertain the type of change the company expected in the
next year.
 Majority of the respondent expects a highly computerized financial information system,
manpower development, cost reduction and growth induced policy, and overall economic
change as a result of political stability expected to be brought about by the transition to civilian
rule.
On the expected role of management accounting system in this millennium, respondents
indicated as highly important provisions of timely information to support decision making,
improved cashflow, standard costing and reduction in operating cost, financial leadership and
global networking.
Majority of respondents indicate that the financial liberalization will have a positive
effect on their organization by improving accessibility to fund and reduced cost of capital,
improvement of capital base, increase in profit, expansion of operations, more sensitivity to
environmental issue and keen competition.
In addition to the above respondents also identified increased global competition,
increased profit and improved data availability as expected effects of economic integration and
globalization on their companies. Most respondents expect their return on investment as a result
of the new economic order to be between 21 percent and 40 percent.
A question was asked to determine how management accounting system (MAS) help in
creating value for the owners of the companies. Respondents indicate that MAS helps to create
value by ensuring profitability analysis, cost savings, control and reduction, planning and
controlling of the organizations' operations, provision of valuable, timely and accurate
information for sound decision. Ultimately, MAS creates value for owners of the companies by
maximizing the value of the firm and the returns on capital employed.
5 Summary and Conclusion
5.1 Summary of Findings
Management Accounting is a part of the management process of organizations in Nigeria.
It is concerned with the process of cost determination and financial control using budgets and
cost accounting technologies and budgetary control techniques, provision of information for
management planning and control and reduction of waste in business processes through the use
of decision analysis, and responsibility accounting.
Management Accounting provides information aimed at assisting management in formulation n
of policies, directing, organizing, planning and controlling of activities.
In addition to these, they participate in management to ensure there are effective:
Formulation of plan to reach objectives,
Formulation of short term operating plans,
Recording of actual transactions,
Corrective actions / Financial control,
Obtaining and controlling finance /Treasury and
Reviewing and reporting on System of Operations.
It has also evolved to reduce cost through evaluation of managers on the basis of cost control
and reduction.
80 per cent of the responding firms claim that they review their Management / Cost Accounting
System. Management Accounting in Nigeria is still evolving and will continue to do so in the
future.

5.2 Conclusion
The results of the study shows that management accounting practice in Nigeria has fully passed
the second phase for most companies, and has only evolved into the third and forth phase for
few companies. However, in majority of the case studied, management accounting practice is
just evolving into the third phase.
Management Accountants are more involved in producing information aimed at assisting
management in the formulation of policies, directing, organizing, planning and controlling of
activities
The body of thought and practice encompassed by management accounting has changed and
evolved in Nigeria and it will continue to do so.
However, the third and forth phase of management accounting process is described by reference
to leading edge practice of large corporate firms internationally.
Each stage is a combination of the old reshaped to fit with the new in addressing a new set of
conditions in the management environment.

Footnotes
1). The exchange rate is 100 naira to 1 US dollar and 160 naira to 1 UK pounds.

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Appendix

MANAGEMENT ACCOUNTING

SECTION A

1. What is the name of your Company?

2. When did it Commence operation?

3. Number of Staff in the Company?

4. Major Production Activities

5. What Factor do you take into account before going into production/activities?

6. Do you have a management accounting Department?

7. Do you have a section in your organisation that is responsible for producing information

aimed at assisting Management in:

i. Formulation of Policies Yes/No

ii. Directing Yes/No
iii. Organizing Yes/No
iv. Planning of Activities Yes/No
v. Controlling of Activities Yes/No

1. If yes to 7 above, how many staff are in that department, and what is the qualification of

the head of the department

SECTION B

Please rank 0 – 5 in each of the following functions, giving 5 to the most important and 0 to the
least unimportant function in your organization: Least unimportant ;0 Important ;3
Unimportant ;1 Strongly Important :4
Ambivalent ;2 Very strongly important ;5

2. Could you please rank the following factors as functions of the Management Accounting
in your Organization?
a. Provision of information required by Management/formulation of policies
b. Planning and Controlling of activities
c. Decisions/taking of alternative action
d. Disclosure to those external to the entity
e. Disclosure to Employee
f. Safeguarding assets

1. Please Rank 0 – 5 if the Management accounting participate in Management to ensure

that there are effective:…………….

a. Formulation of Plans to reach objectives

b. Formulation of short term operating plans
c. Recording of actual Transactions
d. Corrective actions/financial control
e. Obtaining and Control finances – Treasury
f. Reviewing and reporting on system of operation

1. Does your Company perform internal audit and management audit?

2. What is the organizational structure of your company? Make a sketch of it?

3. How many department or product unit do you have?

4. Do you analyse profit made by each department?

5. If yes to 14, how often

6. If not to question 14, why?

7. What type of costing techniques do you use in your organization?

a. Directing Costing d. Activity based costing

b. Full cost e Any other method… specify
c. Cost plus Fixed Percentage
8. Do your organization set budgets? Yes/No

9. If yes, which budgeting control method do you use?………………

a. Previous Year Plus Inflation method

b. Incremental budgeting method
c. Zero based budgeting method
d. Any other method… specify
1. Which policy do you follow if the cost activities submitted by any manager is perceived

to be excessive?

a. Negotiation b. Upper management discretion

2. How many budget/profit centers do you have?

3. How do you monitor delegated budget?

4. How do you evaluate the performance of a manager?……. according to success….

a. Success in meeting budgets

b. Performance relative to others within the organization?

c. Performance relative to competitors inside the organization

d. Ability to control cost

e. Financial performance

f. Dismal performance

g. Any other…… Specify

1. Do you use any technique to appraise investment?

2. If yes, which one do you use?………..

a. Payback period technique e Return on Capital employed

b. Accounting rate of return f Any other specify
c. Net present value g. Combination of some of the above, specify
d. Internal rate of return
3. Do you review your management/cost accounting systems

If yes, when?

If no, why… give reasons

4. Which type of change occurred……………?

a. Handling of Management information Y/N

b. Investment appraisal techniques Y/N
c. Budgeting Control Technique Y/N
d. Performance Evaluation Technique Y/N
e. Upgrading of Computer System Y/N
f. Diversification Y/N
1. If yes to any of the above, to what extent is the change?

2. How often do you intend to review your management accounting system?

3. What type of change do you expect in the next 5 years

4. What do you think are the expected role of your management accounting system (MAS)

in the next millenium? Please specify?

5. What effect will financial liberalization have on your management accounting system,

please specify.

6. What effect will economic integration and globalization have on your Management

Accounting system?

7. What is the expected rate of return on investment of your company? Please specify

8. What was the turnover and profit of your company for the past 5 years………?

YEAR PROFIT TURNOVER (SALES)

1993
1994
1995
1996
1997

1. How does your Management accounting systems help to create value for the owner of the

company? Please specify…………

* ATTACHMENT

ABOUT THE AUTHOR

The Author, Mrs. Janet Olatundun Adelegan holds her first degree in Accounting and a masters of
Business Administration from Obafemi Awolowo University, Ile-Ife. Nigeria. She also holds
second masters in Economics from University of Ibadan. Ibadan. Nigeria. She is a Chartered
Accountant and an associate member of The Institute of Chartered Accountants of Nigeria (ICAN).
Presently, she is a Lecturer of Accounting and Business Finance in the Department of Economics,
University of Ibadan. Ibadan. Nigeria, formerly at the Department of Management and Accounting,
Obafemi Awolowo University, Ile-Ife. Nigeria. She has been involved in teaching and research in
two foremost Nigerian University since 1992. She is a Research Fellow at the Centre for
Econometrics and Allied Research [CEAR] at the University of Ibadan, Nigeria and Centre for
Industrial Research and Documentation [CIRD} at Obafemi Awolowo University, Ile-Ife, Nigeria.