CHAPTER TWO
REVIEW OF RELATED LITERATURE
The chapter
tries to review different works presented by individuals, books, lectures and
observations that are related to the problems of the study. In order to ensure
effective review of literature, the following subheadings guided the research:
1. Historical
overview of Accounting
2. Definition
and features of Accounting
3. Roles
of Accountant in an organization
4. The extent an accountant can assist
management to achieve effectiveness in the organization operational process.
5. The extent an accountant assists
management to achieve organizational efficiency in the budgeting process.
6. The extent an accountant helps an
organization to achieve organizational goal.
7. Strategies of improving on the problems
face by an accountant in an organization.
8. Summary of literature review.
2.1 Historical
Overview of Accounting
According to
Igben (2009) the recording of transaction in books of accounts in line with
double entry principle dates back to the 14th century, when Italian
Merchants began to use the double entry system to their transactions. The earliest
known double entry records are the accounts of stewards of the commune of Genoa
for the year 1340. An Italian monk, LUCCA, PACIOLO, published the first known
text on double entry accounting in his book summa Di Arithmetical geometric proportion et propportionlita (meaning
everything about Arithmetic, geometry and proportion) published in 1494, he
included a section on double entry accounting entitled De Computis et
scripture. The section was later separately published in 1504 under the title La
Seuola Perfetta Dei Merchants. The double entry system quickly spread across
Europe, particularly after the publication of Lucca Paciolo’s Summa. Due to its
Italian origin, the double entry system, in those days was known as the Italian
method.
The
level of civilization and technological advancement help to modernize method of
accounting. During the period of industrial revolution, there was need for
standard accounting method, and then professional bodies were formed, ICAN
Scotland in 1854, ICAN English and wale in 1880 and association of public
accountants in USA in 1887. In 1965, the institute of chartered accountant of
Nigeria was established in 1982. Accounting standard board was also
established. Presently, in Nigeria two bodies are recognized: ICAN institute
chartered accountant of Nigeria and ANAN Association of institute chartered
Association of institute chartered Accountant.
2.2 Definition
of Accounting
It is generally accepted that accounting
is a language of business used for communication. It communicates the result of
business operation to various parties interested in their business and equally
useful to individual to know about source of cash utilized and how it was
utilized. Also it enables individual to know about receipt and payment and
balance of cash in hand.
Over the past decades, the concept
of accounting and role of accountants have witnessed tremendous revolutionary
changes. While accounting has developed from a mere recording system to an
information system, the role of accountant was also grown from that of mere
record keeping to now includes the rendering of wide range of services to the
society.
According to Chukwu (2004) defined
accounting as the process of recording, classifying, summarizing, analyzing and
communicating the result to the interested users. Thus, accounting is
considered to be a tool to management providing vital information concerning
the future of business entry.
Longe and Kazeem (1999) defined
accounting as recording, classifying, selecting, measuring, interpreting and
communicating financial data of an organization to enable the users to make
decision. However, Igben (2009) defined accounting as the process of
collecting, recording, presenting, analyzing, interpreting financial
information for the users of financial statements. It is a discipline which
comprises a set of theories and concept for processing financial data into
information.
Features of
Accounting
Accounting is primarily concerned with
design the systems for recording, classifying and summarizing of financial data
of an organization to internal and external users such as government,
creditors, analyst, proprietors etc.
Thus, it is subdivided into two,
financial accounting and management accounting. Financial accounting is
primarily concerned with preparation of financial statement, that profit and
loss account, balance sheet, cash flow statement. It provides information for
use of parties outside the organization. Then, Management Accounting assists
management to formulate policies, planning, controlling of the operation of the
organization. According to Chukwu (2004) defined management accounting as an
Accounting that provides information to internal users while financial
Accounting provides information as a whole. However, Kazeem indicates that the
most important features accounting play in an organization are:
1.
It
provides permanent record for all financial transaction
2.
It
helps to determine the profitability of business concern
3.
It
provides a means by which finances of a business are controlled.
4.
The
assets and liability of a business are shown and income and expenditure are also
shown.
Accounting
information is of important not only individuals within the business but also
to those outside the business.
2.3 Roles
of an Accountant
Accounting
information should be properly kept because it is used to operate or manage
business. An accountant performs an administrative role of collecting, entry
and interpretation of financial date. He maintains the financial records
ensuring that it complies with ethical guideline of accounting. He also
analyses the financial records to correct discrepancies that may likely occur
in business organization.
However, an
accountant prepares financial statement ensuring that financial report
deadlines are met. He coordinates the auditing process by assisting in
financial data preparation. Accountants of business organization are charged
with the responsibility of advising the executives, regulatory agencies,
stakeholders, creditors and tax personnel’s. He is an information giver; he
gives information to the employers about the revenue and financial situation of
the organization.
According
to Davis (2013) an accountant performs administrative role within a company
operation. He serves as an adviser and interpreter who present company
financial data to people within and outside the business. According to Atom
(2008) stated that an accountant is an information giver, giving information to
employer about the revenue and financial position of an organization. According
to Gill (2013) an organization will not effectively and efficiently, survives
without an accountant. Therefore, an accountant analyses financial records
drawn up by book keeper to see where the organization is spending, saving,
progressing and failing. An accountant must also decide on a prescribed system
of account to use and choose the most capable of arriving at profit. An
accountant use cost accounting to show actual cost over period of time of
particular services or departments, this is done to look for improvement
profitable area as well as finding area that are not efficient and are loss making.
However
Igben (2009) listed out some accountant’s role in an organization and they
include:
I. Preparation and presentation of timely
and accurate financial reports to management.
II. Identification of areas of inefficiency
and restage of resources.
III. Treasuring functions – raising finance,
cash management and so on.
IV. Setting up effective system of internal
and accounting controls.
V. Preparation of feasibility reports.
These reports assist management in assessing the viability or otherwise of
proposed capital expenditure such as the opening of a new factory or branch.
VI. Investigation of the
performance/operations of competing business organization to assist management
in policy formulation.
VII. Investigation of fraud within the
organization.
VIII. Assisting the organization to avoid – rather
than evade – tax by using his knowledge of the tax laws.
2.4 The
Extent an Accountant Assists the Management in Achieving Organization
Effectiveness in Operation.
According to
Davis (2014), an accountant performs financial functions related to the
collection, accuracy, recording, analysis and presentation of a business,
organization or company’s financial operations. The accountant usually has a
variety of administrative roles within a company’s operations. In a smaller
business an accountant’s role may consist of primarily financial data
collection, entry and report generation. Middle to larger sized companies may
utilize an accountant as an adviser and financial interpreter, who may present
the company’s financial data to people within and outside of the business.
Generally, the accountant can also deal with third parties, such as venders,
customers and financial institutions.
1. Financial Data Management
The
accounting structure of a company is an essential component to business
operations. One of the primary roles of an accountant usually involves the
collection and maintenance of financial data, as it relates to a company or
firm. The accountant ensures that financial records are maintained in compliance
with lawful and accepted procedures and policies on the corporate level. The
financial information for any organization should be kept in a pristine system
because it is a key component used in operating and managing any business.
Managing the financial data of an organization can also include more
sophisticated duties, such as developing, data bases, as well as establishing
and maintaining control procedures.
2. Analysis and Advice
As
analysts, accountants may perform certain types of analysis using financial
data that is used to assist in making business decisions. From deserting which
kinds of supplies to order, payment of bills to payroll, the accountant handles
many intricate financial details on a daily basis.
Advising on business operatives can
include issues, such us revenue and expenditure trends, financial commitments
and future revenue expectations. The accountant also analyses financial data to
resolve certain discrepancies and irregularities that may arise.
Recommendations may also involve developing efficient resources and procedures,
while providing strategic recommendations for specific financial problems or
situations.
3. Financial Report Preparation
Accountants
typically prepare financial statements that may include monthly and annual
accounts based upon the financial information that is compiled and analyzed.
The preparation of financial management reports can include accurate quarterly
and year – end closing documents. Reports compiled may be used in connection
with the continual support and management of budgetary forecast activities. The
financial reports may be used by a financial director or officer for the
development, implementation and operation of a company’s financial software and
systems, such as Hyperion, Excel and CODA financial management.
4. Compliance
An
accountant may also be responsible for ensuring that all reporting deadlines
are met, internally and externally for example, quarterly, semi –annual and
annual reports all have specific deadlines, as well as some tax implications.
Monitoring and supporting taxation issues and fillings can also be a
responsibility of an accountant. The accountant also usually coordinates the
audit process by assisting with financial data preparations.
5. External Business Affiliation
Often,
accountant must work with financial professionals from the four major fields of
industry, public, management, internal auditing and government accounting.
Accountants, may provides data to a public accountant, who acts as a
consultant, auditor and tax service professional, corporations, non profits,
organizations and government use management accountant to record and analyzed
financial information of the business in which they are employed. They usually
advise company executives, creditors and tax personnel. Accountants may also
work with government officials who are examining and maintaining the financial
records of the private business for which an accountant is employed, in
connection with taxation and government regulations.
2.5 The
Extents an Accountant Assist Management to Achieve Organizational Efficiency in
the Budgeting Process
According to Chukwu (2012) a
budget is a plan quantified in monetary
terms prepared and approved prior to a defined period of time usually showing
planned income to be generated and or expenditure to be incurred during that
period and the capital to be employed to obtain a given objective, in
regulating to a period of time. Put differently, it is a standard with which to
measure the actual achievement of people department firms, etc. A necessary
planning component is budget. Budgets outline the financial plans for an
organization. There are various types of budgeting process a company must take
into account ongoing operation, capital expenditure plans, corporate financing.
·
Operating
Budgets:
A plan must provide definition of the anticipated revenues and expenses of an
organization and more. These operating budgets can become fairly detained. The
process usually begins with an assessment of anticipated saves and proceeds to
a detailed mapping of specific inventory purchases, staffing plans, and so
forth. The budgets, often times delineate allowable levels of expenditure for
various departments.
·
Capital Budget: The budgeting
process must also contemplate the needs for capital expenditure relating to new
facilities and equipment. These evaluated logically to determine whether an
investment can be justified and what rate and duration of pay – back is likely
to occur.
·
Financial
Budgets:
A company must assess financial needs, including an evaluation of potential
cash shortages. These tools enable companies to meet with tenders and
demonstrate why and when additional support may be needed.
·
Directing: These are many
good plans that are never realized. To realize a plan requires the initiative
and direction of numerous actions. Often these actions must be well coordinated
and timed. Resources must be ready and authorization needs to be in place to
enable persons to act according to the plan. By analogy imagine that a composer
has written a beautiful score of music. For it to come to life requires all
members of the orchestra, and a conduction who can bring the orchestra into
synchronization and harmony. Thus; the accountant help in putting business
plans into action.
o
Generally,
the process of budgeting includes: identifying, collecting, summarizing and
communication financial and non – financial information of a particular
organization. In a business organization, the accountants assist to arrange the
financial or commercial obligations coming in the business process. Therefore
to a greater extent, an accountant of an organization will help that
organization to achieve efficiency in the budgeting process in the following
ways:
1. Planning
the Cost Action that Helps to Foresee the Future Transaction
An accountant
provide information to an organization that help the organizational management
to efficiently plan the course of action that helps to foresee the future
transaction, financial and non – financial events and other activities. The
budget allows the company to establish source common goal for future. It
ensures the minimum desire level of revenue, and it is required for the
corresponding for the creation of the targeted revenue. The organization sets
some long – time goals. Chukwu (2012).
2. Accountants provide Information to
Management of an Organization that Assist them to Arrange the Financial
Obligations coming in the Business Process.
Accountants
are responsible in providing information that involves the accumulation,
identification, communication, comprehension, calculation, research and
conveyance of business data. They prepare reports that maybe proved as an
effective deciding tool for non managerial groups such as creditor’s
regulatory, shareholders, tax authorities and other agencies. Chukwu (2012).
3. Accountant
Provide Information that Helps the Management of an Organization to Ascertain that
the Prepared Budgets Works in Conjunction with Long Term Goals of the Firms
Under
the long term goals, a company takes annual operating plans; such planning
involves the preparation of budgets. The accountant of an organization is
responsible with the duty to ascertain that the prepared budged works in
conjunction with long term goals of the firm on the other hand, short term
goals are taken after long term goals have been developed. It involves,
planning in detail every part of the organization. Once management of an
organization has established the short terms goals, the accountants of an
organization takes the charges for preparing the budget. They go through each
and every step of preparation while setting the future goal. Chukwu (2012).
2.6 The
Extent Accountants Helps an Organization to Achieve its Organizational Goal.
Accountant can
make or break an organization. Every organization needs strong support of good
accounting help. In fact, this accounting department is one of the most
important areas of the company. Most successful business knows the value of
outsourcing some or all of their accounting needs. From a financial point, this
business owners knows that this cost paid to an outsource accountant will
always be less than this salaries of your in house accountant department.
Business owner should look for experienced accountants in their specific
industry properly management, retail, and distributions.
An accountant is charged with the
responsibility to organize collection of computerized and manual accounting
processes, procedures and controls
created to collect, record, classify, summarize and interpret accurate
and reliable financial data for decision making by management. Accountants are
also responsible in prevention and detection of fraud, waste and thrift and to
generate financial statements for managers, creditors and lenders. According to
Brown (2014) accountants perform four key responsibilities that aid an
organizational goal, they are:
(1)
Timeliness: Time is a
resource that should never be wasted, since it can never be recovered. An
accounting system that is timely is an asset to any organization, because if
presents information to users as and when received. A timely accounting system
provided by an accountant is able to produce the required reports for decision
making just in time to make major decisions.
(2)
Cost-Effective: Accountants of an
organization usually set the accounting system in a way that will have the goal
of saving costs, especially when training staff. When implementing a new
accounting system, the cost of operating it should not be greater than the
benefits it provides. It is therefore the responsibility of the accountant to
tailor the accounting system to the specific needs of the firm to avoid waste
generated by a system with functions that companies will not need.
(3)
Informative: Accountant
ensure that management, the board of
directors, and other users of financial statements get sufficient information
necessary to enable them to make informed decision for the business.
Information is power, and a firm with a highly informative accounting system is
able to make effective plans to make the firm grow in its industry. In short an
accountant should be able to provide an informative accounting system that
should be able to satisfy the needs of various users like managers, creditors,
owners and government.
(4)
Reliability: An accountant
provides reliable accounting system that should produce information that is
free from bias. It faithfully represents what is seeks to represent. This
information should be trustworthy and dependable so users can make decision.
For the information to be reliable, it must be neutral and faithful in
representing the general condition of the firm.