CRITICAL EVALUATION OF ACCOUNTING SYSTEMS IN MULTINATIONAL ORGANISATIONS IN NIGERIA

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[icon type=”icon-pencil”]: CRITICAL EVALUATION OF ACCOUNTING SYSTEMS IN MULTINATIONAL ORGANISATIONS IN NIGERIA
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Keywords:CRITICAL EVALUATION OF ACCOUNTING SYSTEMS IN MULTINATIONAL ORGANISATIONS IN NIGERIA


RESEARCH BODY

CHAPTER ONE

INTRODUCTION

1.1     Background to the Study

The birth of the Accounting system in the multinational organisations is an interesting one because it has been in existence since the beginning of overseas trade. The need for accounting information as an integral part of business dates back tens of thousands of years. Early Accounting methods include the use of tokens and symbols to represent goods shipped. Multinational organisations are viewed at that time as agents of civilization and played a pivotal role in the commercial and industrial development of Asia, South America and Africa. By the end of the 19th century, advances in communications had more closely linked world markets and multinational organisations which had retained their favourable image as instruments of improved global relations through commercial ties.

Finally, our current era is described as “information age” where the production and information’s delivery of services has become a widespread product and the demand of it continues to increase. Accounting information system plays a pivotal role in decision marker’s services; this is what made the use of computers as processors of information as indispensable in the world of Accounting.

It could be argued that the Accounting system is the oldest systems of information which is still considered to be the main source of economic information in the present day and in the future; because of the importance of financial information in the decision-making. The Accounting system has tended to be a system of information that does not stop at the limits of data and financial information, but also it includes data and descriptive and quantitative information which is useful in decision-making for users distinct with plurality and diversity.

Accounting systems provide additional information besides financial information. The group of Accounting programmes users include current and potential investors, lenders, suppliers, creditors, customers, government and the public, in addition to the administration which its responsibility is to prepare the Accounting programmes and then displaying it, that information must be capable of achieving the goal it has been prepared for.

Multinational organisations are business entities that operate in more than one country. Multinational organisations have been a source of controversy ever since the East India Company developed the British taste for tea and a Chinese taste for Opium (John 1998). A typical multinational organisation normally functions with a headquarters that is based in one country, while other facilities are based in locations in other countries. In some circles, a multinational corporation is referred to as a “Multinational Enterprise” (MNE) or a “Transnational Corporation” (TNC) (Tatum 2010).

The idea of Multinational Corporation has been around for centuries but in the second half the Twentieth Century, multinational corporations have become very important enterprises. Tatum 2010 proposes that multinationals operate in different structural models. The first and common model is for the multinational corporation positioning its executive headquarters in one nation, whileproduction facilities are located in one or more other countries. This model often allows the company to take advantage of benefits of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower. The second structural model is for the multinational organisations to base the parent company in one nation and operate subsidiaries in other countries around the world. With the model, just about all the functions of the parent are based in the country of origin. The subsidiaries are more or less function independently, outside of a few basic ties to the parent. A third approach to the setup of a multinational organisation involves the establishment of a headquarters in one country that oversees a diverse conglomeration that stretches too many different countries and industries. With this model, the multinational organisations include affiliates, subsidiaries and possibly even some facilities that reports directly to the headquarters.

Olumba (2009) states that economy has changed such that competition has become intense and there is a great change in consumer’s taste due to technological developments in the business world. To survive this millennium, most of the international businesses are operated by special category of entity called ’’Multinational Corporation’’. The international involvements take the form of investment in foreign firms or the establishment of foreign subsidiaries to either engage in production or some other sales outlet. According to Owojori (2001), a multinational corporation is usually defined taking into consideration a number of factors.

  1. Its sales are outside the countries operation.
  2. Worldwide distribution of assets.

Olumba (2009) opines that multinational organisations are those whose operations transcend national frontiers or national boundaries and multinational enterprise is affirm which owns and controls income generating assets in more than one country and accounts for one-fifth of the world output excluding the centrally planned economies. Their production for some years has been growing at the rate of 10% per annum, nearly twice the growth of world output and half as much gain as world trade. In every respect, multinational organisations are among the most powerful economic institutions yet produced by private enterprises.

Garter (1980) stated that there are many definitions of the multinational firm, but to him it is an organisation with substantial operations usually 30% or more of its total activity carried on outside its own national border. It may be trading or manufacturing company. Needless (1980) argued that multinational organisations are companies that have expanded throughout the world. Grayfin, et al (1974) defined multinational organisations in respect of their international operations. These operations consist strictly of trading activities with customers domiciled in other countries.

The roles of accounting system are crucial in managing a multinational organisation and implementing an internal control system. An important question in the field of Accounting and management decision-making concerns the fit of accounting system with organisation requirements for information communication and control. Although the information generated from an accounting information system can be effective in decision-making in multinational organisations.

However, it became imperative to evaluate and review the accounting systems of some of the multinational organisations in Nigeria due to the advancement in technology which not only affects human capacity but also boost some businesses into the international limelight.

1.2     Statement of the Problem

Multinational organisations are faced with a lot of challenges due to its peculiar native. Most of these challenges occur due to changes in economic environment, political influence, technological know-how and reviews of accounting systems of its existing countries. These problems are environmental or accounting systems problems.

Some of the critical environmental changes are:

  1. Political Instability,
  2. Capital requirement to meet economic changes,
  3. Inadequacy of corporative cost of advantage law,
  4. Unstable exchange rate,
  5. Unemployment dilemma in getting competent consultant to manage the business.

Some of the accounting problems include:

  1. Risk involved in interpreting of its accounting language by the users of its information,
  2. Different opinion of their non-Nigerian managers or consultants.

1.3     Research Questions

Survival of multinational organisations depends on the effective communication of its accounting language. Its financial report must be prepared to meet internal and external users of its information.

Some of the research questions raised for the purpose of this study are as follows:

  1. Does the accounting system of multinational organisations conform to local accounting standard?
  2. What are the problems encountered in converting accounting from one country to another?
  3. The accounting system of multinational organisation affected by the political situation of Nigeria?

 1.4    Research Hypotheses

The following hypothesis were formulated and adopted to be tested in order to draw a logical empirical conclusion.

H0: The accounting system of multinational organisation does not conform to international accounting standard.

H1: The accounting systems of multinational organisation conform to international accounting standard.

H0: Problems are not encountered in converting accounting from one country to another.

H1: Problems are encountered in converting accounting from one country to another.

H0: The accounting system of multinational organisations is not affected by the political situation in Nigeria.

H1: The accounting system of multinational organisations is affected by the political situation in Nigeria.

1.5     Objectives of the Study

The main objectives of this study are to:

  1. Find out how the accounting systems of multinational organisations conform to local accounting standards.
  2. Identify the problems encountered in converting accounting from one country to another.
  3. Find out how the accounting system of multinational organisation is affected by the political situation of Nigeria.

1.6     Significance of the Study

This study is meant to simplify information from accounting systems which is presented usually in a very technical manner such that other users who are not knowledgeable in it may find it difficult to understand and it is hoped that this study will educate its users since accounting is dynamic and full of potentials not yet tapped, the comments and recommendations of this work will hopefully assist multinational organisations and all business to improve on their accounting system and practice.

1.7     Scope of the Study

This study is within the Nigerian economy and it focuses on few selected multinational organisations in Ogun state as the whole country cannot be covered due to the fact that the time available for the research is limited and also financial constraints. The results gotten would be used to infer the general state of affairs in Nigeria.

1.8     Operational Definition of Terms

Accounting: Adesina (2008), define accounting as the act of collecting, classifying, recording and interpreting financial events of business for the purpose of making decisions on the financial state and progress of the business.

Accounting Information: The business dictionary defines it as information used to prepare financial statements which report the results and financial position of a business to the decision makers.

Accounting Standards: Are authoritative statements issued by accounting standard board or a committee e.g. FASB, NASB, to guide accountant in the preparation of accounting statement in order to narrow the area of differences and varieties in accounting practice. (Derived from “Notes on International Accounting by O.I Ogunleye”).

Accounting System: The business dictionary defines it as methods, procedures and standards followed in accumulating, classifying, recording and reporting business events and transactions. The accounting systems include the formal records and original source data.

Financial Statement: The business dictionary defines it as a written report which quantitatively illustrates the financial status of a company and it comprises an income statement, balance sheet as well as cash flow statement.

International Accounting Standard: Is an older set of standards stating how particular types of transactions and other events should be reflected in financial statement. (Derived from “Notes on International Accounting by O.J. Ogunleye”)

Multinational Organization: Ogunleye(2009) defines it as a business concern with operations in more than one country. These operations outside the company’s home country may be linked to the parent by merger, operated as subsidiaries or have considerable autonomy.

Transnational Organization: Is an organisation that is intentionally based but does not have a home base. They are like multinational cooperation but without specific international identities. (Derived from business dictionary)

Keywords: CRITICAL EVALUATION OF ACCOUNTING SYSTEMS IN MULTINATIONAL ORGANISATIONS IN NIGERIA



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Keywords: CRITICAL EVALUATION OF ACCOUNTING SYSTEMS IN MULTINATIONAL ORGANISATIONS IN NIGERIA

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