Journal of Finance and Accounting

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Disclosure of Critical Accounting Judgments and Key Sources of Estimation Uncertainty in the Financial Statements of Companies in Nigeria

Received: 17 December 2018    Accepted: 28 December 2018    Published: 11 May 2019
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Abstract

This paper performs a thematic survey of published financial statements of 17 consumer goods companies listed on the Nigerian Stock Exchange (NSE) to investigate their level of compliance with regulatory requirements regarding disclosure of critical accounting judgments and major sources of estimation uncertainties in their financial statements. High quality disclosures in this area enable users to assess the quality of managements accounting policy decisions and the likelihood of future changes in the amounts appearing in the financial statements in a way that generic disclosures do not. Data was collected from the annual reports and accounts of the sampled companies in the financial reporting year ended in 2017. Using descriptive statistics and content analysis, it was found that firms provide some disclosures, but the information is not sufficiently informative to give users meaningful insights. Overall, the level of disclosure fell short of the intentions of the relevant regulatory requirements. The findings suggest that in addition to the guidance in the IFRS illustrative examples, it may be necessary to train accountants and auditors in Nigeria on disclosing accounting critical judgments and key sources of estimation uncertainties in compliance with regulatory intentions and requirements thereby increasing the informational value of these disclosures in financial reports.

DOI 10.11648/j.jfa.20190701.14
Published in Journal of Finance and Accounting (Volume 7, Issue 1, January 2019)
Page(s) 22-31
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Disclosure, Estimates, Judgments, Nigerian Stock Exchange (NSE), Sensitivity Analysis, Uncertainty

References
[1] Pivac, S., Vuko, T., & Cular, M. (2017). Analysis of annual report disclosure quality for listed companies in transition countries. Economic Research-Ekonomska Istraživanja, 30(1), 721–731. doi:10.1080/1331677x.2017.1311231
[2] Levitt, A. (1997). The importance of high quality accounting standards, Remarks made at the Inter-American Development Washington D. C. on September 29, 1997 https://www.sec.gov/news/speech/speecharchive/1997/spch176.txt.
[3] Barth, M. E. (2006). Including Estimates of the Future in Today’s Financial Statements, Accounting Horizons, 20: 271–85.
[4] The International Financial Reporting Standards Foundation (2015). IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in a Briefing for Chief Executives, Audit Committees & Boards of Directors. Availableathttps://circabc.europa.eu/webdav/CircaBC/ESTAT/ESTP/Library/2016%20ESTP%20PROGRAMME/05.%20Desk%20Profiling%20%E2%80%93%20Hands%20On%2C%2029%20February%20-%204%20March%202016%20-%20Organiser_%20EUROSTAT/04.2%20-%20ESTP%20-%20Desk%20prof%20-%20IFRS%20briefing%20book%20(by%20IASF)%20(2015).pdf.
[5] Sacer, I., Malis, S. &Pavic, I. (2016) The impact of accounting estimates on financial position and business performance—Case of non-current intangible and tangible assets, Procedia Economics and Finance, 39: 399-411https://core.ac.uk/download/pdf/82820679.pdf.
[6] The Institute of Chartered Accountants of Scotland (ICAS, 2006). Principles not Rules. A Question of Judgement, Retrieved from https://www.icas.com/__data/assets/pdf_file/0020/2288/Principles-Not-Rules-A-Question-of-Judgement-ICAS.pdf.
[7] Pippin, R. (2009). SEC Disclosures Checklist. CCH Walters Kluwer Business.
[8] Herdman, R. (2002) Critical accounting and critical disclosures: Speech by SEC Chief Accountant at Financial Executives International — San Diego on January, 24, 2002 https://www.sec.gov/news/speech/spch537.htm.
[9] The Financial Reporting Council (2017). Corporate Reporting Thematic Review, Judgments and Estimates Available at .
[10] International Accounting Standards committee Foundation (2010). IAS 1Presentation of Financial Statements, London: International Accounting Standards.
[11] Deloitte (2017). Spotlight on key judgements and estimates Available at https://www2.deloitte.com/content/dam/Deloitte/ru/Documents/.../23-05-2017.pdf.
[12] The Irish Auditing and Accounting Supervisory Authority (IAASA, 2015). Survey of Directors’ Critical Accounting Judgments and Auditors’ Assessed Risks of Material Misstatement, https://www.iaasa.ie/.../2015_11_26-Survey-of-Directors-Critical-Accounting-Judgment.
[13] Mayorga, D. & Sidhu, B. (2012). Corporate Disclosure of the Major Sources of Estimation Uncertainties, Australian Accounting Review, 60(22):25-39.
[14] Ernest & Young (2017). SEC Comments and Trends: An analysis of current reporting issues, www.ey.com/publication/vwluassetsdld/seccommentstrends.
[15] Honeywell Flour Mills Plc (2016). 2016 Annual Report and Financial Statements.
[16] Dangote Sugar Refinery (2017). 2016 consolidated and separate financial statements.
[17] Nestle Nigeria Plc (2017).2016 Annual Report and Financial Statements.
[18] Nascon Allied Industries Plc (2016). 2016 Financial Statements.
[19] Flour Mills of Nigeria Plc (2016). 2016 Annual Reports.
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Author Information
  • Department of Accounting, Faculty of Management Sciences, Benue State University, Makurdi, Nigeria

  • Department of Accounting, Faculty of Management Sciences, Benue State University, Makurdi, Nigeria

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  • APA Style

    Clement Chiahemba Ajekwe, Adzor Ibiamke. (2019). Disclosure of Critical Accounting Judgments and Key Sources of Estimation Uncertainty in the Financial Statements of Companies in Nigeria. Journal of Finance and Accounting, 7(1), 22-31. https://doi.org/10.11648/j.jfa.20190701.14

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    ACS Style

    Clement Chiahemba Ajekwe; Adzor Ibiamke. Disclosure of Critical Accounting Judgments and Key Sources of Estimation Uncertainty in the Financial Statements of Companies in Nigeria. J. Finance Account. 2019, 7(1), 22-31. doi: 10.11648/j.jfa.20190701.14

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    AMA Style

    Clement Chiahemba Ajekwe, Adzor Ibiamke. Disclosure of Critical Accounting Judgments and Key Sources of Estimation Uncertainty in the Financial Statements of Companies in Nigeria. J Finance Account. 2019;7(1):22-31. doi: 10.11648/j.jfa.20190701.14

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  • @article{10.11648/j.jfa.20190701.14,
      author = {Clement Chiahemba Ajekwe and Adzor Ibiamke},
      title = {Disclosure of Critical Accounting Judgments and Key Sources of Estimation Uncertainty in the Financial Statements of Companies in Nigeria},
      journal = {Journal of Finance and Accounting},
      volume = {7},
      number = {1},
      pages = {22-31},
      doi = {10.11648/j.jfa.20190701.14},
      url = {https://doi.org/10.11648/j.jfa.20190701.14},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.jfa.20190701.14},
      abstract = {This paper performs a thematic survey of published financial statements of 17 consumer goods companies listed on the Nigerian Stock Exchange (NSE) to investigate their level of compliance with regulatory requirements regarding disclosure of critical accounting judgments and major sources of estimation uncertainties in their financial statements. High quality disclosures in this area enable users to assess the quality of managements accounting policy decisions and the likelihood of future changes in the amounts appearing in the financial statements in a way that generic disclosures do not. Data was collected from the annual reports and accounts of the sampled companies in the financial reporting year ended in 2017. Using descriptive statistics and content analysis, it was found that firms provide some disclosures, but the information is not sufficiently informative to give users meaningful insights. Overall, the level of disclosure fell short of the intentions of the relevant regulatory requirements. The findings suggest that in addition to the guidance in the IFRS illustrative examples, it may be necessary to train accountants and auditors in Nigeria on disclosing accounting critical judgments and key sources of estimation uncertainties in compliance with regulatory intentions and requirements thereby increasing the informational value of these disclosures in financial reports.},
     year = {2019}
    }
    

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    AB  - This paper performs a thematic survey of published financial statements of 17 consumer goods companies listed on the Nigerian Stock Exchange (NSE) to investigate their level of compliance with regulatory requirements regarding disclosure of critical accounting judgments and major sources of estimation uncertainties in their financial statements. High quality disclosures in this area enable users to assess the quality of managements accounting policy decisions and the likelihood of future changes in the amounts appearing in the financial statements in a way that generic disclosures do not. Data was collected from the annual reports and accounts of the sampled companies in the financial reporting year ended in 2017. Using descriptive statistics and content analysis, it was found that firms provide some disclosures, but the information is not sufficiently informative to give users meaningful insights. Overall, the level of disclosure fell short of the intentions of the relevant regulatory requirements. The findings suggest that in addition to the guidance in the IFRS illustrative examples, it may be necessary to train accountants and auditors in Nigeria on disclosing accounting critical judgments and key sources of estimation uncertainties in compliance with regulatory intentions and requirements thereby increasing the informational value of these disclosures in financial reports.
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