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Research Paper | Management | Nigeria | Volume 4 Issue 12, December 2015

Association between Firm Effects and the Extent of Compliance with Accounting Standards Disclosures by Government Business Enterprises in Nigeria

Sebastian Seddi Maimako | Dr. Ray Ukpa Ayila

Abstract: The reason for using accounting standards in organisations operating activities is to provide the benchmark for maintaining accounting records and in preparing financial statements to meet the varied needs of users of financial statements. As guiding rules, accounting standards are expected to inherently influence disclosures in financial statements preparation. However, recent findings show that accounting technology is used to misrepresent earnings and assets in financial reports. Thereby making it appear as if accounting standards do not induce adequate compliance with the principles of recording transactions and preparation of financial statements. An obvious example is the reports from the Accountant General for the Federation on audited financial statements of commercialized Federal Government Enterprises (CFGE) in Nigeria over two decades. These reports have shown that financial statements have not fully complied with accounting standards requirements. The Auditor-Generals reports support prior suggestions that disclosure practices of firms are shaped by firm characteristics. Prior studies findings on this subject are divergent, varying from study to study, industry to industry and country to country. To examine this assertion, this study determined the influence of firm effects on the extent of compliance with accounting standards disclosure requirements by CFGE in Nigeria. The theoretical link between disclosure practices and firm effects was based on four theories- agency, stewardship, stakeholders, and resource dependence theories. The study used contents analysis methods for data gathering and employed Descriptive Statistics, Random Effects Least Square Dummy Variable Regression Model and Fixed Effect Least Square Dummy Variable Regression Model Analysis for data analysis. The results of the analysis show that with exception of five enterprises (NRC, SR-RB, A-IRB, LNRB, and UBRB) whose nature are negatively and significantly related to compliance with accounting standards disclosure requirements, the other 12 enterprises (NRC, FHA, H-JRB, CB, LBRB, CRRB, NDRB, B-ORB, O-ORB, FRCN, NTA, NNPC and FAANs) nature positively and significantly influence compliance with accounting standards disclosure requirements. The only enterprises firm-effect that does not influence the extent of compliance with accounting standards disclosure requirements is NAN with a p-value of 0.5318 > 0.05 level of significance. Therefore, considering the results of this study, we can confirm that there is a statistical significant influence of firm-effects on most of the enterprises extent of compliance with accounting standards disclosure requirements. The indication of this influence is shown by the difference between the Adjusted Coefficient of determination (Adjusted R2) of model (5) and that of model (4) which used Tables 7 and 6 respectively. The Adjusted R2 of Table 7 is 0.971058 and that of Table 7 is 0.4946, meaning that 47.6458 % (97.11 % - 49.46 %) of the variations in the extent of compliance with accounting standards disclosure requirements is explained by the enterprises nature (firm effects), which were not taken into accounts in the earlier analysis in Table 6. Based on this analysis conducted, the findings showed that firm-effect has significant influence on extent of compliance with accounting standards disclosure requirements. These findings lead us to the conclusion that the special features (firm effects) of an enterprise, which include managerial style, managerial philosophy, managerial psychology, type of market, process of production and a host of others influence significantly the extent of compliance with accounting standards disclosure requirements in annual reporting. Therefore, the endogenous factors which introduce heterogeneitic factors in the efforts of compliance with accounting standards needs to be considered when the board and management is to decide on the disclosure practices of the enterprise.

Keywords: Association, firm effects, accounting standards, disclosure, Accountability, transparency, commercialised Federal Government enterprises

Edition: Volume 4 Issue 12, December 2015,

Pages: 1859 - 1875