ACCRUAL ACCOUNTING AS A DETERMINANT FOR PERFORMANCE EVALUATION: A Case Study of Some Selected Companies

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ACCRUAL ACCOUNTING AS A DETERMINANT FOR PERFORMANCE EVALUATION: A Case Study of Some Selected Companies

ABSTRACT

The project work on “Accrual Accounting as Determinant for Performance Evaluation in the Organization” examines alternative accrual accounting rules from an incentive and control perspective for a range of common production, financing and investment decision, we consider alternative asset valuation rules. The criterion for distinguishing among these rules is that the corresponding performance measure should provide managers with robust incentives to make present value maximizing decisions. A preliminary survey of 6 company was carried out at research proper validated questionnaires were sent out to the some selected companies in Edo State and we achieved a response of 80%. From our study, we discovered that goal congruence is shown to require intertemporal matching of revenues and expenses, though the specific form of matching needed for control purpose generally differs from GAAP. We has made various and at times conflicting recommendation regarding adjustments to the accounting rules used for external financial reporting our goal congruence approach provides a framework for comparing and evaluating these recommendations.

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THESTUDY

In the management control literature, accrualaccounting has consistently been viewed form a stewardship perspective.Accordingly, “good” accounting rules have the property that the resultingaccounting based performance metrics guide manager towards value increasingdecisions. This perspective study on divisional performance measurement, thedebate about desirable accounting relies has recently been reinvigorated inconnection with so-called Economic Profit Plans (EPP) many of which arevariants of the familiar residual income concept. The proponents of EconomicProfits Plans (EPP) recommend adjustment to GAAP with the stated objective ofobtaining accounting metrics that are more useful for internal performanceevaluation. Yet, for the most part this debate has been lacking informalcriteria for comparing alternative rules and as a consequence, no discernibleconsensus has emerged regarding the recommended accounting adjustment, Young(1998) and Simons (2000).

The analysis of Rogerson (1997) and Pferiffer (2002)predicated on the notion that managers have superior information about the financial consequence of a proposed transaction while the accounting rules can rely only on general purpose information e.g. on assets useful life for a range of common production, financing and investment decisions. We argue that private information held by management makes intertemporal matching of revenues andexpenses essential yet. The specific form of matching needed for goalcongruence differs from GAAP in many instances. In connection with long termconstruction projects for example, Bharket and Bastin (2004) argue that revenuerecognition for a project should reflect the underlying intertemporal patternof relative progress towards project completion. To obtain goal congruence,however, the commonly used percentage of completion method needs to be modifiedso as to properly reflect the time value of money. Specifically, the estimateof the percentage of completion in a given period should based on the ratio ofthe period cost to the discounted value (rather than the undiscounted value) ofthe projects total cost of course, both methods require that the accountingsystem be in a position to estimate the relative percentages of costs indifferent construction periods.

1.2     STATEMENT OFRESEARCH PROBLEMS

Over the years, the study of goal congruent performance measures naturally raises the question whether the corresponding accounting rules also emerge as part of second-best contracts in agency models. By construction, the advantage of goal congruence is that managerial incentive are invariants to the choice of compensation parameters and therefore theseparameters can be chosen freely to address moral hazard problem. At the sametime, though, second-best decision rules generally vary with the underlyingagency problem. This would necessitate further adjustment to the performance measure such as changes in the capital charge rate, in order to implementsecond-best incentive mechanisms. For some transaction in particular thoseinvolving sequential information and decision making future agency researchwill have to verify the “optimality” of congruent performance measures.

Goal congruence does not make it necessary to apportion the present value of a transaction across the useful life of the transaction,for certain transaction such as credit sales, it is plausible that theaccounting system has sufficient information to recognize all value creationupfront. Conversely, goal congruence can be obtained by differing the recognition of value creation, the corresponding performance measure would amount to the compounded value of past cash flows. Ehrbar (1998) argue, that such“back loading” will be generally infeasible for a going concern and conflict with the need for performance measures to effectively aggregate the consequences of multiple ongoing projects.

1.3     OBJECTIVE OF THESTUDY

The objective of the research work on “AccrualAccounting as a determinant for performance evaluation in an organization” isto find a meeting point between financial assets and liabilities commonlyaccrue interest under GAAP on one hand and the goal congruent accounting generally require that the (positive) present value of a transaction is apportioned across time periods in the residual income numbers on the other hand.

Further the work is intended to determine thefollowing:

a.         The nature andscope of accrual accounting rules in an organization.

b.         How well does each year’s profit reflect the success of that year’s manager?

c.          The residual income as the managerial performance measure.

d.         The importance of Accrual Accounting rules and performance evaluation not only to an organization but also to the general public.

1.4     SCOPE OF THE STUDY

The project work on “Accrual Accounting rules as determinant for performance evaluation in an organization” intended to highlight the following areas in the course of the study.

These are:

The nature and scope of the accrual accounting rules, the importance of the accrual accounting rules and performance evaluation notonly to an organization but also to the general public. Further, the study willfocus on residual income as the managerial performance measure. This focus notonly reflects that most of the recently proposal and adopted EPPs are variantsof the residual income measure, but also the finding of recent theoretical research showing measures residual income has certain uniqueness properties in achieving goal congruence.

1.5     SIGNIFICANCE OF THESTUDY

Accounting and economic observers agree over the yearsthat financial accounting rules which call for the immediate expensing of intangible investments will not lead to goal congruence, Peinreich (1937)argued that certain manifestations of conservations are desirable from a performance measurement perspective. Specifically, Preinreich (1937) find thatfair market values will generally exceed book values. This relation emergesbecause, by the conservation property of residual income, the difference betweenthe fair market value and the book value is just the present of future residual income.

In connection with abandonment options, such asmulti-stage investment projects, our analysis advocates full cost rather thansuccessful efforts accounting. Full cost accounting offers the possibility ofintertemporal matching.

1.6     STATEMENT OFRESEARCH HYPOTHESIS

The hypothesis test will be carry out in two ways:hypothesis one and hypothesis two.

Hypothesis One

H_o:   There is no significant relationship between productivity in an organization.

H_a:   There is significant relationship between productivity in an organization and performance evaluation policy in an organization.

Hypothesis Two

H_o:   There is no significant relationship betweenAccrual Accounting rules and performance evaluation in an organization.

H_a:   There is significant relationship betweenAccrual Accounting rules and performance evaluation in an organization.

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OWNERSHIP STRUCTURES, CORPORATE GOVERNANCE AND PERFORMANCE OF small MFIs in Nigeria(MSC)

YOU CAN CALL US BACK FOR THE COMPLETE THESIS. WE CAN ALSO HELP YOU WITH CORRECTIONS FROM YOUR SUPERVISOR. PLEASE CALL 08068231953, 08168759420 MSC THESIS TOPIC: OWNERSHIP STRUCTURES, CORPORATE GOVERNANCE AND PERFORMANCE OF small MFIs in Nigeria(MSC) Abstract The purpose of the study was to examine the relationship between ownership structures, corporate governance and the performance of small MFIs in Nigeria. Interest in this study was as a result of poor performance of these MFIs as indicated in the AMFIU Annual report of 2006. The study therefore sought to determine if this could be attributed to their ownership structures and therefore governance levels. A cross sectional survey design was used to undertake this study using a sample of 65 MFIs from which responses from 44 MFIs were received; giving a response rate of 67.7%. Findings of the study reveal that ownership structures and corporate governance are significant predictors of MFI performance accounting for 42.4%

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ACCRUAL ACCOUNTING AS A DETERMINANT FOR PERFORMANCE EVALUATION: A Case Study of Some Selected Companies

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