Development of Accounting Principles and Standards

Development of Accounting Principles and Standards


          From the very earliest time, the levying and collection of taxes by government has called for record keeping and reports. Government reporting requirement has serve since antiquary to reinforce business needs for accounting system and controls. And with the substantial growth of the accounting profession many authors have divided these into four major categories namely The early financial accounting, the venture accounting, the joint stock accounting and finally the computerized accounting. 


          Account have kept as records of personal wealth and transactions for as long as personnel property has been recognize. Though the first accounting records pre-date th invention of money by several thousands year, it seems that financial records became ride spread in classical Greece and  Rome around 600BC (Uchedu P.N. 1986:1)

i). The early charge and discharge system”

These early accounts were kept on the basis of “charge” and “discharge”. A public official or other person on trust with money weight or measures, whose total were always equal. Te charge consist of sum disbursed or goods sold or consumed during the period, plus the balancing figures of money or goods due to the accountant master at the end. This method was used as a means of international control to guard the property of the master against waste and misappropriation. 

ii. The double entry system

          The modern book-keeping which is synonymous with double entry is a tradition which has developed gradually over a period of some eight centuries, it is logically cohesive system which is based on two principles.

  1. That in an business the asset are equal to the chain against the assort
  2. That every transaction is dual in nature

This concept is the central core of modern accounting. Each business events is recorded to two account, in the first account the value received is recorded while the value given is showed in the other. For each particular transaction one account is debited while other corresponding account credited


          The early Italian account did not cover any specified period of time. A separate set books was kept for each venture undertaken by a merchant, and accounts would not be produced until a venture was finally round up   


          the cost of purchasing a parcel of good would be credited. When all stock had been sold or  when it was left that no more sales would be made, the excess of income over expenditure was transferred to the profit and loss account so that the net profit o the undertaken venture could be ascertain.


          Venture business had been conducted as secession of effort term enterprises. All he owner needed to know at any time was the income from  each enterprises and his total wealth. Any further information required could be obtained by conclusion with his account, with whom he had close working relationship. A room businessman would internally  own his account and even in middle age the accountant would in many cases, be a member of his household.


          Uchendu P.N (1986:1) stated that “Subsequent writers on the subject present with clear, basic test, tended to concentrate on the methodology rather than its suitability to give them the sort of accounting information they needed”



By the 19th century, the ownership and management of business had become completely separated, since enterprises such as the construction of railway and canals were too expensive to be undertaken by individuals or small group of partners. These massive project were financed by joint stock companies whose shareholders had little control over the management of their fund


          Unlike the old ventures, the cycle of operation were continuous and it was oblivious that periodic financial statement had to produced if shareholders were too be given any indication of the security of their investment. In 1944, the first act regulating the joint stock company stipulated that a full and fair view of the company’s book should be open for inspection at an annual general meeting.

Not withstanding that the form to be taken by the account was clearly cand down in the act, it was still possible for unscrupulous managers to exploit, thereby by minimizing the amount paid out by way of dividend. This was achieved among other means by means of continuous revealing the assets upward and making progressive large provision for depression.

The 1888 Act reduced the opportune for management to mislead shareholders by making it compulsory for auditors with sound analysis of the present (manual  and or automated) as it concerned or affect each user in the organization and the qualitative definition of the requirement for a new system.

On these bases the immediate options available is whether to continue with manual or introduced a computer based system. Again the feasibility study would enable one to identify which aspect of one’s amount and other processing operation for example debtors and inventory control should be computerized and what form the computerized should take for example a solution using micro-computers or mini-computers for specific process might be more suitable than one which used a centralized “mainframe” computer.

The study would also show the expected time scale and involved in achieving live system of the type suggests in the report and the benefit might accrue if system were implemented.


          There are five popular accounting principles evolved for use in participation circumstances. These principles has been evolved eight centuries ago with the origin or introduction of financial accounting. Isung Lawrence (1990:14), feel that the treating accounting concept along side is just and unrealistic as he maintained.

“principles and concept collectively constitutes the frame work on which accounting operate they are the product of reasoning about the most appropriate ways to record transaction and interpret total business situation as they arise in the contest of modern economic and social conditions.

We will then continue with the study of the accounting principles

a. SUBSTANCES OVER FORM: This principle maintains the economic substances should take procedure over legal form. The statement seeks to ensure that balance sheet continue to reflect fairly, the commercial effect of an enterprise transactions and the financial position. It is worthy of note to mention here that the key step in determining the substances of transaction is to identify whether the transaction has increased or decrease the various assets or liabilities not previously recognized.

The above is very important because financial statement are intended to assist the user’s understanding of an enterprise affairs of presenting (condensed) strutted information on the resources, obligation and performance of the reporting enterprise such a presentation is useful only if substances of transaction and arrangement.


          This principle connotes independences of judgment on he accountant preparing the financial evidence on contract to objectivity, or dependence on the unverifiable opinion of the accounting preparing the financial statement.


          This is an extension of the objectivity principles. According to exposure chaft. No.42, max 1988 in view of the fact that there are many user of accounting information, all having different needs, the fairness principles required that accounting report should be prepared not to favor any group or segment of the society. In fact, this principles was first introduced in 1908, with the introduction of  ownership and management as district person in joint stock companies.


          The principle holds that only items of material valued are accorded their strict accounting treatment.


          This principle demands exercising great cave in the recognition of profit whilst all known losses are adequately provided for. This is however not a justification for the creation of severe or hidden reserve statement of accounting standards. This principle relates closely to the realization concept which requires that all revenues and profit are not anticipated but are recognized only when realized in form either of cash or other asset the ultimate cash realization of which can be established with reasonable certainty.


          There is little evidence of an attempt to develop a system of accounting standards and principles reflective of local socio-economic culture and experience. It rather seems to be a jet age rush to meet up with international standards at the expense of local needs and development. For instance the committee merely introduced two innocent words, efficient and completeness into the ICAN definition.

Uzo Odunukwe (1991: 22) was particular about his line of argument. He was stressing on the section 359 of companies and Allied matter decree of 1990. subsection (1) of that section was dragging us to the level of reliance on the auditor report. It read “ the auditor of a company shall make report ot its members on the account examined by them and on every balance sheet and profit and loss account and all group financial statement of account which fail to show a true and fair view” they however, stressed that certain professional judgment need be made regarding the correct accounting treatment which are extremely controversial hence the revision of some accounting standards.


Accounting   for depreciation: Asset with a finite useful life should be depreciated   including building whose un-amortized cost is unrecoverable, immediately   write down to receivable amount requirement where revalued depreciation is to   be based on realize amount, disclosure requirement include useful lives or   depreciation rate and gross amount of depreciation asset but not residual   values


As we would look into great details in discussion the revised standard by Nigeria Accounting standards Board  in comparison with the above stated we would prefer them without using tables.


          Recently, there has been increasing pressure from within the profession and government to reduce the degree of choice in arising (alternative treatment for similar items and to prevent companies) from treating particular SAS requirement as optional but as a thing of (Noel) Hyndman and (Robert) Kirk, authors of UK’s revised SSAP now modified by the NASB felt that enactment requiring directors of companies is to state in writing that the have compiled with SSAPS will provide the court with new civil powers to force revision an expansion of #189000 of which #51,000 reflects the movement in the exchange rate.


Local performance Exchange Difference Home Performance
Holding   Gains #,000






Capital Maintenance 34 99 131


36 48 12


412 412


448 48 400


The above table implies:

An historical profit of #412,000

Unrealized holding gain of #121,000

Reflect the movement of exchange rate

A capital maintenance  provision of #133,000

Which #99,000 represent the movement in the exchange rate.

And hence a real profit of #400,000. straight translating of the SM profit would be #448,000 indicating an exchange loss of #48,000


          Accounting for foreign currency transition and conversion will soon be finalized for publication as an exposure draft part of consideration includes:

The fall in the value of money as reflected in an index of general inflation.

Accounting for the impact of currency, flections has been the subject of fierce debate but surprising this has been conducted quite separately from concerning price level generally.

After all exchange rates are price of one current in terms of another. Rate depreciation is more meaningful than commotion of an index of price generally. According to David (1989:24) the debates have shown that a great similarity whether to use historical or current figures, whether to recognized unrealized gains, losses and so on.

Unfortunately, one of the official pronouncement has addressed the totality of the issue. This is unfortunate because in practice it is easier to solve the underlying problems together than separately.

This is the result holding dent she mark denominate assets over a period in which that currency has depreciated in real terms against the Naira.

This loss is confirmed from the observation that the exchange rate differences. The capital maintenance provision and realized gain do not cancel out, therefore a net adverse of #48,000. the comprehension system is the only one which identifies very important variance.


          The revised standard in keeping with original 1977standars (when it was first lunched) makes it quite clear that all fixed assets (including building) having a finite useful life must be depreciated. However, one of the major changes on introduced by the revised standards was that profit and loss changes to depreciation should be consistent with the value placed on the asset in the balance sheet, that as if assets are revalued then the depreciation charged to the profit less amount must be based on the revalued amount.

This revision encourage companies to revalue  their asset portfolio on a regular basis. According to Kirk Robert (1959:44) “Disparity is because the ASC believed that some form of modified historic cost accounting provided more useful information than traditional historic cost”

Another reason advanced by the author
is the demonstrated concern at the very conservation estimates of useful lives adopted by many companies resulting in asset being retained in the balance sheets either at nil or normal values, even though the assets continued to provide good services.

Lastly, on this point one topic which the ASC ignored was the whole question on how to account for the disposal of fixed assets and in particular how to account for the realization of previously re-valued fixed assets accounting  in general and therefore further changes regarding this area may be expected in near future.


This standard which is SSAP, was the first standard to emphasis the importance  of the basis of economic substances rather than adherence to their street legal form. According to the author, Hyndman (Noel) “ it was an attempt to deal with the increasing problem of off balance sheet financing whereby a company can acquire an asset in such a way that heither assets nor any non cancelable liability is recorded, in it’s balance sheet” such  a situation be believed can make a company appear to be in a better borrowing position than a company that purchase  an asset outright and can also each of the company’s disclosing an artificially high return capital employed.

The standard distinguishes between a financial lease and on operating lease. A finance lease is a lease that transfers, substantially all the risk are recorded of ownership to the leassee. It should be presumed  that such a transfer of risk and reward occurs at the  inception of the lease, the present value of the minimum lease payments including, including any initial payment, amount to substantially New all (normally 90%) .

The standard also details accounting disclosure acquirements with regard to lessors.  Essentially, the standard attempts to ensure that the accounting treatment of the lessor (often a finance subsidiary of clearing banks) mirrors that of the lessece, that of a finance lease and debtor in the books of the lessor.  Again, two methods of crediting the interest income were mentioned as the accrual after tax method and the investment period method.  Note also that in the operating leases, any fixed asset were recorded in the books of the lessor and depreciation charged over its useful life.  Rental income is normally recognized on a straight line basis over the period of the lease.

Obviously, companies rely heavily on the actual profession to provide estimates of the finding levels necessary to meet his open-ended standardized and even within each method, individual actionrinaries will use different assumptions, e.g inflation rates, retirement age, benefit offered to pensioners, return on its investments.

The standard only permits the use of such methods which build up asset in a prudent and controlled manner in order to meet the scheme’s obligations like accrued benefits method.

However, other method, such as terminal methods, whereby some finding occurs when an individual employees retires and initial finding methods whereby lump-sum finding occurs at the commencement of employment, would not be acceptable.

Essentially, apart from the disclosure of the pension cost charges, there is very little additional disclosure for defined contribution schemes.  The disclosure requirements for defined benefits schemes, which are contained in paragraphs 87 and 89 are extensive and detailed.  These include, inter aliar, the pension cost charge in the profit and loss account, and an outline of the result of the most recent actual valuation together with the key assumptions made .

—-This article is not complete———–This article is not complete————

This article was extracted from a Project Research Work Topic


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