Financial Information Quality and Inflation Accounting Disclosure in Nigerian Cement Industry

Posted: 16 Jan 2010

See all articles by Ahmad Bello

Ahmad Bello

Ahmadu Bello University Zaria, Nigeria; Univerisiti Utara Malaysia

Date Written: Novembert 13, 2009

Abstract

The objective of financial information is to provide users with relevant and timely information for decision making. While decision making is concerned with future action, the infrastructure which generates accounting information as frame worked by Generally Accepted Accounting Principle [GAAP] was based on historical data. This fundamental accounting practice, as evolved over the years, has proved to be reasonably satisfactory during the period of relative price stability. However, in the absence of price stability, which is often the case in many developing world, the value of accounting information as practical language of economics could be lost and its quality of being relevant for decision making damaged. Recognizing the potential effect of price level changes on financial information, various suggestions have been propounded, and adopted in developed and developing economies. In Nigeria the financial accounting policy making body Nigerian Accounting Standard Board [NASB] found itself in a dilemma on how and which inflation adjustment model should be used, owing to the fact that substantial research outputs document mixed results on the informative quality of these models. This study aimed to model and test the incremental quality of additional inflation disclosure. Using the framework of Edwards, Bells, and Ohlson’s residual income model, data for the study were sourced from the annual financial records of four quoted cement companies operating in Nigeria within the period 1995 to 2006. This period accounted for all manner of inflationary episodes in the country. Multivariate Regression Analysis was run using Statistical Package for Social Science [S.P.S.S.].

The results indicate a substantive evidence of incremental information quality financial reports through additional disclosure of general purchasing power and current cost model [three tier model and two tier reporting models]. This established additional financial information quality through adjusted inflation figures. However, like many other researches the study found no incremental information of inflation adjustments beyond traditional reporting in absolute term. By implication it means that joint reporting of historical cost and inflationary adjustments is required for improvement in quality. Based on the findings the study recommends additional inflation disclosure in Nigeria using general purchasing power accounting. This will enhance the information quality of current reporting practice. The findings of this study would be of relevance to accounting establishments and in particular, the Nigerian Accounting Standard Board, in formulating and or implementing inflation accounting standards/practice in Nigeria.

JEL Classification: M41, M45

Suggested Citation

Bello, Ahmad, Financial Information Quality and Inflation Accounting Disclosure in Nigerian Cement Industry (Novembert 13, 2009). Available at SSRN: https://ssrn.com/abstract=1537622

Ahmad Bello (Contact Author)

Ahmadu Bello University Zaria, Nigeria ( email )

P.M.B. 1044
Samaru
Zaria, NE Kaduna State 234
Nigeria

Univerisiti Utara Malaysia ( email )

Sintok, Kedah Darul Aman 06010
Malaysia
+60165448976 (Phone)

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