CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Almost every economy today, practices what is called mixed economic system which is composed of two sectors: the public and private sectors. According to (Okeke, 1996:11), the public sector refers to the governmental sector of the economy while the private refers to the sector that is made up of private business enterprises and households. The public sector can be seen also as a sector that consists of the federal, state and local government in which the state owns all the resources and uses these resources for appropriate economic activities so as to enhance the welfare of the citizens while the private sector can be seen as that part of the economy that is in private hands which could be private individuals or corporate individuals. It is very important to note that, in the public sector all factors of production, which is land, labor, capital and entrepreneurship, are fully owned by the government. Nigeria is a mixed economy, which means that private and public sectors exist side by side. These two broad sectors have dierences among them which include that: In the public sector, participation in economy is totally for the provision of service while the private is goal oriented in nature. The public sectors’ sources of income includes taxes, rates, royalties, e.t.cwhereas in the private sector, the source of income is through contributions of members, borrowing, as well as the sale of goods and services. Accounting basis for the public sector is cash commitment bases where as accrual base is the accounting basis in the private sector. Public sector is usually multi-entity while the private sector is single entity. Accountability in the public sector is to the public but in the private sector, it is done to the shareholders. Pre and post payment audit are experienced in the public sector while only the post payment audit are done in the private sector.
Depreciation is not allowed in the public sector except in some parastatals while depreciation in the private sector is based on useful life of the assets. The legal basis in the public sector is the constitution but the company Acts (like CAMA 90) is the legal basis for private sectors. In these sectors, several forms of business organizations exist. The Companies Allied Matters Acts of 1968 and the recent companies and Allied Matters Acts of 1990 provide the guidelines for the establishment of these organizations, and they also provide the procedures that have to be followed before the organization can be incorporated and even aer incorporation. (Ejiofor, 1991:7) describes two basic forms of business organizations in Nigeria; they are the incorporated and unincorporated. The unincorporated does not require and a legal procedure to be fulfilled before the organization is set up, whereas the incorporated organizations/companies otherwise known as registered companies require legal procedure before it can be incorporated. There are methods of classifying companies incorporated under the companies Act. One of such refers to status, which is whether a company is privately or publicly owned while the other relates to the possible liabilities of the members that is, if it is limited by shares, limited by guarantees or unlimited. Before primarily on theAccounting Standard Board, under the sponsorship of the Federal Government and various accounting organizations. These principles are influenced by business practices, customs, ideas and beliefs of those who prepare and make of financial statements. In recent years, the federal government of Nigeria with the aim of harmonizing accounting practices promulgated the companies and Allied Matters Acts 1990. This Act was expected to help organization within the country. A number of company Acts and indigenization Decree have previously been published but the companies and Allied Matters Act encompasses all other previously existing Acts and Decrees. Reporting procedure of business organization is expected to conform to the statement of accounting practice published by the Nigeria Accounting Standard Board.
Nwoke, (1993:14) states that the Companies and Allied Matters Act section 335 subsections 4 prescribes that ‘financial statements of any company shall comply with the accounting standard laid down in the statement of accounting standard from time to time by the board’. The Nigerian Accounting Standard Board is the only accounting standard making body in Nigeria. With the enactment of the Companies and Allied Matters Act (No 1) of 1990, the board is now a parastatal under the Federal Minister of commerce. The board had various members from dierent bodies and had published about twenty-one accounting standards, which is SASI-SAS 21. According to Umeaka, (2003:72), the Nigerian Accounting Standard Board was established in 1982 and has the following representatives as members:
– Institute of Chartered Accountants of Nigeria
– Association of National Accountants of Nigeria
– Nigerian Accounting Teachers Association
– Chartered Institute of Bankers
– Federal Ministry of Commerce and Tourism
– Federal Board of Inland Revenue
– Central Bank of Nigeria
– Nigerian Association of Chamber of Commerce, Industry, Mine and Agriculture
– Nigerian Deposit Insurance Corporation.