CRITICAL EVALUATION OF ACCOUNTING SYSTEM IN NON-PROFIT MAKING ORGANIZATION IN NIGERIA

CHAPTER ONE

INTRODUCTION

1. 1. BACKGROUND OF THE STUDY

Most business organizations either profit driven or not, engage in decision making on a daily basis in order to keep the organization abreast with recent developments in the business environment they operate. Accounting system provides requisite financial information that enhances and improves the quality of decision made by non-profit organizations (Barth, 2001). Hence, it can safely be concluded that Accounting System is not an end in itself but a means to an end i.e. decision making to improve corporate performance and financial structure. Gone were the days when business organizations – profit oriented or not – were simply required to make a profit, survive and provide a fair return to investors' on their interest. Meyer (2007) opined that, modern business organizations find itself in the atmosphere of global uncertainties, cut-throat competition locally and internationally and unprecedented change in the economy. Hence, a great demand is often placed on the managers of these organizations to make pragmatic and informed decisions if the organization is to move forward as the success or otherwise of any organization is often a function of the sum of the decisions taken in the past (Minton, 2007). However, the quality of decisions taken by managers and other relevant personnel in the organization rests upon the substance and accuracy of information provided by accounting systems available to them.  Non-profit organizations (NPOs) are playing more and more influential and powerful roles all over the world nowadays. From small, local, large, national and international organizations, they cover different aspects of social activities, such as religion, politics, education, health, environment, charity, etc. Accounting for non-profit organizations has become an interesting and important topic. Non-profit organizations incur expenditures when providing services to help people, while they are financed by grants or donations, not by market transactions from selling products or services, which makes their accounting requirements and treatments different from commercial accounting in many ways. Instead of taking interest in the profit effect of revenues and expenditures, non-profit organizations focus on the money effect. In many cases, the incoming resources have their unique usages, which demand separate accounting records. An accounting system is one of the most effective decision-making tools of management, as it provides an orderly method of gathering and organizing information about the various business transactions so that it may be used as an aid to management in operating the business. Accounting information also help managers understand their tasks more clearly and reduce uncertainty before making their decisions (Chong, 2001). Nicoloau (2000) opined that accounting system produces detailed and comprehensible accounting information which are an invaluable basis for decision making. In recent times, it has tended to be a system of information that does not stop at limits of data and financial information, but also it include data and descriptive and quantitative information which is useful in decision making for users distinct with plurality and diversity. Such users include current and potential investors, lenders, suppliers, creditors, customers, governments and the public in addition to the administration, which is its responsibility to prepare the accounting programs and display it, such information must be capable of achieving the goal that it has been prepared for. Hence the role of Accounting Information System for effective decision making cannot be over emphasized. It is against this background that the researcher deemed it of pertinent concern to embark on a research exercise to appraise and provide relevant information on critical evaluation of accounting system in non-profit making organizations.

1. 1. STATEMENT OF PROBLEM

Many non-profit organizations are now being faced with the problem of finance, the inadequacy of funds to carry outs their activities. Most non-profit organizations are incapacitated in terms of fund, yet there are several sources of finance but the organization seems not to meet up its financial demand. For good financial records and accounting system, there must be a well developed financial decision and reporting procedures and financial control being used or operated. It is based on this that the research topic is chosen to evaluate the accounting system in non-profit organizations so as to know how the organizations manages and controls its fund and to suggest ways they can be improved for a better result.

1.3 AIMS OF THE STUDY

The major purpose of this study is to examine critical evaluation of accounting system in non-profit making organization. Other general objectives of the study are:

1. To examine the effectiveness of accounting system in non-profit organization.

2. To examine how accounting information are produced and interpreted for decision making purposes in non-profit organizations.

3. To examine the use of accounting system and its effects on the financial activities of non-profit organization.

4. To examine how accounting system enhance accountability and transparency of non-profit organizations.

5. To examine the relationship between accounting system and financial activities of the non-profit organizations.

6. To suggest ways in which accounting system will aid in assisting the organizations to achieve their goals and objectives.

1.4 RESEARCH QUESTIONS

1. What is the effectiveness of accounting system in non-profit organization?

2. How are accounting information produced and interpreted for decision making purposes in non-profit organizations?

3. What are the use of accounting system and its effects on the financial activities of non-profit organization?

4. How does accounting system enhance accountability and transparency of non-profit organizations?

5. What is the relationship between accounting system and financial activities of the non-profit organizations?

6. What are the ways in which accounting system will aid in assisting the organizations to achieve their goals and objectives?

1.5 RESEARCH HYPOTHESES

Hypothesis 1

H0: There is no effect of accounting system in non-profit making organization.

H1: There is a significant effect of accounting system in non-profit making organization.

Hypothesis 2

H0: There is no significant relationship between accounting system and financial activities of the non-profit making organizations.

H1: There is a significant relationship between accounting system and financial activities of the non-profit making organizations.

1.6 SIGNIFICANCE OF THE STUDY

Accounting has been defined as the process of identifying, measuring and communicating accounting information to permit informed judgement and decisions by users of the information. Information from accounting system is presented usually in a very technical manner such that other users who are not knowledgeable in it may find it difficult to understand. It is hoped that this work will be able to simplify these information and educate its users. Since accounting is dynamic and full of potentials not yet tapped, the comments and recommendations of this work will, hopefully, assist non-profit organisations and all businesses to improve on their accounting systems and practices. In essence, the study will be beneficial to students of finance and accounting so as to enlighten them more on finance and accounting system of non-profit organizations. It will also serve as a reference point for further studies.

1.7    SCOPE OF THE STUDY 

The study is based on critical evaluation of accounting system in non-profit making organizations.

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 DEFINITION OF TERMS

Accounting System: Is a system of collecting, storing and processing financial and accounting data that are used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources.

Nonprofit: A corporation or an association that conducts business for the benefit of the general public without shareholders and withouta profit motive.

Organization: A social unit of people that is structured and managed to meet a need or to pursue collective goals. All organizations have a management structure that determines relationships between the different activities and the members, and subdivides and assigns roles, responsibilities, and authority to carry out different tasks. Organizations are open systems--they affect and are affected by their environment.