THE EFFECT OF CAPITAL STRUCTURE ON CORPORATE PERFORMANCES

(A CASE STUDY OF SELECTED COMPANIES IN UGHELLI)

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ABSTRACT

This study examined the effect of capital structure on corporate performance with reference to selected companies in Onitsha, Questionnaires and interviews were used to collect information from the selected companies in Ughelli, Delta State.  Analysis and observations were made which gave rise to the validity of the conclusion at the end of the analysis, the major finding were:

1. That this is a relationship between capital structure and cost of capital.
2. That capital structure have significant effect on corporate performance (in terms of profitability)
3. That there is a high cost of capital which hinders the companies’ borrowing ability.

 

The recommendations for the study among others were:

1. That company should increase their efficiency in use of debt capital.
2. That since cost of borrowing is so high, if a firm should be able to service fixed charges associated with senior securities and leasing, it can borrow.
3. That for improved performance mostly on profitability, the optimum combination of fund from varying sources which is superior to any alternative combination is necessary.

 

The researcher then concludes that:

1. The inability of many companies to adopt optimal capital structure has been increasing their cost of capital.
2. Due to increase in the cost of capital for may firms, they were unable to borrow in order to meet up their capital investment hence the decrease in their performance mostly on profitability.
3. The optimal capital structure is one in which the marginal real cost (the sum of both explicit and the implicit costs) of each available method of financing is the same.

CHAPTER ONE

Background to the Study –       –       –       –       –       –    1

Statement of the problem –       –       –       –       –       –    4

Purpose of the study        –       –       –       –       –       –       –    6

Research hypothesis        –       –       –       –       –       –       –    6

Significance of the study  –       –       –       –       –       –    8

Scope and limitations      –       –       –       –       –       –    9

Definition of terms   –       –       –       –       –       –       –   10

References       –       –       –       –       –       –       –       –   12

CHAPTER TWO

Literature Review   –       –       –       –       –       –       –   12

Introduction     –       –       –       –       –       –       –       –   13

The concept of capital structure      –       –       –       –   13

Security valuation    –       –       –       –       –       –       –   22

Review of previous studies       –       –       –       –       –   23

Theoretical foundation     –       –       –       –       –       –   35

The Net Income Approach        –       –       –       –       –       –   40

The Net Operating Income Approach       –       –       –       –   41

The Modigliani-Miller Hypothesis (1958)      –       –       –   43

The Traditional Approach      –       –       –       –       –       –   47

References      –       –       –       –       –       –       –       –   50

CHAPTER THREE 

Research Design and Methodology       –       –       –       –   51

Sources of data        –       –       –       –       –       –       –   51

Primary data    –       –       –       –       –       –       –       –   52

Questionnaire Method     –       –       –       –       –       –   52

Interview Method     –       –       –       –       –       –       –   55

Secondary data        –       –       –       –       –       –       –       –   56

Population size        –       –       –       –       –       –       –       –   57

Data treatment and analysis    –       –       –       –       –   58

References       –       –       –       –       –       –       –       –   59

CHAPTER FOUR

Data Presentation and Analysis    –       –       –       –   60

Questionnaires analysis and presentation       –       –       –   60

Data analysis and presentation       –       –       –       –       –   80

Test and prove of hypothesis   –       –       –       –       –   81

CHAPTER FIVE

Summary, Recommendation and Conclusion      –    91

Summary of findings       –       –       –       –       –       –       –    91

Recommendations   –       –       –       –       –       –       –    92

Conclusion      –       –       –       –       –       –       –       –    93

Definitions of terms –       –       –       –       –       –       –    94

Bibliography    –       –       –       –       –       –       –       –    96

Appendix –       –       –       –       –       –       –       –       –    99

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

A Corporation, Private or Public need capital to enable it achieves its objectives. Capital structure implies the nature and proportion of elements, which go to make up the capital invested in a business corporation that are in need of funds exchange their financial instruments for the money provided by the intermediaries or direct from savers.  This money the corporations convert to tangible assets as building, land, plant and machinery, motor vehicles etc.  Basically, a corporation uses three main sources of long term and permanent financing viz: common stock, preferred stock and debt financing (bond).  It is the combination of these finances to particular firm that is termed capital structure.

There is need for reasonable balance of different types of securities comprising the capital structure of a firm otherwise the firm will deplete its financing ability or finance at sub optimal cost.  In achieving this, the cost of capital is important for it has a major impact on the investment decision and the financing structure of the firm of which affect the riskiness and size of the firm.  Specifically, the issue has been on whether

or not financial leverage effects the firm’s cost of capital, its value and profitability, hence its corporate performance.

Two major schools of thought (the Traditionalist and Modigliani Miller)  extreme views on the issues in question have been among those involved in the arguments.  According to Modigliani and Miller, in their proposition which states that “the market value of any firm is independent of its capital structure and is obtained by discounting its expected return at a rate appropriate to its risk class”¹ in their proposition 2 however, it states that the cost of equity is equal to the cost of capital of an unlevered firm plus the after-tax difference between the cost of an unlevered firm and the cost of debt weighted by the leverage ratio².  Their long standing and unresolved opposite views have become so controversial that it has led many into concluding that the literature is marked by serious confusion and contradictions.  This particular notion is manifested in the words of LINTER “the decision rule which have been proposed for determining the optimal capital structure and reliance on different sources of financing are mutually in-consistent, in the sense that they have led to often substantially different decision under given sets of circumstance”.

We are concerned with whether the way in which investment proposals are financed matters; and if it does matter, what is the optimal capital structure.  If we finance with one mix of securities rather than another is the value of the firm affected? This study will be guide by the definition, which sees capital structure as the interrelationships among long term dept, preference share and net worth (ordinary share capital plus reserves and surplus).

Finally, this study will ask some staff or selected companies in Onitsha, Anambra State how effective and they think their capital structure have been and what has been the effects on the corporate performance.

 

1.2   STATEMENT OF THE PROBLEM

The use of debt as part of the capital of a business could either help or worsen the situation of a firm depending on how well the debt was used.  Generally, long-term borrowing is required for purchase of new fixed assets or expansion of production capacity.  Equally, a firm may use its retained earnings, which is shareholders money or raise more money within the organization through the issue of new shares. If loan credit is more than equity capital (owner’s fund) it is wrong and risky because this,

will increase the probability of bankruptcy.  On the other hand,

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CHAPTER ONE

INTRODUCTION

1.1     Background of study                                               1

• Historical backgrounds of Nigerian

Hoechst plc                                                              2

1.3     Statement of problems                                   4

1.4     Objective of study                                         5

1.5     Significance of study                                               5

1.6     Hypothesis and research questions                6

1.7     Scope and limitation of study                        7

1.8     Definition of terms                                        8

 

CHAPTER TWO

REVIEW OF LITERATURE

2.1     Literature review                                            10

2.2     Theoretical framework of studies                   18

2.3     Model development                                                 24

2.4     Tools of management accounting                  48

2.5     Classification of decision                               49

 

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1     Introduction

3.2     Research approach                                         51

3.3     Sampling design and population size             52

3.4     Source of data                                                          53

3.5     Interview questions                                                  54

3.6     Method of data analysis                                 54

CHAPTER-PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA

4.1     Analysis of data and interpretation       58

4.2     Hypothesis testing and proofing                    63

 

CHAPTER FIVE 

SUMMARY OF FINDING. CONCLUSION AND RECOMMENDATION

5.1     Summary of findings                                               68

• Conclusion
• Recommendation

Bibliography

Appendix i

Appendix ii

CHAPTER ONE

 

INTRODUCTION

 

• BACKGROUND OF STUDY

The success of a business is generally attributable in great measure of the ability of its management personal to cope with probable conditions of the future.  Short  range as well as long-term plans must be made accomplished through sound management evaluation.  However, many aids have been controlling and co-ordinating the function of their business.  One of the tool which encompasses vital and needed information in guiding companies profit path is the Break-Even theory.  This is an extension of marginal costing; basically.  It is concerned with the point at which revenue and costs intercedes, hence the term “Break – Even”.

Break-Even system is a simple and easily understandable method of picturing to the management the effect of changes in volume on profits.  It predicts the effects of managerial actions today on future profits and company survival.  Business people do not view costs outputs and profits may be affected by their actions.  With the aid of Break-Even theory, they will be able to understand more and data revealed by the Break-Even analysis.  This system involves the marshalling of the cost – volumer – profit data and other data to guide manager in its day-to-day decisions.  Some of the data are best seen in a chart form for management to get a perspective view of the profit structure.

Moreover, at the beginning of the century a planning tool was developed by WALTER RAUTENSTRAUCH called the Break-Even chart.  This development made a major contribution as a management aid in profit planning, forecasting and decision-making. The concept show the significance in a firm between it’s costs, volume and relationship between the costs, illustrate the relationship between the  cost, that-the selling price is constant irrespective of the volume.

 

1.2     HISTORICAL BACKGROUND OF NIGERIA HOECHST PLC

          On the 18^th of December, 1963 the company was formed under the name “Hoechst Nigeria limited”.  The company was registered as a private limited liability company  with an authorized share capital of $10000 divided into 100 ordinary shares of $1 each on the 10^th of January, 1964.

August 4^th, 1971 the PVA plant at Ikeja commissioned for use.  The major and company sold their 40% shareholding to E.O Ashamu and sons (holdings) Ltd.  The same day the name of the company was change to “Nigerian Hoechst.

The authorized share capital was increased to N2 million by the creation of additional 600,000 ordinary shares of N2 each in 1977.  On October, 1978 the paid – up capital was increased to N3 million by public issued of N1 million which implies that the whole authorized capital of the capital  issued and fully paid-up.  A, year later, Nigerian Hoechst shares were quoted on Nigerian stock Exchange at 30K per share of 50k.

The pharmaceutical factory and central warehouse at Ottah was commissioned on November 4^th 1982.  Three years after, the authorized share capital on the company was increased from N10 million to N15 million while the paid-up capital increases from N7 million to N10.5 million by bonus issue of one ordinary share for every two ordinary shares held.  In 1991 the authorized share of the company was increased from N15 million to  N25 million by the creation of additional 20 million ordinary shares of 50k each and paid-up capital increases from N14 million to N17.5 million by bonus issue of one ordinary share for every four ordinary shares held.

Nigerian Hoechst Plc has been engaged in pharmaceuticals and industrial chemicals for years.  The pharmaceutical factory is located at Otta while the PVA (Industrial chemical Division) is located at Ikeja.  Among their pharmaceuticals in market are the reformulated Daga,  Tabalon (an anti-rheumatic analgesics), fastaquine (a malaria preventive), Tarivid and Lasix etc.

However, Nigerian Hoechst Plc is also engaged in high quality textile dyes, veterinary products, herbicides and paints pigments.  The registered office is situated at Ikeja.

 

1.3     STATEMENT OF PROBLEMS

The research is borne out of the belief that Break-Even accounting technique is very vital to any form of business organization.  The analysis can be made for various conditions to reveal profitable, less profitable and unprofitable proposals; it is important to note that it brings home to  management. Dramatically the basic need to bring to light and the necessity of the significance of controlling costs and increasing in  sales will not solve the problems and not be used as anacea for profit.  Management in the cause of analyzing the company data in disclosing the company’s future profit structure few have the knack of quickly calculating the effects of alternative course of action and such

AN EVALUATION OF THE INTERNATIONAL MONETARY FUND (I.M.T) LOAN POLICY ON DEVELOPING ECONOMY (A CASE STUDY OF NIGERIA) 1990 –1999

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ABSTRACT

 

The trust of this paper is the evaluation of the I.M.F loan policy on developing nations with Nigeria as a case study

The paper begins by giving a brief stored perspective of fund. The structure, it’s operating procedure and its lending policies.

The study also tries to know why the implementation of funds loan usually goes with adverse effect on the economy of the developing nations.

It further tries to know whether the western countries are using the fund as an instrument for controlling the economy of the developing nations. The study as can be seen will be of a great interest to both the developing nations and their financial accommodators. By using a set of questionnaire, a number of selected bankers and research centers were used for the study in order to find out their opinion on the issue at hand.

Analysis of the data using percentage and Chi – square were used in analyzing questions and testing of the hypothesis.

This reveals that IMF is not meeting up with it’s objectives, especially in the areas of helping out countries that are in financial difficulties by making the funds resources temporary available to them and equate safeguard this providing them with opportunity to correct mere adjustments in their balance of payment.

The funds only does this by providing these funds under harsh condition which if adopted by the developing nations normally compound their economic problems.

Secondly, the conditionalities given by the fund on their loans diffter between the developed nations and the developing nations.

Thirdly, the loading condition of the fund to the developing nations are usually unfavourable to them.

Lastly, the study also revealed that the developed nations are using the fund to control the economy of the developing nations.

From the research findings, specific and generalized suggestions are made for the gradual and systematic solution to the problem.  These include.

1. Relaxation of the harsh conditionalities being given to developing countries by IMF as the fund was mainly established having in mind the need to help out countries that are in econominc difficulties without special concession to any country or group of countries.
2. Mere lowering of the funds interest rate on borrowed funds thereby attracting countries experiencing economic difficulties to borrow from the fund.
3. the fund should be acting in depending of any nation be it developed or not.

 

TABLE OF CONTENTS

Title page                                                                                     ii

Approval page                                                                             iii

Dedication                                                                                   iv

Acknowledgement                                                                       v

Abstract                                                                                       vi

Table of content                                                                           viii

CHAPTER ONE

• Introduction 1

1.1     Statement of problem                                                         5

• Objectives of the study 6
• Research questions 7
• Research hypothesis 7
• Significance of the study 8
• Scope of the study 9
• Definition of term 10

Reference                                                                           12

CHAPTER TWO

• Review Of Related Literature 13
  • Organization and structure of fund 13
  • M.F debate in Nigeria 26
  • An approval of the I.M.F Loan in Nigeria 42

Reference                                                                                 45

CHAPTER THREE

• Research Design And Methodology                               47

3.1     Introduction                                                                       47

3.2     research method                                                                 47

• Research population analytical techniques. 49

Reference                                                                           52

CHAPTER FOUR

• DATA PRESENTATION AND ANALYSIS 53

4.1     Test of Hypothesis                                                             63

CHAPTER FIVE          

• Summary of findings, conclusion and recommendation 70

5.1     Findings                                                                            70

• Recommendation 70
• Conclusion 71
• Additional Conclusion 72

Bibliography                                                                      73

Questionnaire                                                                    74

CHAPTER ONE

 

1.0     INTRODUCTION

International monetary fund is the most important international financial institution established by the world powers at the end of second world war.  it is an intergovernmental plan supporting the structure of the world’s economic and financial order.  As a voluntary and co-operative institution, it attracts to its membership nations that are prepared, in spirit of enlightened self interest to relinquish some measure of national sovereignty by abjuring factices injurious to the economic well being of their fellow member nations.

The effect of the world war 11 was devastating in most European countries and allied countries.  Most economics were destroyed and the excessive imports and borrowing to prosecute the war allied to the convening of a meeting called the united Nations monetary and financial conference by all the allied that fraught the world war 11 against Germany.

IMF was formed in reaction to the unresolved financial problems instrumental in initiating and protracting the great depression of the 1930’s.  Anyanwu (1993).

As a result of the great depression of the 1930’s sudden unpredictable varieties in the exchange values of national currencies and a wide spreed  disinclination among governments to allow their national currency to be enchanged for foreign currency.  Indeed, agreements on the constitution and function of the IMF to supervise and promote an open stable monetary system was reached by the delegates of 44 countries and a representatives of Denmark at the united Nations and financial conference held at Bretton woods. Hew Hamsphine, U.S.A on 122 July, 1944. Anibueze (1998).

The meeting at Bretton woods, united states of America in 1944 gave birth to two international financial institutions.

1. The international Bank for reconstruction and Development (IBRD) which was meant to source and provide funds for reconstruction of economic of member countries and for other development purposes.
2. The international monetary fund (IMF) was formed to proffer solutions to the balance of payments problems and other financial problem facing the member countries. Ugwuanyi (1997).

Thus, IMF came unto excistence on 27 December 1945.  there are 29 countries that signed the trtides of Agreement.  The inaugurat meeting of the governors was held in Savanna, Georgia, USA on 8 March, 1946 and the first meting of the excutive board took place at the funds headquarters in Washington DC on 6 May, 1946.  the IMF then started financial operation on 1^st March, 1947 and then had 59 members but had 151 members by 1989.  as at Dec. 1992, the fund had a membership of 178 countries.  Ugwuanyi (1997).   Thus, the same way that a banker grants advances to his customers, Basic objectives were stated to which the signatiories of the agreement are committed according to Ejili (1996) the objectives are

1. To promate international co-operation by providing the machinery for consultation and collaboration by members on international monetary issues.
2. To facilities the balanced growth of international trade and though this,contribute to high levels of employment and real income and the development of productive capacity.
3. To promote exchange stability and orderly exchange arrangements and facilitate the avoidance of competitive currency
4. To make financial resources available to members, on temporary basis and with adequate safeguards, to permit them to correct payments imbalances without resorting to measure destructive of national and inter national prosperity.
5. To foster a multilateral system and transfers for current transactions and seek the elimination of exchange destructions.
6. To seek reduction of both the duration and magnitude.

Since after the original drafting of funds article in 1944, it has been amended tuice, in 1978 when changes made to reflect the variety of exchange rate practices and the erosion of the system of fixed exchange rate pertices.   According to Ndekwu (1983) the articles required the fund to!

1. Ensure that its members obsenced a code of international behaviour with respect to payment restrictions and exchange rates.
2. Acts as an international institution providing financial assistance to members experiencing balance of payment difficulties its ability to perform the first function depends on the financing it can make available in its second role.

 

• STATEMENT OF THE PROBLEM

In most developing nation (Nigeria) today, one of the major problem facing them is usually that of economic crisis which result to them having deficit deficit experiences in them budget and then seeking ways of correcting it.  Hence, they usually resort to obtaining loan from IMF .

With the grant of loan, the IMF, acts then as a monitoring agency to profect the interest of the external debt policies of its members, hailing the disbursement where a debtor country defaults on any of the accepted terms or conditionality.

As can be seen, during Nigeria’s second republic when the economy was druindling Nigeria applied for a loan from the institution but was met with its harsh conditionalities which they will fulfil before such loan will be given to them.  The country then resorted to a National deba

 

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CHAPTER ONE: INTRODUCTION

1.1     Background of the Study                                                        1

1.2     Statement of the Problem                                                        6

1.3     Objectives of the Study                                                           7

1.4     Research Questions                                                                 8

• Research Hypotheses 8

1.6     Significance of the Study                                                         9

1.7     Scope of the Study                                                                  10

1.8     Limitations of the Study                                                          10

1.9     Definition of Terms                                                                 11

References                                                                               12

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1     Conceptual Framework                                                           13

• Taxation: Meaning and Historical Perspective 13
• Value Added Tax: Concept, Types and Advantages 20

2.1.3  Objectives for the Imposition of VAT                                     22

2.1.4  Taxable Goods and Services                                                   22

• Exempted Goods and Services 25

2.1.6  Accounting for VAT                                                               26

2.1.7  Administration of VAT in Nigeria                                          28

2.2     Theoretical Framework                                                           30

2.3     Empirical Studies                                                                    35

References                                                                               43

CHAPTER THREE: RESEARCH METHODOLOGY

3.0     Introduction                                                                                      46

3.1     Research Design                                                                      46

3.2     Population of the Study                                                          47

3.3     Sample Size                                                                             47

3.4     Method of Data Collection                                                      47

3.5     Model Specification                                                                 48

3.6     Method of Data Analysis                                                        49

References                                                                               50

CHAPTER FOUR:  DATA PRESENTATION AND ANALYSIS

4.1     Introduction                                                                                      51

4.2     Data Presentation and Analysis                                              51

4.3     Test of Hypotheses                                                                 56

CHAPTER FIVE:  SUMMARY OF FINDINGS, CONCLUSION                                               AND RECOMMENDATIONS               

5.1     Summary of Findings                                                              60

5.2     Conclusion                                                                              61

5.3     Recommendations                                                                             62

Bibliography                                                                           64

Appendix I: Data Used for the Study                                               67

Appendix II: Detailed Output of Regression                           68

 

 

LIST OF TABLES

Table 1:      Sensitivity of Government Income to Value                                                         Added Tax                                                                    52

Table 2:      Sensitivity of Consumption Pattern to Value                                             Added Tax                                                                       52

Table 3:      Sensitivity of Import of Vatable Goods to Value

Added Tax                                                                     53

Table 4:      Goodness of fit through R Square                                 54

Table 5:      Regression Analysis for Dependent and

Independent Variables                                                   55

Table 6:      ANOVA Result                                                             56

 

 

ABSTRACT

Country seeking to improve its revenue generation would opt for a concept enabling it to best realize its objectives with due regards to its peculiar socio-economic make-up. One of these ways is by taxation.  This study seeks to assess the effectiveness of value added tax administration so as to see whether value added tax has affected certain macroeconomic variables in Nigeria.  The study period was 1993 through 2012. The study was guided by three (3) research objectives, questions and hypotheses.  The study was guided by three (3) research objectives, questions and hypotheses.  The theoretical framework of the study was anchored on the expectancy theory of taxation and related literatures to the research work were reviewed.   The data for the study were obtained from the Central Bank of Nigeria Statistical Bulletin.   Based on the analysis, the study found that value added tax has significantly affected government income in Nigeria; value added tax has significantly affected consumption patterns in Nigeria and value added tax has significantly affected the level of imports in Nigeria. The study recommends among others that the government through its regulatory agencies should inject some fairness in the tax system in the area of consumption tax so that the burden of income tax would lessen on those with a low income level.  In addition, the tax revenues should be properly distributed so that economic growth can be harnessed, especially in providing basic social amenities as well as infrastructures in Nigeria.

 

CHAPTER ONE

INTRODUCTION

• Background of the Study

Taxation is the whole machinery needed to implement the collection of taxes.  Taxes are compulsory levies imposed by the government on her eligible citizens for the purpose of revenue generation which enables government to discharge its role of providing basic infrastructure and services thus taxes provide funds required for delivery of essential community services and the infrastructure that household and firms rely on in research healthcare, education, security and more (Odah, 2006).    Nigeria as a nation has the vision of becoming one among the world’s 20 largest economies in the year 2020; this obviously is the brain behind the priority attention the present administration is directing at infrastructural development which is an essential for economic growth.

A developed economy is one with the ingredient to stimulate investment and create wealth, this by implication offers an atmosphere that is business friendly and has the potentials for the actualization of the vision 202020.  The desired outcome requires a lot of money to put the economy in a position that stimulates investment, therefore, tax policies need to attract potential investors, and the revenue from tax should be sufficient enough to meet the infrastructural expenditures of the government. Apere (2013) noted that taxation is a microeconomic and fiscal policy instrument; it involves the transfer of resources from the private to the public sector for the accomplishment of economic and social goals.  It is an instrument the government uses to measure, access and control the informal sector that dominate developing economies of the world.

Country seeking to improve its revenue generation would opt for a concept enabling it to best realize its objectives with due regards to its peculiar socio-economic make-up. One of these ways is by taxation. Taxation can therefore be defined as a means by which a government appropriate part of the private sector’s income. The accumulated revenue is used in meeting recurrent expenditure. Tax occupies a unique position, because it is an important part of government policies. The ability of a government to generate revenue from this sector affects services offered by such a government. A means of improving internally generated revenue is through “Value Added Tax” (VAT) (Wambai and Hanga, 2013).

Value Added Tax was FIRS introduced by France in 1954. It has been embraced by well over seventy countries all over the world. These include the entire organization for economic co-operation and development of countries, Japan, Canada, the state of Michigan in the U.S.A and many African countries.  In Nigeria, the match towards VAT system started with acceptance of the recommendation of a study group on in direct taxation in November, 1991. The decision to accept the recommendation was made public in the 1992 budget speech of the Head of State. This resulted in setting up the modified Value-Added Tax (MVAT) committed on 1^st June, 1992 as recommended by the study group. The recommendation of the committee that VAT should be administered by an independent commission was rejected by the government. Tax administration was however given to Federal Inland Revenue Services, which was already charged with the responsibility of administering most other taxes in Nigeria.

The introduction of VAT in Nigeria through Decree 102 of 1993 marks the phasing out for the Sales Tax Decree No. 7 of 9186. The Decree took effect from 1^st December, 1993, but by administrative arrangement, invoicing for tax purpose did not commence until 1^st January 01994.  Value Added Tax is a tax on the supply of goods and services which is eventually born by the final consumer but all collected at each stage of production and distribution chain. With VAT, government reasoned it will be virtually impossible to evade tax. The instrument that introduced VAT spells out goods and services that attract the tax. It shows, for instance that food items do not attract VAT resides, sellers of goods on which VAT is paid must first of all register with the Federal Inland Revenue Services, the aim is to ensure that the 5% VAT paid on goods and services, but this is not exactly, what is happening now. Market women are charging VAT on food items with the obvious that this tax, simply increases their profit margin, land lords are charging VAT on house rent, hotels are also charging VAT. All these are contrary to the regulation governing this system. The fear is that very soon Nigerians will pay VAT on everything. It is the fear of the already pauperized Nigerians. Sinking more into an abyss that informed the researcher’s decision to look into VAT implementation and input on government revenue.  As a result of the uncommon nature of this tax system, majority of the populace in the country are unaware of its existence, consequently, the low credibility of government makes people scam the payment and collection of VAT. It is against this backdrop that this study seeks to assess the effectiveness of value added tax administration in Nigeria.

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CHAPTER ONE

1.0     Introduction                                                                       1

• Background of the study 1
• Statement of the problem 4
• The objective or purpose of the study 4
• Scope or delimitation of the study 5
• Research questions 6
• Significance of the study 6
• Definition of terms 8

 

CHAPTER TWO

Review of literature                                                                     11

2.1     The nature and scope of audit                                            11

2.2     The historical development of audit                                   12

2.3     The objective of audit                                                        14

2.4     The essential features of audit                                            17

2.5     Summary of related literature reviewed                             18

 

CHAPTER THREE

Research Methodology                                                                20

3.1     research design                                                                  20

• Area of study 20
• Population of the study 20
• Sample and sampling procedure 21
• Instrument of data collection 21
• Validation of the research instrument 22
• Reliability of the research instrument 22
• Method of administration of the research instrument 22

CHAPTER FOUR

Data presentation and results                                                       24

4.1     Summary of results/findings                                              29

CHAPTER FIVE

5.0     Discussion, implication, recommendations                        31

• Discussion of results 31
• Conclusion 32
• Implication of the results 33
• Recommendations 34
• Suggestion for further research 35
• Limitation of the study 35

Reference                                                                           37

Appendix                                                                           38

CHAPTER ONE

1.0     INTRODUCTION

1.1     BACKGROUND OF THE STUDY

The cradle of business organisation revealed that most business set ups were managed by their owners.  The ownership manager was the financial provider and contribution to the enterprise, but with the advent of large scale production and development in scope and in scale of business, a huge capital beyond that affordable by the sole proprietor or family was needed.

Consequently, contributors, hereafter called shareholds were required to raise the fund for the business.

The invitation of these shareholders led to the separation of the owner managers from the management of the business.  This is because all of them cannot, be the directors of the business at the same time.  As a result of this the management of the business was entrusted in the hands of people who have no financial claims to the business.  The law denies the shareholders access to the books of account of the company, depriving them of their rights to be kept abreast of the director’s performance.  The shareholders became skeptical about this.  Thus, the need of effective surveillance over the activities of the non-owner managing directors.

Basically, in an attempt to satisfy the shareholders, the services of an auditor, who will serve as the third party in auditing the account of the business were needed and employed.

The study revealed that the job of this auditor is to check whether the accounts present a true and fair view of the business’ transactions and also to ascertain the reliability of the records from which the accounts are drawn as well as verifying the assets and liabilities including petty and negligible transaction within the accounts.

The study also brought it to the light, that the company should be discreetly structured so as to facilitate full and proper enhancement and attainment of accountability.

Audit has since received a lot of definitions and or interpretations both from accounting bodies and authors.  Consultative council of accountancy bodies CCAB – defines audit thus:  The independent examination and expression of opinion on the financial statement   of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation.  The general essence of audit is to ascertain compliance of the company’s records and operational polices with certain prescribed standard.  It aims also at increasing the usefulness of acceptability and dependability on the firm’s financial statements.

Accountability on the other hand has suffered some misconception surprisingly in the hands of those with claims of degree.  There are people who should have understood it better.  Most laymen conceptional understanding of accountability relates it to communications only on monetary matters.  But accountability goes beyond that.

Accounting to the Webster Encycopedia Dictionary of English Language:  Accountability is the state of being accountable; answerable liable or responsible.

Accountable in particular public accountability is as old as the existence of human beings in social forms.  Accountability in general and from age old tradition implies stewardship.

It is the desire for accountability that rise what we know today as audit:  Mechanism through which the shareholders become abreast of the true and fair picture of the activities of the directors and chief executives of the company under the topic:

The relevance of audit toward the enhancement of accountability in the public company, the writer evaluates difference that an independent audit can make to the much desired accountability in the life of a public company.

1.2     STATEMENT OF PROBLEMS

(1)     It is difficult to understand the role of audit towards the accountability of public company.

(2)     The deplorable state of accountability in public companies

(3)     Lack of knowledge of what audit is all about by the employers of auditors.

(4)     Opinions on having the accounts of public companies unaudited.

(5)     Public companies denials of accountability

 

1.3     PURPOSE OF THE STUDY

Having stated the problems, the purpose of this