THE IMPACT OF INFLATION ON FINANCIAL REPORT AND DECISION-MAKING IN BUSINESS ORGANISATION IN NIGERIA

1.0 Introduction

In the nineteenth century, little or nothing was heard about inflation. Consequently, not much concern about the concept but since this twenty-first century, inflation becomes accustomed and widely known to have great impacts on various aspects of life activities which include accounting practices.

Inflation has been known to cause a number of social, economical and political effects. Some of these effects are inequalities in price of goods and services, social strains, fall in standard of living and investment decreases.

In the same vein, it also affects the economic growth, domestic investment and savings together with exportation. Considering the in-depth effects of the concept, some well meaningful Nigerian researchers have explored such areas as embracing causes, rates measurement and control of inflation in Nigeria.

The impact of inflation on accounting reports and business decision of companies is one of the greatest constraints Nigerians re facing. Accounting problem in many parts of the world including Nigeria affects all aspects of business concern. Accounting reports during inflation is said to be distorted.

There is no doubt that some of the business failures in Nigeria during inflation of the recent years have resulted in many constraints due to irrational decisions made based on inflation distorted financial reports of such companies. Moreover, the inflationary nature of recent past years, federal government budget heralds a general rise in the prices of goods and services. Therefore, it is to avoid future business failures that this research project is embarked on.

It is crystal clear however, that for any business cooperation to survive, it must have apartment and precise information at its disposal. But how can corporation have this information when the financial reports itself are distorted by inflation? This is one of the purposes of this research to provide management in Nigerian companies the effective means and ways of processing and reporting financial information, which is current and meaningful during inflation. Although no accounting rules in Nigeria have been provided as to that effect which means that the knowledge will be of immense help in making appropriate decisions.

The entire work lies on investigations on the effect of inflation on such decision-making as related to the wages, prices, dividends and capital to earn future profits like taxation and investment decision of the business corporation as they relate to reported financial statement during inflation.

The research is not meant to include research on the nature, causes, rate and the instruments of combating or controlling inflation in Nigeria. And as regards to the organization which is included in the study. Only the profit oriented corporation which was registered and also situated in any of the branches of Nigerian Bottling Company (Coca-Cola) lies the purpose of this research work.

It is however, essential to note that this project has no intention whatsoever to dispute or condemn the conventional accounting procedures but rather to argument on them.

1.1 Background of the Study

This research work is based on the problem of inflation and how it affects companies in their financial report and decision-making in business. This study is based mostly to educate managers of Nigerian Bottling Company (Coca-Cola) on how to maximize profit to make ends meet in their various branches.

In the fifties, inflation was not known as a major phenomenon in Nigeria as likely to cause distortions in conventional accounting reports. The financial reports then were prepared without giving consideration to the changes in the value of money that was when stable monetary unit assumption in accounting was appropriately applied in the preparation of financial reports. But since the 60's, inflation has become a major problem having a pervasive effect on our ability to purchase needed goods and services in order to make rational decisions using the conventional accounting reports.

There have been evidences that most business failures in the country were as result of irrational business decisions made by managers based on inflationary distorted profit of such business unit. And yet, there are concrete signals that so called inflationary 2003, Federal Government Budget showed great failure in business.

This research has foreseen and therefore considered it necessary to carryout this research to help at least in reducing the rate of contemporary business corporation in country by bringing to the knowledge of company managers and all those involved in decision-making, the distortions that mark the conventional accounting reports during inflation problem, the way and means of processing and displaying accounting inflation so that things will be able to effectively tackle the inflation of the years to come.

Brief History of Nigerian Bottling Co. Plc (Coca-Cola)

The best known taste in the world of an ice-cold bottle is coca-cola was produced on 8th May, 1886 in Atlanta Georgia, USA by Dr. John Styth Pemberton, a Pharmacist.

The name coca-cola was given by Frank M.Robinson, Dr. Pemberton's partner and book keepers. He also designed following script that distinguishes the famous trademark, coca-cola contents remained secret as they have been for over 100 years.

The formula known as MERCHANDISE 7X is kept in a special security vault in a bank in the United States.

In 1953, Coca-Cola came to Nigeria when the Nigerian Bottling Company PlC opened its first branch in Lagos. There are other soft drinks produced by coca-cola. They are as yellow, fanta soda, fanta Chapman, sprite, krest Bitter Lemon, Schweppes Bitter Lemon, Schweppes soda and tonic. Nigerians consumed not less than 8,000,000 bottles everyday. The company has employed about 10,000 staffs.

Nigerian Bottling Company PLC is the largest manufacturer of carbon dioxide (CO2) gas used for making soft drink. The company has the largest privately owned fleet of delivery trucks, pick ups and cars in Nigeria all working to bring delicious coca-cola to consumers' door steps.

Besides, the company has been putting something back into the society as reward for patronizing its products mainly through philanthropic activities, for example the company is a leader in the crusade for environmental production.

It is also a major sponsor of sporting events. The company is also conscious of its social responsibilities for this reason, it sponsors activities such as football, local and international competitions, table tennis-the Nigerian championship. The conservation movement activities of the disabled and many commercial events and projects.

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1.2 Statement of the Problem

Inflation as many economist and financial experts are aware of the effect of accounting reports on business organizations. Inflation has clouded ghost sources of profits that many managers or experts even the most alert financial statement analyst. The problem is the fact that reverse is almost, always stated in current Naira, while plant and equipment and inventory whose worth may well be two or three times their original values now that inflation exists.

Furthermore, the effects of inflation, thus hidden from the decision maker by convention of accounting procedures makes it difficult for managers to draw appropriate conclusions from financial data. This perhaps leads to the modified failure of contemporary business organization in Nigeria in recent years, which results as a consequence of inflation on companies. Thus, the first question that really occurs to mind is:

1. Does inflation actually cause distortion on conventional financial reports in Business Organization?
2. The second is, do companies take financial reports at their face value and ignore effects of changes in money values when making decisions?
3. Lastly, would the conventional financial reports adjusted, provide better accounting information for the decision making in business organisation?

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1.3 Purpose of the Study

The purpose of this study is to promote the awareness of business managers of the dangers inflation might pose if proper decision is not taken before the management and auditors of the company.

To find out if adjusted financial reports could be better for decision making than the conventional financial reports.

Financially, based on the findings, the researcher recommend to the manager/management, levels, the ways and means of auditing relevant books of accounts in the company and a better means of current and meaningful.

The managers of the various corporations in Nigeria like their colleagues in other parts of the world required inflation that is current and meaningful and devoid of distortions when making decisions. But unfortunately, most of the information the manager/ management needs are not satisfied and reliable financial reports, therefore management is left in the problematic of how to obtain relevant and precise information to make effective decision during inflationary period when the conventional reports itself are embodied in illusion.

Many corporate managers due to ignorance do not seem to appreciate the embodiment of illusion, which has the potential which make their decision ineffective.

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1.4 Research Questions

In order to find solution to the research work, the following questions are laid down by the researcher. The questions are as follows:

1. Will adjusted financial statement provide better information for decision making during inflation than conventional financial reports?
2. How will conventional financial reports adjusted provide better accounting information for decision making of a company?
3. Do companies take financial reports at their face value and ignore the effects of changes in monetary values when making decision?

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1.5 Statement of Hypothesis

To find solution to the research problem, we project the following hypotheses which are to be investigated and the validity period established.

HO1: Corporate companies do not take financial report at their face value and they do not ignore the effects of changes in money values when making decisions.

Hi1: Corporations take financial reports at their face value and ignore the effects of changes in money values when making decisions.

HO2: Adjusted financial statement does not provides better information for decision making during inflation than conventional financial reports.

Hi2: Adjusted financial statement provides better information for decision making during inflation than conventional financial reports during available for the research project and thus; a small percentage coordination with the company.

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1.6 Significance of the Study

The efforts of inflation on financial report and decision making in business corporation in Nigeria cannot be over emphasized, this study reveals the drawback companies might face if proper adjustment is not taken during the increase in prices of goods and services.

This research is of significance in the following fields. in the fields of academic, students on how to tackle inflation constraints. Students in the discipline of accountancy will also have a great priviledge of how to recruit and select employees of companies to the best of their satisfaction with the necessary different test, it also helps to impact more ideology to most students that are anticipating to be personnel managers of professional auditors.

To the organization, it enables them to enumerate steps that an applicant will pass through both in medicals test and the dexterity test before being effectively and efficiently selected.

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1.7 Scope of the Study

The research was carried out on three businesses, breweries and there are bound to be delimitation in the process of carrying out the research work. These studies carried out by the student, there are financial and time constraints.

This research is aimed at promoting manager on their effort to reduce the clouding effect of inflation on converting information and knowing the consequence of this failures to companies before time. This research is based on finding the control measures to reduce inflation, which might cause distortion on financial report and decision making in business corporations.

Finally, this work makes for accurate accountability of auditors report in the company in order to give current and precise information about the work in the company which has already been audited.

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1.8 Limitation of the Study

During the course of writing this project the researcher encountered some problems or constraints which have gone a long way to affect the successful execution of this study. Those constraints are enumerated here under;

1. There was lack of finance for running cost and other financial commitment.
2. There was also lack of adequate data and information regarding the system in Nigerian Bottling Company PLC (Coca-Cola).
3. Transportation also limits this study because transportations were boarded by the researcher which frustrated his programme.

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1.9 Definition of Terms

The definitions here are meant to give vivid understanding of this study, there are some terms that are relevance to this study which needs to be defined. These terms includes the following;

Inflation:

This is a general rise in the prices of goods and services in an economy.

Financial Report:

Information provisions in the form of income statement and balance sheet must be vital during inflation.

Decision Making:

Choosing or selecting from among alternatives by managers of business corporations in Nigeria.

Business Corporation:

Incorporated entities with the profit making as their main goal.

People Profit:

Fictitious profit on book, which results from recording revenue on current basis and cost on historical basis.

General Price Index:

A ration showing the rate of price changes in relation to all items in the economy.

Price Level Adjusted Profit:

This is profit estimated by applying the conventional accounting profit, the appropriate index so as to make allowance for the impact of price changes in the value of money and a rise in the money value of the national income greater than the rise in its real value.

As frequently use description of inflation such definitions has one characteristics in common, they all involve a change in the relationship between money and goods to general within the economy.