APPRAISAL OF FINANCIAL REPORTING PRACTICES OF PENSION FUND ADMINISTRATORS IN NIGERIA
Chapiter 1
Introduction
1.1 The Study’s Context
Activities involved in creating specific reports known as financial statements are included in financial reporting. According to Schiavo-Campo and Tommasi (2009), these statements provide information on the financial standing of businesses at a specific point in time, as well as the activities that businesses engaged in recently, their consequent profits or losses, and the resource flow that took place within the business during that time. Financial reporting, according to Bogdanor (2011), is a discipline that uses money as a tool for gauging economic success rather than a factor of production. It includes the complete system of keeping track of and controlling how much money is coming into and going out of a company as assets, liabilities, and revenues and expenses. To provide financial reports for the management of the business, investors, lenders, suppliers, tax authorities, and others, such as the balance sheet and income statement, financial accounting collects and summarizes financial data.
Investors and potential investors must have access to financial data in order to understand how a firm operates and is doing financially. It affects whether and how much an investor will put into a business. The possible areas of growth and decline for a corporation are also analyzed and evaluated using this method. Examining the manager’s annual report can assist identify some recurring issues that have had an impact on the financial statement and can provide guidance on how to prevent future danger. The report is useful for reporting back to the company’s financial statements when it is being audited. (2003) Rutherford. Additionally, financial accounting data frequently appears in a disguised manner by “wearing” a veil of technicalities. These technicalities involve calculations whose interpretation requires specialist knowledge. However, some businesses overlook the financial accounting information system, which has an impact on the management decisions made by such business concerns, when they are unable to recruit such professionals due to their poor financial situation. Parry, (2010).
Pension is the sum of money that a firm or the government pays to an employee after they have worked for a set amount of time, are deemed too old or ill to work, or have reached the legal retirement age. Due to the retired officer’s employment with the organization paying the money, a monthly sum will be given to them until their death, according to Balogun (2015). Pension also refers to the practice of contributing a percentage of one’s wages made while employed to a pension plan. The contributions create a retirement income (or pension) that is considered earned income.This is subject to income tax at the investor’s marginal rate. In contrast, a gratuity is a one-time payment made to a retiring officer who has worked for at least one term year.
As a contributing pension plan for Nigerian workers, the pension fund administrators were established to pay out retirement benefits to those workers. Except for members of the military, judges, and those holding the highest political offices, this Act affects all personnel working in the public and private sectors of the Federation. Additionally, businesses with less than five employees may be exempt. Before the Pension Reform Act of 2004 was passed, Nigerian pension plans were plagued by a number of issues. Retirement benefits were funded for each year, and the public service ran an undefended, ill-defined benefits program. Due to resource limitations, the annual budgetary provision for pensions was frequently one of the most vulnerable items in the budget execution. 2014’s Orifowomo.
According to Pencom, (2011), the provision of the Pension Reform Act, pension fund administrators (PFAs) have been properly licensed to open retirement saving accounts for employees, invest and manage the pension funds in a manner the commission may from time to time prescribe, maintain books of accounts on all transactions relating to the pension fund managed by it, and pay retirement benefits to employees. Pension Fund Administrators (PFAs) must be a limited liability corporation with the exclusive purpose of managing pension funds before receiving an operating license. Such company must have a paid up share capital of 150 000 naira and demonstrate professional capacity to manage pension funds and administer retirement benefits in order to deter frivolous applications and assure credibility.
PFAs financial reporting is the dissemination of pertinent qualitative and quantitative information through financial statements for decision-making by users of such information. PFAs are charged with the legal obligation of gathering and providing users with such pertinent information. The management, auditors, and government all work together to complete this mission; they do not, however, do so independently. The goal of accounting scholars has been to either create a theory of financial reporting that will support PFA accounting practices or create a theory of financial reporting that management will use, with the former approach receiving more attention from academic researchers. Examining the financial reporting methods of Nigerian pension fund administrators is the aim of this research project.
Situation Of The Problem
The non-payment or delay in the payment of pension and gratuity by the Federal and State governments was previously one of the main issues with the pension fund administration in Nigeria. For instance, as of December 2005, the backlog in pension payments was estimated to be at 2 trillion 56,000 naira. The fact that millions of elderly Nigerian employees live in squalor and are frequently ignored and underserved after retirement has made pension fund administration a challenging problem, according to Orifowomo (2014). Regrettably, pensioners had to go through difficult times and demanding procedures before receiving their pensions, gratuities, and other retirement benefits. The money needed to pay their benefits was not always available, and the Pension Fund Administrators sometimes failed to respond to the needs of the retirees.
The new contributory pension plan rightly emphasizes the need for sufficient savings, wise investments, and consistent output growth; however, there is some skepticism about whether Nigeria’s public sector can demonstrate the level of financial restraint over the long term needed to produce the surplus pay off accumulated pension obligations carried over from the previous plan, which now involve the issuing, holding, and redemption of retirement bonds.
Reporting on financial accounting is crucial to the operation of any firm. It is disappointing to learn that the majority of financial statements do not adequately consider the principles of accounting systems. There are some flaws in the internal control methods, the information flow, and the expense of gathering any information. Therefore, the issue raised by the study relates to Nigerian pension Fund administrators’ deceptive financial accounting reporting.
1.3 Study’s Objectives
This study’s objective is to evaluate the financial reporting procedures used by Nigerian pension fund administrators, using IBTC Plc as a case study.
The study’s specific goals include, among others:
Analyze the connection between financial reporting and pension fund administrators’ success in improving pensioners’ wellbeing.
Consider how beneficial the contributed pension system is to the public sector.
iii. Determine whether the PFA’s financial reporting fully considers the principles of accounting systems.
Determine the impact of IBTC Plc.’s financial information reporting on the organization.
1.4 Questions For Research
For the purposes of this study, the following questions must be addressed:
What connection exists between financial reporting and how well-equipped pension fund administrators are to improve the welfare of retirees?
How advantageous is the contributing pension plan for public employees?
iii. Do the PFA’s financial reporting rules fully take into account the accountability principles?
How Nigerian employees have been impacted by IBTC Plc’s financial reporting.
1.5 Hypotheses For Research.
I. Hypothesis
H0: Financial reporting and the ability of Pension Fund Administrators to improve the welfare of Pensioners are not significantly correlated.
Hi: Financial reporting and the ability of Pension Fund Administrators to improve the welfare of Pensioners are significantly correlated.
Hypothesis II: The following has been proposed for the investigation’s sake:
Ho: The PFA’s financial reporting does not adequately consider the concepts of accountability.
H1: The PFA’s financial reporting fully considers the concepts of accountability.
1.6 Impact Of The Study
The following will be the study’s significance:
It offers a dispassionate assessment of the usefulness of financial reporting in the contributory pension system.
The effectiveness of the contributory pension system on stakeholders, the government, financial institution employees, etc. is also evaluated in the study.
The study will also be used as a resource by future scholars who may conduct research in the field.
1.7 The Study’s Scope
The financial reporting techniques used by Nigerian pension fund administrators are the focus of this study. For the purpose of carrying out a critical review, the research covers the actions of Pension Fund Administrators for a period of six years, from 2010 to 2015. Additionally, because the contributors are harboring concerns about the viability of the PFAs in Nigeria, the study is limited to the financial reporting methods of PFAs.
1.8 Term Definition
In order to serve the needs of this study, the terminology below will be defined.
Contributory Pension Scheme: A pension plan that sets forth a common set of guidelines for the administration and distribution of retirement benefits for the federal government’s public sector employees, federal capital territory employees, or members of the private sector.
Financial accounting is the “recording of transactions for a business enterprise or other economic units and the periodic preparation of various reports from such records,” according to the Financial Accounting Standards Board. Therefore, financial accounting can be defined as the methodical collection, summarization, and reporting of company transactions in monetary terms so that it provides information that enables users of such information to make informed decisions.
Information is defined as information that a person or group of people needs or receives and that are or will be valuable to them. These details may be teleprinted, spoken, or written in a program.
Management: The logical choice of actions to optimize the interaction of people, resources, and money for the survival and expansion of the company can be characterized as management. The “process of getting things done through people” could be used to describe it. A manager is a person who manages.
Pension: After an employee has worked for a certain amount of time, is deemed too old or ill to work, or has reached the legal retirement age, a government agency or business will pay them a pension. Due to the officer’s employment by the organization providing the payment, a retired officer will receive the sum on a monthly basis until death. (2006) Adebayo.
Pension Fund Managers: The pension fund managers were developed as a contributing pension plan for Nigerian workers in order to pay retirement benefits to those workers to whom the plan applies. Their responsibility is to make sure that everyone who has worked in the Federation’s public sector or the private sector receives their retirement benefits on time and in full.
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