Academic journal article Journal of Financial Management & Analysis

Foreword

Academic journal article Journal of Financial Management & Analysis

Foreword

Article excerpt

We are living in a strange world of contradictions - with fast developing new technologies capable of providing plenty in the midst of widening poverty gap; with increasing number of hi-tech academic institutions coming up at an increasing rate in the midst of technological backwardness steeped in ignorance; mushrooming management institutions aimed at turning out academically-trained finance and management experts in the midst of their growing incompetence as judicious finance practitioners (a finance - oriented person facing real-world operating experience may be more concerned with romancing members based on mere guess work and unrealities than romancing operations) - They may produce results on paper but somehow never actually realize them like policy makers (ministers) presenting year-after-year annual budgets for their country's growth and development which are mere rituals but never actually realize the budgeted figures leading to theoretical exercise in futility.

It has become a ritual and a convention in every country of the world - be it a developing or a techno-capital surplus country - to prepare and present the country's budget(s) year after year in the midst of non-availability of accurate, timely and scientifically - analysed macro-economic and accounting data which problem, among others, has hindered judicious and sound financial management. No wonder, the budget(s), which are frictional and have got to be presented by the policy makers, more as a duty to the country, have to undergo several step-by-step pathological tests which may take anywhere up to three years for completion of several tests before the actual diagnosis of the problem and which assume the form of presentation of the budget estimate for the current year (in question), previous year's actual figure, re-re revised estimate (second), revised estimate (first estimate), all revealing very wide divergences differences from the actual figure. During the process of undergoing several pathological tests the country has got to cope up with problems emerging from statistical manipulations, wrong estimates and wrong guess work, etc. The budget based on the distinct accounting model and relying on two financial statements - an income statement and balance sheet - is a pure theoretical exercise in practical futility. The concern expressed in this regard by a developing country may be noted :

Once again we have to place on record that it has become increasingly difficult for Central Bank of Nigeria to analyse the performance of the economy in general, and appraise the effectiveness of policy in particular, due to inadequate data. At the time of writing this Report for example, no actual data on Federal Government revenue and expenditure was available for the whole year; the situation, as usual, was worse for .State Governments. External trade data similarly were unavailable. No firm data on domestic agricultural and manufacturing production are available on current basis. The available estimates are based on very scanty information and not much reliability can be placed on them. The data situation has infact continued to deteriorate than improve. The Federal and State Governments are once again called upon to recognise the lack of adequate and up-to-date statistics as a serious national problem calling for immediate attention and solution.

Central Bank of Nigeria, Annual Report and Statement of Accounts (various issues)

Evidently, based on the above premises, it may be said that Government budget planning and accounting exercise is based on mere guess work and probabilities, not necessarily linked to the realities of the economic situation. Added to it is the fact that accounting for the assets and liabilities relies on historical cost valuation; however, market values of financial assets and liabilities move inversely with interest rates, making it possible for traditional balance sheets and income statements to present information that might mislead financial statements users. …

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