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ACCOUNTING ESTIMATES AND PROFITABILITY OF LISTED INDUSTRIAL GOODS FIRMS IN NIGERIA
ABSTRACT
The study focused on accounting estimates and the profitability of listed industrial goods firms in Nigeria. Accounting estimates comprise a large and growing component of financial statements, making the dividing line between fact and conjecture. Since capital market inefficiencies can result if investors are led by estimates-based accounting information to misallocate resources, the SEC mandates that firms provide quantitative AE information when “quantitative information is reasonably available and will provide material information for investors”. Provision for employee benefits and provision for liability were used as proxies for accounting estimate while profit after tax was used as proxy for profitability. To achieve the objectives of the study, ex-post facto research design was adopted. The source of data collection is secondary data. Data were generated from annual reports and accounts of the selected firms. The data collected were analyzed using multiple regression analysis. The finding revealed that while Provision for liabilities has a significant effect on the profitability of listed industrial goods firms in Nigeria, provision for employee benefits has no significant effect on the profitability of listed industrial goods firms in Nigeria. Based on the findings, the study recommends that Manufacturing firms in Nigeria should report all the liabilities incurred in their business activities. Such will help in disintegrating between assets and liabilities thereby determining the level of company’s profit. The study also recommends that when incurring liabilities, firms should ensure that the liabilities are directly incurred for the purpose of the business since provision of liabilities affect firm’s profitability. Outside liability will reduce the firms profit.
Keywords: Accounting estimates, Provision for liabilities, Provision for employee benefit, profitability