THE APPLICATION OF ACCOUNTING PRINCIPLE IN INSURANCE COMPANIES
The aim of this research titled “The Application of Accounting Principle in Insurance Industries” is to examine how insurance companies apply accounting principles in their operations and the extent of adherence. The work was divided into chapters. The first chapter is the introductory part of the research work. This chapter also contains the background of the study, statement of problems; research question etc. data for the study was sourced from two main sources which include primary and secondary sources of data collection. Primary data are made up of questionnaires and oral interview. From the respondents. Secondary data were gathered from journals, magazine and other relevant materials relating to area of my investigation. The research instrument used in this study include: oral interview and questionnaire. The questionnaire is structural as to contained both close and open ended question. Simple table and percentage as used in treatment of data in the research work. From the findings, conclusions were drawn and recommendations were also made in the last chapter of this work which is the fifth chapter.
1.2 BACKGROUND OF THE STUDY
Business is one of the sources of earning income. When a business is started, it requires investment of certain amount which is called capital. With this amount of capital the businessman may deal either on trading business or manufacturing business. In a trading business, he will buy goods at a lesser price and sells the same to others at a higher price.
In case of manufacturing business he has to buy raw materials and incure other expenses in the form of wages and salaries, rent, power, insurance, tax, transport, postal and telephone expenses and so on, in the course of production and distribution of goods. In a small sized business the transactions are simple and less in number. But in a large sized business the transactions are numerous. These business transactions enable the businessman to know the result of his business which can be profit or loss for a given period of time. In order to know the result of his business, a businessman has to remember all the transactions of his business. However, owing to lack of memory it is not possible for anybody to remember all the transactions over a period of time. This has given rise to maintenance of a set of accounting books in which business transactions are chronologically recorded. The systematic recording of business transactions enable the businessman to account for every transaction without missing any item.
Before accounting concepts and conventions are discussed, it will be appropriate to know the meaning of the term “accounting principle”. In olden days when size of the business was small and less complicated, the accounting information was felt only by the proprietor of a business. In modern days, with the growth of the business organizations, the transactions have become more in number. Unless these transactions are recorded according to a definite principle by all the business enterprises it is difficult to maintain uniformity in accounting system. Such uniformity is also necessary because many parties such as investors, creditors, employees, government and general public are interested to know the affairs of the business. If every business follows its own accounting practices, the final accounts may not be understandable to all such parties. So there is a scope for misinterpreting the position of the business by all persons interested in the business. Hence there is a need to follow a uniform accounting principles from the stage of recording the transactions up to the stage of preparing final accounts.
1.2 STATEMENT OF PROBLEMS
The following problems led to the formulation of this research work:
Insurance companies has not been complying to accounting principles in their day to day activities.
Insurance firms in Nigeria has not been adhering to accounting principles and standards in their various organization.
The non adherence to the accounting principles has contributed to failure of most insurance firms in Nigeria.
1.3 OBJECTIVE OF THE STUDY
The aim of this research work is to specifically examine the application of accounting principles in insurance companies. The other objectives of this research work includes the following:
To examine how insurance companies apply accounting principles.
To know the extent the insurance company can adhere to accounting principles.
To determine the implication of non adherence to accounting principles.
1.4 RESEARCH QUESTION
How do insurance companies apply accounting principles?
To what extent does insurance companies adhere to accounting principles?
What are the implications of non adherence to accounting principles?
What are the possible solutions to the problems of non adherence to accounting principles by insurance companies?
1.5 SIGNIFICANCE OF THE STUDY
This research work will be of immense help to:
The student: it will help the researcher to know more on the application of accounting principles in insurance companies.
This study will be of great importance to stake holders as it will enrich their knowledge on the various accounting principles and its relevance in the insurance companies.
This will equally be of help to the insurance companies and financial institutions in Nigeria because when they abide by the recommendations provided by the researcher it will help them in time of financial crisis.
The country at large: this study will be of great importance to the country Nigeria as it will help the policy makers to prorogate laws that will guide the application of accounting principles in insurance companies.
1.6 SCOPE OF THE STUDY
The study focus attention practically in all the activities of insurance companies especially those related to financial terms. These areas will include buying of raw materials, hiring production and sales, payment and collection of debts, etc.
Respondent to the study will be selected from all departments and even beyond the company. However, a certain sampling procedure, as will been seen later, is adopted to achieve a certain level of reliability of the data gotten.
1.7 LIMITATIONS OF THE STUDY
The researcher in carrying out this study encountered numerous problems which includes:
· Lack of Research materials
· Response of the Respondents
Fund: The researcher did not have enough money to visit most insurance companies as money required was not available.
Time: The time allotted for the work was not enough. This is because I had to share the time with other academic works of the semesters. This made the researcher unable to cover a lot of interesting areas but therefore limited his research work only at Enugu metropolis.
Lack of Research Material: Lack of research materials was also one of the problems faced by the researcher in the cause of this research work.
Responses of the Respondents
Another constraint to the researcher is that some of the respondents found it difficult to express themselves as regards to the subject matter.