Effect of Person-Related Factors on the Recognition of Contingent Liability in Nigerian Listed Companies

Abstract

International Accounting Standard (IAS) 37 requires Accountants to assign a percentage probability to the expression ‘probable’ when recognizing contingent liability in Financial Statements. A probability of 50% and above qualifies the contingent liability to be recognized; while a probability of below 50% does not. The judgments of Accountants on this issue may be tailored towards assigning probability percentage of less than 50% due to the influence of person-related factors. This study therefore examined the effects of these factors on the recognition of contingent liability in selected listed companies in Nigeria. The study used a population of 197 listed companies in Nigeria and grouped them into eleven strata. A total of two hundred and thirty four (234) Senior Accountants were sampled from the companies using multi-stage sampling technique. The study issued closed ended questionnaire to the sampled Accountants and 188 responses were generated and analyzed. The generated data were measured using a probability percentages (1-20%, 21-40%, 41-60%, 61-80% and 80-100%) assign to the questions raised in the questionnaire by respondents. A test of reliability on the data using Cronbach’s Alpha test gave a value of 0.824. The study used one-way Analysis of Variance (ANOVA) to test the hypotheses formulated. Result of analysis showed that: knowledge of IAS 37, educational/professional qualifications, and previous experience significantly affected the recognition of contingent liability with P = 0.00, 0.00, and 0.02 respectively. Based on the findings, the study recommends that, the problem of assigning lower probability percentage below the threshold to the expression ‘Probable’ as set out by IAS 37 should be corrected through organizing capacity building workshops for Accountants on issues related to IFRS. Similarly the study recommends that individual Accountants should improve their level of knowledge of IAS 37 above the average level for the discharge of quality accounting judgments. Accountants who acquired school certificates only, should pursue professional qualifications as well for an improved Judgments on recognition of contingent liability. In the same vein, Accountants should increase the frequency of their Accounting Judgement performance and should adhere to the laid down rules and regulations of the companies in which they work.