CHAPTER ONE
INTRODUCTION
- Background of the study
Banks are profit-making organizations performing as intermediaries connecting borrowers and lenders in bringing temporarily available resources from business and individual customers as well as providing loans for those in need of financial support (Uwuigbe, 2013; Drigă, 2012). Commercial Banks play a vital role in developing economies like Nigeria, Ghana, Egypt and Algeria. Bank lending is very crucial for it make possible the financing of agricultural, industrial and commercial activities of the country. Commercial Banks are entrusted with the funds of depositors. These funds are generally used by banks for their business. The fund belongs to the customers so a programme must exist for management of these funds. The programme must constantly address three basic objectives: liquidity, safety and income. Successful management calls for proper balancing of all these three. Liquidity enables the banks to meet loan demands of their valuable and long established customers who enjoy good credit standing. The second objective being safety is to avoid undue risk since banks meet responsibility of protecting the deposit entrusted to them. Proper and prudent management of banks create and hence customer confidence. The third being income/profitability which is aimed at growth and expansion to meet repayment of interest charges on debt, to achieve the objective of maximizing wealth of shareholders and to survive competition in the banking industry (Okwoli, 1996; Uwuigbe, 2011). As a matter of fact a bank cannot remain in business if it neglects the credit function (Osayeme 2000). Of interest to this paper is the credit component of the banks’ portfolio that contributes to the profit of the banks and which has lead to the problem of bad debts in Nigerian banks as a result of poor management. Credit as the name implies is described as the right to receive payments or the obligation to make payments on demand or at some future date on account of the immediate transfer of goods or money another (Uwuigbe, Uwalomwa and Ben-Caleb, 2012). It is based on the faith and confidence, which the creditor reposes in the ability and willingness of the debtor to fulfill his promise to pay. In a credit transaction the right to receive payment and the obligation to make payments originate at the same time.
Business organizations are setup with the principal objective of creating wealth for the owners. Modern business organizations can take any of the following forms: Sole Proprietorships, Partnerships or Limited Liability Companies. Modern organizations are increasingly becoming more complex (and in many cases global) thereby engendering the need for complete, transparent, reliable and accurate information that can be accessed quickly. This is particularly germane as the gulf between ownership and management has grown wider in line with global best practices and most large business organizations are owned by a broad and disparate set of shareholders. According to Susan Davis (2015), an accountant is a person who performs financial functions related to the collection, accuracy, recording, analysis and presentation of a business, organization or company's financial operations. The accountant usually has a variety of administrative roles within a company's operations. In a smaller business, an accountant's role may consist of primarily financial data collection, entry and report generation. Making sure that the bank has effective controls over compliance with the new financial reporting requirements – and guarding against the reputational, regulatory and financial damage that may result from material control failures – will be key concerns for those charged with governance. Some banks will be subject to additional requirements for reporting on the effectiveness of internal controls (e.g. Section 404 of the US Sarbanes-Oxley Act) and will also need to prepare for how IFRS 9 adoption will impact their compliance with those other rules. Regardless of an entity’s size and complexity, the implementation of IFRS 9 will require significant upfront and ongoing senior management effort as well as substantial changes to credit risk management and financial reporting systems, processes and internal controls. For most banks, expected credit loss (ECL) estimates are likely to be material to their financial statements. ECL estimation is complex and inherently judgemental. It is dependent on a wide range of data which may not be immediately available, including forward-looking estimates of key macro- and micro-economic factors and management’s assumptions about the relationship between these forecasts and the amounts and timing of recoveries from borrowers. Because of the size of the potential impacts, these factors mean there is a risk of material bias affecting the financial statements. This could affect key financial and regulatory metrics. Accordingly, it is important that ECLs are determined in a well governed environment. Middle to larger sized companies may utilize an accountant as an adviser and financial interpreter, who may present the company's financial data to people within and outside of the business. Generally, the accountant can also deal with third parties, such as vendors, customers and financial institutions.
- STATEMENT OF THE PROBLEM
For most banks, loans are the largest and most obvious source of credit risk. However, there are other pockets of credit risk both on and off the balance sheet, such as the investment portfolio, overdrafts, and letters of credit. Many products, activities, and services, such as derivatives, foreign exchange, and cash management services, also expose a bank to credit risk. The risk of repayment, i.e., the possibility that an obligor will fail to perform as agreed, is either lessened or increased by a bank’s credit risk management practices. A bank’s first defense against excessive credit risk is the initial credit-granting process sound underwriting standards, an efficient, balanced approval process, and a competent lending staff. It is on this backdrop that the researcher intends to investigate the role of accountant in loan and credit control management.
- OBJECTIVE OF THE STUDY
The main objective of this study is to ascertain the role of an accountant in loan and credit control management in an organization. But for the successful completion of the study, the researcher intends to achieve the following objectives;
- To ascertain the role of the accountant in loan issuance
- To investigate the role of the accountant in credit management
- To investigate the relationship between credit management and credit control.
- To ascertain the impact of the accountant in achieving effective and efficient collateral security on loan issuance.
- Research hypotheses
For the successful completion of the study, the following research hypotheses were formulated by the researcher;
H0: the accountant does not play any significant role in loan issuance in an organization
H1: the accountant plays a significant role in loan issuance in the organization.
H02: there is no significant relationship between credit management and credit control in an organization.
H2: there is a significant relationship between credit management and credit control in an organization.
- SIGNIFICANCE OF THE STUDY
It is believed that at the completion of the study, the findings will be of benefit to the management accountant who are saddle with the responsibility of managing the organization investment portfolio, who has the responsibility of appraising and approving every investment of the organization. The study will also be useful to the federal debt management agency; as the study seek to serve as a pathfinder to loan and credit or debt management agency that has the duty of credit control and loan approval.
The study will also be beneficial to researchers who intend to embark on study in similar topic as the study will serve as a guide to their study. Finally the study will be beneficial to academia’s students and the general public.
- SCOPE AND LIMITATION OF THE STUDY
The scope of the study covers the role of an accountant in loan and credit control management. In the cause of the study, the researcher encounters some constraint which limited the scope of the study;
(a)Availability of research material: The research material available to the researcher is insufficient, thereby limiting the study.
(b)Time: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
(c)Finance: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.
1.7 DEFINITION OF TERMS
ACCOUNTABILITY
Responsibility of giving an explanation when need arises to ensure that money and other resource have not been wasted but properly and lawfully used for the benefit and welfare of the owners, (Ekpo: 2002)
CONTROLLER
Chief accounting executive of an organization. The controller is in charge of the accounting department.
CREDIT ANALYSIS
process of determining, before a line of credit is extended, whether a credit applicant meets the firm’s credit standards of those of a leader and what amount of credit the applicant should receive (Ekanem, 2008).
CREDIT MANAGEMEN
Is a term used to identify accounting functions usually conducted under the umbrella of Accounts receivables (Mattila, 2002).
LOANS
Is a credit arrangement a security is pledged and must be repaid with interest over a stipulated period of time (Ekanem, 2008).
OVER DRAFTS
This is a credit arrangement by banks to their customer to withdraw money over and above that what he has in the account. (Mbat, 1995).
- ORGANIZATION OF THE STUDY
This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion and also recommendations made of the study.
