Financial, Cost, and Budgetary Accounting Practices of Manufacturing Firm Organized as Private Limited Companies (P.L.Cs) in Tigray Region, Ethiopia

Abstract

This study Incorporated manufacturing firm organized as P.L.Cs of financial, cost and budgetary accounting practices and changes therein in Tigray Region, Ethiopia explores the extent to which company reporting may have responded to the regulatory requirements and best financial, cost and budget accounting practices for external reporting (Commercial Code of Ethiopia, 1960 and Modern Financial Accounting view) that has not been the subject of previous interpretive accounting research. The findings in pilot survey shows that both bad practices and areas needing improvement as the modern code regarding the constitution and activities would demand. The objective of this study is to suggest best practice to reform corporate accounting and financial reporting; achieve credible, realistic book of accounts and prevent financial failure. The study also makes a contribution towards the need for compliance with Commercial Code of Ethiopia focusing on “realistic” accounting reporting; call for policy makers to be more concerned with the side-effects of regulatory failure on business taxation, great attention to the control of commerce, orderly development of the economic life and improve understanding of technical assistance needs of these firms for effectiveness. In order to achieve the objective, a survey type of study using qualitative and quantitative approaches was conducted. The target population of the study was 200 manufacturing firm organized as P.L.Cs as their initial capital is greater than 500,000 birr and out of the target population, 25% which is 50 P.L.Cs and out of 50 P.L.Cs, the response rate is 80% (40 P.L.Cs) in Tigray Region, Ethiopia were selected using proportional stratified random sampling techniques, from each strata 25% were covered in this study. The structure questionnaire accomplished by Owners, General Managers, Accountants, Finance Managers, Marketing Managers, and Production Managers was the research instruments used for the data-gathering. After the relevant data were collected, the study was summarized and analyzed using tables, ratios, percentages and graphs. In this study the researcher has argued that there are bad, inconsistent or incomplete financial, cost and budgetary accounting practices by the majority of the incorporated P.L.C Tigray Region, Ethiopia that demand compliance to the Commercial Code of Ethiopia regarding the maintenance of book of accounts; and that needs adherence to the modern Financial, Cost and Budgetary Accounting Practices. This study is an indication that significant gap between the amount of tax collectable from these firms’ and that which is actually collected because of either lack of maintenance of book of accounts or holding only incomplete accounts.  Hence, this study strongly recommends that there is an urgent need of intervention by the regulatory bodies; particularly the Ethiopian Revenues & Customs Authority authorized to levy and collect business income tax; and the Federal Audit General of Ethiopia authorized for the proper collection of the state revenue, inspected and controlled to curb the malpractices.

Key word: Accounting practice, maintenances book of account, incomplete account, malpractices