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THE ASSESSMENT OF ACCOUNTING SYSTEM ON
ETHIOPIAN ELECTRIC POWER CORPORATION (A CASE STUDY AT JIMMA DISTRICT)
BY: GETAHUN SEIFU
ID NO: 02339/01
UNDER THE GUIDANCE OF
MR. RAO, M. COM, M. PHIL
(PH.D)
RESEARCH PROPOSAL
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF B.A DEGREE IN
ACCOUNTING.
DEPARTMENT OF ACCOUNTING
DEC, 2010
ABSTRACT
The aim of
this proposal is mainly to reveal that “Assessment of accounting system on
Ethiopian electric power corporation a case study at Jimma district”. For this
purpose this paper classified into contents and sub contents.
The first
part of this proposal include introduction, objective of the study, statement
of the problem and limitations of the study.
The
introduction portion of this chapter is mainly talking about what accounting
system means. Consequently, in the objective of the study the researcher
express the way in which the follow to assess the accounting system of the
organization under consideration. Also the statement of the organization under
consideration. Also the statement of the problem specifies what an accounting
system should includes will provide useful information for the decision maker.
Finally, the limitations of this paper will provides difficulties that the
researcher will face.
The next
chapter is discussed about literature review, apart of this proposal which
elaborate more about the topic that we are talks about.
The
research and methodology part comprises and tells about the research design,
area and data . In this part care should be given to answer the question like
where the study will be conducted. What are the source of data. What will the
sampling techniques and method.
Lastly, cost
and time plan, it is estimated type of time and cost budget will require to
helps to undertaken the study.
ACKNOWLEDGEMENT
First of
all, I would like to express my great deepest gratitude towards to forever
lasting pillar of my life, God, without
him, unless things will going to be right. Followed by my thanks goes to my
honourable advisor Mr Rao, M.Com,M.phil, (Ph.D) really had made great role for
the contribution of his effort the fulfillment of this success.
And also a
special thanks goes to my sweat heart brother, Samuel Seifu, he support me his
contribution through with financially as well as materially.
Eventually,
my special thanks will be given to all friends and neighbourers.
TABLE OF CONTENTS
Content page
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
An
accounting system may be either manual or electronic. In manual accounting
system, each of the steps in the accounting cycle is performed by hand. For
example, each accounting transaction is entered manually in the journal and
posted manually to leaders. To obtain ledger account balances and to prepare a
trial balance and financial statements, additional manual computation must be
made. On the other hand all electronic accounting system uses computer in
processing transaction data in disseminating information to interested parties.
To be an
efficient and effective accounting system, certain basic principles must be
followed. These principles are 1. Cost awareness 2. Usefulness
The
accounting system must be cost effective. Benefits of information must out
weigh the cost of providing it. To be useful, accountants must first identified
users groups and their information needs. These needs determine which economic
data and activities are recorded by accounting system. Finally accountants
prepare reports that summarized that information for users.
The
accounting system should accommodate a variety of users and changing
informational needs. The system should be sufficiently flexible to meet the
resulting changes in the demands made up on it. Therefore, if the accounting
system is cost effective, provide useful output, and has the flexibility to
meet future needs, it can provides a valuable service and major contribution to
both individual and organizational goals.
1.2 Background of the organization
Ethiopian
electric power was introduced to Ethiopia
In addition
to the use of generators, Minilik got constructed the first hydro power plant
on Akaki river in the year 1912 in order to supply power to small factories
that had been established in Addis Ababa. Consequently, the power supply that
hand been limited to small factories and palace was extended to public places
and major roads in the vicinity of the palace.
However,
the effort of the government to extend the power supply to public was hindered
by the Italian invasion of Ethiopia
In the year
1948, an organization that hand been vested with the power to administer the
enemy property was evolved to an organization called Shewa electric power. The
new organization Shewa although with limited capacity, managed to increase the
power supply not only in shewa but also other administrative regions. In light
of its function, its name was changed to “Ethiopian Electric light and power”
in the year 1955.
Soon after
its establishment, the supervision and management of the organization was
vested in the board of directors appointed by the government.
After eight
months of its establishment, the Ethiopian electric power and light was
transformed to the “Ethiopian Electric light and power authority” (charter of
the Ethiopian electric light and power). The newly established authority was
conferred with the powers and duties of the previous Ethiopian electric light
and power.
The purpose
of the electric light and power authority was to engage in the business of
production, transmitting, distributing and selling of electric energy to the
public of Ethiopia and carry on any other lawful business incidental or
appropriate here to which is calculated directly or indirectly to promote the
interests of the authority or to enhance the value of its properties.
At the time
of its establishment, the capital of the authority was ten million Ethiopian
dollars dividends in to one thousand shares of per value often thousand and Ethiopian dollars each.
It was also
determined that the board of directors appointed by the government shall
exercise all the powers of the
authority. In addition of this, it was also determined that the head office of
the authority would be in Addis Ababa
At the time
of the annual electricity production capacity of the authority was 35 GWH while
the no of customers was 12,500.
In light of
the socio-economic development of the country the authority continued to
increase the scope of its operation in order to accommodate new changes.
Accordingly,
the Ethiopian electric power corporation as public enterprise was established
for indefinite duration by the regulation No 18/1997, and conferred with
the powers and duties of the previous Ethiopian electric light and power
authority.
At the time
of establishment, the Authorized capital of the corporation was 6.1 million
birr of which 2.67 billion birr was paid up in cash and kind.
It was
determined that the establishment regulation that the corporation shall have
its head office in Addis Ababa
Currently,
the annual electricity production capacity of the corporation is about 3112 GWH
and the no of customers is about 1.1 million. Although the corporation
has been increasing the no of customers by more than 15% annually.
1.3 Statement of the problem
Every thing in the universe is changed through
time. Similarly, the EEPCo of Jimma district had made growth since its
establishment. A long with this resulting change there would be increase in
business transaction and some other changes. To handle this change, the EEPCo
of Jimma district has to make its accounting system in line with accounting cycle,
generally accepted accounting principle (GAAP), computerize accounting system,
internal control system, plant asset valuation, depreciation method and
inventory system.
Moreover
the study will try to answer the following some questions.
-
Does the organization obeyed to Generally accepted
accounting principle?
-
Does the organization use accounting cycle in order to
process the economic data of the organization?
-
Does the organization use cost principle so as to
value fixed assets?
-
What the organization know about the internal control
system of the organization?
-
Does the organization record depreciation expense to
up to date the financial statement and what type of methods does the
organization follow?
The aim of this study will so as to assess
whether EEPCo of Jimma district accounting system is in line with the above
mentioned variables.
1.4 Objective of the study
Generally,
the aim of this study will assess whether the accounting system of EEPco of
this district is in line with some of the common accounting practices. Hence
the objective of this study has been as follows:-
-
To assess whether there will be proper accounting
cycle in order to process accounting data.
-
To assess whether the accounting system will be in
line with GAAP.
-
To assess whether there will be a proper asset
valuation and deprecation method.
-
To assess whether there will be a proper inventory
system
-
To assess the internal control system of a district
-
To study the importance of computerized accounting
system in the district.
1.5 Scope of the study
The study
will focus on the assessment of accounting system on Ethiopia
The
research will also focus on the application of accounting system of the
organization under this to see the five years financial statement and balance
sheet of the organization to measure the assessment of accounting system of the
organization
1.6 Significance of the study
The study
will be expected to provide abase information concerning accounting system
problem and it’s the impact on the financial statement to the contemporarily
researcher and to the organization itself, creditors, suppliers and customers. Also
may use this organization to under take corrective actions. In addition to
study will give some suggestions and recommendation with regards to the ways
for solving the problems faced based on the findings obtained from the result
of the analysis.
CHAPTER TWO
LITERATURE REVIEW
The major
purpose of accounting system is to provide useful information to both external
users and to the company’s managers for making operating decisions. Many
transactions result in important financial managerial information. All
accounting system is the means by which a company records and stores the financial
and managerial information from its transaction so that it can retrieve and
report the information in an accounting statement. All companies have
accounting system, ranging from the very simple, such as a check book, to the
very complex, involving the use of networked computers (Bazley, 2000, P. 66).
The basic
accounting model provides a frame work for accounting system and is the basis for
recording transaction. This model for corporation, called the residual equity
theory modes, is usually expressed in an equation (Bazley, P. 66).
The way in which
management is given the information for the use conducting the affairs of the
business and in reporting to owners, creditors and other interested parties is
called the accounting system. In general
sense, an accounting system includes the entire network of communications used
by a business organization to provide needed information (Fees Warren, 1998, P
225).
An
accounting system must be tailored to meet the specific need of each business.
Since cost must be incurred in meeting these needs, one of the major
considerations in developing an accounting system is cost effectiveness, for
instance, although the reports produced by an accounting system are a valuable end
product of the system. The value of the reports produced should be at least
equal to the cost of producing them. No matter how detailed or informational a report
may be, it should not be produced if it costs more than the benefits received
by those who use it. (Fees Warren, P. 225)
Basics of
financial accounting system that a company can use it either a manual or a
computer accounting process. Regarding to is primarily interms of a manual
system. The components of an accounting system include, the frame work for
operation of the system, the imput source document, the records used to store
accounting information, the output reports. (Bagley, 2000, P. 66)
Users of
the information provided by the accounting system rely on various reports for
relevant information presented in an understandable manner when these reports
are prepared, the requirements and knowledge of the user should be recognized.
For instance, management may needs detailed reports for directing operations on
a weekly or even daily basis, and regulating agencies often require uniform data
and establish certain deadlines for the submission of certain reports. (Fees Warren, 1998, P. 225)
One of
important concept in accounting system is generally accepted accounting
principle (GAAP). GAAP is a set of standards and rules that are recognized as a
general guide for financial reporting
purposes. This recognized set of standards is used to guide accounting
profession. To be in line with GAAP, the following operating guide line has to
be followed. These are
(1)
Assumption (2) Principles & (3)
Constraints
The
assumption provides a foundation for the accounting process principles are
specific rules that indicate how economic event should be reported in
accounting report constraints on accounting process allow for a relaxation of
the principles under certain circumstance (Weygadt, 1999)
Accounting
cycle is another important concept in accounting system what makes it important
is it processes the economic events in the way that would satisfy the
information needs of decision makers like management, employee, etc. To meet
this objective, the following steps of accounting cycle should be properly
applied. These steps are illustrated follows steps for accounting cycle.
Optional
steps: If a work sheet is prepared, steps 4 and 6 are incorporated in the
worksheet. If reversing entries are prepared, they occur between steps 5, 9 and
1. more over, errors should be corrected as soon as they are discovered by
Journalizing and posting correcting entries. (Weygandt, 1999).
Likewise,
plant asset valuation is another important concepts of accounting system, plant
assets recorded in accordance with the cost principles of asset valuation. Cost
consists of all expenditures necessary to acquire the asset and make it ready
for its intended use. For instance, the purchase price of, freight cost paid by
the purchaser, and installment cost are all considered part of the cost of the
factory machinery. Cost is measured by the cash paid in a cash transaction or by
the cash equipment price equal to the fair market value of the asset given up
or the fair market value of the asset received, which ever is more clearly determinable.
Once cost is established, it become the basis of accounting for plant asset
over its useful life (Waygandt, 1999).
When it is
talk about plant asset valuation, Depreciation method should also be taken in
to account, because through depreciation method the cost of a plant asset can be
allocated expenses over its useful (service) life in a rational and systematic
manner. To do so, there are three depreciation methods (1) Straight line
(2) units
of activity, and (3) Decling balance
method.
Inventory
accounting system is another important concept in accounting system one of the
two basic system of accounting for inventories may be
(1)
The perpetual inventory system, or
(2)
The periodic inventory system
In periodic
inventory system, ‘Physical inventory count is taken at the end of the period
to determine.
1)
The cost of goods then on hand and,
2)
The cost of the goods solds during the periods. And
under periodic system, purchases of goods can record in a purchases account rather than a material
inventory account. On the other hand on
perpetual inventory system the opposite is true (Waygandt, 1999)
Lastly,
this study also take in to account internal control system of a company in
order to study the accounting system of a company. An internal control
structure should consist of policies and procedure established to provide
reasonable assurance that the enterprises goals and objectives will be
achieved. The internal control structure can be divided in to three elements.
1)
The control environment
2)
The control procedure
3)
The accounting system.
In
conclusion the accounting system should be in line with the above mentioned
accounting concepts in order to provide adequate information to interested
parties.
CHAPTER THREE
RESEARCH DESIGNING AND METHODOLOGY
3.1 Materials
The study
will be conducted in the Jimma town, on Ethiopian electric power corporation at
Jimma district, which is situated about four kilometers from the down town, of
Jimma city. The data will be required for this study will be both primary as
well as secondary data. The primary data
could be obtained from personal interview. On the other hand secondary data
will be obtained from documents and records related to assumed variables.
3.2 Source of data
It will be proposed
that both primary and secondary data will be considered for its study.
Unfortunately the secondary data is not obtained in the organization as it is
proposed, i.e Financial statement, auditing manual are not available in the
organization. However, the primary data is collected as it is proposed.
3.3 Methods of Data collection
The researcher
will collect the data himself and method of data collection will be unstructured
personal interview and secondary data. As it was mentioned earlier, secondary
data will be obtained from records and reports prepared in relation to assumed
variable and this makes secondary data important.
However, as
it was discussed in earlier paragraph some of the secondary data are not
available in the organization. But other important documents considered in
stead. These are cash report, EEPCo compile customer service procedure, petty
cash report and the like.
3.4 Sample and sampling techniques
The
sampling techniques of selected for this study is a judgmental sampling of non
probability techniques. The reasons for selecting these techniques are:-
-
It will enable the researcher to select the respondent
that fits for his question.
-
It is less time consuming as compared with other
sampling techniques.
Those
individuals contacted for this study purpose are the two district cashier,
internal auditor, service center head, store clerk.
The sample
size determination techniques will also be judgmental sampling techniques,
because the sample size will be depend up on accounting staff knows how and
experience towards the study.
3.5 Methods of data analysis
Once the
data will have captured from the two intended sources, then data analysis will
be followed to make the raw data ready for interpretation and report writing.
It is proposal by researcher that data
analyzing is an important and main part of the study. So a wider time and a
greater care should be given for this part of the study. But, before stating
the process of analysis, the raw data will be edited and checked for errors and
omissions. Then after the edit, data will be analyzed and evaluated and judged
in relation to assumed variables. Next, the analysed data will be interpreted
and discussed. Finally, a sequential and systematic report that forward
recommendation to some of the company’s accounting irregularities (if any) will
be prepared for presentation.
CHAPTER FOUR
COST AND TIME PLAN
4.1 Financial budget
|
No
|
Item
|
Quantity
|
Duration day
|
Unit price
|
Total cost
|
|
|
Personal cost
|
|
|
|
|
|
|
researcher
|
1
|
15
|
20
|
300.00
|
|
|
Transportation
|
2trip
|
1
|
62
|
124.00
|
|
|
Secretary
|
|
|
|
150.00
|
|
|
Material cost
|
|
|
|
|
|
|
Paper
|
2 ream
|
|
80
|
160.00
|
|
|
Transport
|
8
|
|
0.5
|
4.00
|
|
|
Pen
|
4
|
|
2
|
8.00
|
|
|
Pencil
|
1
|
|
1
|
1.00
|
|
|
Binder
|
1
|
|
12
|
12.00
|
|
|
Other
/miscellaneous cost
|
|
|
|
|
|
|
Total
|
|
|
|
839.00
|
4.2 Time budget
|
No
|
Activities
|
Oct.
|
Nov.
|
Dec.
|
Jan.
|
Feb.
|
Mar.
|
Apr.
|
May.
|
Jun.
|
|
1
|
Topic selection
|
x
|
|
|
|
|
|
|
|
|
|
2
|
Literature search
|
|
x
|
|
|
|
|
|
|
|
|
3
|
Proposal writing
|
|
|
x
|
|
|
|
|
|
|
|
4
|
Data collection
|
|
|
|
x
|
x
|
|
|
|
|
|
5
|
Data analysis
|
|
|
|
|
|
x
|
|
|
|
|
6
|
Research writing
|
|
|
|
|
|
|
x
|
x
|
|
|
7
|
Presentation
|
|
|
|
|
|
|
|
|
x
|
REFERENCE
-
Fees Warren
-
Jerry I. Weygandt (1999), Accounting principles
-
Bazley /Nikolai/ Jones, Intermediate Accounting
APPENDIX
DEPARTMENT OF ACCOUNTING
Student research program
Questionnaire
Questionnaire
for the research that will be conducted in "The assessment of accounting
system in Ethiopia
General Instruction
First and
for most, a would like to thank you for your willingness to fill these
questionnaire format.
1.
All prices of information will be used only for the
research purpose. you do not have to write your name. I assure that your
response will be kept in secret.
2.
Each of your response is very useful for the study
therefore please go through each question patiently and give genuine answer.
3.
Fill the blanks and put thick (ü) sign, where it is
necessary for the questions adequetely in the space provided.
4.
You can give more than once choice when it is
necessary.
A. General background
of the employee
1. Sex 5 Male 5 Female
2. Age 5 <21 5 21-30 5 31-50 5 51-65 5 > 65
3.
Educational status 5 master’s
Degree 5 Diploma
5 Bachelor
Degree 5 12 grade
complete
5 Other,
specify ____________________________
4.
Profession 5 accountant
5 Manager
5 Other,
specify ____________________________
5. Work
experience 5 < 1
year 5 4-7 years
6. What is
your position in the organization?
_______________________________________________________________
_______________________________________________________________
7. How long
do you work at this position?
_______________________________________________________________
_______________________________________________________________
B. Questions related to the study
1. Does the company use accounting cycle in order to process
the economic data of the organization?
Yes 5 No 5
If yes, how data is recorded, classified
and updated?
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
2. What are
the plant assets (Fixed assets) of the company?
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
3. Does the company use cost principle in order
to value fixed assets?
Yes 5 No 5
4. What is
the inventory system of the company?
Periodic inventory system 5 perpetual inventory system 5
5. Does the cost of inventory
reduce to expense when goods are utilized in the normal course of the business?
Yes 5 No 5
6. Does the company use only one method of depreciation for
different purpose (i.e for income tax purpose and financial reporting purpose)?
Yes 5 No 5
7. If yes answer for Question 6, what type method of
depreciation are the company following:
5 straight
line method 5 Declining
balance method
5 production
method 5 sum of the
year digits method
8. If your answer for question 6 is No, specify
____________________________
_______________________________________________________________
9. Does the company include depreciation expense in profit
and loss statement?
Yes 5 No 5
10. Does the company obeyed to generally accepted accounting
principles?
Yes 5 No 5
If yes describe how
it is implemented in the company?
_______________________________________________________________
_______________________________________________________________
______________________________________________________________________________________________________________________________
11. One of the measures of improve
data processing system is to install electronic accounting system, so in
respect to the company what is your suggestion toward the computerization of
the accounting system?
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
12. Describe what your generally
know about the internal control system of the company?
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
DECLARATION
I
undersigned declare that this student research proposal is my original work and
has not been presented for a degree in any other university and all the
materials used for this study have been duly acknowledged.
____________________________ _____________________
Name of student Signature
This
student research project (paper) has been submitted for examination with my
approval as a university advisor.
____________________________ _____________________
Name of advisor Signature
Date
____________________
|
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