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European Scientific Journal September 2018 edition Vol.14, No.25 ISSN: 1857 – 7881 (Print) e - ISSN 1857- 7431

The Relevance of Accounting Theory on Business

Financial Performance in Nigeria

Osho, Augustine E. PhD

Adebambo, Adeniyi
Department of Accounting, Achievers University, Owo, Nigeria

Doi:10.19044/esj.2018.v14n25p37 URL:http://dx.doi.org/10.19044/esj.2018.v14n25p37

Abstract
The study was on the relevance of accounting theory on business
financial performance in Nigeria. The objective of the study was to examine
how accounting theory affects financial performance of business in Nigeria.
The research was carried out, using three quoted companies (Berger Paint,
Lafarge Cement and Meyer Plc) as the study area. Secondary data was gotten
from the companys’ audited annual reports on return on asset with multiple
regression analysis. Findings revealed that accounting theory have no
significant relationship with the financial performance of business
organizations in Nigeria. Thus, it is recommended that the Management of
quoted companies must introduce new accounting theories to improve their
financial reporting quality and performance; so that the level of their profit can
significantly increase.

Keywords: Accounting Theory, Financial Performance, Financial Reporting

Quality, Return on Asset

1.1 Introduction
Accounting is often called the language of business because the
purpose of accounting is to communicate or report the results of business
operations and its various aspects to various users of accounting information
(Mahesh, 2004). The language is the means of communication of ideas or
feelings by the use of conventionalized signs, gestures, marks and articulated
vocal sound. In the same way, the accounting language serves as a means to
communicate matters relating to various aspects of business operations. In fact,
today, accounting statements or reports are needed by various groups such as
shareholders, creditors, potential investors, columnist of financial newspapers,
proprietors and others. It is the language that managers use to communicate the
firm financial and economic information to external parties like shareholders
and creditors (Badia, 2018).

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In view of the utility of accounting reports to various interested parties,

it becomes imperative to make this language capable of commonly understood
by all. Accounting could become an intelligible and commonly understood
language if it is based on generally accepted accounting principles (Mahesh,
2014). Hence, you must be familiar with the accounting principles behind
financial statements to understand and use them properly. As the individual
business enterprises keep their accounting records separately, the offer to
communicate is essentially from a business enterprise to various individuals,
groups and institutions that are having interest in the operations and results of
that enterprise. Although accounting is generally recognized with the business,
trade and profession, the business enterprise is not the only kind of
organization that makes use of accounting. Legal entities ranging from
individual to governments use prepared financial statement to obtain
information on the financial position and performance of the entity in question.
Just as the business enterprises like firms, companies, societies and institutions
keep their accounts, the nations and even the individual owners of the business
and professional entities thus.
It is necessary to have a good knowledge of accounting-grammar (in
the shape of construction of accounts, conventions, concepts, postulates,
principles, standards etc.) to interpret accounting information for purposes of
communication, reporting, decision making or appraisal. “The growth of
business organizations in size, particularly publicly-held corporation, has
brought pressure from stockholders, potential investors, creditors,
governmental agencies, and the public at large, for increased disclosure. The
public right to know more about organizations that directly and indirectly
affect them (whether or not they are shareholders) is being increasingly
recognized as essential. An open society is one that has a high degree of
freedom at the individual level and typically evidences an effective
commitment to measuring the quality of life attained. These characteristics
make it essential that the members of that society be provided adequate,
understandable, and dependable financial information from the major
institutions that comprise it (Jawahar, 2017).
Profit calculation now is no longer a simple comparison of financial
values at the beginning and end of a transaction or series of transactions. It is
now related to a complex set of allocations and valuations pertaining to the
operational activities of a business enterprise. The concept of accountancy or
accounting is now broader to include the description of the recording,
processing, classifying, evaluating, interpreting and supplying of economic
financial information for Financial statement presentation and decision making
purposes (American Accounting Association, 1996). In its tasks, accounting
has been successful technically and methodologically.

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Accounting, thus, has gone through many phases: simple double entry
bookkeeping, enterprise, government, and cost and management accounting
and recently towards social accounting. These phases have been largely a
product of changing economic and social environments. As business and
society have become more complex over the years, accounting has developed
new concepts and techniques to meet the ever increasing needs for financial
information. Without such information, many complex economic
developments and social and economic programmed might never have been
undertaken.
Back in 1941, The Committee on Terminology of the American
Institute of Certified Public Accountants (AICPA) formulated the following
definition, which was widely quoted “Accounting is the art of recording,
classifying and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of a financial character, and
interpreting the results thereof.”
In 1966, The American Accounting Association (AAA), in order to
emphasize the broader perspective of accounting, provided the following
definition of accounting, “Accounting is the process of identifying, measuring
and communicating economic information to permit informed judgments and
decisions by users of the information.”
In 1970, the AICPA of USA defined accounting with reference to the
concept of information, “Accounting is a service activity. Its function is to
provide quantitative information primarily financial in nature about economic
activities that is intended to be useful in making economic decisions”. The
term, ‘quantitative information’ used in the above definition is wider in scope
than financial or economic information. Both the definitions, AAA (1966), and
AICPA (1970) emphasize on using the information for the purposes of decision
making. The modern accounting, therefore, is not merely concerned with
record keeping but also with a whole range of activities involving planning,
control, decision making, problem solving, performance measurement and
evaluation, coordinating and directing, auditing, tax determination and
planning, cost and management accounting. Both, managers within an
organization and interested outside parties uses accounting information in
making decisions that affect the organization. The today’s accounting focuses
on the ultimate needs of those, who use accounting information.
The financial information or data recorded in the books of account must
further be analyzed and interpreted to draw meaningful conclusions. Thus,
analysis of accounting information will help the management to assess in the
performance of business operation and forming future plans. The end users of
accounting information must benefit from the analysis and interpretation of
data as some of the end users are the ‘stock-holders’. Comparison of past and

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present statements and reports, use of ratios and trend analysis are the different
tools of analysis and interpretation.
From the above discussion one can conclude that accounting is an art
which starts and includes steps right from recording of business transactions
of monetary character to the communicating or reporting the results thereof to
the various interested parties.

2.0 Literature Review

2.1.1 Concept of Accounting Practice and Accounting Theory
Accounting theory is a set of broad principles that provide a general
frame of reference by which accounting practice can be evaluated and guide
the development of new practices and procedures (Hendrickson, 1992).
According to Perara and Matthew (1996), it can also be defined as logical
reasoning in the form of a set of broad principles that provide a general frame
of reference by which accounting practice can be evaluated and guide the
development of new practices and procedures. It is the rationalization of the
rules of accounting which further explains the manner in which accountants
gather, records, classifies report and interprets financial data especially when
monetary amount is determined in the financial statements.
Dodd and Ruzycki (2008) opined that accounting theory consists of the
basic assumptions, definitions, principles and concepts and how they are
derived. It is used to explain existing practices and procedures to obtain a better
understanding and revolving areas of diversities among users of financial
statements. Unifying the views of American Association (A.A.A) (1996),
AICPA (1970) and Anao, (1996), they define Accounting theories as a
cohesive set of conceptual, hypothetical and pragmatic propositions explaining
and guiding the accountants’ actions in identifying, analyzing, measuring and
communicating economic information’s to the users of financial statements.
The day to day accounting practices are performed by successful
application of those established and generally accepted theories and principles,
as due changes in the economy, the society changes, similarly, due changes in
the socio economic structure in any country, the pattern of accounting practices
may also change (Sumilan, 2017). .If there is any change in the accounting
pattern; the pertinent theories also need necessary modification and
modulation.
Theories also help the Accountant in solving real world accounting
problems which may crop up during the practice of accounting also there could
be flaw and defects in the accounting system and if the accountant has got
sufficient knowledge of accounting theories he can easily find out and
administer advices to the management as to the future protection (Sumilan,
2017). There cannot be any practice without the proper theoretical knowledge
because theories emerge out of constant observation, analysis, examination of

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the theoretical problems and procedures. Therefore, theories are considered to

be the platform or pillar on which the whole structure of accounting stands
upon.

2.1.2 The Financial Performance Analysis

The business itself as well as various interested groups such as
managers, shareholders, creditors, tax authorities, and others seeks answers to
the following important questions:
1. What is the Financial Position of the firm at a given point of time?
2. How is the Financial Performance of the firm over a given period of
time?
These questions can be answered with the help of financial analysis of
a firm.
Financial analysis involves the use of financial statements. A financial
statement is an organized collection of data according to logical and consistent
accounting procedures. Its purpose is to convey an understanding of some
financial aspects of a business firm. It may show a position at a moment of
time as in the case of Statement of financial position, or may reveal a series of
activities over a given period of time, as in the case of an Income Statement.
“The analysis of financial statements is a process of evaluating the
relationship between component parts of financial statements to obtain a better
understanding of the firm’s position and performance.” Financial performance
includes analysis and interpretation of financial statements in such a way that
it undertakes full diagnosis of the profitability and financial soundness of the
business. The financial performance analysis identifies the financial strengths
and weaknesses of the firm by properly establishing relationships between
statement of financial position and Income Statement (Robit, 2014) .The first
task is to select the information relevant to the decision under consideration
from the total information contained in the financial statements. The second is
to arrange the information in a way to highlight significant relationships. The
final is interpretation and drawing of inferences and conclusions. In short,
“financial performance analysis is the process of selection, relation, and
evaluation.”(Meigs, 1978). Financial analysis is beneficial for short term as
well as long term solvency (Nilanjan, 2013). Financial statements are
significant analytical tools for the management of the business and it is
essential to analyze the financial performance of the company with its financial
statement (Anusha, 2013)
According to Eldon and Hendrickson (1984), “The primary focus of
financial reporting is information about an enterprise’s performance provided
by measures of earnings and its components”. In order to analyze financial
statement properly, users must have a basic understanding of the concept and
principles underlying their preparation. Without such an understanding users

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will not recognize the limits of financial statements. In the opinion of Stanley
(1984), “The financial manager must know how to interpret and use these
financial statements in the allocation of the firm’s financial resources to
generate the best return possible in the long run. Finance is the link that
integrates the economic theory with the numbers of Accounting.”
Measurement of performance through the financial statement analysis provides
a good knowledge about the behavior of financial variables for measuring the
performance of different units in the industry and to indicate the trend of
improvement or deterioration in the organizations. “Performance is dependent
on effort, abilities, traits and the individual’s perception of his role (Michael
1981)”. While measuring the performance of a firm or an enterprise we need a
measuring unit. Human aims and beliefs are mostly realized through the
establishment of diverse kinds of associations. All associations were
established for fulfillment of some goals and objectives. Thus association
needs performance measurement to find out as to how much is organization
has achieved by its course of action for its targets.
Ratios have been used as a measure of performance in various
instances. Altman (1968) developed a model that uses ratios for bankruptcy
prediction of firms. Prior to Altman, there was Beaver (1966) who also
employed financial ratio in predicting the financial health of firms.
Subsequently Beaver (1966) and Alltman (1968) study were followed by other
researches in predicting firms’ bankruptcy (for example; Charitou, (2004);
Beaver, Mcnichols & Rhie (2005); Dewaelheyns & Van Hulle, (2006). All
these studies have equally adopted financial ratios in predicting the financial
health of the sampled firms. The use of financial ratios in measuring
performance is not limited to bankruptcy prediction. Rather, they have been
employed in various other contexts. Liu and O’Farrell (2009) employed
financial ratios in comparing the strengths and weaknesses of US firms and
China firms. Therefore, performance measure entails comparing actual results
with an established standard.

2.1.3 Significance of Financial Statements Analysis

Business is mainly concerned with the financial activities. In order to
ascertain the financial status of the business every enterprise prepares certain
statements, known as financial statements. Financial statements are mainly
prepared for decision making purposes (Trivedi, 2010). The information
provided in the financial statements is not adequately helpful in drawing a
meaningful conclusion. Thus, an effective analysis and interpretation of
financial statements is essential to measure the efficiency, profitability,
financial soundness and future prospects of the business units.

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Financial analysis serves the following purposes:

1. Measuring the profitability
The main objective of a business is to earn a satisfactory return on the
funds invested in it. Financial analysis helps in ascertaining whether adequate
profits are being earned on the capital invested in the business or not. It also
helps in knowing the capacity to pay the interest and dividend. It enhances
customer’s confidence level through goodwill (Burca & Batrinca, 2014)
2. Indicating the trend of Achievements
Financial statements of the previous years can be compared and the
trend regarding various expenses, purchases, sales, gross profits and net profit
etc. can be ascertained. Value of assets and liabilities can be compared and the
future prospects of the business can be envisaged.
3. Assessing the growth potential of the business
The trend and other analysis of the business provide sufficient
information indicating the growth potential of the business.
4. Comparative position in relation to other firms
The purpose of financial statements analysis is to help the management
to make a comparative study of the profitability of various firms engaged in
similar businesses. Such comparison also helps the management to study the
position of their firm in respect of sales, expenses, profitability and utilizing
capital, etc.
5. Assess overall financial strength
The purpose of financial analysis is to assess the financial strength of
the business. Analysis also helps in taking decisions, whether funds required
for the purchase of new machines and equipment are provided from internal
sources of the business or not if yes, how much? And also to assess how much
funds have been received from external sources.
6. Assess solvency of the firm
The different tools of an analysis tell us whether the firm has sufficient
funds to meet its short term and long term liabilities or not.

2.1.4 Beneficial Parties from Financial Statement Analysis

There are various advantages of financial statements analysis. The
major benefit is that the investors get enough idea to decide about the
investments of their funds in the specific company. Secondly, regulatory
authorities like International Accounting Standards Board can ensure whether
the company is following accounting standards or not. Thirdly, financial
statements analysis can help the government agencies to analyze the taxation
due to the company. Moreover, company can analyze its own performance
over the period of time through financial statements analysis. The need and
importance of performance analysis rise from the viewpoint of different
parties, which are actively interested in the affairs of an enterprise. Analysis of

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financial statements has become very significant due to widespread interest of

various parties in the financial results of a business unit. The various parties
interested in the analysis of financial statements are:
1. Management
According to Erich, (1977), Managers are responsible for efficiency,
current and long term profit from operations and effective development of
capital and other resources in the process.” Performance analysis may help the
management in evaluating the effectiveness of its own plans and policies.
2. Employees and Trade Unions
Employees of the stock exchanges are interested in the profits and the
financial position of a concern firm (Mahesh, 2004) .The employees measure
the efficiency of the firm with the satisfactory profit margin and adequate cash
flow. The employees can compare the past performance and the present
performance of firm by performance appraisal.
3. Investors
Investors are interested in present and expected future earnings as well
as stability of these earnings. Investors are the real investors of any enterprise
(Eshna, 2017). In case of stock exchange, the investors can know profitability,
productivity and overall efficiency of the stock exchange by studying financial
performance analysis of stock exchange. Shareholders or proprietors of the
business are interested in the well-being of the business. They like to know the
earning capacity of the business and its prospects of future growth.
4. Bond holders and Lenders
Bond holders are interested in the cash-flow ability of the firm mainly
concerned with the appraisal of firm’s capital structure, the major sources and
uses of funds, profitability over time, and projection of future profitability
(Eshna 2017). Lenders to the business like debenture holders, suppliers of
loans and lease are interested to know short term as well as long term solvency
position of the entity. They want to know whether the loan and the interest
attracting to them will be paid when due (Gulaw, 2016).
5. Government and its agencies
The government and its agencies are keen interested in studying the
performance of stock exchanges as a whole. By studying the performance of
stock exchanges, the government can assess the growth of industries and
economy (Shodhganga, 2017). Moreover the government can take decision
about tax structure and incentives for stock markets. Government and their
agencies need financial information to regulate the activities of the enterprises/
industries and determine various policies. They suggest measures to formulate
policies and regulations.
6. Society
In the Society, there are various agencies like media, banks,
economists, tax consultants and authorities, awakened citizens who are

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interested in the performance of stock exchanges. The society at large also

expects to know about the social performance such as environmental
obligations, employment avenues and social welfare etc.
7. Suppliers and trade creditors
The suppliers and other creditors are interested to know about the
solvency of the business i.e. the ability of the company to meet the debts as
and when they fall due. Trade creditors are interested in the liquidity of the
firm, that is, appraisal of firm’s liquidity (Meigs, 1978)
8. Researchers
They are interested in financial statements in undertaking research
work in business affairs and practices. Thus, it can be said that different parties
have interest in financial statement for different reasons. Measurement of
profitability is as essential as the earning of profit itself for a business firm.
The profitability of a business firm can be evaluated or measured from number
of perspectives, and there are various quantitative as well as qualitative
methods that can be employed for this.

2.1.5 Conceptual Framework of Accounting Theory on Business Financial

Performance in Nigeria

Predictors
(Constant) Dependent
Variable

Positive Accounting
Theory
Return on
Asset (ROA)
Normative
Accounting Theory

Source: Researchers’ Conceptual Framework of Accounting Theory on Business Financial

Performance in Nigeria Model

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2.2 Theoretical framework

This paper adopted the Stakeholders theory, and Decision usefulness
theory, Positive accounting theory and Normative for situating the study.

2.2.1 Stakeholder’s theory considers all those who had one input or the other
towards achieving organization goals and objectives. These groups are all
interested in the overall performance of the business and in its financial reports
to ensure proper accountability and profitability.
Many users, especially external, use annual reports to make investment and
other decisions. Investors, creditors, lenders have to assess the earnings
prospects of companies by examining the implications of the different
accounting procedure (Jawahar, 2017). All the users are interested to know the
effect of alternative reporting methods, on their decisions (welfare). For
example, corporate executives want to know how straight-line method of
depreciation affects their welfare vis-a-vis accelerated depreciation. Similarly,
if a company is concerned about the market value of its shares, the accounting
methods effects on share prices are to be analyzed.

2.2.2 ‘Decision-Usefulness’ Theory

The decision-usefulness theory emphasizes the relevance of the
information communicated to decision making and on the individual and group
behavior caused by the communication of information. Accounting is assumed
to be action-oriented, its purpose is to influence action, that is, behavior;
directly through the informational content of the message conveyed and
indirectly through the behavior of preparers of accounting reports. The focus
is on the relevance of information being communicated to decision makers and
the behavior of different individuals or groups as a result of the presentation of
accounting information.
In the study of Patton and Littleton (1940), they gave user need even
more prominent attention, including them in their statement of the purpose of
accounting. The purpose of accounting is to furnish financial data concerning
a business enterprise compiled and presented to meet the needs of
management, investors and public. The most important users of accounting
reports presented to those outside the firm are generally considered to include
investors, creditors, customers, and government authorities.
However, decision usefulness can also take into consideration the
effect of external reports on the decisions of management and the feedback
effect on the actions of accountants and auditors.
Since accounting is considered to be a behavioral process, this theory
applies behavioral science to accounting. Due to this, decision-usefulness
theory is sometimes referred to as behavioral theory also. In the broader
perspective, decision usefulness studies analyses behavior of users of

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information. A behavioral theory attempts to measure, and evaluate the

economic, psychological and sociological effects of alternative accounting
procedures and modes of financial reporting.
According to Chambers (1955),”The objective of accounting is to
provide financial information about the economic affairs of an entity to
interested parties for use in making decisions”. To be useful in making
decisions, financial information must possess certain normative qualities such
as relevance, reliability, objectivity, verifiability, freedom from bias, accuracy,
comparability, understandability, timeliness and economy. It must also provide
for the development of the theory on the basis of knowledge of decision
processes of investors, tax authority, negotiating regulating agencies and other
external users of accounting as well as managers.

2.2.3 Positive Accounting Theory

The basic message in positive theory of accounting is that most
accounting theories are unscientific because they are normative and should be
replaced by positive theories that explain actual accounting practices in terms
of management’s voluntary choice of accounting procedures and how the
regulated standards have changed over time. It attempts to set forth and explain
what and how financial information is presented and communicated to users
of accounting data. Positive theory yields no prescriptions and norms for
accounting practices. It is concerned with explaining accounting practice.
Watts and Zimmerman (1986) asserted that, “The objective of positive
accounting theory is to explain and predict accounting practice. Explanation
means providing reasons for observed practice. For example, positive
accounting theory seeks to explain why firms continue to use historical cost
accounting and why certain firms switch between a numbers of accounting
techniques.
Prediction of accounting practice means that the theory predicts
unobserved phenomena.” Unobserved phenomena are not necessarily future
phenomena; they include phenomena that have occurred, but on which
systematic evidence has not been collected. For example, positive theory
research seeks to obtain empirical evidence about the attributes of firms that
continue to use the same accounting techniques from year to year versus the
attributes of firms that continually switch accounting techniques. We might
also be interested in predicting the reaction of firms to a proposed accounting
standard, together with an explanation of why firms would lobby for and
against such a standard, even though the standard has already been released.
Testing these theories provides evidence that can be used to predict the impact
of accounting regulations before they are implemented.

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2.2.4 Normative Accounting Theory

The 1950s and 1960s are described as the ‘golden age’ of normative
accounting research. During this period, accounting researchers became more
concerned with policy recommendations and with what should be done, rather
than with analyzing and explaining what currently accepted practice was.
Normative theories in this period concentrated either on deriving the ‘true
income’ (profit) for an accounting period or on discussing the type of
accounting, information which would be useful in making economic decisions.
Normative accounting theory attempts to prescribe what data ought to be
communicated and how they ought to be presented; that is, they attempt to
explain ‘what should be’ rather than ‘what is.’ Financial accounting theory is
predominantly normative (prescriptive). Most users are concerned with what
the contents of published financial statements should be; that is, how firms
should account (Jawahar, 2017).
Government regulations relating to accounting and reporting has acted
as a major force in creating a demand for normative accounting theories
employing public interest arguments, that is, for theories purporting to
demonstrate that certain accounting procedures should be used, because they
lead to better decisions by investors, more efficient capital market, etc. Further,
the demand is not for one (normative) theory, but rather for diverse
prescriptions and suggestions.
In the study by Scott (2004) and Hodgson (2006), it says whether or
not normative theories have good predictive abilities depend on the extent to
which individuals actually make decisions as those theories prescribe.
Certainly, some normative theories have predictive ability; we do observe
individuals diversifying their portfolio investments. However, we can still
have a good normative theory even though it may not make good predictions.
One reason is that it may take time for people to figure out theory. Individuals
may not follow a normative theory because they do not understand it, because
they prefer some other theory or simply because of inertia. But, if a normative
theory is a good one, we should see it being increasingly adopted over time as
people learn about it. However, unlike a positive theory, predictive ability is
not the main criterion by which a normative theory should be judged.
It is difficult to say which methodology positive or normative should
be used in the formulation and construction of accounting theory. It is argued
that, given the complex nature of accounting, accounting environment, issues
and constraints, both methodologies may be needed for the formulation of an
accounting theory. Positive theory may be used in justifying some accounting
practices. At the same time, normative theory may be useful in determining the
suitability of some accounting practices which ought to be followed in terms
of normative theories (Jawahar, 2017).

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3.0 Methodology
This study used ex-post facto research design using the audited
financial information extracted from the companies’ Financial Statements. The
study compares the financial performance of three quoted companies
computed from the companies audited financial statements based on Generally
Accepted Accounting Principle. Descriptive and inferential statistics is used to
analyze the results; data were tested using the Ordinary Least Square Linear
Regression model based on Pearson correlation coefficient and findings from
the data were presented in tables. This enables the researchers to explain the
physical attributes of the data collected while the hypothesis is tested at 5 per
cent significance level by means of both t-statistics and f-statistics.

4.0 Results
4.1 Test of Hypothesis
Accounting Theory does not have significant impact on business
financial performance in Nigeria.
Model Summaryb
Model R R Square
Adjusted Std. Error of Durbin-
R Square the Estimate Watson
1 .468a .219 .011 .1876256 2.387
a. Predictors: (Constant), Positive Accounting Theory, Normative Accounting
b. Dependent Variable: Return on Asset
Source: Researchers’ Model Summary Result

ANOVAa
Model Sum of df Mean F Sig.
Squares Square
Regression .148 4 .037 1.051 .414b
1 Residual .528 15 .035
Total .676 19
a. Dependent Variable: Return on Asset
b. Predictors: (Constant), Positive Accounting Theory, Normative Accounting Theory
Source: Researchers’ ANOVA Result

Coefficientsa
Model Unstandardized Standardized T Sig.
Coefficients Coefficients
B Std. Error Beta
(Constant) .287 .361 .793 .440
Positive Accounting
-.005 .006 -.323 -.880 .393
1 Theory
Normative
.007 .017 .224 .427 .676
Accounting Theory
a. Dependent Variable: Return on Asset
Source: Researchers’ Coefficients Result

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4.2 Discussion of Findings

The Regression analysis above shows that the Model summary
statistics revealed that Pearson correlation coefficient represented by letter
‘’r’’ is 0.219 which shows that there is low positive correlation between
accounting theory and Return on Asset of Business Organizations. Also, the
regression analysis result, reveal that the value of the R Squared is 21.9 per
cent (i.e.0.219) and this implies that 21.9 per cent of the variation in the
independent variable can be accounted for by the dependent variable, while the
remaining 78.1 per cent can be accounted for by other factors outside the
model. This simply shows that accounting theory alone have low impact on
business financial performance in Nigeria.
The Probability (F-statistic) is not statistically significant. This is
because 0.414 is more than the accepted level of significance, which is 0.05.
Therefore, the result shows that accounting theory has no significant impact on
business financial performance in Nigeria proxy by return on equity (ROE).
Likewise, accounting theory in business organization does not have a
significant impact on the investment returns gotten from total asset.
Based on the above study assertion, finding shows that accounting
theory has no significant relationship with the performance of quoted
companies in Nigeria. This is because positive accounting theory has no
significant impact on information contained in the financial statement, and this
was confirmed by the P-value obtained (0.393) from the statistical analysis. It
also shows that normative accounting theory has significant effect on
information contained in the financial statement, because the P-value obtained
(0.676) was higher than the benchmark value of 5 per cent specified in this
analysis.

5.0 Summary and Conclusion

Accounting theory may be based on empirical evidence and practices
as well as being formulated using hypothetical and speculative interpretations;
it could be developed and refine by the process of accounting research; it could
be formulated as a result of both theory construction and theory verification.
The certainty is, accounting theory has a great impact on accounting practices
and reporting practices because this aids the informational requirements of the
external users hence it provides a framework for evaluating current financial
accounting practice and developing new practice. It provides accountants with
guidance on the most appropriate procedures to adopt in the preparation,
presentation and interpretation of financial report.
Theory has great utility for improving accounting practices, resolving
complex accounting issues and contributing in the formulation of a useful
accounting theory (Jawahar, 2017). The various persons and parties interested
in the business like the government, public, investors, money-lenders,

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researchers etc, rely more on the accountant knowing theories than the
accountant without any theoretical knowledge.
Above all, no one can deny now a days the usefulness of having
theoretical knowledge in the practice of accounting because it supply effective
and accurate information to the management and makes the accountant
perform the works skillfully and flawlessly.
Therefore, the researchers concluded that positive accounting and
normative accounting theory has no significant impact on business financial
performance in Nigeria.
Based on the findings of the study, the following recommendations
have been outline which will be useful to stakeholders:
• Management of quoted companies must introduce new accounting
theories to improve their financial reporting quality and performance;
so that the level of their profit can significantly increase since this study
has confirmed that both variables have no significant influence on each
other.
• Stakeholders and potential Investors in quoted companies should
question any fluctuation in value of return on asset, because the
accounting theory adopted has no impact on the variable and which will
eventually affect the profit value.
• Quoted organization should ensure they adopt best practices in
financial reporting, so as to improve shareholders wealth since this
study has established statistically that both variables do not have
significant impact on each other.

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