Straight Line Method of Depreciation and Financial Information Quality of Nigerian Service Companies

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1 Intrnational Journal of Financ & Accounting Studis ISSN Vol. No. ; Octobr 01 Australian Intrnational Acadmic Cntr, Australia Flourishing Crativity & Litracy Straight Lin Mthod of Dprciation and Financial Information Quality of Nigrian Srvic Companis Abuh Adah Dpartmnt of Accountancy Collg of Businss and Managmnt Studis Kaduna Polytchnic, Kaduna Nigria adahconsults@yahoo.com Rcivd: Accptd: Publishd: doi:10.77/aiac.ijfas.v.n.p.1 URL: Abstract Financial information quality had not rcivd th ncssary attntion it dsrvs until rcnt yars following rportd cass and consquncs of corporat scandals and failurs. In adopting gnrally accptd accounting principls, th prparrs of financial statmnts sm to bliv that thy ar providing adquat and rliabl financial information. Howvr, this may not mt th divrsifid nds of th invstors and prdiction ability for futur rlianc. This may b as a rsult of adopting inappropriat financial and accounting policy capabl of influnc mislading oprational rsult that can lad to corporat failurs. On aspcts of th inappropriat policy for th purpos of this study is dprciation policy. On basic problm that nds to b addrssd is whthr financial information which has faturs of high quality standard will automatically provid solution to this inappropriat policy? This study focuss on this gap but in particular rfrnc to straight lin mthod (SLM) of dprciation that is commonly bing adoptd in th prparation and prsntation of financial statmnts in Nigria. Th objctiv is thrfor to ascrtain th xtnt to which th SLM of dprciation can influnc financial information quality of srvic companis in Nigria. Primary data wr collctd through qustionnair. Th rtrivd qustionnairs wr analysd using logistic rgrssion. Th study finds that straight lin mthod of dprciation influncs financial information quality of srvic companis in Nigria. Th study rcommnds that dspit th gnral us of straight lin mthod of dprciation, othr mthods of dprciation should b ncouragd for adoption in ordr to provid an opportunity for comparing dprciation rsults. Th objctiv is to improv knowldg of dprciation mthodology for bttr option. Kywords: Dprciation, Financial information quality, Logistic rgrssion, Straight lin mthod 1. Introduction Financial information quality has not bn rciving th ncssary attntion it dsrvs until rcnt yars following rportd cass and consquncs of corporat scandals and failurs abroad and in Nigria. Ths includ organizations lik th Tyco, Parmalat, Enron, Xrox, African Intrnational bank, Savannah Bank, Arwa txtil and fw othrs. Maintnanc of high quality accounting standard in prparing financial statmnts is quivalnt to financial information quality. Thrfor, th information contnts should hav th ability and wapon to disclos or dtct any significant dfcts in th financial rporting. Altrnativly, th financial information quality should b sn as an attribut that can influnc th usrs in making prdictions about th prsnt outcoms and to confirm som prior xpctations. Bllo (009) is of th viw that accounting information should hav th ability of bing rlvant if th rquird minimum quality of rprsntativ financial rporting is rcordd. Financial information quality is xpctd to rflct th tru and corrct financial pictur with which financial rports of an ntrpris convy about its financial transactions and a tim non-financial transactions in a particular priod. On main objctiv of financial rporting is to prsnt, communicat and ducat th usrs, mainly th invstors and potntial invstors about th financial prformanc and position of a company in ordr to assist thm in taking invstmnt and othr financial dcisions. Tru and corrct financial pictur mans that th financial information can b rlid upon by thos who will us it to adjudicat th conomic vnts. This is bcaus rliability of financial information is sn as having th worth of rprsntation, vrifiability and faithfulnss. Anothr fatur of corrct pictur in this contxt is rlvanc. Accounting information should b rlvant if th information contnt can command th usrs to form indpndnt opinions about th prsnt conditions, vnts and that thy can prdict th futur outcoms of a company. In this rgard, th financial information must b timly and must hav a fdback valu. Comparability is anothr quality rquird of corrct rprsntation of information quality. Th financial information should provid for comparison vn within th sam company ovr th yars prformanc and which can also form th basis of futur prdiction. Bsids, th financial information can b compard with similar information in othr similar companis within th sam industry. This study focuss on th straight lin mthod (SLM) of dprciation, bcaus it is assumd to b on componnt that givs ris to th proxy of financial information quality not only in th srvic industry but most industris particularly in

2 IJFAS ():1-7, 01 Nigria. Th author is of th viw that dprciation approach and or mthod will hav a vital rol in xplaining to som gratr lvl, on financial information quality. This follows that, onc inappropriat dprciation valu is applid using a particular mthod of dprciation, financial rsults would qually b inappropriat, and in turn violat th information quality. A bttr undrstanding of th natur of businss would provid informational guid to slcting an appropriat dprciation mthod. Anothr dtrmining variabl is th dgr of mploymnt of th assts along with th xpctd rat of consumption in that businss. In this work, SLM of dprciation will b considrd as th indpndnt variabl whil financial information quality will srv as a dpndnt variabl. Prparation, prsntation and communication of high quality financial statmnts ar th concrn of all th usrs bcaus th statmnts will hav to play significant rol such that can b rlid upon to tak dcisions. This should b takn as a srious task bcaus rosion in th financial information can crat a dirct link to illusion in th financial statmnts. In adopting gnrally accptd accounting principls, th prparrs of financial statmnts and financial policy makrs sm to bliv that thy ar providing adquat and rliabl financial information. Howvr, this may not mt th divrsifid nds of th invstors and prdictiv ability for futur rlianc of th usrs. What is prsntly obtainabl in trms of financial information quality may not b what it should, may b as a rsult of adopting inappropriat financial and accounting policy capabl of influncing mislading oprational rsults (and which th auditor may qually b mislad to xprss satisfactory opinion). Hnc, som companis lik Parmalat, Enron, Xrox, African Intrnational bank, Arwa txtil and othrs had faild and som othrs may b xprincing similar financial crisis. On aspcts of th inappropriat policy for th purpos of this study is dprciation policy. Th impact of adopting this policy can lad to dclaration of incorrct and mislading profits, arnings thn down to financial scandals of all typs. On basic problm that nds to b addrssd is whthr financial information which has faturs of high quality standard will automatically provid solution to th adoption of inappropriat financial and accounting policy? This study focuss on this gap but in particular rfrnc to straight lin mthod (SLM) of dprciation that is commonly bing adoptd in th prparation and prsntation of financial statmnts mainly in Nigria. Thr is howvr, a frdom for a company to adopt any particular mthod of dprciation having rgard to th natur of its opration, yt most of th companis in Nigria adopt SLM. Valu of dprciation on assts and arnings is normous that rquirs study. From any financial statmnts of an ntrpris, dprciation plays an important rol in dtrmining th lvl of oprating rsult; as inappropriat adoption of dprciation mthod will advrsly affct th rportd profit or loss. Howvr, in th minds of almost all invstors or potntial invstors and othr stakholdrs today, th oprating rsult (or profit) of an ntrpris is always th yard stick or th bottom lin for masuring financial prformanc irrspctiv of how th figur is arrivd at. For instanc, thr may b two companis with similar paid up shar capital and common charactristics with rportd profits of say Nm and N.m rspctivly but th invstors may conclud that th company with N.m is bttr. This may b far from th tru pictur if th valu of dprciation is known vn though it dos not involv cash movmnt. Th objctiv of this study is to ascrtain th xtnt to which straight lin mthod of dprciation can influnc financial information quality of srvic companis in Nigria. Null hypothsis is formulatd in lin with th objctiv to provid an opportunity to tst th rsponss of th rspondnts. Th hypothsis is that, th straight lin mthod of dprciation has no significant impact on financial information quality of srvic companis in Nigria. Bcaus of th natur of this study, qustionnair will b administrd in ordr to achiv th objctiv. Th significanc and possibly contributions of this work ar in thr spcific aras. Th first ara is th invstors and potntials invstors as it will ducat thm on how dprciation valu can affct th oprating profit (or loss) and th valu of fixd assts in th statmnt of financial position which togthr form th basis of thir dcisions making procss. Th scond ara is th prparrs of financial statmnts and accounting policis makrs by taking into considration th impact of dprciation on th financial information quality. Th last st is th rsarchrs, studnts and othr usrs of financial information by prparing thir minds to th rlvanc of straight lin mthod of dprciation on th financial information quality. Th work is dividd into fiv parts. Th first part rprsnts gnral introduction to th study including motivational factors for undrtaking th assignmnt. Part two rviws th rlvant litratur to provid an insight into th work whil part thr idntifis th mthodology adoptd. Part four discusss th rsults from data analysis and th final part stats th conclusion and rcommndation of th study.. Rviw of Rlatd Litratur.1 Concpt of Dprciation in th Financial Information Quality Th purpos of dprciation of non-currnt or fixd asst is to nsur that organizations appropriatly allocat and sprad all th immdiat costs associatd with th acquisition of that asst to th xpctd numbr of its usful lif. It is providd for in accounting to nabl a st of financial statmnts figurs rflct tru and fair valus. Th focus is to masur nar accurat actual consumption of th asst that is usd up in an accounting priod ithr dirctly or indirctly in gnrating incom in that businss. Th purpos of accurat and propr dprciation valu is to nsur that th rportd information in th financial statmnts rflct tru and corrct viw to nabl th usrs hav no far in taking appropriat and rliabl invstmnt and financial dcisions. Dprciation is on financial languag which both in thory and practic has bn rciving lss attntion by a good numbrs of rsarchrs, authors and practitionrs dspit its significant position in th financial rporting. Bcaus dprciation has not bn attracting th intrst of financial or cost accounting contributors, thr ar fw litraturs on th topic including its mthod. Anao (009) stats that, dprciation is a concpt which attmpts to dscrib th

3 IJFAS ():1-7, 01 contribution mad by fixd assts in th cours of a priod s undrtaking. Th contribution rprsnts valu cdd ovr by th asst, which prsumably flows into th total valu of th goods and srvics producd in that accounting priod. Th provision of dprciation in financial accounting is not only ncssary but mandatory bcaus utilization of noncurrnt assts in any going concrn businss is mandatory; thrfor th part that is assumd to hav bn consumd must b accountd for during that priod. Th Nigrian Statmnt of Accounting Standard (SAS) No. 9 ss dprciation as an stimat of th portion of th historical cost or rvalud amount of a fixd asst chargabl to oprations during an accounting priod. Th standard also rcognizs that in dtrmining dprciation, cognizanc is usually takn of th war and tar on an asst rsulting from th us, ffluxion of tim or obsolscnc dictatd by changs in tchnological and markt forcs. Intrnational Accounting Standards (IAS) No. 16 dfins dprciation as th systmatic allocation of th dprciabl amount of an asst ovr its usful lif. Th dprciabl figur is usually th original or initial cost of that asst lss its xpctd rsidual valu. Th dfinition of Statmnt of Standard Accounting Practic (SSAP) No. 1 is not diffrnt from th othr two standards. Ths dfinitions ar qually xplanatory on that part of th assts that is usd up to facilitat th businss of an organization. Addji (00) in his txt book adopts th dfinition of SAS N. 9. Dprciation is critical in th financial rporting bcaus its procss should b sn as a dirct consqunc of th matching concpt. Dprciation is that part of th original cost of a non-currnt asst that is consumd during its priod of us by th businss (Wood and Sangstr, 008). Th authors mphasis is that th yarly amount of dprciation should b basd on an stimat of how much of th ovrall conomic usfulnss of th asst has bn usd up in that accounting priod. Ahmd (011) concptualizs dprciation as that portion of th total cost that is to b allocatd for consumption in that yar. It is a non-cash xpns chargd in th incom statmnt in accordanc with on of th most important accounting principls matching principl. In th words of Epstin and Mirza (00) and Migs, Williams, Haka and Bttr (001), dprciation is a mthod of cost allocation and not asst valuation hnc it dos not tak into account any changs in th markt valu. Th concpt of dprciation rmains an ida which dos not accuratly translat into prcis masurmnt. Whr for instanc, thr is an agrmnt as to what should b th valu of dprciation, th problm still rmain that thr is no objctiv basis of stablishing how much of th valu has bn contributd by th asst to th priod of production or rvnu (Anao, 009). From a fw availabl litraturs, th Nigrian accounting bodis including accounting practitionrs do not dvlop, and dirct any particular mthod of dprciation to b adoptd and usd in a particular industry. This gap thrfor lavs th srvic industry and managmnts to slct and adopt whatvr mthod of dprciation thy bliv can provid appropriat and commnsurabl dprciation on th assts that ar consumd in a particular accounting priod. In txt books and fw litraturs, thr ar various mthods of dprciation. Som of thm includ straight lin, diminishing balanc oftn rfrrd to as rducing balanc, sum of digits, conomic dprciation, annuity, rplacmnt/rnwal, dprciation fund, insuranc policy, rvaluation, dpltion, machin hour rat and production unit that ar ithr put into usd or not. Othr mthods that may b contmplatd for adoption or othrwis but only introducd by this study includ: dirct hiring cost, capital allowanc, and optimal pay back cost. Th managmnt of th Nigrian srvic industry oftn dos not tak th opportunity of adopting mor than on or two of ths mthods to tst in ordr to find out which on would provid bttr/bst rsult in th industry. Ahmd (011) is of th viw that any mthod slctd is a judgmntal mattr but concptually, on should slct a mthod that most closly approximat th actual pattrn of us of th asst so that th cost allocation is appropriat. Anao (009) blivs that th natur of th various typs of assts mployd and usd by th businsss should provid for th justification in dciding th masurmnt of dprciation. This viw ordinarily should hav bn valid and thn rmov th complxity in masuring part of th asst that has bn consumd in a particular financial priod, but this is not considrd in practic, at tim vn in th financial accounting txt books. Hirani (199) mphasizs that mthod of dprciation should b carfully slctd by an ntrpris bcaus th dprciation charg will hav a significant ffct on th rsults of financial position particularly in a cas of capital intnsiv unit.. Straight Lin Mthod as Accounting Dprciation In Nigria, straight lin mthod of dprciation is usually adoptd in almost all th industris, but thr is no clar justification for adoption othr than its simplicity in undrstanding and application (Adah & Dogarawa, 01). This SLM is in lin with what is obtainabl in most companis in Amrica. Th study of Kiso, Waygandt and Warfild (008) rvald that about 8% of Amrican companis usd SLM of dprciation, % adopt rducing balancing approach and th rmaining 1% of th companis adopt othr diffrnt mthods. Howvr, most of th British companis will prfr to adopt rducing balancing mthod (Ahmd, 011). In Bangladsh, SLM, rducing balancing and units of production mthods of dprciation ar in us (ICAB, 008). Dspit th bnfits accruabl to th adoption of SLM of dprciation such as simplicity of calculation and undrstanding, thr ar numrous risks attachd to it that rquirs diagnosis. Som of which includ i) difficultis xprincd in trying to find vidnc to support th critical assumption of th usful lif whn trying to dprciat long-livd assts lik buildings, roads, and othrs ii) th mthod is oftn applid basd on ag of th asst rathr than obsolscnc iii) it assums that th fixd asst rndrs qual srvic vry yar which ralistically is not corrct iv) th mthod fails to considr xpnss of rpairs and maintnanc that may occur which will incras th valu potntial of th assts v) lik in som mthods, it dos not provid funds for rnwal or rplacmnt of th asst aftr its xpiration vi) on difficulty is th calculation of dprciation whn additions ar mad during a yar and vii) Adjustmnt for any diffrnc in dprciation valu that may aris from th us is ignord.

4 IJFAS ():1-7, 01 Ahmd (011) stats that th SLM of dprciation is basd on two unralistic thoris that th bnfits to b rcivd from th asst will b th sam ach priod and it xpcts th maintnanc and rpair cost to b constant ovr tim. Only SLM is considrd for th purpos of rviw bcaus practic has shown that it is th most common mthod that is practisd in Nigria. In Nigrian accounting practic today and tracing bhind, th commonst dprciation mthod bing adoptd is th straight lin (Adah & Dogarawa, 01). Th SLM is a rplica of capital allowanc, not only th mthod but th rat is similar to capital allowanc rats providd by th Companis Incom Tax Act (CITA, 1979). Th mthod is applid irrspctiv of th us of th asst in an organization. As notd by Adah (007), capital allowanc rats ar stabl bcaus of th librty to adopt any mthod of dprciation by organizations which dfinitly will not provid similar capital allowancs for thm. Rasons advancd for th capital allowanc to srv as dprciation includ th following: i) to avoid librty of dprciation policis by organizations ii) th nd to standardiz dprciation rats and its mthods for common application iii) th nd for consistncy in granting dprciation as capital allowanc iv) th nd for control of capital xpnditur at all tims and v) to allow uniformity in trating rats and mthods of dprciation.. Challngs in th Accounting Dprciation Th critical challng in dprciation is how to ralistically dtrmin how much cost of th fixd asst is attributabl to th ovrhads that must b takn off from gross profit (or addd to gross loss) in a financial yar or accounting priod. Anothr challng is how much of th fixd asst valu should b providd for or carrid forward that will fit into th numbr of xpctd usful lif with or without th thrat of going concrn. Litraturs (Popoola, (011); Anao (009) and Wood and Sangstr (008) hav shown that dprciation valu is th function of i) original cost of th asst ii) stimatd usful lif and iii) th rsidual or salvag valu of th assts aftr rtiring from th activ srvic. Unfortunatly, out of ths variabls, is only on (that is original cost) that can b dtrmind with crtainty. It is always difficult to prdict how long an asst will provid for a cost-ffctiv srvic (Financial Sustainability Program, 008). Expctd usful lif is also anothr strong issu that is not asy to stimat vn bcaus of rpairs and maintnanc, usag and brak down, yt it must b approximatd for th purpos of stimating ralistic dprciation. Hultn and Wykoff (1996) s study stats that accounting dprciation is only capabl of providing knowldg of th historical cost of invstmnt, which is not nough to dtrmin th amount of productiv capacity in a firm. Ths contributors notd that th nt book valu aftr taking th computd dprciation only intndd to approximat th prsnt valu of th incom accruing to an asst but can gnrat unrsolvd problms. A similar viw is that of Zajac (199) who is of th opinion that th us of accounting dprciation may lad to a nt book valu that may b far from rsalabl valu. This may tantamount to giv wrong imprssion to th sharholdrs and othr principal stakholdr about th tru and corrct valu of th assts.. Dprciation Mthod and Financial Information Quality Appropriat and adquat accounting policis ar th function of financial information quality. Thr ar various accounting policis that ar bing adoptd across organizations in th prparation and prsntation of accounts and its information. Th policis ar adoptd bcaus of th blif that thy ar satisfactory in gnrating high quality financial information rquird by th usrs. Howvr, ths ar adoptd not bcaus thy ar th bst or bttr than any altrnativ options, but bcaus th prparrs of th accounts and th policis makrs oftn think lss about th rlvanc of such policis on financial information quality. At tims, th accounting policis will diffr from what ar obtainabl in th accounting practic, that th prparations of th accounts and nots throf. Rcognition of incom may not b in agrmnt with th statd policy so also is th valuation of stock, dprciation, rcognition of incom and provision on non-prforming assts and othrs. Th most worrying aspct of an accounting policy that is oftn misconstrud is th dprciation approach. For instanc, an organization may dcid to adopt a particular mthod of dprciation to captur th valu of assts usd in an accounting priod, but th managmnt will hav no justification for adopting such mthod. This is oftn carrid out without considring th natur of th oprations and th us of th assts in th oprations; allowing th mthod to continu for so long a tim without contmplating a bttr mthod. In Nigria and most part of th African countris, th commonst mthod of dprciation bing adoptd is straight lin (Adah & Doragawa, 01) irrspctiv of th natur of th businss, usag of th assts, passag of tim and vn chang in tchnology. Dprciation is on major dtrminant of an organization s profit siz and quality or rturns prformanc. In considring accounting policy of a businss, dprciation is a factor that will hav to b proprly lookd into and addrssd in ordr to avoid undr or ovr valu part of th assts that is usd in a priod of rporting. Appropriat rporting of dprciation valu bcoms unavoidabl so as to obtain th valu of asst that is consumd in producing or assisting in producing incom in an accounting priod. Inappropriat dtrmination of dprciation mthod is likly to advrsly affct th financial rporting quality bcaus it will lack rliability, rlvanc, undrstandability and comparability of oprational rsults. Onc th financial information lacks ths four qualitis (ICAN, 009), thr will sm to b an ambiguity in th financial information and this can prvnt th sharholdrs, potntial invstors, crditors or lndrs and othr usrs from taking ffctiv dcisions.

5 IJFAS ():1-7, 01. Data Collction and Analysis Th study rquird primary data which wr collctd through dsignd qustionnair in ordr to addrss th indpndnt variabl along with th dpndnt variabl to achiv th objctiv of th study. Th nclosd typ of qustionnair usd was distributd to th xpctd rspondnts. Th rspondnts includd: prparrs of financial statmnts (staff of final accounts), accounting and financial policy makrs, any officr occupying th position of an accountant, accounting officr, auditor, financial analysts, scholars and fw usrs of financial statmnts. Ths groups of rspondnts wr snior officrs in th various companis. Th qustionnairs wr distributd at random among ths xpctd rspondnts. Th slctd srvic companis wr four dposit mony banks, four insuranc companis, four halth car and four othr financial institutions all in Nigria. Scondary sourc of data wr qually usd to assist in th collction of rlvant litratur to provid insight into th rsarch topic. Scondary data wr also collctd mainly from fw availabl and rlatd journal publications and txt books in ordr to provid insights into this work and assist in gathring data for th qustionnair. Two hundrd (00) qustionnairs wr distributd using a thr-point Likrt typ scal to giv th rspondnt nclosd choic to xprss his objctiv opinion. Th masurmnt is from agr to 1 disagr. To masur th scal, six itms wr usd in th qustionnair, fiv acting as indicators to prdict on in th capacity of dpndnt variabl. On hundrd and fifty two (1) numbrs of th compltd qustionnairs, rprsnting about 76 prcnt wr rtrivd. Howvr, 87 prcnt of th rtrivd qustionnairs wr from th accountants and auditors of ths companis as othrs including th accounting policy makrs paid lss attntion to th qustionnair. Th on hundrd and fifty two (1) rtrivd qustionnairs wr analysd using logistic rgrssion bcaus of th prdiction of rsult that is limitd to ithr agr or disagr and th objctiv of th study. Th sampl of qustionnair is prsntd blow for rfrnc: Tabl 1. Sampl qustionnair Rf Itm A U D SLM1 I hav th knowldg and know th implications of SLM on financial information/rporting SLM Th company is using SLM and th rsult has bn satisfactory in rfrnc to financial statmnts SLM Our company rgularly rviws this mthod to adjust for any ovr or undr dprciation that may occur SLM Mthod of dprciation and its valu ar not significant to th ovrall ovrhad costs to chang any financial information quality SLM In my mind, all xpctd usrs of financial statmnts can rad and undrstand ths documnts to powr thir dcisions SLM6 This straight lin tchniqu has no significant rlationship with th financial information quality of our company Ky words: A = Disagr, U = Undcidd, D = Disagr, SLM = Straight Lin Mthod and SLM1 to SLM6 = Qustions 1 to 6 in th qustionnair.. Rsults and Discussion To tst th intrnal consistncy (rliability) of th qustionnairs, its Cronbach s Alpha cofficint was vry wak as it is far blow 0.70 considrd as th bnchmark for achiving rliability. Th unsatisfactory rsult was du to fw itms in th qustionnair. Altrnativly, th man intr-itm corrlation tst was carrid out and th rsult was within th rang of. and. as rcommndd by Briggs and Chck (1986). Th tabl 1 blow also confirms th ability of th modl to prdict up to 7. prcnt, which is vry satisfactory. Tabl. Modl Prdiction Obsrvd Prdictd SLM6_Bin SLM dos not SLM influnc influncs financial financial information information quality quality Prcntag Corrct Stp SLM6_Bin SLM dos not influnc financial information quality SLM influncs financial information quality Ovrall Prcntag 7. a. Th cut valu is.00

6 IJFAS ():1-7, 01 6 Th tabl 1 abov shows that th modl has 7.% prdiction powr. Th modl prdiction rsult appars to b a rflction of th prdictd analysis rsult. For instanc, th first roll and column which stats that straight lin mthod dos not influnc financial information quality has up to.8 prcnt chanc to dtrmin th outcom of data analysis. Howvr, th ovrall rsult is 7. prcnt, an indication that th modl is good nough and capabl of gnrating rliabl rsult. Tabl. Variabls Rsults B S.E. Wald df Sig. Exp(B) Stp 1 a SLM SLM SLM SLM SLM Constant a. Variabl(s) ntrd on stp 1: SLM1, SLM, SLM, SLM, SLM SLM stands for Straight Lin Mthod (usd as qustion/itm in th qustionnair) Th binary logistic rgrssion modl is aimd at invstigating how SLM influncs financial information quality using indpndnt variabls. Th SLM is not statistically significant. Th dpndnt variabl is binary using probability and a thrshold valu of 0.. Th modl is: a Pi = 1+ Th rsults of th modl using SPSS vrsion 16 is givn blow: x1-1.1x -1.1x x P i = x -1.1x -1.1x x 1+ 1 Th last column of tabl abov givs th odds-ratio for asy intrprtation of th modl paramtr. For qustion1, th odds-ratio is 0.18 maning that it is only 0.18 tims that straight lin mthod knowldg influncs financial information quality than whn thr is no knowldg. For qustion, th odds-ratio is.9 maning that it is tims that th undrstanding of financial statmnt influncs financial information quality compard to whn no financial statmnt is undrstood. In th sam vin ar qustions and, with odds-ratios of 0.0 and 0. rspctivly. Qustion indicats 0.0 tims that th us of straight lin mthod in th company can influnc financial information quality whil qustion shows 0. tims, maning that it is th mthod of dprciation and its valu can influnc financial information quality. Qustion 1 with an itm on knowldg and implication of straight lin mthod of dprciation on financial information rporting has a statistically significant rsult at prcnt lvl. This rsult is in agrmnt with th study of Hirani (199) which mphasizs that mthod of dprciation should b carfully slctd by a company bcaus th charg will hav a significant ffct on financial position. That is, knowldg and implication of dprciation mthod should guid in th dtrmination of mthod bcaus of its ffct on financial statmnts of a company. Though Hirani (199) s study did not stat th mthod of dprciation, it is a gnralizd study on dprciation. Th scond proxy of th indpndnt variabl which shows statistically significant rsult is th qustion on whthr th company is using straight lin mthod and th rsult has bn satisfactory in rfrnc to financial statmnts. This significant rsult confirms th findings of Adah & Dogarawa (01) and Kiso, Waygandt & Warfild (008). Th two studis ar spcifically on straight lin mthod of dprciation rathr than on th gnral dprciation. Howvr, th rsult is in conflict with th findings of Ahmd (011) and ICAB (008) s studis. Qustion rsult is not statistically significant bcaus th srvic companis using th straight lin mthod of dprciation hardly rviw it for any ncssary adjustmnt that may aris to improv th quality of financial statmnts. Rsult of qustion is also significant; it is on th total ovrhad costs. This is also rlvant to th study of Hirani (199). Rsult of qustion also rvals a statistically significant rsult; at last mor than avrag usrs of financial statmnts can rad and undrstand th documnts to nabl thm tak rasonabl invstmnt dcision.. Conclusion + b x + b x + b x + b x + b x a+ b x + b x + b x + b x + b x From th statistical rsults using logistic rgrssion abov, four itms in th qustionnair, that is qustions 1,, and rval significant lvl rsults, maning that straight lin mthod of dprciation can significantly affct th financial information quality of srvic companis. Howvr, qustion s rsult is not statistically significant indicating that

7 IJFAS ():1-7, 01 7 ths companis hardly rviw this mthod to adjust for any variation that may occur. From ths findings, it can b concludd that straight lin mthod of dprciation influncs th financial information quality of srvic companis in Nigria. Th study rcommnds that dspit th gnral us of straight lin mthod of dprciation, othr mthods of dprciation should b ncouragd for adoption in ordr to provid an opportunity for comparing dprciation rsults. Th objctiv is to improv knowldg of dprciation mthodology for bttr option. Rfrnc Adah, A. (007). Nigrian companis incom tax (First d.). Kaduna: Oril Printrs. Adah, A. & Dogarawa, A. B. (01). Assssing th application of straight lin mthod of dprciation in th Nigrian manufacturing industry. 01 Nigrian Accounting Association (NAA), 16 th 18 th April. Addji (00). Accounting thory and rgulatory framwork (First d.). Ibadan: ABA Associats Limitd. Ahmd, R. (011). An mpirical vidnc on th popularity and consistncy of dprciation mthods practicd in Bangladsh, School of Businss, North South Univrsity, Dhaka, Bangladsh. Anao, A. R. (009). An introduction to financial accounting ( d.). Lagos: Longman Nigria Plc. Bllo, A. (009). Financial information quality and inflation accounting disclosur in Nigrian cmnt industry. Unpublishd Ph.D Dissrtation Submittd to Post Graduat School, Ahmadu Bllo Univrsity, Zaria - Nigria. Briggs, S. R. & Chck, J. M. (1986). Th rol of factor analysis in th dvlopmntal and valuation of prsonality scal. Journal of Prsonality,, Epstin, B. J. & Mirza, A. (00). Intrprtation and application of Intrnational Standards. Nw Jrsy: John Wily & Sons, Inc. Fdral Rpublic of Nigria (1079). Companis incoms tax Act. Financial Sustainability Program (008). Dprciation and rlatd issus. Information Papr 17 Hirani, M. A. (199). Accounting for dprciation conflicting rquirmnts and problms. Pakistan Accountant, April/Jun. Hultn, C. R., Frank C. & Wykoff, F. C (1996). Issus in th Masurmnt of Economic dprciation:introductory Rmarks. Economic Inquiry No 1. ICAB (008). Institut of Chartrd Accountants of Bangladsh. Institut of Chartrd Accountants of Nigria (ICAN) (006b). Financial accounting, Study Pack for Profssional Examination I, Lagos: VI Publishing Limitd. Kiso, D. E., Wygandt, J. J. & Warfild, T. D. (008). Intrmdiat accounting, (11 th d.). Nw Jrsy: John Wily & Sons, Inc. Migs, R. F., Williams, J. R. Haka, S. F. & Bttr, M. S. (001). Financial accounting (10 th d.). Nw York: McGraw Hill Company. Popoola, A. (011). Elmnts of financial accounting for vryon, book 1 (1 st d.). Zaria Nigria: Crst Royal Vnturs. Wood, F. & Sangstr, A. (008). Frank wood s businss accounting 1 (11 th d.). England: FT Prntic Hall Zajac, E. (199). Political Economy of Fairnss, MIT Prss, Cambridg, Massachustts. (Iga)