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

Abstract

Financial information quality had not received the necessary attention it deserves until recent years following reported cases and consequences of corporate scandals and failures. In adopting generally accepted accounting principles, the preparers of financial statements seem to believe that they are providing adequate and reliable financial information. However, this may not meet the diversified needs of the investors and prediction ability for future reliance. This may be as a result of adopting inappropriate financial and accounting policy capable of influence misleading operational result that can lead to corporate failures. One aspects of the inappropriate policy for the purpose of this study is depreciation policy. One basic problem that needs to be addressed is whether financial information which has features of high quality standard will automatically provide solution to this inappropriate policy? This study focuses on this gap but in particular reference to straight line method (SLM) of depreciation that is commonly being adopted in the preparation and presentation of financial statements in Nigeria. The objective is therefore to ascertain the extent to which the SLM of depreciation can influence financial information quality of service companies in Nigeria. Primary data were collected through questionnaire. The retrieved questionnaires were analysed using logistic regression. The study finds that straight line method of depreciation influences financial information quality of service companies in Nigeria. The study recommends that despite the general use of straight line method of depreciation, other methods of depreciation should be encouraged for adoption in order to provide an opportunity for comparing depreciation results. The objective is to improve knowledge of depreciation methodology for better option.