Accountant’s Role in Project Feasibility Essay

Many new projects which have passed countless feasibility and viability appraisal studies have been sunk by unexpected events such as flood. fire, burglary, changes in legislation, plague, demographic shifts, an inability recruit and/or keep suitable staff, the failure of a major customer, seasonal demands, health scares, product recalls due to poor quality, withdrawal of financial support, weather, new technology and poor management to list but a few. Many projects of course can pass feasibility tests and studies and be brought undone by sheer incompetence or downright dishonesty. A key factor in any feasibility study must be ensuring that you are dealing with correct facts, correct assumptions and up to date financial data. Almost daily, Tanzanian Newspapers Larry prominent reports of new manufacturing ventures soon to be launched by individual or by local groups. Perhaps, tomorrow a state government will be telling us how college industries will stem the flow of youths from rural to urban areas. From the headlines alone Tanzanians cannot escape the feeling that the rest holds great promise for unprecedented economic and social progress. But these expectations will be fulfilled only if most of the specific projects survive their early lives. Besides, not all those new projects will be completed. Some that get completed will not prove profitable and may soon close down. According to Nwoko (1988:34) summits that in simple terms one reason for which new projects may not be completed but have to be abandoned or profitable ventures may get choked up by controllable environmental factors and circumstance is that proper feasibility analysis was not conducted before take –off of project. According to Ume 91977:10).. stated that proposals schemes or projects for social, environmental and economic development demand feasibility and viability appr aisal. See more:  Manifest Destiny essay In fact the two fundamental questions which feasibility and viability appraisal seek to answer are inevitable for prudent decision making at all levels in the society. The entrepreneur must have a long range outlook on the intended business investment, examine the alternative uses of capital and account for inflation in future value of cash flows, and forecast future events and financial requirements and carry sensitivity and risk analysis. These are highly technical areas of knowledge that calls for expertise skills. Therefore this category of valuation holds out limitless opportunities and boundless scope for service and rewards for the accountants, economists, valuers or appraisers. This study provides an analysis and illustration of the principles of feasibility and viability appraisals and highlights the essence of the subject matter. It also brings into sharp focus the accountants essential contributions which have hitherto tended to be lost in wide diffusion 1.1Background. The study is divided into two sections. Section one which comprises chapter 1,2 and 3 deals with the main basis, scope and methodology of he research. Specifically, chapter two provides an evaluation of the theoretical concept of investment appraisal. Hence, the contributions of various writers with regard to the concepts of feasibility and viability studies as well as the role of the accountant there off are examined under the heading â€Å"literature review†. The second section comprises chapter 4 and 5, and focuses on feasibility and viability case study on a practical illustration of feasibility and viability case study of a household cassava-starch production. 1.2Statement of the problem One of the problems of a successful industrialization in the developing countries is undoubtedly lack of formulation of a project in such a way that its potential profitability either from the public or private view point can be estimated on a firm basis. According to Ezeanagu (1991:14). This assertion is evidently proved by the survival rate of the national directorate of employment supported small scale enterprises in Nigeria which has been put at a mere 15%. According to Uwakaneme (1980:1) this problem can be pinned on the tendency in Nigeria entrepreneurs to neglect thinking through their plans carefully in the beginning in form of feasibility and viability study before committing scarce funds and energy apart from insufficient starting capital and shortage of skilled technical and managerial manpower. Many good business ventures are abandoned after plunging in huge amounts of money because their originator just embarked upon them in that they feel there is market demand and they could get enough funds to execute the project. According to Ughamadu 91990:18) regrettably, as Uwakaneme (1980:3) puts it, many Nigerian businessmen see feasibility studies not as a vital part of their project but as an imposition and an absolute necessity for fulfilling loan requirements or for attracting equity participation. Thus, the more embellished the report the better. Available evidence indicates that even trusted accountants, consultants prepare project reports and projections to suit their clients requirements and earn their fees: insensitive of the credibility to Olashore 91985:5), consequently, the proposals get rejected by the bankers, or share the facilities granted, the business proprietors soon find themselves in trouble when they are faced with real life situations as distinct from the rosy picture painted by the initial projections by the accountants. 1.3Research objectives 1.To determine the main techniques of appraisal commonly adopted for analytical purposes and to determine the reasonableness of such in practical situations. 2.To appraise the potential of feasibility and viability studies in successfully carrying out a project ideas. 3.To identify the general role of the accountant in the formation and development of business. 4.To identify the specific role of the accountant in feasibility and viability appraisals. 5.To illustrate the principles and applications of feasibility and viability studies suing a small scale cassava starch plant as a case study Main objective Specific objective 1.4Research questions. Following from the problems identified in the problem statement as stated above, the following fundamental questions have income imperative for this study: 1.What are the underlying principles and significance of feasibility and viability appraisals? 2.What impact do feasibility and viability appraisals have on the survival o failure of new projects? 3.What is the role of a professional accountant in the preparation of credible feasibility and viability appraisals in order to help avert project failure 1.5Scope of the study This study does not dwell much on the truth or otherwise of the failure of accountants to carry out their role in feasibility and viability appraisals but merely examines what that role should be using a case study. Hence, there is no hypothesis or any proof of such. Research works in Nigeria especially those adopting interview approach, are beset with a lot of limitations which include mass illiteracy, dearth of reliable secondary data prejudice against the research himself and ensure secrecy. Many of these limitations were experienced in the course of its study. The study was carried out mainly in Enugu although some data were gathered in Lagos. Therefore, the case study may not be regarded as a â€Å"fact accompli† report for investment purposes as only a limited investment has been conducted and a number of assumptions made. These limitations not withstanding it is believed that the findings of the study could be useful and should form the basis for further studies on the subject. 1.6significance of the study If a project is well formulated and thoroughly appraised, a good follow-through on the subsequent stages of the project will see to its goals being achieved. Appraisal involves a careful checking of the basic data, assumptions and methodology used in project preparation, an in-depth review of the work plan, cost estimates and proposed financing, an assessment of the project’s organizational and management aspects, and finally the validity of the financial, economic and social benefits expected from the project. On the basis of such an assessment, a judgement is reached as to whether the project is technically sound, financially justified and viable from the point of view of the economy as a whole. The target audiences of this study are students of accountancy in the tertiary educational institutions and all those interested in the field of project evaluation. Since there appears to be no existing literature on the role of the accountant in feasibility and viability studies, this project attempts to till that gap for the benefit of accounting students. It would also help young entrepreneurs and indeed the management of small-scale business to appreciate the necessity of feasibility and viability appraisal which will translate to the survival of their business which will in turn enhance the attainment of the government objective of rapid industrialization 1.7Limitation and delimitation of the study 1.8DEFINITION OF TERMS The following are the contextual definition of some terms used in the study: ACCOUNTANT: PROJECT: A project is the use of one or more scarce resources during specific time period for the purpose of producing some economic returns or output at a later time. A project is the consumption in the near future of scarce or at least limited resources in the hope of obtaining in return over a longer is an optimum set in the investment oriented by means of which a defined continuation of human and material resources is expected to cause a determined amount of economic and social development. According Nweze (1987:†34) INVESTMENT: According to SIR D.C Osuagwu (2003:31) investments are carried out primarily for maximizing an entities wealth and can be varied into: Mechanization of process where a firm wants to change its manual system of production to installation of a machine or expansion is a process. Investment is an economic activity designed to increases, improve or maintain the productive qualify of the existing stock of capital. According to Nweze (1987:34). NB: project evaluation, investment analysis or appraisals are for the purpose of this study, synonymous and therefore used interchangeably here. FEASIBILITY AND VIABILITY Feasibility and viability have been explained in detail elsewhere in this study. But for the present purpose let it suffice that respectively the mean â€Å"practicability and profitability†