Effect of Ethical Practices on the Financial Reporting of Deposit Money Banks in Nigeria
Chapter One
Objectives of the Study
The general objective of this study is to examine the effect of ethical practices on the financial reporting of deposit money banks in Nigeria.
The specific objectives are to;
- examine the effect of integrity and reputation on the financial reporting of deposit money banks in Nigeria.
- examine the effect of accountability and honesty on the financial reporting of deposit money banks in Nigeria.
- assess the effect of fairness on the financial reporting of deposit money banks in Nigeria.
- determine the effect of Law abiding on the Financial reporting of deposit money banks in Nigeria.
- establish the effect of loyalty on the financial reporting of deposit money banks in Nigeria.
CHAPTER TWO
LITERATURE REVIEW
The Banking sector
Banks are the linchpin of the economy of any country. They occupy central position in the country’s financial system and are essential agents in the development process. By intermediating between the surplus and deficit savings’ units within an economy, banks mobilize and facilitate efficient allocation of national savings, thereby increasing the quantum of investments and hence national output (Afolabi, 2004). Through financial intermediation, banks facilitate capital formation (investment) and promote economic growth. The decade between 1998 and 2008, was particularly traumatic for the Nigerian banking industry; with the magnitude of distress reaching an unprecedented level, thereby, making it an issue of concern not only to the regulatory institutions but also to the policy analysts and the general public. Thus, the need for a drastic overhaul of the industry was quite apparent Afolabi (2004).
In furtherance of this general overhauling of the financial system, the Central Bank of Nigeria introduced major regulation programmes that changed the banking landscape of the country in 2004. The primary objective of the regulation is to guarantee an efficient and sound financial system. The regulations are designed to enable the banking system develop the required resilience to support the economic development of the nation by efficiently performing its functions as the fulcrum of financial intermediation (Lemo, 2005). According to Afolabi (2004) the regulations were also to ensure the safety of depositors’ money, position banks to play active developmental roles in the Nigerian economy, and become major players in the sub-regional, regional and global financial markets.
The key elements of the 13-point regulation programme in Nigeria (CBN, 2006) include: Minimum capital base of N25 billion with a deadline of 31st December, 2005; Consolidation of banking institutions through mergers and acquisitions; Phased withdrawal of public sector funds from banks, beginning from July, 2004; Adoption of a risk-focused and rule-based regulatory framework; Zero tolerance for weak corporate governance, misconduct and lack of transparency; Accelerated completion of the Electronic Financial Analysis Surveillance System (e-FASS); The establishment of an Asset Management Company; Promotion of the enforcement of dormant laws; Revision and updating of relevant laws; Closer collaboration with the EFCC and the establishment of the Financial Intelligence Unit (Soludo, 2004).
Two of the above regulation elements which have since generated so much concern and reactions from various stakeholders are: (a) Requirement that the minimum capitalization of banks should be N25 billion with full compliance by 31st December, 2005 and (b) Consolidation of banking institutions through Mergers and Acquisitions. Soludo (2004). The main thrust of the 13-point regulation agenda was the prescription of minimum shareholders’ funds of 25 billion for Nigerian Deposit money bank not later than December 31, 2005. In view of the low financial base of these banks, they were encouraged to merge. Out of the 89 banks that were in operation before the regulation, more than 80 percent (75) of them merged into 24 banks while 14 that could not finalize their consolidation before the expiration of deadline were liquidated. Because of the apparent advantage of efficiency related benefits, the banking industry has experienced an unprecedented level of consolidation as mergers and acquisitions among financial institutions have become a general phenomenon globally. For instance, between 1993 and 1996, about 1500 mergers were recorded in the USA, similar experience was observed in the Europe and Asian continents (Lemo, 2004).
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
Introduction
Research methodology is presented in this chapter. This chapter sought to give details on the research design, population and sampling techniques and procures its used to arrive at sample size. The instruments used for data collection as well as the data collection procedures are also given in this chapter. The chapter also gives details on the data analysis plan and concludes by giving the ethical considerations that the study makes.
Research Design
This study adopted descriptive research design as the blue print that guided the study in data collection, analysis and presentation of findings. Descriptive research design involved collecting data from the natural setting of the phenomenon under investigation(Bryman, 2012). In respect to this, data was collected from the Deposit Money Banks in Nigeria. This research design does not allow manipulation of data and therefore the actual status of the phenomenon under investigation can be established(Miller & Whicker, 2017). This research design is the most relevant in this study since it yields large amount of information that enable generalization of the study findings(Fitzgerald & Linda, 2015).
Population of the Study
The study targeted 61Deposit Money Banks in Nigeria. This forms the unit of observation. From the Banks, the study sought to gather information in regard to the effect of ethical accounting practices on financial reporting of Banks from Chief finance officers. Chief Finance Officers (CFO) are the most experienced and knowledgeable employees in regard to financial reporting aspects of the Banks they work. These individuals were able to give correct details in regard to the information sought by the study since this is their area of specialization. The CFOs formed the unit of analysis for the study. Therefore, the target population of the study was 61 respondents.
CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND DISCUSSION
Background Information
The background information of the study examines the background characteristics of the respondents. In this study the background characteristics are examined using the level of education and length of the respondents at the current firm. The results are presented in Table 4.2 and Table 4.3 below.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
Introduction
This is the last chapter of the study that examined the summary of the findings, conclusions and recommendations of the study. The study has sought to examine the effects of ethical accounting practices on financial reporting with a survey of the Deposit Money Banks in Nigeria. To achieve the objectives of the study, the effect of objectivity, professional competence, integrity, and confidentiality on the financial reporting of the Deposit Money Banks in Nigeria was examined.
Summary of Findings
The study was examined in respect to the objectives of the study.
Effect of Objectivity on Financial Reporting of Banks
The role of objectivity on the financial reporting was examined using a set of five indicators that is accounting prejudice, accounting impartiality, conflicts of interests in accounting, accounting independence and goal orientation in accounting. Accounting prejudice distribution had a statistically significant effect on the financial reporting. In respect to the accounting impartiality, a statistically significant effect was observed between the indicator and the financial reporting. The study noted that objectivity should be observed in the drawing of the financial reports. Similarly, conflict of interest was found to have a statistically significant effect on financial reporting. This was attributed to the conflict of interest having the capacity to effect the financial reporting through compromising the integrity and objectivity of the accountants drawing financial reports.
The study further noted that conflict of interest between management and shareholders may lead to manipulation of financial reports such as earning management reports. The accounting independence was found to have a statistically significant effect on the financial reporting. The study noted that accounting personnel must maintain independence in both fact and appearances in all circumstances to enable them discharge their duties in a professional manner and in an objective manner. The goal orientation of the financial reporting was found to have an effect on the financial reporting aspects. The study noted that when financial reports are goal oriented towards judging an investment on the basis of the yields achieved in the immediate following years then some companies may employ creative accounting in order to regulate the attitude of the investors towards the company. These practices have the effect of compromising the integrity of the financial reports.
Effect of Professional Competence on Financial Reporting
The role of professional competence on the financial reporting was examined using five indicators that is working experience of accountants, training of accountants, accuracy of accountants, hardworking and efficiency of accounts, and skill sets of accountants. The roles of the working experience of accountants were found to have a statistically significant effect on financial reporting. The study noted that accountants with the Banks must have professional experience to deal with arising accounting matters when drawing financial reports. There is thus a need for staff involved in the drawing of financial reports to have accounting experience as a as a certified public accountant, auditor, chief financial officer, financial controller, or accounting officer in the financial reporting aspects. The study results revealed that training of accountants had a statistically significant effect on financial reporting. The study indicated that there is need for the accountants to be trained on the accounting standards and to be continually knowledgeable on the development of these standards in order to improve on the financial reporting quality.
The study further revealed that accuracy of the accountants on the financial reporting had a statistically significant effect on financial reporting. The extent in which the hardworking and efficiency of accountants influenced the financial reporting was also examined in the study. The results indicated that this indicator had a statistically significant effect on financial reporting. The skills set of the accountants had a statistically significant influence on the financial reports of the Banks. The study further noted that accountants should have adequately developed skills in order for them to comprehend the international accounting standards and any new enacted standards in order to improve on their financial reports.
Effect of Integrity on Financial Reporting
The integrity effect on the financial reporting was examined using five indicators that are correctness of amounts presented, timeliness of disclosures, corruptions, use of support documents, and application of accounting principles. The effect of the correctness of amounts presented as an indicator of the integrity was found to have a statistically significant effect.
The timeliness of the disclosure as an indicator of integrity had a majority of the respondents indicating to a high extent in respect to the effect of the indicator on the financial reporting. The timeliness of the disclosures is key in the financial reporting as the shareholders and other stakeholder relay on financial disclosure provided by the Banks. The study found that corruption influences the financial reporting quality due its ability to compromise the objectivity of the accountant. The use of supporting documents as an indicator for integrity was also examined and the manner in which it effect financial reporting. The results showed that use of supporting documents had a statistically significant effect on financial reporting. The use of supporting documents is key in enhancing the integrity of the financial reporting aspects. The extent to which application of the accounting principles influenced financial reporting had the results revealing that accounting principles had a statistically significant effects on financial reporting.
Effect of Confidentiality on Financial Reporting
The effect of confidentiality on the financial reporting was examined using five indicators that is security of accounting data, sharing of accounting information, accessibility of accounting data, number of handlers of accounting data, and storage of accounting data. The extent in which the security of accounting data influenced financial reporting had a majority of the respondents indicating to a high extent. The study further revealed the need of segregation of duties amongst the accounting staff. The use of computer systems was found to have the capacity to enhance security of accounting data through restricting the accounting information to given authorized personnel. In respect to the extent in which sharing of accounting information affected financial reporting, the study results found that there was a statistically significant effect between the two variables. The study further noted that guidelines should be put in place to guide the sharing of accounting information between different parties in the organizations.
The role of accessibility of the accounting data was examined in relation to financial reporting aspects. The results indicated that accessibility of the accounting data had a statistically significant effect on financial reporting. The study further indicates that the access to relevant accounting information enhances financial reporting quality. The number of persons handling accounting data having a statistically significant effect on financial reporting aspects can be attributed to the presence of controls to enhance data integrity. The study results presented indicated that storage of the accounting data had a statistically significant effects on financial reporting at 5% level of significance.
Conclusions of the Study
The study concluded that ethical accounting practices (confidentiality, professional competence, objectivity, and integrity) cumulatively affected variation on the financial reporting to a larger extent. Individually, the study concluded that all the ethical accounting practices had a positive and statistically significant predictive influence on the financial reporting aspects. The study further concluded that the ethical accounting practice with the highest effect on the financial reporting is integrity, followed by objectivity, professional competence and finally confidentiality.
Recommendations of the Study
The study recommended that the Banks should observe objectivity in order to improve on the financial reporting of the Banks. Amongst the aspects that the Banks should observe include elimination of the conflict of interest in the drawing of the financial reports. The study further recommended that the accountants should be professionally competent in order to improve on the financial reporting of the Banks. This is due to an increase in professional competence being associated with improvement in the financial reporting. The integrity aspects of the ethical accounting practices should be maintained within the Banks in order to improve on the financial reporting aspects. Finally, the Banks should also enhance the confidentiality of the financial reports while drawing the reports.
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