The Effects of Unethical Accounting Practice on Financial Reporting Quality in Nigeria
Chapter One
OBJECTIVES OF THE STUDY
The Major Objectives of this study are:
- Determine the effects of Unethical Accounting practices on financial reporting quality in Nigeria economy.
- Explore the effects of Unethical Accounting practices on financial reporting quality in Nigeria capital Market.
- Identify some common unethical practices by accountants, auditors, directors and company secretaries who are key players in the market economy.
- Determine what motivates professional accountant to committing unethical accounting practices.
- Examine the major causes of unethical practices by professionals, directors and market operators/participants when carrying out their financial activities.
- Eliminate and suggest possible remedy for the problem of unethical accounting practices perpetrated by professional accountants.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
Financial reporting is a key ingredient required for the corporate governance system to function successfully. The accountants and auditors who are the main providers of information to capital market participants are expected to exercise high degree of due care and exhibit professional competence in the accounts audited by them. The directors of the company will expect that management prepare the financial statements are in compliance with statutory and ethical obligations, and bank on auditors’ competence and creditability (Dignam & Lowry, 2006). The primary objective of corporate financial report is to provide information about the financial strength, performance and changes in financial position of a firm that is useful to a wide range of users in making economic decisions (Benston, 2007). The report should be understandable, relevant, reliable, and comparable. When the financial statements is misleading through creative accounting or earning management it will no longer represent the true and fair view of the financial performance and position of the reporting entity, which will go a long way in making the various stakeholders to take erroneous decisions and even suffer economy damages and hardship. In this circumstances, an accounting scandal or corporate fraud deemed to have been committed and globally, when financial inappropriate or corporate failure occurred, the auditors and accountants are being accuse of either guilt of professional negligence of due care, unethical practice and compromise or collusion this have been seen in many cases for example Ernon, WorldCom, Lever Brothers Nigeria, Cadbury and a host of others (Salisu, 2007). Accountants and auditors have been proved to be involved in unethical practices and conflicts of interest and this have been documented by scholars of accounting in developed and developing countries (García-Benau & Humphrey, 1992; McHugh and Stamp, 1992; Sikka & Willmott, 1995; Bakre, 2007; Sikka 2009; Gyénin-Paracini & Gendron, 2010; Otusanya & Lauwo, 2010). The collapse of a number of corporate giants, such as Global Crossing, Paramalat, Xerox, Tell one, Enron, WorldCom were all associated with unethical practices, collusion and conflict of interest among other things from the auditors and accountants. Recent empirical research has provided further evidence with regards to unethical practices and other professional misconduct accountants and auditors engage in the public service and in the corporate sector in Nigeria (Adeyemi, 2004; Ajibolade, 2008; Otusanya & Lauwo, 2010). Bakre (2007) documented many instances in which accountants and external auditors in alliance with the management and directors of companies fabricated and intentionally overstated company accounts. Investigations, into the Cadbury corporate fraud indicted Akintola Williams & Deloitte (AWD) of falsifying its financial and accounting reports by inflating its profit figure by millions of Naira. Another similar case to Cadbury’s is that of Afribank Nigeria PLC. Afribank’s financial reports presented high profits amid accusation by its former Managing Director that the Board of Directors conspired with its auditors to cook the books (Mmadus & Akomolafe, 2014). These two cases necessitate the need for this study on unethical character exhibited by professional accountants in the course of their work.
Conceptual Review
Professional ethics is defined as moral values and standards by Mariana and Maria (2016) that provide guidance to accountant to ensure financial reporting quality of the financial statement as “true and fair”. Professional ethics according to Nwagboso (2008) are moral/ethical principles which include integrity, professional competence and due care, objectivity, professional behaviour, and confidentiality maintained by the professional accountant in dealing with the client and the general public. Importantly, International Federation of Accountants (IFAC) stated that accountants should comply with ethical
Ethics and Financial Reporting
Ethics are the moral principles that an individual uses in governing his or her behaviour. Ethics refers to a discipline in which matter of right and wrong, good and evil, virtue and vice are systematically examined (Brinkmann, 2002; Ogbonna & Appah, 2012). Ethics looks at human behavior, moral principles and the effort to separate good from bad. When trying to recognize common matters being dealt with, within the corporate environment, professional bodies’ codes of ethics is the right place to look. These codes characterize what can be considered to be the image of business ethics. Codes of ethics should principally address the particularities of high risk activities and are built on the collective integrity of a profession as a resolution for the group’s acknowledgment of the moral dimension. Ethical obligation in the corporate world is not all-inclusive, but what can be done is to consider any phenomenon that within a definite situation inspires ethical behavior (Micewski & Troy, 2006). Jenfa (2000); Nwagboso (2008) and Ogbonna & Appah, (2012), observed that professional ethics offers accountants with these benefits: it aids the accountant to regulate the affluence of his behavior in his professional association; it provides clients and potential clients a basis of having confident that the professional frankly wishes to serve them well and places service above financial reward; this guide the kind of professional attitude the accountant must maintain if he is to thrive. It guarantee clients that standards of competence, independence and integrity shall remain the goal of the accountant; it allows member bodies and regulatory authorities to accomplish their obligation of ensuring that the professional accountants have the know-hows and capability expected of them by employees, clients and the public and public interest is safe and the integrity of the profession is enriched. Accounting is a profession that relies greatly on the basis to show a high sense of responsibility and stewardship, and this stress the need for all members to be steered by professional code of conduct (Nwagboso, 2008).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine the effects of unethical accounting practice on financial reporting quality in Nigeria. AFRIBANKS PLC, AND CADBURY PLC.) forms the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the effects of unethical accounting practice on financial reporting quality in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of unethical accounting practice on financial reporting quality in Nigeria
Summary
This study was on the effects of unethical accounting practice on financial reporting quality in Nigeria. five objectives were raised which included: Determine the effects of Unethical Accounting practices on financial reporting quality in Nigeria economy, explore the effects of Unethical Accounting practices on financial reporting quality in Nigeria capital Market, Identify some common unethical practices by accountants, auditors, directors and company secretaries who are key players in the market economy, determine what motivates professional accountant to committing unethical accounting practices, Examine the major causes of unethical practices by professionals, directors and market operators/participants when carrying out their financial activities and Eliminate and suggest possible remedy for the problem of unethical accounting practices perpetrated by professional accountants. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from AFRIBANK PLC, CADBURY PLC. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
Based on these scenarios it safe to conclude that corporate failure are combined effect of failure in corporate governance and financial reporting as well as unethical practice on the part of professional accountants. Consequently, to ensure that auditors and professional accountants abide by professional ethical standards and guidelines as enshrined and recommended in their professional body codes and other regulatory authorities
Recommendation
- That extended audit tenure should be discouraged by corporate organization and regulatory bodies in Nigeria
- The composition of the Board of Directors and Audit Committees should be made up of people with corporate experience, proven integrity and financial expertise for member of audit committees especially the chairman.
- There should be more rigorous quality control measures by different audit firms and emphasize should be placed on quality monitoring by the professional accounting bodies in Nigeria.
- Accounting professional bodies should recommend that a harder punishment should be enforced on erring auditors in Nigeria as in other countries.
References
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