The Effects Of Unethical Accounting Practice On Financial Reporting Quality In Nigeria {Case Study: Afribank Plc, Cadbury Plc}

The Effects Of Unethical Accounting Practice On Financial Reporting Quality In Nigeria {Case Study: Afribank Plc, Cadbury Plc}

First Part

Introduction

1.0 Context Of The Study

As Nigeria strives to become one of the world’s top 20 economies by the year 2020, one issue that remains at the forefront is how to build investor confidence in the national economy through ethical accounting and auditing standards that promote transparent financial reporting. The catastrophic failures and scandals of some corporate giants and the widespread corruption in the society highlight the critical need to focus on the anchors of sound professional ethics in the accounting & auditing profession in both developed and developing nations (Omoyele, 2010; Fodio, Ibikunle, & Oba, 2013; Ogbonna & Ebimobibowei, 2012).

Moreover, it is a well-known fact that accounting and auditing professionals responsible for the preparation of financial statements must strictly adhere to the codes of ethical accounting and auditing standards in order to produce reliable, relevant, timely, accurate, understandable, and comprehensive financial statements that provide a true and fair picture of the firm’s financial position and performance. This is because these financial statements and reports provide the stakeholder with the confidence necessary to make an informed decision.

Recently, there has been a rise in public and private concern regarding ethical and integrity issues in the accounting and auditing profession in relation to questionable conduct. Consequently, this era has been marked by a string of corporate failures, ethical lapses, auditing and accounting controversies in both developed and developing economies. Damagum & Chima (2014) assert that evidence from prior research demonstrates that poor corporate governance also contributes to such failures, hence the need to maintain vigilance over the behavior of corporate entities as well as the behavior of managers and professional accountants via effective regulations. Broadcast cases of the recent past, such as Ernon, Satyam, WorldCom, Global Crossing, paramalat, Xerox, Tell one and some firms from Nigeria (such as, Cadbury and NAMPAK, Afri-bank), of which one of the big four (4) auditing firms in Nigeria was indicted, have brought the auditing profession to widespread public attention.

Nonetheless, the failures of these corporate entities have been attributed to accountants and auditors who did not adhere to professional ethics codes. This has a cumulatively negative impact on financial reporting and the auditing profession. All these global occurrences have raised the issue of the auditing and accounting profession’s credibility and ethics (Bakre, 2007;

Financial reporting is essential to the effective operation of the corporate governance system. Ogbonna (2010) argued that a society without ethical considerations is unlikely to accomplish its desired goals and objectives and those of its stakeholders.

As the world has become a global market, The International Accounting Standards Board is putting a greater emphasis on the adoption of the International Financial Reporting Standards to ensure a common set of comprehensive financial statements across the globe. In Nigeria, the Companies and Allied Matters Act 2004 (as amended), the Financial Reporting Council (FRC), the Institute of Chartered Accountants of Nigeria (ICAN), the Association of National Accountants of Nigeria (ANAN), and other industry-specific bodies that provide services to auditors and accountants typically issue guidelines regarding the ethical and professional standards that must be observed. However, the efficacy of these regulatory bodies in Nigeria to ensure that corporate managers and professional accountants uphold ethical standards remains questionable and uncertain.

Ethics is an essential aspect of the work and profession of the accountant in business enterprise. In this context, professional ethics can be summed up as the management accountant’s commitment to providing a valuable service to management. This commitment implies that the management accountant possesses the competence, integrity, confidentiality, and objectivity to serve management effectively (Blocher et al, 2005: 23-25).

In addition, the potential for unethical behavior by individuals and organizations is virtually limitless. Unfortunately, this potential is realized too frequently. Consider, for instance, how greed superseded considerations for human welfare when the Manville Corporation concealed evidence that asbestos inhalation was murdering its employees, or when Cadbury’s share price increased over the years despite the company’s patronage remaining constant. Despite its accomplishments, it was observed that Cadbury Nigeria has failed to garner genuine public interest.

This is because the company attempts to influence public perception by exaggerating profits and downplaying losses. In this instance, the British confectionery giant’s humiliation led to the dismissal of the managing director.

executive director and his financial director.

This research endeavors to investigate and analyze the impact of unethical accounting practices on the quality of financial reporting in Nigeria.

1.2 Statement Of Of Problems

Despite the high level of trust and expectation that society places on professional accountants and auditors, and the need for the general public to have confidence in the financial reports being prepared/audited by them in order to make an informed decision, it is imperative that the information provided by accountants and auditors be meaningfully efficient, reliable, realistic, and objective.

Despite the accounting standards and ethical protocols that govern the accounting profession, morality and ethics have deteriorated as a result of scandals involving Enron, WorldCom, Nigerian Cadbury, and other companies. The aforementioned antisocial and fraudulent behavior of the elite and multinational corporations cannot be easily perpetrated in any nation or economy without the advice, collaboration, or at the very least connivance of professional accountants, who, in violation of their statutory duties to the public, provide their professional services to wealthy individuals, the ruling elite, private and public companies, and multinational corporations by assisting them to transfer the illegitimate profits.

In the past two decades, a slew of high-profile accounting scandals has thrust the profession into the spotlight; for instance, the case of Aruwa & Atabs (2011) provided examples of creative accounting and fraudulent financial reporting in Nigeria, such as Alpha Merchant Bank Plc (accounting problem and market manipulation) or the Lever Brothers Plc (increased profit through the use of questionable accounting methods) and AP Petroleum Plc (false financial reporting).

In spite of the enabling IT audit tools and the various professional standards such as those issued by the Nigerian Accounting Standard Board (NASB), now the Financial Reporting Council (FRC), the American Institute of Certified Public Accountants (AICPA), and the Auditing Practices Committee of the Institutes of Chartered Accountants of England and Wales (ICAEW) for guidance and efficient audit work, reported cases of lapses and scandals have been threatening the existence of the auditing profession.

As a result of non-extended audit tenure impairing auditors’ independence and ability to apply professional skepticism to matters at their disposal, as well as the fact that non-adherence to the spirit and letter of corporate governance was also responsible for the corporate scandals, the reputation of accountants has been harmed by scandals within the accountancy industry.

1.3 Objectives Of The Study

The primary aims of this investigation are:

Determine the impact of unethical accounting practices on the integrity of financial reporting in Nigeria.

Examine the impact of unethical accounting practices on the integrity of financial reporting in Nigeria’s capital market.

Key market economy actors such as accountants, auditors, directors, and company secretaries frequently engage in unethical behavior.

Determine the reasons why professional accountants engage in unethical accounting practices.

Examine the primary reasons why professionals, directors, and market operators/participants engage in unethical behavior when conducting financial activities.

Eliminate the problem of unethical accounting practices perpetrated by professional accountants and propose potential solutions.

1.4 Research Question:

In the project study, the following research questions were posed; answering them will help accomplish the purpose of this research study.

These questions contains;

i. What impact do unethical accounting practices have on the integrity of financial reporting in Nigeria?

ii. What impact do unethical accounting practices have on the integrity of financial reporting in Nigeria’s capital market?

iii. What are the most prevalent unethical behaviors of accountants, auditors, directors, and company employees, who are integral to the market economy?

iv. What are the primary reasons why professionals, directors, and market operators/participants engage in unethical behavior when conducting their various activities?

v. What are the potential remedies for minimizing the impact of professional accountants’ unethical behavior on financial reporting in Nigeria?

1.5 Significance Of Study

When a business does not adhere to generally accepted accounting principles (GAAP), it engages in unethical accounting practices. The federal government establishes the rules of GAAP, but unethical accounting practices motivated by compensation incentives, pressure to obtain financing, or a desire to appear successful are not always illegal but almost always detrimental to your business.

In addition, this research will attempt to identify common unethical accounting practices affecting the quality of financial reporting by accountants, auditors, directors, and company secretaries, who are key actors in the market economy, and will also propose possible recommendations for them.

This study will also examine the perspectives of accounting professors on whether the teaching of ethics to student accountants can aid in the inculcation of ethical behavior in future accountants. It will also be of great benefit to the corporate world as the effective work of accountants and auditors in organizations promotes ethical accounting practices and financial reporting quality.

This study will remain of interest to company management, auditors, and other users of financial statements. It will facilitate a better comprehension of the effects of common ethical and unethical accounting practices on the quality and standard of financial reporting.

The study will also educate the public about unethical accounting practices, why they occur, and how we as a nation can promote ethical behavior. It will also be useful to government agencies, companies, regulators, and policymakers who are involved in regulating the ethical practice of accounting Standards and guidelines.

Finally, this study will be of great importance to schools and students, and it will serve as a resource for future scholars who wish to conduct additional research on the topic.

1.6. RESEARCH METHODOLOGY

In order to comprehend the impact of unethical accounting practices on financial reporting in Nigeria, this study employs a case study methodology. As a result, case studies were compiled using evidence from these sources. Even though this evidence may be insufficient and slightly biased, it nevertheless provides evidence of antisocial and unscrupulous conduct. An examination of these documentary reports is particularly useful in this regard because it helps to structure and contextualize the active role of professional accountants and auditors in Nigeria in facilitating unethical practices.

1.7. SCOPE OF THE RESEARCH

Since the study focuses on the relationship between unethical accounting practices and financial reporting quality, the research will be limited to two companies in Nigeria in order to conduct a thorough analysis of the impact unethical practice by professional accountants could have on financial reporting.

1.8. Limitation Of The Study

The study’s limitations include:

Financial Constraint: The success of every research project is heavily dependent on the availability of funds, and this affected the researcher because he had little or average funds available to cover the research study, and those funds were insufficient to conduct the research effectively.

2. Time:- this relates to the time allotted for the completion of the study as well as other obstacles; as a senior in college, activities and commitments reduced my time frame.

Inability to generate necessary information from secondary sources, such as textbooks and the Internet.

1.9. Definition Of Terms

Ethics: These are the moral principles by which a person governs his or her conduct. According to Brinkmann (2002) and Ogbonna & Appah (2012), ethics is the study of right and wrong, good and evil, virtue and vice.

Accountant: a person whose job entails the application of accounting to perform some or all of the following: preparing financial statements; conducting financial investigations; preparing, reporting and advising on the purchase and sale of businesses, business combinations, obtaining capital for enterprises, changes in partnerships, fraud and insolvency; preparing tax returns; providing advice on tax administration and other services.

Objectivity refers to the need to maintain impartial judgment (e.g., refraining from conducting an analysis to support a decision that the accountant knows to be incorrect).

Auditor: This refers to an individual, a partnership firm, or an organization conducting an audit of an enterprise or an undertaking. Such persons are not typically employed by the accounting entity or by its managers and is, as far as possible, independent of the persons who manage the entity; hence, they are frequently referred to as ‘external auditors’; or ‘accountants in practice.’

Section 244(1) of the CAMA (2004) defines directors as “persons appointed by a limited liability company to direct and manage its business.” Every registered company must have at least two private limited directors and seven public limited directors.

Without the explicit permission of the employer or the employer’s legal obligation, a professional accountant is prohibited from disclosing any information obtained in the course of professional services.

Unethical accounting practices refer to a situation in which a company disregards generally accepted accounting principles (GAAP).

Professional ethics refers to the professional conduct and traits that distinguish accountants as members of a profession.

1.10. SUMMARY OF CASE STUDY HISTORY (AFRIBANKS PLC AND CADBURY PLC)

Afribank Nigeria PLC was a commercial banking, real estate, and insurance broker headquartered in Lagos, Nigeria.[1] It was founded by French investors in 1959 as Banque Internationale pour l’Afrique Occidentale (BAIO). As of 2010, the bank operated over 250 branches across Nigeria and was one of the region’s “Big Four” banks.

Operations

Afribank operated a stock brokerage firm, an insurance brokerage firm, a trustees and investments company, an estate development company, a capital market firm, and an offshore finance company in Dublin, Ireland.[2] Afribank also invested in companies in the financial and real sectors of the Nigerian economy.

Failure and conclusion

Afribank failed in 2011 and its banking license was revoked by the Central Bank of Nigeria, the national banking regulator. The assets and some of the liabilities of the now defunct Afribank Plc. were acquired by Mainstreet Bank Limited, a bridge institution created specifically for that purpose on the same day.

Mainstreet Bank was established in August 2011 by acquiring the assets and a portion of the liabilities of the now-defunct Afribank Plc, whose commercial banking license was revoked.