CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Reporting of corporate conduct is crucial for both the companies who send out the reports and the investors, consumers, business partners, competitors, and public agencies that receive and utilize these reports. In their reports, companies represent themselves to the public, conveying, explicitly and implicitly, an image of their activities and philosophies, trying to enhance their reputation, and possibly rendering accountability for their deeds and objectives. On the other side, the receivers may check the quality of the reports, needing at least some truthful information for their own decision making and holding the companies accountable for their conduct. While this describes the general purpose and focus of corporate reporting, many questions still need examination in light of globalization and recent corporate scandals. How accurate and comprehensive are the financial reports? Do they reveal “the substance” of corporate performance rather than hiding it behind a plethora of formalities? How trustworthy and reliable should these reports be? Who is responsible for their veracity?
As stated by Ajibolade (2008), recent times had witnesses the collapse of a number of corporate giants in the United States like, Enron Corporation, Tyco International, WorldCom, Global Crossing, Arthur Anderson etc. Nigeria as a whole can also attest to the collapse of numerous companies in the financial and non-financial sectors of the economy. Ogbonna (2010) argued that any organization that lacks ethical considerations may not survive for a long time to achieve its desired goals and objectives and that of its stakeholders. Before the Enron and Andersen scandals, relatively little public attention was paid to the truthfulness of financial reporting. Of course, no one believed every company was beyond any suspicion of misrepresenting its activities. But, by and large, it was taken for granted that the reports attested by auditors sufficiently and accurately reflected companies’ financial performances. Recently, however, this confidence has been greatly shaken. Serious doubts and even cynicism about current reporting practices have spread, particularly among investors. The ethics of reporting has become a vital problem of the financial sector. This is the case not only in the USA where the “earthquake” of this crisis of confidence broke out, but also in other part of the world. Truthfulness of and trust in the financial reporting system depend on far more than the actions and decisions of individuals or sophisticated “mechanisms” for the whole system.
These failures of corporate entities have been linked to accountants not sticking to their instructions, codes of professional ethics in the accounting profession. These failures have finally led to careful examination the work of the accountant from both within and outside the profession. Accountants as professionals liable to be called for the preparation of financial reports need to stick to the codes of ethical accounting standards in order to produce reliable, relevant, timely, accurate, understandable and comprehensive financial reports. According to Nzotta (2008), financial reporting forms the basis for economic decision making. The various shareholders also need financial reports for decision making on the investment and financial aspect of the organization. The financial reports produced by the accountant should be centered on certain fundamental qualities for the specified or different users to completely understand the content of the report. The chief objective of financial reports is to communicate economic measurements of and information about resources and performance of the reporting entity needed to those having reasonable rights to such information. IASB (2008) also pointed that providing high quality financial reporting information is paramount because it will hugely and positively influence capital providers and other stakeholders in making investment, credit, and similar resource allocation decisions enhancing overall market efficiency.
1.2. Statement of the Problem
Ethics are rules of behavior used by professionals and practitioners to decide what is right and wrong in the normal course of business, contribute not only to the growth and financial stability of corporate enterprises but also promotes financial markets integrity and economic efficiency .Ethical practice is essential for producing quality and reliable financial reports to investors, potential investors and all stakeholders. Inaccurate or poor reporting of financial performance to shareholders, the government and the public have eroded the level of confidence of these stakeholders. The lack of proper accountability and transparency in the production of financial returns has also eroded the confidence of investors and the public. In actual fact, the four pillars of corporate which are known to produce better and sustainable organization are being undermined or not instituted viz: accountability, independence, fairness and transparency. According to CBN (2002,2006),the following number of banks experienced outright liquidation in Nigeria economy: Pre-independence 22banks;1992 3banks;1994 4banks;1998 26banks and 2005 14banks.Post 2005 bank consolidation also witnessed a number of events like the sacking of the board of Spring Bank Plc by CBN in 2007,Managing Directors of eight banks were sacked in August 14,2009.To avoid waning of public confidence and runs in these affected banks, the CBN injected N620 billion in all the eight affected banks to keep them running (Ugwu, Olajide, Ebosede, Adekoya, and Oji,2009).According to CBN and NDIC (1995) overhang of non-performing loans and advances, capital inadequacy, non-compliance with monetary policies, poor corporate governance, poor planning and control, lack of financial transparency, poor asset and liability management are the contributing factors to problems in the Nigerian banking industry. All these can be attributed to neglect of ethical considerations which led to lack of transparency and poor accountability, fraud and insider abuse which in the overall affected financial reporting system
1.3 AIM AND OBJECTIVES OF THE STUDY
The aim of the study is to examine the ethical accounting standard and the quality of management representation in some selected Nigerian banks. Other specific objectives of the study include;
1.4 RESEARCH QUESTIONS
1.5 RESEARCH HYPOTHESES
H1: There is a significant relationship between ethical standards and reliability of Management Representation in Nigerian banks.
H1: Ethical accounting standards affect investors’ confidence on the management Representation of Nigerian banks.
H1: Compliance with statutory codes and ethical standards have significant relationship with reliable and faithful Management representation in Nigerian banking industry
1.6 SIGNIFICANCE OF THE STUDY
Ethics are very important in an organization. Ethics are the principles and values used by an individual or group to govern his or her actions and decisions.
The significance of this study is multi-faceted as it helps in identifying the essence of ethical accounting practices on organizational performance, as this will enhance employees’ performance as things are done correctly in a coordinated manner. Moreover, newly established firms and organizations will actually know the place of proper ethical practices in the continued existence of such an organization. The research of this nature is very important to developing nations like Nigeria that already has a high level of known and unknown corruption and sharp business practices, which have permeated all facets of Nigeria’s national life.
This study will also be of great significance to policy analysts, auditors, investors, as well as accountants since it will assist in analyzing the effectiveness of the professional code of ethics on employee and management of an organization.
It will be of immense help to the various professional bodies in evaluating the success of its activities with specific reference to the problem of poor ethical accounting practices, elimination of unethical organizational behavior, it would also assist the boards in determining or formulating their future plans.
Finally this study will be of great significance to schools and students, it will serve as a reference point for future researchers who will want to research more on the topic.
1.7. SCOPE AND LIMITATIONS OF THE STUDY
This study is on ethical accounting standards and the quality of management representation in selected banks in Nigeria.
Limitation of the study
Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview)
Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.9 DEFINITION OF TERMS
Ethics: Ethics: Ethics refers to the code of moral principles and values that governs the behaviors of a person or group with respect to what is right or wrong. Ethics sets standards as to what is good or bad in conduct and decision making
Code of Ethics: A code of ethics within an organization is a set of principles that is used to guide the organization in its decisions, programs, and policies.
Stakeholder: Any person or group within or outside the organization that has an interest in the organization’s performance.
Fraud: Financial fraud can be broadly defined as an intentional act of deception involving financial transactions for purpose of personal gain.
Management representation: Process of producing statements that disclose an organization's financial status to management, investors and the government.
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