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ACCOUNTING
CONTROLS AND AUDITORS TRUE AND FAIR VIEW REPORT ON BANKING PERFORMANCE
ABSTRACT
This study is focused on the accounting control
and auditors true and fair view report on banks performance: A Study of
Nigerian banks. In all, five banks were selected for this study. The study was
designed to ascertain the effects of accounting controls and auditors true and
fair view report on banks performance. A primary instrument was used to get the
research data. The statistical tool used was Spearman Rank Order correlation to
ascertain the level of association between the variables of study. Findings of
the study revealed that: (1) there is no significant relationship between the
auditor’s true and fair view report and the banks performance. (2) There is no
significant relationship between the auditor’s true and fair view report and
the banks liquidity. (3) There is a significant relationship between the
accounting control and the banks performance. And (4) there is a strong
correlation between accounting control and the liquidity of the banks. Based on
the findings of this study the following recommendations were made: policy of
motivating staff should be encouraged in all organizations and the management
should consider the qualities of the internal audit staff and sustain the use
of professionally qualified staff to handle the technical aspects of the audit
functions.
TABLE OF CONTENTS
PAGE
Title Page i
Title of Project ii
Declaration Page iii
Certification Page iv
Abstract v
Dedication vi
Acknowledgement vii
Table of Content viii
List of Table x
CHAPTER
ONE
INTRODUCTION
1.1 Overview
of the Study 1
1.2 Statement
of the Problem 3
1.3 Purpose
of the Study 6
1.4 Research
Questions 6
1.5 Research
Hypotheses 7
1.6 Significance
of the Study 7
1.7 Definition
of Terms 8
1.8 Limitation
of the Study 9
1.9 Scope
of the Study 10
1.10 Organization
of the Study 10
CHAPTER
TWO
2.0 Review
of Related Literature 14
2.1 Theoretical
Perspective of auditors true and fair
view,
accounting controls and banks performance 14
2.2 Professional
and the Pursuit of profits 22
2.3 The
Socio-political and Economic contexts of Auditing
in Nigeria 30
2.4 Indicators
of banks Performance 36
2.4.1 The Profitability 36
2.4.2 Liquidity of Solvency Ratio 37
2.4.3 Investment Ratio 38
2.5.1 Empirical Review 38
CHAPTER
THREE
3.0 Introduction 50
3.1 Research
Design 50
3.2 The
population of the study 51
3.3 Sampling
procedure and sample size 51
3.4 Data
collection method 52
3.5
Operational Measures of Variables 53
3.6 Data
analysis technique 53
3.7 Reliability 54
CHAPTER
FOUR
4.1 Introduction 57
4.2 Analysis
of part two of the questionnaire 57
4.3 Testing
Research Hypotheses 64
CHAPTER
FIVE
5.0 Discussion,
Recommendation, and Conclusion. 71
5.1 Discussion
of Findings 71
5.2 Conclusion 72
5.3 Recommendation 73
Bibliographies 86
Research
Questionnaire
LIST OF TABLES
Table No. Page
Table 3.0 sample size determination
using simple random 52
Sample
method
Table 4.1 Question 1Response 57
Table 4.2 Question 2 Response 58
Table 4.3 Question 3 Response 58
Table 4.4 Question 4 Response 58
Table 4.5 Question 5 Response 59
Table 4.6 Question 6 Response 59
Table 4.7 Question 7 Response 59
Table
4.8 Question 8 Response 60
Table 4.9 Question 9 Response 60
Table 4.10 Question 10 Response 60
Table 4.11 Question 11 Response 61
Table 4.12 Question 12 Response 61
Table 4.13 Question 13 Response 61
Table 4.14 Question 14 Response 62
Table 4.15 Question 15 Response 62
Table 4.16 Question 16 Response 62
Table 4.17 Question 17 Response 63
Table 4.18 Question 18 Response 63
Table 4.19 Question 19 Response 63
Table 4.20 Question 20 Response 64
CHAPTER ONE
INTRODUCTION
1.1 OVERVIEW OF THE STUDY
The
primary objective of most organization is to maintain at all times a clean bill
of health financially. That is why they always endeavor to keep appropriate
records and financial statements which are periodically vetted by auditors.
Audit control measures are usually employed to ensure this by watching out for
some key financial indicators like liquidity and profitability positions of
organization in the present of audit controls.
In
societies marked by divisions of expert labour, external auditing is promoted
as a trust engendering technology with the capacity to promote a certain kind
of social order (Power, 1999). Accountants, as auditors, have cemented their
status and privileges on the basis of claims that their expertise enables them
to mediate uncertainty and construct independent, objective, true and fair
accounts of corporate affairs (Sikka, 2009). It has been argued, however, that
such claims are not good indicators of corporate performance, because
capitalist economies are inherently prone to crises (O’Connor, 1987; Sikka,
2009). Furthermore, the claims of expertise are frequently affected by
unexpected corporate collapses, fraud, financial crime and the general crisis
of capitalism (Baker, 2007; Sikka, 2009; Sikka et al, 2009).
Since
2007, major Western economies have been experiencing a deepening banking and
financial crisis arising from subprime lending practices by banks, which in
turn has restricted the available of credit and has led to what has been
described as the ‘credit crunch’ (Sikka et al, 2009). Some commentators have
attributed this economic crisis to the unethical practices of corporate bank
managers and to the inability of auditors to expose such anti-social practices
from previous audits (Broad Street
journal, 21 October 2009; Sikka, 2009). Some auditors may have failed to
company with expected standards. If a company fails shortly after being
audited, the auditors may be blamed for conducting an inferior audit (Dopuch,
1988). Thus, whenever there is a financial scandal, it must be questioned
whether the auditors out their duties and obligations with due care and
diligence.
1.2 STATEMENT
OF THE PROBLEM
In
Nigeria the spate of corporate failures witnessed in the financial sector in
the early 1990s brought auditors into sharp focus and caused the Nigerian
public to question the role of accountants and auditors (Okike, 2004; Bakre,
2007; Ajibolade, 2008). Furthermore, the investigations launched by the
regulators and other stakeholders into the cases of distress and disclosure
revealed that accountants and auditors were implicated (NDIC, 1995). With the
recent banking crisis in Nigeria members of the auditing profession in Nigeria
are once again in the limelight, as the banking crisis and the revelation of
unethical practices by bank executives and board members has raised many
questions about the ethical standards of the accounting profession and about
the ethical standards of the accounting profession and about the integrity of
financial reports issued by professional accountants (ThisDay, 9 December
2009).
The
question has been raised as a result of the failure on the part of accountants
and auditors to alert regulator when they have discovered fraud and other
irregularities in company records (Bakre, 2007; Ajibolade, 2008; Okike, 2009;
Neu et al, 2010). In respect of the banking crisis, attention has focused on
the role of accountants and auditors who have been involved. Accountants and
auditors may be expected to report financial irregularities in company accounts
by enhancing transparency and accountability and by developing techniques for
fraud detection. However, an emerging body of literature argues that accounting
professionals have increasingly used their expertise to conceal and promote
anti-social practices (Sikka, 2008; US Senate Permanent Sub-Committee on
Investigations, 2005; Bakre, 2007). It has been reported that between 1990 and
19994 the Nigerian economy lost more than N6 billion ($42.9 million) to fraud
within the banking sector alone (Bakre, 2007).
The
sector cost of the banking crisis is difficult to estimate, but huge amounts of
public money are being used to bail out distressed banks (Sikka, 2009).
The
audit conducted by the CBN into the activities of the 24 registered banks in
2009 revealed that they were experiencing hugged financial difficulties in
their operations. As a consequence, in August 2009, CBN injected N420 billion
($2.8billion) into the first five banks (Afribank, Finbank, Intercontinental
Bank, Oceanic Bank and Union Bank) which had failed the CBN audit. Two months
later, an additional N200 billion ($1.33 billion) was injected to stimulate the
liquidity of four other banks (BankPHB, Equatorial Trust Bank, Spring Bank and
Wema Bank) (Nigerian Tribune, 8 December 2009; ThisDay, 12 December 2009). This
injection of money was done in order to stabilize the banks and to ensure that
they remained going concerns after their former managers had been sacked for
reckless lending and for lax corporate governance which had rendered the
institutions undercapitalized (Nigerian Tribune, 17 August 2009; ThisDay, 12
December 2009).
Although
the global financial and banking crises have attracted the attention of policy-
makers (TI,2009) and scholars (Njanike et al, 2009; Sikka, 2009; Sikka et al,
2009), comparatively little scholarly attention has focused on the role of
auditing firms in facilitating the mismanagement of bank assets, liabilities
and depositors’ funds in developing countries. Hence, this study is set to
investigate the effects of accounting controls and auditors true and fair view
report on Nigeria’s banks performance.
1.3 PURPOSE
OF THE STUDY
The
main purpose of the study is to investigate the effects of accounting controls
and auditors true and fair view report on banks performance. The specific
objectives are:
i. To
investigate the effect of accounting control on banks’ performance.
ii. To
ascertain the effect of auditors true and fair view on banks’ performance.
iii. To
bring to certain the effects of accounting controls on banks’ liquidity.
iv. To
ascertain the effects of auditors true and fair view on banks’ liquidity.
1.4 RESEARCH
QUESTIONS
In
view of the objectives of the study, the following research questions are
addressed in this study:
i. To
what extent do accounting controls impact on banks’ performance.
ii. How
significant is the relationship between auditors true and fair view and bank’s
performance.
iii. To
what extent do accounting controls impact on banks’ liquidity?
iv. How
significant is the relationship between auditors true and fair view liquidity.
1.5 RESEARCH
HYPOTHESES
In
testing for the significance relationship for the facets above, the questions
will be hypothesized as follow:
HO1:
There is no significant relationship between auditor’s true and fair view and
banks performance.
HO2:
There is no significant relationship between auditor’s true and fair view and
banks liquidity.
HO3:
There is no significant relationship between accounting controls and banks
performance.
HO4:
There is no significant relationship between accounting controls and banks
liquidity.
1.6 SIGNIFICANCE
OF THE STUDY
This
study will add to the wealth of literatures on the effect of accounting
controls and auditors true and fair view report on banks performance.
The
findings of this study on the facets that has significance relationship with
the banks performance will be of great benefits to policy makers, business
executives, researchers and all those who want to remain afloat in today’s
hyper-competitive business environments.
This
study will be of immense benefit to researchers, as it presents its trend of
thought on accounting controls and auditors true and fair view report
empirically.
Policy
makers can benefit from this study when they apply the recommendations of the
study.
1.7 DEFINITIONS
OF TERMS
Auditor’s True and Fair View is
interpreted in this study as the minimum requiring presentation which is not
misleading. It may also be regarded as an important high-level objective of
financial reporting, which the detailed rules, standards and regulations are
designed to achieve and assumed to achieve.
Accounting Controls is used here as methods and procedures that
are implemented by a firm to help ensure the validity and accuracy of its own
financial statements.
Performance
as used here represents the organization’s profitability and liquidity.
Profitability is
interpreted in this study as a ratio, which expresses the rate of the profit
amount benchmarked against some point of reference (%).
Liquidity
is the availability of funds, or assurance that funds will be available, to
honour all cash outflow commitments (both on- and off-balance sheet) as they
fall due.
1.8 LIMITATION
OF THE STUDY
The
major constraint of the study would be on collecting relevant information for
the study. Workers, in fear of their job might not want to disclose unethical
practices in their organization.
The
reluctance of the employees in answering the questionnaire for fear of exposing
their company’s strategy is also a limitation of this study.
Another
limitation of the study is that the research concentrated on the banking
industry even though the Accounting Code of Ethics and Professionalism applies
to the banking industry and other financial institutions.
1.9 SCOPE
OF THE STUDY
This
study would be centered on selected Nigerian Deposit Money Banks head offices
in Port Harcourt, Rivers State.
The
study was centered on the accountants and auditors of the five selected banks.
1.10
ORGANIZATION OF STUDY
This
study will be presented or organized in five chapters. The first chapter is the introduction. It will give the context of
the problem, the objectives, significance of the study, scope of the study, and
the limitations. The chapter also raises some research questions and
hypothesis. Finally, it presents the organization of the study.
The second chapter focuses
on the review of related literature, the theoretical, conceptual, and empirical
background or framework. This chapter covers the link between the auditors true
and fair view and the banks performance.
The third chapter deals
with the research methodology employed in the study. That is research design,
population specification and sample size determination, method of data
collection and data analysis technique.
The fourth chapter is
composed of data presentations, analysis, and interpretations.
Finally,
the fifth chapter is composed of discussion, conclusions, and
recommendations.
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