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ACCOUNTING CONTROLS AND AUDITORS TRUE AND FAIR VIEW REPORT ON BANKING PERFORMANCE
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
Title Page i
Title of Project ii
Declaration Page iii
Certification Page iv
Table of Content viii
List of Table x
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
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
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
4.1 Introduction 57
4.2 Analysis of part two of the questionnaire 57
4.3 Testing Research Hypotheses 64
5.0 Discussion, Recommendation, and Conclusion. 71
5.1 Discussion of Findings 71
5.2 Conclusion 72
5.3 Recommendation 73
LIST OF TABLES
Table No. Page
Table 3.0 sample size determination using simple random 52
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
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.