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ETHICAL COMPLIANCE OF THE ACCOUNTANT ON THE QUALITY OF FINANCIAL REPORTING OF BANKS IN RIVER STATE.





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ETHICAL COMPLIANCE OF THE ACCOUNTANT ON THE QUALITY OF FINANCIAL REPORTING OF BANKS IN RIVER STATE.




ABSTRACT
The study investigates the effects of ethical compliance of the accountant on the quality of financial reports of banks in Rivers State, Nigeria. Five research questions and five hypotheses guided the study. The sample for the study which was eight banks that were systematically and purposively selected from the number of banks quoted in the Nigerian Stock Exchange. A five point scale questionnaire was used with items on ethical standards of integrity, objectivity, confidentiality and accountability was sued and that of quality of financial reports of relevance, faithful presentation, understandability, comparability and timeliness of banks financial reports. Data collected by the designed questionnaire was analyzed using descriptive statistics tools and multiple regression models with the help of excel and e-view software packages. The result of the linear multiple regression models analysis confirms that ethical standards compliance by accountants affect the quality of financial reports of banks, but showed that only integrity and objectively of accountants affects all the quality of financial reports in the various models and confidentiality and that of accountability do not affect the quality of financial reports of banks in the models. The conclusion drawn from the findings is that the ethical compliance of the account on professional ethics will improve the quality of financial reports of banks in Nigeria. Based on the findings of study, some recommendations were made, among which are that banks should establish a relevant and functional position for ethics officers; creation of non-threatening environment for the discussion of ethical problems and co-operation between accountants, other employees and management in solving ethical difficulties that prevail or imping on the working environment. The accountant should up hold both the codes of professional ethics and that of their organization in the execution of their day-to-day responsibilities or duties.


TABLE OF CONTENTS
Title Page                                                                                 i
Declaration Page                                                                      ii
Certification Page                                                                     iii
Dedication Page                                                                       iv
Abstract                                                                                   v
Acknowledgment                                                                     vi
Table of Contents                                                                     vii
List of Tables                                                                           viii
List of Figures                                                                          xi
CHAPTER ONE: INTRODUCTION
1.1   overview of the study                                                       1
1.2   statement of the problem                                                 4
1.3   purpose of the study                                                                6
1.4   research questions                                                           7
1.5   hypothesis                                                                       7
1.6   significance of the study                                                  8
1.7   definitions of terms                                                          9
1.8   limitations of the study                                                    10
1.9   scope of the study                                                            11
1.10 organization of the study                                                 11

CHAPTER TWO: REVIEW OF LITERATURE
2.1   Introduction                                                                     15
2.2   theoretical framework                                                      16
2.2.1 what is ethics                                                                 16
2.2.2. ethics in the accounting profession                                       20
2.2.3 basic approaches of ethical behaviour                            27
2.2.4 compliance with ethical standards                                 29
2.2.5 financial reporting                                                          30
2.2.5.1 development of corporate financial report                    36
2.2.6. ethical behaviour and financial reporting                              38
2.2.7 ethical behaviour and performance                                        41
2.2.8 factors responsible for low ethical behaviour                  43
2.2.9 ensuring good ethical behaviour in business                  44
2.2.10 measurement methods of the quality of financial
reporting                                                                                  46
2.2.11 evolution, structure and organization of banks            55
2.3   empirical review                                                               59
CHAPTER THREE METHODOLOGY
3.1   Introduction                                                                     67
3.2   research design                                                                        67
3.3   sampling and sample size determination                         69
3.4   data collection method                                                    72
3.5   operational measures of variables                                    72
3.6   validity and reliability                                                      93
3.7   data analysis                                                                   94
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1   Introduction                                                                     99
4.2   return of questionnaires                                                  99
4.3   analysis of research questions                                         101
4.4   hypothesis testing                                                            110
CHAPTER FIVE: DISCUSSION, CONCLUSION AND RECOMMENDATIONS
5.1   Discussion                                                                       127
5.2   conclusion                                                                       128
5.3   recommendations                                                            129
Bibliography
Appendix 1- letter of introduction
Appendix 2- questionnaire
Appendix 3-questionnarie


LIST OF TABLES
Table                                Title                                                 Page
2.1   empirical studies on ethical behaviour                            54
3.1   population of the study                                                    58
3.2   sample banks                                                                  67
3.3   measures used to operationalize the dependent variable 68
3.4   measurement of analyzed questionnaire                          70
4.1   analysis of analyzed questionnaire                                  76
4.2   ethical standards of accountants and relevance of
financial reports of banks                                                        94
4.3   descriptive statistics for ethical standards and relevance
of financial reports of banks                                            95
4.4   ethical standards of accountants and faithful presentation
of financial reports of banks                                            96
4.5   descriptive statistics for ethical standards and faithful
presentation of financial reports of banks                               97
4.6   ethical standards of accountants and understandability
of financial reports of banks                                            98
4.7   descriptive statistics for ethical standards and
        understandability of financial reports                              99
4.8   Ethical standards of accountants and comparability of
financial reports                                                              100
4.9   descriptive statistics for ethical standards and comparability
of financial reports                                                           101
4.10 ethical standards of accountant and timeliness of
financial reports of banks                                                        102
4.11 descriptive statistics for ethical standards and timeliness
of financial reports                                                           103
4.12 regression output for relevance and ethical standards     104
4.13 regression output for faithful presentation and ethical
        standards                                                                        107
4.14 regression output for understandability and ethical
standards                                                                        110
4.15 regression output for comparability and ethical standards 112
4.16 regression output for timeliness and ethical standards   115


LIST OF FIGURES
Figure                              Title                                         Page
2.1           ethical compliance mechanism                                28


CHAPTER ONE
INTRODUCTION
1.1   OVERVIEW OF THE STUDY
Widespread corruption in the business environment seems to be the order of the day in almost all societies. United Kingdom, corporate scandals have involved such companies as independent insurance and BCCI. Recent times had witnessed the collapse of a number of corporate giants in the USA such as Enron Corporation, Tyco International, WorldCom, Global Crossing, Arthur Anderson etc (Ajibolade, 2008). Similarly, Liftig and Quellete (2009) noted that Enron, WorldCom, Tyco, Cedant are companies that collapsed as a result of unethical practices. Bern ie Madoff, former Chairman of the NASDAQ, is now cooling his heels in jail. The ex-CEO of converse is arrested in Nambia, the CEO at United Health care is forced to step down, and Patrica  Dunn of Hewlet Packard is charged in an ethics scandal.
And, of course, AIG has no problem doling out millions in bonuses to the very people who drove the company in financial crisis. It seems that no matter where we look today, the erosion of ethics and basic moral principles of right and wrong have taken us to a situation where the very systems that make society work are in imminent danger of oblivion.
According to Auguolu (2006), these failures have brought to greater scrutiny the work of the accountant from both within the profession and from outside. Beverly et al (2007) says certain factors have been identified as contributing to unethical behaviour such as self-interest, failure to maintain objectivity and independence, inappropriate professional judgment, lack of ethical sensitivity, improper leadership and ill culture, failure to withstand advocacy threats, lack of competence, and lack of organizational and peer support and lack of professional body support.
Also Nielson (1989) in Sims (1992) says managers behave unethically contrary to their ethical philosophies represents serious limit to ethical reasoning in the firm. Research in ethical behaviour strongly supports the conclusion that if ethical behaviour is desired, the performance measurement and reward systems must be modified to account for ethical behaviour (Adler and Ajibolade, 2008). Accounting professionals, who are once historically regarded as the watchdog of the society, are being implicated in these scandals which have cost the investing public huge financial losses.
Brewer et al (2006) says it is obvious that for the good for everyone, including the business organizations themselves, it is vitally important that business be conducted within an ethical framework that builds and sustains trust. The society holds for the accounting profession high ethical expectations well beyond the norm. conducting business within an ethical framework is believed to rest largely on accountant’s sensitivity to ethical issues.
Idialu and Oghuma (2007) in Ajibolade (2008) have noted that a general belief that without the accountants aiding unethical practices in business and in public service as a whole, there would be no corruption. Therefore, ethical behaviour by business people in general and accountants in particular, is not a luxury or a discretionary good thing to do but an absolute necessity for the smooth functioning of an economy.
Sims (1992) observed that the imperative of day-to-day to organizational performance are so compelling that there is little time or inclination to divert attention to the moral content of organizational decision-making. Morality appears to be so esoteric and quantitative in nature that it lacks substantive relation to objective and quantitative performance. Commenting on this state of affairs, Nwachukwu (2007:23) maintained that:
The ethical standard of a company are determined by the ethical standards of the executive. The set the ethical behaviour patterns to be emulated by the subordinates. If they resent and firmly condemn unethical practices in the company, subordinates will toe the line. The subordinate’s ethical behaviour is reinforced and influenced by the behaviour of management.

These recent events have consequently renewed interest in the question of ethics in the business environment and in the accounting profession in particular. They have created a new challenge for the accounting profession in terms of the ethics development of its members. Why would members of a respected profession with strict ethical standards, be so willing to be in breach of the standards by engaging in the level of ethical violations noted in recent times? Some suggestions have linked part of unethical bevhviour, to the pressure on private sector employees to get things done, with little attention to how things are done.
Every organization must demonstrate and nurture its ethical guidelines and follow the ethical process of documented ethical code that is shared with all the employees of the organization. Compliance to the code is a must for all systems that attempt to identify certain behaviours or means which are in them unethical. Therefore, organizations that follow ethical guidelines code of conduct and also comply to them fully have greater chances of not getting into legal penalty suits for illegal and unethical behaviour.
Given this renewed interest in ethics in the accounting profession and the concern for improving professional ethics, there is need to evaluate the extent to which ethical compliance of accountant is affecting the quality of financial reporting and performance of organizations. This study is an attempt to provide such evidence, investigates the effects of ethical compliance of accountants on the quality of financial reporting of banks in Rivers State.
1.2   STATEMENT OF THE PROBLEM
Ethical problems in organizations continue to greatly concern society, organizations and individuals, the potential impact that organizations can have on ethical behaviour has not really been explored (Helleigel et al, 1989 in Sims, 1992). The challenge of ethical behaviour must be met by organizations if they are truly concerned about survival and competitiveness.
        Ethical behaviour may be considered a lubricant that keeps the economy running. Without that lubricant, the economy would operate less efficiently, less would be available to consumers, quality will be lower and prices would be higher (Ajibolade, 2008; Mathews and Perera, 1996). The outcomes of the many cases of unethical bankruptcies, loss of investments and savings and loss of public confidence have all shown that unethical behaviour in business is not only morally wrong but also disastrous for an economy.
Furthermore, we hear about illegal and unethical behaviour on Wall Street, pension scandals, in which disreputable executive gamble on risky business ventures with employees retirement funds, companies that exposes their workers to hazardous working conditions, and blatant favouristism in hiring and promoting practices.

Luftig and Quellete (2009:14) made this submission on the decline of ethical behaviour in business with these words:
An organization has many reasons for operating ethically, including avoiding fines and litigations, reducing damage to the firm’s direct and indirect cost control, creating a competitive advantage, and avoiding corruption. On the other hand, unethical behaviour in firm’s results lowers productivity, especially among highly skilled employees; lower financial performance as measured by metrics such as economic value added and abnormally negative returns to shareholders for prolonged periods of time.

The Nigerian business environment is plagued with ethical problems (Oladoyin et al, 2005 in Ajibolade, 2008). Cases of unethical business behavioour and corporate scandals involving such large companies as African Petroleum PLC, Cadbury Nigeria PLC and Lever Brothers Nigeria PLC have been reported in addition with the collapse of many banks and other financial institutions are linked to various acts of ethical violations.
Such acts and collapse were allegedly as a result of wide spread fraud with accounting firms and professional playing a significant role. The management of most of these companies were found to engage in fraudulent activities and are being aided by auditors, who were able to cover up these activities through fraudulent financial reporting, thereby misleading the investigating public, employees and providers of fund. Prominent among them is the demise of once respected accounting firm, Arthur Anderson (Ajibolade, 2008). The determination of the effect of ethical compliance on the performance of firms are the subject of many studies over the years (example, Fatt, 1995; D’A quila, 2001; Webley and More, 2003; Flugrath, Bennie-Martinov, and Chen, 2007); therefore, this research hopes to provide fresh evidence from Nigeria and therefore expected not only to help enrich the literature but also to serve as an important quantitative information.
It is on the basis of this that the researcher intends to find out, where the problem is. To what extend to ethical violations affect the quality of financial reports? Does it mean that ethical standards of integrity, objectivity, honesty and accountability banks? Therefore, this study is to contribute to the growing debate on the need for accountants job of financial reporting of the activities of banks. Therefore, this is the gap this study intends to fill.
1.3   PURPOSE OF THE STUDY
This research is aimed at investigating the effects of ethical compliance of accountants on the quality of financial reporting of banks in Rivers State.
1.     To determine the extent to which standards of accountants affect the relevance of financial reports of banks.
2.     To evaluate the extent to which ethical standards of accountants affect the faithful representation of financial reports of banks.
3.     To ascertain the extent to which understandability of accountants affect the quality of financial reports of banks.
4.     To find out the extent to which ethical standards of accountants affect the comparability of financial reports of banks.
5.     To determine the extent to which ethical standards of accountant affect the timelines of financial reports of banks.

1.4   RESEARCH QUESTIONS
The following research questions have been addressed in this study:
1.     To what extent do ethical standards of accountants affect the relevance of financial reports of banks?
2.     To what extent do ethical standards of accountants affect the faithful presentation of financial reports of banks?
3.     To what extent do ethical standards of accountants affect the understandability of financial reports of bank?
4.     To what extend do ethical standards of accountants affect the comparability of financial reports of banks?
5.     To what extend do ethical standards of accountants affect the timelines of financial reports of banks?
1.5   HYPOTHESIS
The following hypotheses have been formulated and tested for validation of findings:
H01: The ethical standards of accountants do not affect the relevance of financial reports of banks.
H02: The ethical standards of accountants do not affect the faithful presentation of financial reports of banks
H03: The ethical standards of accountants do not affect the understandability financial reports of banks.
H04: The ethical standards of accountants do not affect the comparability of financial reports of banks.
H05: The ethical standards of accountants do not affect the timelines of financial report of banks?
1.6   SIGNIFICANCE OF THE STUDY
In view of the fact that the study of ethical compliance is quite fascinating, the findings of this study will be significant to organizations in the banking industry and other sectors. The study would be beneficial to these organizations by establishing the need to take ethical issues very seriously. This is because unethical practices by organizations affect their performance negatively.
The study also will be significant in the following ways:
1.     It will provide solutions to the various problems encountered by organizations on ethical behaviour and how these problems affect the quality of financial reporting and performance.
2.     It will enable clients and potential clients a basis for feeling confident that organizations with ethical code desires to serve them well and places service above financial reward.
3.     It will enable organizations to understand that there is strong evidence between ethical behaviour and the quality of financial reporting and performance as a benchmark for achieving overall corporate objectives.
4.     It will enable organizations to understand that there is strong evidence between ethical behaviouir and the quality of financial reporting and performance. Those organizations that are explicit about ethical compliance will outperform in financial and other indicators than those companies who do not have a code of ethics.
5.     Management of companies will benefit greatly since the findings of this study is aimed at improving their performance.
6.     Finally, the study will serve as a source of secondary data for future research to students who intend to carry out a study on ethical compliance and the quality of financial reporting and performance of organizations. Furthermore, the research findings will provide a means of bridging the knowledge gap in the very important area of ethical behaviour in organizations, thereby contributing to the existing body of knowledge.
1.7   DEFINITION OF TERMS
Accountability: It is the process of being accountable; rendering the duty of stewardship in accordance with lay down principles.
Confidentiality: The non-disclosure of information acquired in the course of professional work confidential to client or employer.
Ethical Behaviour:  Ethics are standards of behaviour within a group or society that indicates how we should behave to achieve the goals upon which the society places importance.
Ethical Compliance: This is the commitment to the code of ethics in the conduct of organizational activities to achieve desired goals and objectives.
Financial Performance: This is the process of supplying general purpose financial information to people outside the organization.
Integrity: It is a situation where an individual has the responsibility of refraining from engaging in any activity that would prejudice his ability to carry out his or her duties ethically.
Objectivity: It is a situation where an individual has to be fair and free from conflicts of interest.
1.8   LIMITATION OF THE STUDY
As with all empirical studies, the findings that will be reported in this study will be evaluated in the light of limitations imposed by the research design and implementation. It is doubtful if there will ever be any research that runs smoothly without presenting some limitations to the researcher such as scarcity of relevant literature, locating previously related research work, funds and attitude of respondents. However, due to the typical Nigerian attitude towards the release of information about their organization which they consider as confidential, some respondents were Lukewarm during collection of information.
However, despite the above limitations, the much needed data for the research work was collected and the objective for the study were equally been achieved.
1.9   SCOPE OF THE STUDY
This research intends to concentrate on the Port Harcourt business environment and in so doing; the researcher systematically sampled eight banks quoted in the Nigeria Stock Exchange. The researcher studied the following banks: Ecobank Nigeria PLC, First Bank of Nigeria PLC, Guaranty Trust Bank PLC, Bank PHB PLC, Skye Bank PLC, United Bank for Africa PLC, Standard Chartered Bank Nigeria PLC, and Zenith Bank PLC.
This scope delimitation is taken to be adequate as to provide the necessary data upon which a reasonable conclusion on ethical compliance of the accountant on the quality of financial reporting of bank.

1.10 ORGANIZATION OF THE STUDY
This research is organized into five chapters. The stud begins with chapter one by taking a cursory look at the concept of ethical behaviour, stating the problems that necessitated the study objectives, significance and the limitations of the study itself. Chapter two reviews relevant literature on ethics and ethical behaviour, financial reporting and financial performance. Also, looked into are seminar paper presentations, journals and publications from societies and professional bodies like institute of Chartered Accountant of Nigeria and institute of Business Ethics of the United Kingdom.
In the third chapter, methods and techniques of collection and sampling of data will be highlighted. The fourth chapter presents and analyses the data collated, and evaluates the effects of ethical behaviour on the quality of financial reporting of banks.

The final chapter (chapter 5) draws a summary and conclusion on the research study, with recommendations which are believed to enhance the operations of organizations in order to enable them optimize their organizational goals; and poses further areas of studies aimed at refining ideas and contributing more to knowledge.




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