The study is titled “The Effect of Creative Accounting on the job performance of Accountants/auditors in reporting financial statement in Nigeria”. The study aimed at identifying the strategies used by the accountants to avoid creative accounting in any of their financial dealings. Despite the international and local scandals received by accounting officers, they will involve themselves in misrepresentation, falsification of figures of financial statement. The study employed empirical survey. Two hundred and twenty seven out of 500 respondents were chosen, using simple random sampling techniques and Yaro Yameni’s for formula. The same number of questionnaire were returned representing 100% response rate. The reliability of the instrument yielded a reliability coefficient of 0.98 indicating that the instrument is highly reliable. The data generated were analyzed using simple percentage method and pie chart for the research question, and t-test statistics for the hypotheses formulated. Among the findings made in the study was that the accountants/auditors indulge in creative accounting through profit eroding mechanisms to attract investors and resources but deceptive or fraudulent accounting practices often conduct to drastic consequences. One of the implications of the findings is that the managers of non profits organizations may have incentives to manipulate their reported programme-spending ratios because donors use them in determining contribution decision. Also, manipulation of financial information which is called several names like earnings management, income smoothing, creative accounting practices, aggressive accounting or accounting manipulation, prevents the allocation of resources in the most areas in the economy. It is recommended that there is urgent need for practice monitoring to commence in order to raise the quality of financial report globally.
TABLE OF CONTENTS
Title page - - - - - - - - - - i
Declaration - - - - - - - - - - ii
Approval page - - - - - - - - - iii
Dedication - - - - - - - - - - iv
Acknowledgment - - - - - - - - - v
Abstract - - - - - - - - - - vii
Table of content - - - - - - - - - viii
1.0 Introduction - - - - - - - - - 1
1.1 Background to the Study - - - - - - 1
1.2 Statement of the Problems - - - - - - 2
1.3 Objectives of the Study - - - - - - 4
1.4 Research Questions/Hypothesis - - - - - 4
1.6 Significance of the Study - - - - - - 6
1.7 Scope of the Study - - - - - - - 6
1.8 Historical Background of the Nigerian Stock Exchange - - 6
1.9 Definition of Terms - - - - - - - 9
2.0 Introduction - - - - - - - - 11
2.1 Conceptual Framework - - - - - - 11
2.2 Empirical and Academic Review - - - - - 13
2.2.1 Techniques of Creative Accounting - - - - - 15
2.2.2 Regulatory Flexibility - - - - - - - 15
2.2.3 Dearth of Regulations - - - - - - - 15
2.2.4 Reasons for Creative Accounting - - - - - 17
2.2.5 Income Smoothing - - - - - - - 17
2.2.6 The Ethical Perspective of Creative Accounting - - - 19
2.2.7 Ethical Behaviour of Accounting Professionals - - - 23
2.3 Concept and Objective of Financial Reporting - - - 26
2.4 Theoretical Framework - - - - - - - 33
2.4.1 Strategies used in Avoiding Creative Accounting - - - 35
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction - - - - - - - - 39
3.1 Research Design - - - - - - - - 39
3.2 Population of the study - - - - - - - 39
3.3 Sampling Technique - - - - - - - 40
3.4 Instrument of Data Collection - - - - - - 40
3.5 Validity of the Instrument - - - - - - 40
3.6 Methods of Data Collection - - - - - - 40
3.7 Method of Data Analysis - - - - - - 41
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.0 Introduction - - - - - - - - - 42
4.1 Respondents Characteristics - - - - - - 42
4.2 Questionnaire Analysis - - - - - - - 44
4.3 Hypothesis Testing - - - - - - - 48
4.4 Discussion of Findings - - - - - - - 53
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction - - - - - - - - 55
5.2 Summary - - - - - - - - - 55
5.3 Conclusion - - - - - - - - - 56
5.4 Recommendations - - - - - - - 57
5.5 Limitation of the Study - - - - - - - 59
Creative accounting also known as aggressive accounting is the process that deals with matters of accounting appraisal, conflicts items and events. This flexibility gives room for manipulation, deceit and misrepresentation. Hence, the accountants use their knowledge of accounting rules to manipulate the figures reported in the accounts of a business.
1.1 Background to the Study
Creative accounting means different things to different people. According to Amat Blake and Dowds (1999), four authors in the U.K explored creative accounting from a different perspective (including business journalist, accountant, an investment analysis and academic view). According to the authors:
- A business journalist – Griffiths (1986) observes that every company in the country is fiddling its profits. Every set of published accounts is based on books which have been gently cooked or completed roasted. The figures which are fed twice a year to the investing public have all been changed in order to protect the guilt. It is the biggest con trick since the Trojan horse… In fact, this deception is all in perfectly good taste. It is totally legitimate. It is creative accounting.
- Accountant – Michael (1988) argues that creative accounting is the accounting process consists of dealing with many matters of judgment and of resolving conflicts between competing approaches to the presentation of the results of financial events and transactions. This flexibility provides opportunities for manipulation, deceit and misrepresentation. These activities-practiced by the less scrupulous elements of the accounting profession.
- An investment analysis Smith (1992) reports that we felt that much of the apparent growth in profits which had occurred in the 1980s was the result of accounting sleight of band rather than genuine economic growth.
1.2 Statement of the Problem
Creative accounting and earning management are euphemisms for accounting practices that tend to circumvent, albeit, cleverly, or manipulate the rules of standard accounting practices or the spirit of those values (Barnea, Chamberlain and Marlinton, 1976). They are characterized by dubious complications and use of ‘novel’ ways of presenting income, assets or liabilities.
There are many reports of price manipulation, profit overstatement, and accounts falsification by some dubious stewards which rendered the financial reporting ineffective. The business failures of the past decade however have been closely associated with corporate governance failure which involves a number of parties, management, board of directors, auditors and some investors (Ezeani, 2010).
Most business organizations have always been connected with fraud and have always been affected by financial collapses. Recently, accounting scandals like Enran, World Com, Parmalat, Tyco, etc. have cost not only billions of dollars to the stakeholders but also have damaged the accounting profession as a result of financial miss-representation.
Most of the standards sets for the accounting (Audit) report have been eroded. According to Osisioma and Enahoro (2006), accounting processes and choice of policies resulting from many judgments at the same time are capable of manipulation, which have resulted in creative accounting. The differences which are observed in financial reporting are legitimately prepared from choice of varied accounting policies of the same organization for the same period, has brought about challenges of credibility to accounting (finically statements and reporting).
It is upon this backdrop that the study intends to find out whether the practices of creative accounting affected financial reporting in Nigeria.
1.3 Objectives of the Study
The main objective of this study is to determine the effect of creative accounting on the job performance of accountants in reporting financial statements in Nigeria. Specially, the study intends to:
- Find out whether creative accounting practices affect the financial reporting system.
- Examine whether “creative accounting practices significantly influences both accounting policy choice and manipulation of transaction in financial reporting”
- Ascertain whether a well designed framework of accounting regulation will curb creative accounting practice in corporate financial reporting
1.4 Research Questions
The following research questions guide the study:
- To what extent does a creative accounting practice affect the financial reporting system?
- To what extent does creative accounting practices significantly influences both accounting policy choice and manipulation of transaction in financial reporting?
- To what extent will a well designed framework of accounting regulation will curb creative accounting practice in corporate financial reporting?
1.5 Significance of the Study
The significance of this study cannot be overemphasized. When completed, the study will be of great benefit the accountants and accounting profession in Nigeria and the world over. It will also benefit the management of the Nigerian Stock Exchange as well as the stock brokers and shareholders. It will also benefit the accounting student.
1.6 Scope of the Study
The scope of this study is built around the concept of creative accounting and related theories, and the study is limited to the Nigerian Stock Exchange (NSE) Kaduna trading floor between 2012 to 2014.
1.7 Historical Background of the Nigerian Stock Exchange
The Nigerian Stock Exchange was incorporated in 1960, as a company limited by guarantee with head office in Lagos and branches in Kaduna, Abuja, Port-Harcourt, Kano, Onitsha, Ibadan, Yola and mot recently Bauchi each providing a trading floor.
The ownership of the Nigerian Stock Exchange belongs to the shareholders who comprises of financial firms and institutions and in some exceptional cases, individuals with integrity and experiences in the finance and business are accepted as shareholders.
NSE is governed by a team of shareholders elected usually at an Annual General Meeting. The elected shareholders are referred to as the council (Board). The council is presided over by a president, while the daily administration is led by the Director General. Since its inception in 1960, NSE has witnessed tremendous change which enhanced its operations some of which are:
- The introduction of SSM (second-tier securities market) in 1985 to assist small and medium sized companies in rating long-term capitals.
- The introduction of IQG (Indigenous Quoted Group) in 1997 by indigenous quoted companies on the Nigerian Stock Exchange as a platform to discuss issues of common interest.
- The introduction of ATS (Automated Trading System) in 1999 which is a security trading arrangement where by transaction on the stock exchange are achieved through a network of computers.
- The introduction of T+5 and T+3 on 1st March 2000. It was the initial transaction cycle since when the Nigerian stock exchange launched the central securities clearing system.
- The launching of the Central Securities Clearing System (C.S.C.S) in 1997, which is the clearing those of the Nigerian Stock Exchange.
All the trading floors are inter-connected with the central securities clearing system. Administratively, the branches are managed by the branch managers.
The branch manager is supported by the administrative staff, accounts and finance staff and operations department. However, accounts and finance department is about the largest department which comprises about five (5) units.
- Clearing unit
- Transaction floor
- Stock monitoring and evaluation unit
- Control and verification unit
- General accounts
Kaduna branch, which it the selected area of study, is located along Unity Bank Close, Maga dishu city centre, and of Ahmadu Bello Way in Kaduna Metropolis.
1.8 Definition of Terms
To get a good knowledge of the topic project means, some of the terms involved are being broken down form money comprehension and clear knowledge of the topic.
Stocks: A type of security that signifies ownership in a corporation and represents a claim in part of the corporation assets and earnings.
Investor: An investor is a person who allocates capital with expectation of a financial return.
Price: The amount of money or goods asked for or given in exchange for something else.
Capital market: Capital market are financial markets for the buying and selling of long term debt or equity backed securities.
Shareholders: One who owns shares of stock in a corporation.
Dividend: A share of profits received by stockholders or by a policy holder in a mutual insurance society.
Policy: A plan or course of action; as of a government political parties, or business, intended to influence and determine decision, actions and other matters.
Inflation: A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond permission the proportion of available goods and services.
Liquidity: the ability of an asset to be converted into cash quickly and without any price discount.
Finance: The supply of funds or capital for business.
Loan: An act of lending; a grant for temporary use.
Income: Economic benefit, money or value received.
Fund: A pool of money normally set apart for a purpose, for example, a person fund to provide pension.
Turnover: A measure of trading activity during the previous year, expressed as a percentage of the average total assets of the funds.
Deficit: An excess of liabilities over assets, of losses over profits or of expenditure over income.
Securities market: The organized exchange plus over the counter markets in which securities are traded.
Security: A financial land, which include, investment notes, stocks, treasury stocks, bonds or debentures, certificates of interest or participation in a profit.
Stock exchange: A broker dealing in stocks and shares on behalf of a client.
Share capital: The proportion of a company’s capital which derives from the issue of ordinary shares and reference shares.