examined the relationship between creative accounting and corporate failures in
Nigerian banking industry. A sample of one
hundred and fifty (150) copies of questionnaire has been
administered to the respondents for the purpose of this study. One hundred and
nineteen (119) copies were returned. This represents seventy-nine percent (79%)
response rate used in the study. Statistical tools used for purpose of analyses
were means and standard deviations. Analysis of variance (ANOVA) was used for
the validation of hypothesis. The results of the study indicate that the
primary objective of creative accounting in Nigerian bank is to achieve desired
results of management and mislead users of financial reports. Results of the
study also show that the hypothesis tested is not supported. It is therefore accepted
that there is significant relationship between creative accounting and
corporate failures in Nigerian banking industry. It is recommended that
directors and chief executive officers be made to provide a written statement
validating the accuracy and reliability of financial statements and accepting
responsibility for figure contained therein.
Title Page i
Table of Contents vii
One: Introduction 1
1.1 Background to the Study 1
1.2 Statement of Problems 4
1.3 Research Questions 6
1.4 Objectives of the Study 6
1.5 Statement of Hypothesis 7
1.6 Significance of the Study 7
1.7 Scope of the Study 8
1.8 Limitation of the Study 9
Chapter Two: Review of Related Literature 10
2.1 Introduction 10
2.2 Bank Failures in Nigeria 11
2.3 Creative Accounting 14
2.4 Financial Statement Fraud 18
2.5 Credible Financial Reporting 21
Ethics in Creative Accounting 23
2.7 Methods of Creative Accounting 26
for Creative Accounting 29
2.9 The Role of Creative
Accounting in Corporate Development 30
that help Accountants prevent Creative Accounting 33
Chapter Three: Research Method and Design
3.1 Introduction 37
3.2 Research Design 37
3.3 Description of Population of the Study 37
3.4 Sample Size 38
3.5 Sampling Techniques 38
3.6 Sources of Data Collection 38
3.7 Method of Data Presentation 39
3.8 Method of Data Analysis 40
Chapter Four: Data Presentation, Analysis and Interpretation 41
Chapter Five: Summary of Findings, Conclusion and Recommendations 51
5.1 Introduction 51
of Findings 51
5.4 Recommendations 53
Background of the Study
Accounting profession has come under
severe criticism, perhaps the greatest in history and perhaps the last in
history. This is due to the sudden collapse and failure of some industrial
giants. From the United States of America to the United Kingdom, Italy,
Germany, India, and to Nigeria the story is basically the same. Whenever there
is any corporate failure the question that is asked is: where were the
auditors? Many renowned authors, researchers and the general public believe
that corporate failures are synonymous with audit failure. This has put
question mark on the integrity and competency of professional accountants.
Enron, Polly Peck, Parmalat, Xerox, Lehman Brothers, Satyam, Bank PHB and
Spring Bank are examples of major corporate failures strengthening the concept
of creative accounting and resulted in the demise of Andersen, a reputable firm
of chartered accountants, and indictment, of the big four.
Subhajit (2010) remarks that creative
accounting is at the root of a number of accounting scandals and corporate
collapses. Many companies manipulate accounting figures and embark on
deliberate breaches of the accounting system and control in order to facilitate
the financial reporting goals established by management (Emma, Steve & Uche,
2009). There seems to be a relationship between creative accounting and corporate
It is equally believed that corporate
failures have many parents, but the most critical of these were breakdowns on
how executives perceived reality for their companies, how people within an
organization face up to their reality, how information and control system in
organization were mismanaged, and how organizational
leaders adopted spectacularly unsuccessful
habits. Suffice to say that the real story is much more complex than any of
these explanations and much more fascinating.
The ongoing sweeping reform in the
banking sector in Nigeria is not unconnected with series of failures and
instability in the system. If there is anything that all well meaning
stakeholders in the Nigerian Banking industry look forward to, it is a banking
sector that is healthy and stable. There is no gainsaying that our economy
deserves a sound and stable banking system that can face and stand firmly from
the global economy (Sanusi, 2003).
It appears that practicing accountants
cannot be exonerated from corporate collapses. Some have argued that financial
misconduct perpetuated by banks through which their financial statements are
overstated cannot be possible without the active involvement of their external
auditors. In August 2009, the CBN announced the removal of the managing
directors of five banks on account of poor risk management, bad corporate
governance and rendering of false returns. Surprisingly enough, the accounts of
the banks were audited by foremost auditing firms in Nigeria with international
reputation. Therefore, this study aims at exploring the relationship between
creative accounting and corporate failures in Nigerian banking industry.
1.2 Statement of Problem
Distress and failures are hard facts of
corporate life. However, some of such failures are episodic and often
associated with fraudulent accounting. Thus we have had the episodic failures
of Enron, parmalat, Lehman brothers, bank PHB, spring bank and Afrikbank etc.
The systemic failure of the aforementioned corporate organizations were
attributable to among others factors, unethical practices and financial
mismanagement by the directors. The non-discovery of such mismanagement of the
organization’s resources by their external auditors has agitated several
questions in the minds of many people. Surprisingly enough, it was observed
with dismay that the management of these companies has used professional
accountants (external auditors) to accomplish their selfish interests.
The recent three banks took over by the
CBN had been audited in the past and were given clean bill of health
immediately before the collapse. Nwachukwu (2009) states that management of the
failed banks were used to manipulating accounting figures and embark on
deliberate breaches of the accounting system and control. Sadly enough most of
the banks rendered false returns to the regulators (CBN and NDIC) of the
1.3 Research Questions
The main research problem was broken down into three sub problems
stated as research questions. Attempts were made in the course of the study to
provide answers to the following questions.
is the primary objective of creative accounting?
there any relationship between creative accounting and bank failures in
creative accounting mislead users of financial statements?
of the Study
The aim of the study is to examine the
relationship between creative accounting and corporate failures in Nigeria
banking industry. The specific objectives of this study are as follows:
examine the primary objective of creative accounting.
examine the relationship between creative accounting and bank failures in
examine if creative accounting mislead users of financial statements.
1.5 Statement of Hypothesis
Hypothesis was not raised in respect of
research question (i) above. Research question one was answered using
descriptive statistics. One hypothesis stated below was tested in order to
provide answers to the research questions (ii) stated above. The hypothesis
relating to the research questions are as follows:
is no relationship between Creative accounting and bank failures in Nigeria
HI: There is relationship between Creative
accounting and bank failures in Nigeria.
HO: Creative accounting is
not to mislead users of financial statements.
HI: Creative accounting is
to mislead users of financial statements.
1.6 Significance of the Study
This study is an attempt to add to the
existing literature in the areas of creative accounting and corporate failures
in Nigeria banking industry. There seems to be dearth of empirical evidence as
regards the relationship between creative accounting and bank failures in
Nigeria. This study is carried out to fill this gap. The findings of this study
would provide useful information required for unraveling the role of creative
accounting in corporate failures. Besides it is high time to know the role
played by professional accountants in corporate failures. Hopefully the outcome
of this study will provide reference paint for future researchers and a blue
print for policy makers.
1.7 Scope of the Study
This study is concerned with the
relationship between creative accounting and corporate failures in Nigerian
banks. Therefore perception of bank manager and professional accountants (external
auditors) and shareholders are sought in providing answers to the questions
raised in this research work. Lagos State is chosen as the area of study.
Unarguably, Lagos State is the economic nerve centre in Nigeria. There is
concentration of banks in Lagos. It is highly optimistic that the results of
this study could be relied upon for organization purposes.
of the Study
In the course of this research work, is
limited to the application of the internal control and check of fraud in banking
sector using the internal control of Oceanic Bank Plc.
There was a restriction on some key area
which were not disclosed as regards to their internal control system due to
management policy in bank.
Another limitation was the difficulties
involves in reaching some members staff in the bank due to their tight
Financial factor due to the depressed
Nigeria economy, to such an extent that the cost of material for the work was