CAUSAL EFFECT OF CREATIVE ACCOUNTING ON FINANCIAL REPORTING AND DECISION MAKING. (A Survey of Selected Financial Institutions in Nigeria)-jetibensi@yahoo. com By: Jackson Etibensi A Concept Note Submitted to the University of Calabar, Graduate School as Prerequisite for Admission into MSc. Accounting, Faculty of Management Sciences. INTRODUCTION: Financial Statements provides information that is used by interested parties (users) to assess and appraise the performance and financial Status of managers and the institutions respectively and also to make economic decisions.
External auditors are engaged to ensure the reliability and trustworthiness of such Financial Statement so presented. STATEMENT OF PROBLEM: Managers may wish to use the flexibility within accounting to serve a range of managerial interest such as boost profit or increase assets, this may be done legally, but due to the too-frequent occurrence, users of these statements are shaken with disclosures by corporate management that certain irregularities have been discovered.
This has altered their impression of firm’s business performance and even led to audit failure. Once managers step outside the rules and regularities that govern accounting, either due to the fact that they have gone through serious financial difficulties and is looking for any way to postpone collapse, it is in effect representing the negative impact of creative accounting. So this study would therefore be conducted to examine the causal effect of Creative Accounting on Financial Reporting.
The forgoing is due to the fact that any alteration in the content or message presented in the Financial Statements (Creative Accounting) will violate and lead to the making of decisions that would affect the decision makers negatively and also lead to audit failure on the part of auditors, especially where a firm is facing a going concern. RELEVANCE OF STUDY The study would help improve my knowledge of carrying out Financial analysis for investment decisions, my technical Accounting Skills, Fraud Investigation, and Investment Appraisal.
Students, investors, managers of Financial Institutions and other interested parties would find it interesting to understand the different ways that creative Accounting practice affects the Financial Reporting System and also ascertain whether a well-designed framework of accounting regulations will curb Creative Accounting practice in Corporate Financial Reporting. OBJECTIVES OF STUDY: The Broad objective of this Study would be to determine the impact of Creative Financial Reports and Decision making. The main aims of the study would be as follows. ) To examine the extent to which manipulation of Financial Statements affects Financial Reports. 2) To determine the effect of Fraudulent Financial Report/ Statements on Internal Decision Making. 3) To evaluate the impact of Earnings Management on the decision making of external users of Financial Statement. 4) To determine the effect of Creative Accounting on External Auditors decisions as to the forming of an opinion on the Financial Statement 5) To ascertain whether well designed Framework of Accounting regulations will curb Creative Accounting practice in Corporate Financial Reporting. CFR). 6) To examine the influence of Creative accounting on Audit Failures of Nigerian Financial institutions. JUSTIFICATION: This research work is relevant since it gives a positive outlook on the area of accounting that needs due attention and consideration, as the concept of Creative Accounting has created doubt on the minds of investors and other users of Financial Statements concerning the reliability of work done by Accountants in collaboration with Management in the preparation and presentations of Financial Statements.
Thus the time, energy and cost that would be put is carrying out this work would be justified as it would broaden the knowledge of any interested person on the issues concerning Creative Accounting while making investment and other vital economic decisions, as well as add value to academic HYPOTHESES Two hypotheses that would be tested using the Multiple Regression Analysis and also that would be used as a basis of drawing a conclusion on the study are: Hypothesis I
H0:Manipulation of Financial Statements does not have a significant effect on Financial Reports and investment decisions. H1:Manipulation of Financial Statements has a significant effect on Financial Reports and investment decisions. Hypothesis II H0:Creative Accounting does not have significant impact on Financial Reporting and Managerial decision making. H1:Creative Accounting has significant impact on Financial Reporting and Managerial decision making.
Data generation to test the Hypothesis would be generated primarily from questionnaires that would be administered both to banks, investors and members of selected Financial Institutions in Nigeria. {Samples of the Financial Institutions would be chosen from Deposit Money Banks (DMBs)} The tools used in testing the hypotheses would also be subjected to further test using other statistical tools like T-Statistic, Adjusted R2, etc. LITERATURE REVIEW: Authors like Stolowy and Breton (2003) Preffer and Salanick (1990) etc. re amongst the few interested in the subject of Creative Accounting daring to suggest a theoretical framework for the understanding of the Accounting manipulation practices. According to Barnea, Chamberlain, and Marlinton 1076) Creative Accounting and Earnings management are euphemisms for Accounting Practice that tend to circumvent, albeit, cleverly or manipulate the rules of Standard Accounting practice or in the spirit of the values. Micheal, J.
J(2011) Stated that the wider US definition sees creative Accounting as including fraud whereas the UK definition sees creative Accounting as using the flexibility within the Accounting System, but excludes fraud. Conclusively, this thesis would therefore look at methods of applying creative accounting like increase income, decrease expenses, increased Assets, decreased liability, use of provisions accounting, inventory, increase in operating cash flow, and adjustments or being generous with bad debt to distort the information to be presented in the Financial Statements.
It would also examine the ways to curb it like the impact of corporate governance, effective internal control, division of responsibilities between chief executive and chairman, setting up of audit committee, and the independence of the board of directors. It would look at cases and evidence of creative Accounting and Fraud in Selected Financial institutions in Nigeria. REFERENCES Anichebe, A. S. (2009). Corporate Financial Accounting and Reporting, Onitsha: Ade Graphics and Publisher, 31 7p.
Barnea, A. Chamberlain, S. L. and Marlinton, J. (1976). Managing Financial Reports of Commerical Banks: The Influence of creative accounting and earnings management. Journal of Accounting Research,33 (2) 231 – 261. Wikipedia (2008). Creative Accounting, Wikipedia Foundation Inc. http:www. en. eikipedia. Org/wiki/ economic recession Micheal John Jones. (2011) Creative Accounting, Fraud and International; Accounting Scandals, Hilleary and Publisher New York City.
