ENHANCING PUBLIC CONFIDENCE FINANCIAL REPORTING: THE ROLE OF CORPORATE GOVERNANCE
ABSTRACT:
This study examined the role of corporate governance in organizations, and how the public confidence can be restored in organization through financial reporting. The study aimed at ascertaining the extent to which financial helps organizations in achieving their corporate objective. In the course of achieving these objectives, certain research questions were raised, which led to the adoption of three research hypotheses. The study particularly looked at the corporate governance in Consolidated Breweries Nigeria Plc in Edo State. A total of 100 sample was randomly selected from the organization and were administered questionnaire. Based on the descriptive statistics that was carried out. The chi square test showed that audit report significantly improved the process of corporate governance in Nigeria. It was also confirmed that effectiveness of financial reporting significantly improves corporate objectives. Lastly, the result showed that corporate governance help enhance public confidence of financial reports. In the light of these findings, conclusions were drawn and recommendations given. The study strongly recommend that: the auditor being able to detect malicious act and scandals in organizations finance, is equally able to give recommendations for board of the directors, the neglect of this responsibility is a matter that needed to be reversed in order to effect the firmness of corporate governance in organizations.
TABLE OF CONTENT
Title Page………………………………….…………………..…………..i
Certification…………………………………………………….………..ii
Dedication……………….…………………………….……….………..iii
Acknowledgment…………………………………………………..….iv
Table of Content…………………………………………………………v
Abstract………………………………………………………..…………x
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study……………………………..…….…1
1.2 Statement of Research Problems…………………….………5
1.3 Objectives of the Study…………………………………………7
1.4 Statement of Hypothesis……………………………….………8
1.5 Scope of study……………………………………………………9
1.6 Significance of the Study……………………………………...9
1.7 Limitation of the Study…………………………………….….10
1.8 Historical Background of the Board (NASB)…………………………………………………………….…….10
1.8 Definition of Terms………………………………………........12
References……………………………………………..………..……14
CHAPTER TWO: LITERATURE REVIEW
2.1 The Concept of Corporate Governance …………………..13
2.2 Synopsis on financial reporting and development of audit report….................................................................15
2.3 Objective of financial reporting………………………………17
2.4 Audit general standards…………………..………………….18
2.5 Qualification of auditor………………………….…….………20
2.6 Disqualification of auditor……………………………………21
2.7 Qualities of an auditor………………………………………..22
2.8 Independence of an auditor………………………………….23
2.9 The auditor and information………………………………..26
2.10 Auditors examination and evaluation standards……….26
2.11 Internal control…………………………………….……………28
2.12 Audit planning…………………………………………………..30
2.13 Audit evidence….……………………………………………….32
2.14 Obtaining audit evidence……………………………………..33
2.15 Forms and distribution of the financial report…………..33
2.16 Timeliness of financial reporting………….…………………34
2.17 Types of reports…………………………………………….…..35
2.18 Reporting to management…………..………………………..36
2.19 Prevention and control of fraud through reporting…..…41
2.20 The governance issues.............................................44
References…………………………………………………………….52
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction……………………………………………………..54
3.1 Research Design………………………………………………..54
3.2 Population of Study……………………………………………55
3.3 Sampling Method and Population………………………….55
3.4 Instrumentation……..………………………………………...55
3.5 Administration of instrument……………………………….57
3.6 Method of Data Analysis…………………...…………………57
3.7 Decision Rule…………………………………………………….58
References………………………………………………………..60
CHAPTER FOUR: PRESENTATION, ANALYSIS, AND INTERPRETATION OF DATA
4.0 Introduction…………………………………………...……….61
4.1 Data Presentation…………………………………………….62
4.2 Data Analysis………………………………………………….64
4.3 Test of Hypotheses……………………………………………76
CHAPTER FIVE: SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Findings……………………………..…………………..…….…83
5.2 Recommendation………………………………………………84
5.3 Conclusion…………………………………….……………….86
Bibliography………………………………………………………….88
Appendix I…………………………………………………………....91
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Effectiveness of financial reporting is one area in accounting that is recognized as the power house of financial dealings and management (Howard, 2002:2). Financial report constitutes the climax of all the planning and operation in the corporate governance. The audit reputation may then depend upon the contents of its report. In essence this implies that effectiveness of financial report is justified only if it is able to repose confidence in the curiosity of its teeming shareholders.
According to section 259 of company and Allied matters Act (CAMA) 2004, the financial report prepared by an auditor may include “A report to it’s members the accounts examined by them and in every become sheet and profit and loss account, and on all group financial statements, copies of which are to laid before the company in a general meeting during the auditors tenure of office”.
Recognizing the importance attached to the final report, the auditing practice committee sponsored by the six major accounting standards and guidelines have made suggestions and provided a member of example of audit report to apply in various circumstances (Alvin, 2007).
The importance of a corporate financial report cannot be overemphasized as the auditor may be held responsible to a great extent of what he states or does not state as his opinion to the trueness and fairness of company’s financial statement. And his responsibility may extend not only to his immediate client (Milky, 2008:2).
This study seeks to ascertain how public confidence in financial reporting can be enhanced and the implications it has on corporate governance. It also aimed at ascertaining how it influences the decision of external users of company’s financial statement. The external users include shareholder’s government and potential investors.
1.2 Statement of Research Problem
Financial reporting cannot be considered effective unless the report is timely provided. This may form the culmination of a great deal of deterred work and effort over a long period and yet may be summarized in a few lines. This study seeks to find answers to the following research questions:
i. Is financial reporting relevant in corporate governance?
ii. Do financial reporting help organizations in achieving their corporate objective?
iii. Does the incorporation of corporate governance help in building public’s confidence in financial report?
1.3 Objective of the Study
The objective of this study is to evaluate the role of corporate governance in enhancing public confidence in financial report.
The research study also has the following interrelated objectives:
i. To ascertain the relevance of financial reporting in corporate governance
ii. To determine the extent which financial reporting helps organizations in achieving their corporate objective.
iii. To find out whether the corporate governance help in building public’s confidence in financial report
For reports to have an impact in any organization, it requires the truth of these assumptions. The impact of this report would be examined for the purpose of conveying information, reporting, finding, putting forward ideas and making recommendations.
1.4 Scope of the Study
This study is restricted to financial reporting in corporate governance with particular reference to Consolidated Breweries Nigeria Plc.
The research work is designed to look into audit report in corporate governance to have an accurate investigation of information in different categories of workers in various department of Consolidated Breweries Plc.
The period of coverage is between (2006- 2011) five years.
1.5 Statement of Hypotheses
Hypothesis is a tentative statement about relationship that exists between two or among many variable to prove their validity.Therefore, the hypotheses formulated for consideration are as follows:
1. Ho: financial reports have not significantly improved the process of corporate governance in Nigeria.
Hi: financial reports have significantly improved the process of corporate governance in Nigeria.
2, Ho: effectiveness of financial reporting does not significantly improve corporate objectives
Hi: effectiveness of financial reporting significantly improves corporate objectives
3. H0: Corporate governance does not enhance public confidence of financial reports.
H1: Corporate governance help enhance public confidence of financial reports.
1.6 Significance of the Study
It is expected that the findings of the, research study in conjunction with findings of similar research studies on the subject enhancing public confidence in financial reporting and the implications for corporate governance would be useful to the public and private sector.
A significance result of this study would be to find out of the objectives of the financial reporting one being achieved and if these objectives have furthered the growth of the corporate governance in Nigeria.
1.7 Limitation of the Study
In carrying out this study, the researcher strictly limit himself with the case study. This is because of time constraint in conducting the research work.
Lack of adequate finances of transportation of fathering data collection and they expanded in the case of the research work.
The computation of information used for the preparation of their research work has not been easy. Another noticing problem is the unwillingness of some executive officers to give information and have a direct interview with them.
Finally, the researcher also limits himself on the role of financial reporting and corporate governance in Nigeria as it affects public confidence of corporate reporting.
1.8 Definition of Terms
In carrying this research the following important terms were used and their definitions are seen below:
1. Financial report: These consist of the balance sheet, profit and loss account, sources and application of fund, value added statement five years financial summary etc. it is the statement which communicates information about the company to those who have a right to receive it, e.g. the shareholders, loan creditors etc. It provides an indication of the company’s trading or operational performance and give a fixed point, snap-short of its financial position at a particular date (section 331 CAMA).
2. Audit: audit is a Latin word meaning to “hear” it is a process carried out by qualified parsons called auditor on the account prepared by management of organizations, parastatals and establishment to ensure adherence to laid down rules or policy. The auditing standard Board defined audit as “the independent examination of opinion on the financial statement of an enterprise by an appointed auditor in accordance to the term of his engagement and compliance with any relevant statutory obligation and professional requirements.
3. Audit report: this is a statement made by an independent auditor expressing his opinion as to the true and fairness of the financial statement examined by him and whether or not it is in compliance with the relevant act.
4. Internal control: this is defined by the Auditing Standard Board as the system of control, financial or otherwise established by management in order to carry on the business of the enterprise or company in an orderly and efficient manner and ensuring adherence to management policies, safeguard the asset and secure as far as possible the completeness and accuracy of records.
5. Financial institutions: in this study shall be taken for the banks that are into commercial activities, that is commercial banks, having branches across the federation.
6. Auditing guideline: Auditing guidelines are intended to give guideline on: (a) Procedure by which the auditing standards may be applied. (b) The application of auditing standard to specified items appearing in the financial statement of enterprises. (c) The application of auditing standards to particular sector, industries or service organizations. (d) Other matters relating to the proper performance of audit work.
7. Corporate Governance: is an all- encompassing concept that seeks to guarantee and institute credible bedrock governance standards, in the creation of wealth, in the light of the primacy that corporations have come to assume in privately- led economies.
REFERENCES
Ayin, H.C.C. (2007). Standard auditing, government and small business corporate, Nigeria agro press.
Howard, L.R., (2002), Auditing, Macdonald and Evans LTD, Great Britain.
Milky, G. W (2008) Auditing today, practice hall international inc. London’s 4th edition.
STATUTORY BOOK
Company and Allied Matter Act, 2004. Federal Republic of Nigeria Law of the federal act, 2004.
In other to understand the significance of financial reporting, one is required to be well versed in the theory and practice of accounting and corporate governance. This review of literature is organized in stages or sections addressing the topic in one way or the other. The first stage is the concept of corporate governance, a synopsis of financial reporting, that places emphasis on the historical development of audit report, then the various audit standards, which members of the professional accounting bodies are expects to company with when producing an audit reports. Included in the auditor’s general standard are competence, independence, care and integrity of the auditor. The credibility of the financial report depends to a large extend on the factors and if the users of the reports should doubt anyone of those standard required the complete relevance on the audit report may be questioned. Therefore, since the standards may affect an audit and subsequently the financial report, they may be examined to the extent of their effect.
The third stage is the audits standard and evaluation, which include adequate planning and supervision, compliance with rules and regulations, internal control system and evident. The auditing standard and guideline “audit report” and “audit report to management” issued by the auditing practice committee (UK) required the auditor to report to monitors (statutory report) and to the management who instituted the report.
Therefore to report audit work to an organization such as Consolidated Breweries Nig. Plc, a limited liability company the auditors are required to produce two reports which are domestics report and the statutory report. The domestic report is communicated to management to address each of weakness and suggestions of improvement. The statutory report is communicated to the shareholders of the organization. Such 35g (1) companies and Allied Matter Act (CAMA) 2004 provided that the report shall contain statement as to the matters mentioned in schedule 6 of the Act.
For the purpose of the project we shall be guided by the sub – headings provided by the auditory standard procedures such as form and distribution timeliness, accounts and financial report. Although he is reporting primarily to the management, the in terms / auditor white work form basis for a sound independent external audit has also been considered under the investigation function.
The activities of the internal auditor constitutes “a protective and constructive service to management” (Okolo 2007: 34), protections in the sense that the internal auditor guards against errors, fraud, waste and decision from established policies and objectives, and assessment of the various aspects of the operation ad make recommendations for improvements. The internal auditor is therefore a tool for management.
2.1 The Concept of Corporate Governance
In a converging world where the gospel of free markets and democracy is resonating more than ever before, and given the far- reaching impact of companies’ operations on the wealth of nations, its bio- diversity and the distribution of economic well- being; it is becoming increasingly clear that the governance of companies, corporations, family owned businesses, small and medium scale enterprises and business associations must matter, as does political governance. According to Oladele (2006) Corporate Governance would entail, relationships between the shareholders and the company, the exercise of corporate powers by the two main organs of the company- the Board and the Annual General Meeting and executive management generally, directors’ responsibilities for accountability and rectitude, more so as detailed by different statutes and regulations. James (2009) added that honest and fair trading by corporations, fair and equitable treatment of shareholders, minority shareholders alike, transparency and credible disclosure standards, products that take cognizance of the health of consumers, corporate citizenship and the business judgment rule are the core areas of corporate governance.
From the foregoing, it is clear that corporate governance is an all- encompassing concept that seeks to guarantee and institute credible bedrock governance standards, in the creation of wealth, in the light of the primacy that corporations have come to assume in privately- led economies. In support, Karugor Gatamah, Executive Director of Kenya’s Private Sector Corporate Governance Trust, sees good Corporate Governance as the lifeblood of a prosperous society.
2.2 Synopsis on Financial Reporting and Development of Audit Report
The history of auditing in its primitive or traditional form can be traced back to ancient time in Egypt. According to (Howard 2000: 1), modern approach to auditory as it exists today was a development of the later 19th century. An increased complexity of modern commerce which call for high degree of skill and discernment has greatly expanded the scope of the auditors operation (Emeya, 2003: 17 – 19), here, the independent auditor examined the accounts of business entity in such a detail as will enable the auditor to form an opinion as to their accuracy, truth and fairness. The opinion founded by the auditor and contained in the audit report must be in compliance with the companies and allied matters ACT – 2004. The opinion must be addressed to the shareholders who institute the audit and who the auditors are directly responsible to under statutes.
According to Milky, (2008: 2) audit work resulted from the practice of stewardship accounting system. In the circumstances, the need arose from some means by which shareholders might be satisfied that the accounts reported to them by their board of director did show an objective view of the financial position and result of the company.
From this reason therefore, developed the practices of appointing an auditor whose duty was to verify on behalf of the shareholders the account presented by the directors and to report thereon. In early history of auditing, the main qualification of an auditor was reputation, he was blamed when fraud were committed by members of staff. A man of high integrity, moral balance and independence of mind was usually honoured as an auditor and technical ability being regarded as secondary, with growth in the auditing standard and guidelines of the U.K’s professional accounting bodies. The statutory recognition given I.C.A.N guides the members of the body the license to practice auditing.
2.3 Objective of Financial Reporting
A balanced report is one that meets standardized audit requirement. It has to be fair in reporting objectively every information about the company’s financial activities. As contained in the contents of the auditors report, the report is guided or governed by:
(i). Statue regulating the existence and operation of the company. In Nigeria, such loans include companies and allied matters Acts, 2004; Bank and Other Financial Institutions Act (BOFIA) 1991, the Insurance Act 2003 etc.
(ii). the audit standard.
The auditing standard is considered below:
Land down by auditing standard: the auditing standard requires that auditors report should state clearly.
i. Title identifying the address
ii. The financial statement audited
iii. Respective responsibilities of directors and the auditors.
(iv). Basis of auditors opinion.
(v). auditors opinion
(vi). Signature of the auditors.
(vii). Data of the auditors report.
According to section 359(1) of CAMA 2004, the auditor shall report to the members of the company but where the company is quoted in the Nigeria stock exchange, the auditor will as well report to the members of the company and audit committee.
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