ABSTRACT
The broad objective of this study is to investigate
the effect of ethics on financial reporting quality. Primary data was used for
the study. The data was sourced from questionnaires administered to
respondents. The analysis of the data showed that accounting ethics had a
significant relationship with financial reporting quality. The study also
recommends that the employment processes of companies should be improved upon
so as to ensure that men and women with high level of ethical standing would be
employed. Ethics and compliance department should be put in place by firms to
direct and monitor ethics implementation in their day-to-day operations. Also
accountants as custodians of good financial reports should adhere to the codes
of professional practice issued by the Institute of Chartered Accountants of
Nigeria (ICAN) in carrying out their everyday responsibility.
CHAPTER
ONE
INTRODUCTION
1.1
Background of the Study
The
definition of ‘ethics’ has been given by different scholars in literature.
Fisher and Lovell (2003) views ethics as the branch of philosophy that
concentrates on formal academic reasoning about what is right and what is
wrong. Hornby (2010) defines ethics as those moral principles that governs the behaviours
of human. The similarity in both definitions is the yardstick of measuring
morally acceptable behaviour. Babayanju, etal, (2017) differentiated between
value and ethics, while the formal are beliefs about what is right and wrong
that guides the daily activities of humanity, the latter provides tenets and
standards, which are obtained from the theories of ethics, for thinking about
the issue. The concept of ethics is interdisciplinary. Virtually every
profession has some ethical principles governing its operations. In the
accounting world, there are accounting ethics; in the business environment,
there are business ethics, in the medical line, there are medical ethics, in
engineering, there are engineering ethics, in the legal world, there are legal
ethics and the like. The usefulness of ethics in each of these professions is
to create a template for acceptable professional behaviour that will guide
members in the aspect of performing and discharging their duties to their
clients in particular and public in general.
As
a result of lack of authenticity in the financial information prepared by
accountants exerted pressure on the Congress of United States to promulgate the
Sarbanes-Oxley (SOX) Act in 2002 (Enofe, etal, 2015). These act encapsulated
the establishment of Public Accounting Oversight Board, to ensure that
accountants are well-grounded in ethics education in order for them to able to
make reasonable ethical decisions when faced with unpleasant choices. The
pervasiveness of corruption in the private and public sector coupled with high
rate of fraudulent practices have propelled accounting practitioners to comply
thoroughly with codes of professional conducts. To buttress this, Ogbonna and
Appah (2011) maintained that corrupt activities in the business world have
gained roots, it is therefore imperative for accountants, who are saddled with
the responsibility of preparing financial reports, to comply totally with codes
of ethical accounting standards to produce accurate, timely, effective,
comprehensive, relevant and authentic financial reports.
Financial
reporting is the fulcrum of the art of decision making. Various stakeholders of
an organization need financial report in order to assess the performance,
profitability, viability and progress of such organization. The financial
reports prepared by the accountants are expected to meet the criteria of a good
financial report, in order to ensure that ‘all and sundry’ comprehend the
report content (Gois, 2014). To this end, an accountant is liable to the
outcomes of his moral choices both for his one life and the lives of other
individuals. Catacutan (2006) posits that an accountant who is involved in
fraudulent activities destroys his moral being, reputation and endangers the
interests of other stakeholders’ dependent on him.
The
essence of preparing and publishing financial reports is to provide
stakeholders (such as shareholders, debenture-holders, board, staff, investors,
capital provides and the general public) with the necessary information for
assessing the performance of an organization. Providing quality financial
reports is desirable because it allows stakeholders to make investment,
finance, dividends and resource allocation decisions that will enhance the
corporate performance of a firm. The quality of financial reporting shows the
extent to which the financial reports of a firm are presented with every iota
of honesty.
The
obligations of an accountants go beyond his immediate clients but also to
shareholders, debenture-holders, creditors, employees, suppliers, government,
accounting profession and the public at large (Appah, 2010; Abiola, 2012).
There is need for accountants to behave ethically based on the stipulated codes
of accounting conducts. Professional ethics is pertinent to accountants and
those who rely on the information provided by the accountants because ethical
behaviors involves taking the moral point of view (Klai & Omri, 2011;
Enofe, etal, 2015). The development and enforcement of professional ethics in
the accounting world will most likely result to enhancing the quality of
financial reporting.
1.2
Statement of Problem
Accountants
from time to time are confronted with ethical dilemmas. Accountants in the
course of their operations, encounter situations where they are enticed to
choose between right and wrong. The accountants’ claim to professionalism is
premised on their compliance with ethical principles and the will that they
would not allow their responsibilities to public interests to mix with personal
interests (Babajanyu, etal, 2017).
Every
profession has its stipulated ethical standards governing members’ behaviors.
The reason for this, as espouse by Ogbonna and Appah (2011), is because of the
incessant occurrences of corporate scandals in the Nigerian business
environment. Lack of ethical considerations can deter an organization to
achieve its goals and objectives. Joseph and Dike (2014) corroborates that
failures of some organizations in the corporate scene is traceable to the
inability of accountants of such organizations to comply with codes of conduct
premised in the content of financial reports and their skepticism by end users.
The cases of business failures and scandals have led to greater scrutiny of
financial reports provided by accountants.
The
code of corporate governance (2011) mandated that every registered organization
in Nigeria must have an ethical committee. The ethical committee is faced with
the task of deliberating on ethical matters and also promoting ethical
principles in an organization. The composition of ethical committees has not
produced desirable results as some of the corporate scandals committed over
time are linked to ethical matters (Ezeani, etal, 2012; Festus & Temitope,
2016). Few cases of corporate scandals that have occurred in the past decade
include Enron Plc manipulation of its financial statements because of lack of
autonomy from senior executives; Cadbury Plc overstatement of its audited
financial reports; African petroleum excluded its debt burden of N22 billion in
its financial reports and banks conspiracy with external auditors to commit
fraud (Enofe, etal, 2015). A proper assessment of the aforementioned scandals
reveals that their occurrences are outcomes of non-compliance to ethical
tenets. It is therefore necessary to evaluate ethical issues in the accounting
profession and how they affect the quality of financial reports.
1.3
Objectives of the Study
The
main objective of the study is to critically examine the effect of accounting
ethics on the quality of financial reports of Nigerian organizations using a
case study of selected brewery companies. The specific objectives are:
- To examine the effect of
disclosure on the quality of financial reports of brewery companies in
Nigeria. - To examine the effect of
objectivity on the quality of financial reports of brewery companies in
Nigeria. - To examine the effect of
integrity on the quality of financial reports of brewery companies in
Nigeria. - To evaluate the effect of
professional independence on the quality of financial reports of brewery
companies in Nigeria.
1.4
Research Questions
The
questions of interest as relating to the objectives of the study are:
- What is the effect of
disclosure on the quality of financial reports of brewery companies in
Nigeria? - What is the effect of
objectivity on the quality of financial reports of brewery companies in
Nigeria? - What is the effect of integrity
on the quality of financial reports of brewery companies in Nigeria? - What is the effect of
professional independence on the quality of financial reports of brewery
companies in Nigeria?
1.5
Significance of the Study
Scholars
such as Ezeani, etal, (2012); Joseph & Dike (2014); Ogbonna and Appah
(2011); Babayanju, etal, (2017); Enofe, etal, (2015); Nwagboso (2008) and
Festus& Temitope (2016) have conducted studies targeted to assess the
impact of accounting ethics on the quality of financial reports of Nigerian
firms. Virtually all of these studies focused on the financial sector,
thereby excluding the manufacturing sector, of which brewery industry is a
sub-sector.
This
study will be of immense benefits in multiple ways. Firstly, it will inform stakeholders
of various organizations on how to uphold their stipulated ethical principles
in order to avoid cases of business failures and corporate scandals. Secondly,
it will propel accountants to adhere strictly to codes of accounting ethics in
order to have some elements of reliability in the financial reports prepared
and provided by them. Thirdly, the study via its findings will assist
stakeholders of organizations to make vital investment, finance and dividend
decisions in order to promote the overall corporate performance of their
organization. Fourthly, it will instill the spirit of professionalism,
truthfulness, honesty and integrity amongst accountants as they will realize
that involvement in fraudulent practices tarnishes their personal reputation,
professional reputation and as well hamper on the genuineness of financial
information released by them. Lastly, this study will act as a guide for
students, researchers and academics that might be willing to undertake further
studies on the subject matter.
1.6
Scope of the Study
This
study examines the effect of accounting ethics on the quality of financial
reports of Nigerian firms with strong emphasis on brewery industry in Nigeria.
1.7
Definitions of Key Terms
Ethics
This
refers to a set of moral principles, especially ones relating or to or
affirming a specified group, field or form of conduct.
Accounting
Ethics
This
is primarily a field of applied ethics and is part of business ethics and human
ethics. Accounting ethics studies moral values and judgments as they apply to
accountancy.
Financial
Report
Financial
report (or statements) is a formal record of the financial activities and
position of a business, person or other entity. Relevant financial reports such
as balance sheet, income and expenditure statement, statement of retained
earnings and cash flow statements, must be presented in a structured manner
which must be easily comprehensible to the end users.
Objectivity
Objectivity
entails that financial report must be independent and supported with unbiased
evidence.
Disclosure
Disclosure
refers to the additional information attached to an organization’s financial
report, usually as explanation for activities which have significantly
influenced such organization’s financial results.
Integrity
Integrity
implies that financial report must be accurate, reliable and truthful.
Professional
Independence
This
refers to freedom of professional accountants from control or influence of
another party or stakeholder. It implies that professional accountants must be
given the free-hand to prepare financial reports devoid of internal and
external interference
Competence
This
refers to the quality of being adequately qualified to handle assigned tasks
and responsibilities.
Brewery
Industry
This
refers to the conglomeration of firms that produces and sells beer.