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ACCOUNTING TO ENHANCE TRUST AND CONFIDENCE IN CORPORATE AFFAIRS

Project Topic: The Role of Accounting to Enhance Trust and Confidence in Corporate Affairs (A Case Study Of Union Bank Nig Plc)


CHAPTER ONE

INTRODUCTION

From a traditional perspective the object of financial statement is to provide information about a business economic situation that is useful for a wide range of users for economic decision making and observing management quality. This decision oriented objective of financial reporting is the constituent part of the various national accounting systems. Investors need information about the amounts, timing, and uncertainty of the company’s future economic inflows and outflows. According to Eugene (2003).

Generally speaking information is needed for two purposes from an economic point of view financial reporting is one important and reliable source of information that helps to allocate capital more efficiently. Misleading information might channel funds into inefficient companies. Capital markets may even collapse when those who normally make business and economic decision feel that they do not get enough or biased information.

This work is designed to investigate and report on the accountancy and professional ethic as it affects the trust and confidence on stakeholders’ perspective. To achieve orderly corporate affairs around the world, corporations must provide investors and creditors with relevant, transparent, reliable, and timely information. Accounting and Auditing that they operate within, are essential components in the flow of information to capital market participants. However, recent accounting failures have pointed out the need for substantive improvement in these components. The academic accounting community can play a role in stimulating change aimed at enhancing trust and confidence through commentary and scientific based research that provide direction for change.

Responsible parties need to act more responsible. The International Accounting Standards (IAS) is ultimately the responsible authority for oversight of accounting principles, the financial reporting process and the enforcement of the current standards and rules pertaining to them. They need to face up to this responsibility more than they have in the past. If this organizations hopes to survive long into 21st century, then needs to at responsibly now to share up the stakeholders trust and confidence on auditor independence.

Furthermore, the existence and use of Generally Accepted Accounting Standards (GAAS) and generally accepted auditing standards (GAAS) and procedures will promote trust and confidence in the financial statement audited by a member of the Institute of Chartered Accountants of Nigeria (ICAN). Ethics is the rules of conduct recognized in certain spheres of human life. Nweze (2005) Ethics simply means knowing the right thing and doing it:   It is also a moral philosophy that deals with the principles of right or wrong in human conduct. Ethics therefore, involves duties moral principles and rules that individuals in a particular profession or organization in a particular industrial group apply in decision making and to moderate relationship among others. Hence, professional ethics are a system or theory of moral values as principles embodied in the rules guiding the general and specific conduct of professional bodies e.g. Accountants, Auditors, Medical Practitioners, Lawyers, Engineers, etc.

Professional Accountants are required to observe proper standards of professional conduct whether or not the standard are written in the rules or are unwritten. They are specifically required to refrain from misconduct which is difficult to define precisely but which includes any act or default which is likely to bring discredit on himself, his professional body or his profession generally. The code of conduct or code of professional ethics demands that the Auditor/Accountant should possess among others the following qualities; Independence, integrity/moral, competence, confidentiality, honesty, reliability etc. Independence is exceedingly important and it is very much an attitude of mind rather than a set of rules. It is the backbone of auditing. Integrity on the other hand is vital and it is synonymous with honesty, uprightness, probity, moral, soundness etc.

Nevertheless auditors/accountants must not only be seen to do so. Any interest (e.g. owing to political ambitions) which might undermine his independence as an audit should be avoided. It is by the exercise of the above mentioned qualifies by the auditor in the course of his work for decision making by the users of financial statements.

Finally, Accounting is the science that deals with the records and interpretations of financial transactions. It involves collection, recording, evaluation and communication of economic events, quantified in monetary terms. According to Okpe (2005).

To enhance trust and confidence in financial statement, auditors must express an opinion whether the financial statements shows a true and fair view on the basis that the auditor followed the prescribed auditing procedures and standards and required ethical codes in the conduct of the audit work. Therefore the auditor must be objective i.e. in the investigation of the organization, its record, and financial statements prepared from them in order to form an opinion on the accuracy and correctness of the financial report. To enhance the quality of his audit, the auditor in keeping with the required professional ethics should adopt more effective audit practices as stated in various statements of Auditing Standards (SAS).

STATEMENT OF THE PROBLEMS

Concerning the subject matter for the study, it is a practical problem that accounting have not kept to effective practices and this is believed to be negatively and significantly affecting the authenticity and reliability of financial statement of a company. To be realistic, when uses of service have veritable cause to doubt its trust and confidence, all those who take part in providing the service face the problem of credibility.

Obviously, publishing account promises a wealthy financial condition but actual events or a proper look into this published accounts show the contrary, hence, the required accounting and professional ethics highlighted in the previous section becomes a matter for investigation in this study, whether auditors have kept to them in order to improve trust and confidence of the stakeholders.

OBJECTIVES OF THE STUDY

The objective of the study is on the role of accountancy to enhance trust and confidence in corporate affairs. The objectives to be achieved in this study include.

1)            To access the extent to which professional accountants comply with the accounting concept and principles in their practices

2)            To find out if accountants keep adequate and proper record of all the financial activities.

3)            To examine the extent on how auditors keeps to their professional ethics in the conduct of audit.

4)            To examine whether the integrity of an auditor has positive impact on trust and confidence of stakeholders

5)            To determine the extent to which non-independence of auditors affect the trust and confidence of stakeholders

6)            To examine the extent to which accounting/auditing practices comply with the professional ethics and its significance and impact on the trust and confidence of stakeholders.

RESEARCH QUESTIONS

In order to be able to analyze accurately the problems in this study. The following questions are important.

  • To what extent does accountant comply with accounting concept and principles?
  • To what extent to which non-independence of auditors affect the trust and confidence of stakeholders?
  • To what level does an auditor keep to their professional ethics in the conduct of an audit?
  • Does the competence and qualification of an auditor affect financial in terms of its trust and confidence?
  • To what extent does accountant keep adequate and proper record of all the financial activities?
  • How does the integrity of an auditor affect the trust and confidence of financial statement?

RESEARCH HYPOTHESIS

Based on the objectives of this study, the following hypotheses were drawn for analysis.

H0:   There is no significant impact of accounting practices on trust and confidence of stakeholders.

H1:   There is significant impact of accounting practices on trust and confidence of stakeholders.

H0:   Non-independence of auditor does not significantly affect the trust and confidence of stakeholders

H2:   Non-independence of auditor significantly affects the trust and confidence of stakeholders.

SIGNIFICANCE OF THE STUDY

Data pertaining to the transaction and economics event affecting an entity are processed by the accounting system to produced operating and financial information needed by management to direct and control operation. This information also enhances other parties, such as the investors, creditors, employers, and government agencies to mention but a few in their decision making relative to the government. It will enhance it trust and confidence by the users.

From the above statement as long as this study is concern, it would be useful to users of audited financial statement like the shareholders, investors, government, NGO etc. The management of most business organizations would see the study very useful in that they could arrive at a better decision with a view to improve trust and confidence of stakeholders.

Finally, this study would be beneficial to students and other academicians by adding to the existing stock of knowledge in this area of study, hence assisting further researchers in the related area of study.

SCOPE AND LIMITATIONS OF THE STUDY

Since the study concerns an analysis of trust and confidence in corporate affairs, the scope of the study in terms of area of coverage. The respondents will be constitutes the users of financial statement which shareholders and other financial analysts have been chosen.

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