PROJECT TOPIC- Capital Structure and Corporate Performance in Nigeria

Abstract

This study examines the concepts of capital structure and corporate performance in Nigeria. The broad objective of the study is to examine the relationship between capital structure and return on capital employed and also to find out if there is a relationship between capital structure and return on equity. The random sampling technique is adopted in the study. The population consists of all quoted companies in the Nigerian capital market. Data were obtained from annual report and accounts of the sampled companies. Data collected were analyzed using the descriptive statistics while hypotheses formulated were tested using the ordinary least squares techniques. The findings indicated that there is a positive relationship between capital structure and return on asset managed and that there is a negative relationship between capital structure and return on equity. The study recommended among others that companies especially the manufacturing sector should not borrow the maximum amount they are able to and should hold a reserve of borrowing capacity.

CHAPTER ONE

INTRODUCTION

1.1   Background to the study

The majority of Nigerian banks are in ruins which may not be unconnected with the capital structure (debt-equity mix) of the bank. It is therefore imperative for financial manager of bank to determine the proportion of equity-capital and debt-capital to obtain financing mix that will give us optimal capital structure. An optimal capital structure is a critical decision for any business organization (Pandey, 2005).

The decision is important not only because of the need to maximize returns to various organizational constituencies but also because of the impact such decision has on an organization’s ability to deal with its competitive environment. Capital structure is used to represent the proportionate relationship between debt and equity. Equity includes paid- up share capital, share premium, reserves and retained earnings.

In the case of debt, short term borrowing are traditionally excluded from the list of method of financing the firm capital budgeting decision and therefore the long-term claims (such as long term loan and debentures) are said to be a part of the capital structure. The question then is; how much equity do we have? Or how much equity can be raised from all sources? And where will the equity come from? For the majority of companies these questions are relevant, since the corporation did not need to maintain separate equity for their branches.

In as much as capital investment decisions have implications for many aspects of operations and often exert a crucial impact on survival, profitability and growth. Much of the theory in the corporate sector is based on the assumption that the goal of firm should be to maximize the wealth of its current shareholders. One of the major cornerstones of determining this goal is financial ratio. Financial ratios are commonly used to measure firm performances. Generally, corporation includes them in their annual reports to stakeholders. Investment analysts provide them for investors who are considering the purchase of a firm’s securities.

Financial ratio represents an attempt to standard financial information to facilitate meaningful comparisons. It provides the basis for answering some very important questions concerning the financial wellbeing of the firm. Its objectives are to determine the firm’s financial strengths and to identify its weaknesses (Mahdi & Kumars, 2009). This study would therefore seek to establish the fact that there is a relationship between the capital structure and corporate performance.

PROJECT TOPIC- Capital Structure and Corporate Performance in Nigeria

1.2   Statement of problem

Survival and growth needs resources but financing of these resources has limitations. The analysis of the impact of capital choice on profit is as important as the overall existence of the companies’ themselves. It is especially important when one is considering the dwindling fortunes of the aftermath of the global economic recession which might not have been unconnected with inappropriate capital

1.3   Research questions

To this end, the following problem questions are relevant and will be addressed by the study.

  1. What is the relationship between capital structure and Return on Capital Employed (ROCE)?
  2. What is the relationship between capital structure and Return on Equity (ROE)?

iii.    What is the negative relationship between capital structure and Earnings per Share (EPS)?

  1. What is the negative relationship between leverage and Return on Asset Managed (ROAM)?

1.4   Objectives of the study

The study aims at fulfilling the following objectives.

  1. To ascertain if there is a relationship between capital structure and Return on Capital Employed (ROCE).
  2. To find out if there is a relationship between capital structure and Return on Equity (ROE).

iii.    To find out if there is a relationship between capital structure and Earnings per Share (EPS).

  1. To ascertain if there is a relationship between leverage and Return on Asset Managed (ROAM).

1.5   Statement of hypotheses

The testable hypotheses of this research work can be stated thus:

Hypothesis One

HO:   There is a negative relationship between capital structure and Return on Capital Employed (ROCE)

HI:    There is a positive relationship between capital structure and Return on Capital Employed (ROCE)

Hypothesis Two

HO:   There is a negative relationship between capital structure and Return on Equity (ROE).

HI:    There is a positive relationship between capital structure and Return on Equity (ROE).

Hypothesis Three

HO:   There is a negative relationship between capital structure and Earning per Share (EPS).

HI:    There is a positive relationship between capital structure and Earning per Share (EPS).

Hypothesis Four

HO:   There is a negative relationship between Leverage and Return on Asset Managed (ROAM)

HI:    There is a positive relationship between Leverage and Return on Asset Managed (ROAM)

1.6   Significance of the study

Performance measurement is the base of investing and financing decision. Debt holders evaluate performance to decide about interest rate. Investors, on the other hand are interested in evaluating the performance to have knowledge of success of management in applying their capital (Mahdi & kumars, 2009).

To this end this research would help investors to ascertain the impact of capital structure (debt and equity mix) on financial performance.

1.7   Scope of the study

The entire firms in the Nigerian Stock Exchange will constitute the population of the study. A sample of twenty (20) companies was selected to test the theoretical model. For these firms, data were collected for a five year period (2010 to 2015) to allow a thorough evaluation of the capital structure and corporate performance. Based on this, any conclusion, Referencing and recommendation arising from this study may be applicable to other industry or companies in Nigeria.

1.8   Limitations of the study

The problems encouraged in the course of this research include:

  1. Inadequate Study Materials: Research materials were of limited supply due to the practically of the study. Where they were available; the cost involved in sourcing for them was very expensive.
  2. Lack of access of current Data: Most managements and staff of the establishment would not want to disclose important or relevant information about their organization on this subject matter, except were such is permitted by law to be disclosed.

1.9   Definition of terms

  1. Return On Capital Employed (ROCE): This is the ratio that indicates the efficiency and profitability of a company’s capital investments.
  2. Return On Equity (ROE): The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.
  3. Return On Asset Managed (ROAM): This is a measure of profits shown as a percentage of the capital that is
    handled. Return on assets managed is calculated by taking operating profits and dividing it by assets (which could include accounts receivable and inventory). Asset turnover and operating margin are the two main drivers in returns on assets managed.
  4. Return On Asset (ROA): This is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings”, Calculated by dividing a company’s annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as “return on investment”. ROA tells you what earnings were generated from invested capital (assets)
  5. Earnings Before Interest and Taxes (EBIT): This is an indicator of a company’s profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is also referred to as “operating earnings”, “operating profit” and “operating income”.
  6. Return On Investment (ROI): This is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of taking operating profits and dividing it by assets (which could include accounts receivable and inventory). Asset turnover and operating margin are the two main drivers in returns on assets managed.
  7. Return On Asset (RCA): This is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings”, Calculated by dividing a company’s annual earnings by its total assets, RCA is displayed as a percentage. Sometimes this is referred to as “return on investment”. ROA tells you what earnings were generated from invested capital (assets)
  8. Earnings Before Interest and Taxes (EBIT): This is an indicator of a company’s profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is also referred to as “operating earnings”, “operating profit” and “operating income”.
    6. Return On Investment (ROT) – This is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.
  9. Earnings Before Interest and Taxes and Depreciation (EBITD): This measure attempts to gauge a firm’s profitability before any legally required payments, such as taxes and interest on debt, are paid. Depreciation is removed because this is an expense the firm records, but does not necessarily have to pay in cash.
  10. Earnings Per Share (EPS): This is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per Share serve as an indicator of a company’s profitability.
  11. Equity: A stock or any other security representing an ownership interest.
  12. Dividend Per Share (DPS): This is the sum of declared dividends for every ordinary share-issued. Dividend per Share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued.
  13. Share Premium: This is the excess amount received by a firm over the par value of its shares. This amount forms a part of the non-distributable reserves of the firm which usually can be used only for purposes specified under corporate legislation.

15.   Retained Earnings: This is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders’ equity on the balance sheet.

PROJECT TOPIC- Capital Structure and Corporate Performance in Nigeria

TO GET THE FULL PROJECT TOPIC AND MATERIAL DELIVERED TO YOUR INBOX OR DOWNLOAD INSTANTLY, PAY N5000 Via: BANK
BANKACCOUNT NAME
ACCOUNT NUMBER
DIAMOND BANK
FREEMANBIZ COMMUNICATION
007 031 2905
FIDELITY BANK
FREEMANBIZ COMMUNICATION
560 028 4107
GTBFREEMANBIZ COMMUNICATION013 772 5121
ZENITH BANK
FREEMANBIZ COMMUNICATION
101 326 3297
OR Pay Online with ATM
After Payment, you can use the chat app at the right hand side of your browser to download the material immediately or Text Name, Title of project paid for, your email address to 08060755653.FOR PAYPAL USERS OR INTERNATIONAL
CAPITAL STRUCTURE AND DIVIDEND POLICY DECISION AND CORPORATE PERFORMANCE

PROJECT TOPIC- CAPITAL STRUCTURE AND DIVIDEND POLICY DECISION AND CORPORATE PERFORMANCE

Abstract

Over the years, the issue of how developing country’s firms decide between the use of debt and equity as source of finance had been a challenge in emerging market and the new patterns of internal and external financing that have evolved in the global market as an entity. The main statistical tool employed in this work is Pearson’s correlation techniques which will be used to establish the relationship between earning price per share and corporate performance. A sample size of 14 was drawn using random sampling techniques. In the research question three hypotheses formulated. The study used Pearson’s correlation method in testing the hypotheses formulated. The study reveals that there is positive relationship between the retained earnings of firms and their EPS; firm’s optimal debt ratio is determined by trade off between gains of borrowing, holding the firms assets and investment plan is constant, Based on the findings the study recommends: that company should endeavour to desist from employing non professionals like chemist, biologist etc and also government should put in place measure to guarantee  economic and political stability.

CHAPTER ONE

INTRODUCTION

  • Background to the Study

The term advertising appears to be well known to every person across all profession consumers and even buyers aspire to know advertising as much as the advertisers. All aspects of business have advertising implication. As it is very imperative for a course of action on the part of the owner of a business, who is just starting or expanding existing ones to make a careful study of how to get the products or services across to the ultimate consumers.

To assure that product will sell itself due to its high quality or measures to the buyer or consumer is wrong.  Modern business has specifically responding to the need for proper communication by responding to the need for proper advertising. One should not fail to mention that small business management occupies a vital and higher percentage of the economy development of a nation.

This is why small scale business management should be given its pride of place and guide with al seriousness to achieve its desire greatness. The competitive nature of business operating in the same industry calls for the need for advertisement to ensure its survival in the same line of industry. However, the survival of a small business management therefore depends on how well the management of such business can discover the need for necessity of advertising.

The case study of Mr. Biggs which find itself in the fast food business can only secure a better edge among her place as there are competitions in the business. The corporate goals or objectives of the institution under study are to justify the owners investment from the profit after tax. Therefore the whole essence of this research work is to help managers and other interest individual to find a place in their organization that is completely responsible for advertising.  

PROJECT TOPIC- CAPITAL STRUCTURE AND DIVIDEND POLICY DECISION AND CORPORATE PERFORMANCE

  • Statement of Problem

Over the years business fails to grow and survive due to lack of poor advertising techniques adopted by enterprises. Advertising management is a crucial issue in a global business due to the complexity of current business environment. These are set out plans and programmes in order to achieve the set of organizational objectives and goals. Advertising require to find in order to design an effective advertising methods which will have a wider coverage in order to reach out to existing customers and potential customers of  the business product or services.

The researcher is of the view to carryout an investigation to find out the constraint of advertising including the growth and survival of enterprise in Nigeria. However preferred solution and solution and recommendation will be made available at the end of this study.

1.3   Research Questions

This research work will attempt to provide answers to the following questions:

  1. What is the effect of advertising on the total demand for Mr. Biggs products?
  2. How does advertising influence the business cycle?
  3. Does advertising widen consumer choice for the product of the firm?
  4. Does advertising increase sales?
  5. Does advertising facilitate the achievement of goals and objective of small scale business management?
  6. Does advertising help to inform and create awareness?

 

1.4   Objectives of Study

This research is aimed at achieving the following objectives:

  1. To determine if advertising has any significant effect on the total demand for Mr. Biggs products.
  2. To examine if advertising has any influence on the business cycle.
  3. To know if advertising has any widen effect on consumer choice for the product of the firm.
  4. To examine if advertising has any significant effect in increasing sales.
  5. To examine if advertising has any significant effect in facilitating the achievement of goals and objective of small scale business management.
  6. To examine if advertising help to inform and create awareness.

 

  • Statement of Hypotheses

With regard to the above, central research question arising from the statements of the problem and the objective of the study, leads to the researcher to the formulation of the following hypothesis. The negative assertion is called the alternative hypothesis (Ho) while the positive assertion is called the null hypothesis (HI).

Hypothesis One

Ho:  Advertising does not facilitate the achievement of goals and objectives of small scale business management.

HI:    Advertising does facilitate the achievement of goals and objectives of small scale business management. 

Hypothesis Two

Ho:  Advertising does not increase sales and profitability.

HI:    Advertising does increase sales and profitability.

Hypothesis Three

Ho:  Advertising does not inform and create awareness.

HI:    Advertising does inform and create awareness.

 

  • Significance of the Study

The objective of this research study is to examine the problem being faced by small scale business of Mr. Biggs enterprise as a result of not having good economic (e.g. market economic) and to suggest good solution to these problems. If this objectives are met, it follows that this work will at the end contribute significantly to the importance of advertising in small scale business management.

This study attempts to produce information to bridge the information needs of the potential and actual investors. Therefore, the following categories will benefit immensely from the findings.

  1. Potential Investor: It will serve as a guide in determining the value of the business that would finally have an influence on their investment decision.
  2. Management: It would expose them to improve practices as well as help to know the importance of advertising in small scale business.
  3. Public: It will enlighten the public on the need for advertising in small scale business management. It will also benefit the public in the area of providing relevant information for the future researchers.
    • Scope of the Study

This study is restricted to the relevance of advertising in the management of small scale business in Nigeria a case study of Mr. Biggs. Due to time and cost constraints the entire Mr. Biggs in Nigeria can not be used for this study. Hence, a sample size of 3 (three) one in Auchi and two in Benin (i.e. one in Sapele Road and one in Ugbowo Road).

The date was obtained using a cross section of Mr. Biggs fast food restaurant in Edo State for the period of 2009 – 2013. 

 

  • Limitations of the Study
  1. Outstanding constraint is the unwillingness on the part of the respondent to give correct and convincing information about their business.
  2. Generalization of result may not be correct since the study was limited to advertising in small scale business enterprise with special emphasis on Mr. Biggs which does constantly represent the performance of all the small scale enterprise in the country.
  3. The smallness of the sample size is also a constraint to this research project.

 

  • Definition of Terms
  1. Advertising: This is the purpose to promote the image of a corporation rather than the sale of a product or service, also called institutional advertising is also use to create public awareness of a corporation or to improve its reputation in the market place. (Brovee, 1992).
  2. Small Scale Business: The federal government small scale industry development plan of 1980 defined a small scale business in Nigeria as any manufacturing process or services industry with a capital not exceeding N150,000 in manufacturing and equipment alone.
  3. Management: Involves ensuring that work activities are completed with highest degree of efficiency and effectives by those responsible for carrying out the responsibilities.
  4. Promotion: The element of the marketing mix that include all forms of marketing communication. It is the ingredients used to inform an persuade the market regarding companies product the market regarding companies product.
  5. Organization: A project, a business of a person or group of persons. A company making and selling things.
  6. Consumer: This is a person or group of persons who are the final users of products or services generated within a social system.

Marketing: This is the process of communicating the value of a product or services to customer for the purpose of selling the product or services. It is a critical business function for attracting customer.

PROJECT TOPIC- CAPITAL STRUCTURE AND DIVIDEND POLICY DECISION AND CORPORATE PERFORMANCE

CHALLENGES FACING AUDITOR’S INDEPENDENCE IN PRIVATE SECTOR ORGANISATIONS IN NIGERIA

PROJECT TOPIC- CHALLENGES FACING AUDITOR’S INDEPENDENCE IN PRIVATE SECTOR ORGANISATIONS IN NIGERIA

Abstract

The study is aimed at examining the challenges facing auditors’ independence in private sector organizations in Nigeria. The ultimate aim of this research work is to evaluate the impact of auditors’ independence on audited report and increase credibility on the financial statement to the user. The researcher employs primary data (questionnaire and personal interview) in its data collection. It was discovered that closeness in terms of giving management decisions can impair an auditor’s independence and that auditor’s independence has a direct impact on the audit report. Finally, it was recommended that seminars and lectures should be conducted for auditors to enable them appreciate their profession the more to maintain their personal integrity despite the advise situation in the country, knowing fully well that a good name is better that riches.

CHAPTER ONE

INTRODUCTION

  • Background to the Study

Over the past three decades, Nigeria has witnessed a huge growth in its private sector with the development of free enterprise, and influx of foreign corporations (Zhao & Murinde; 2011, Ezeoha, 2007; Ningi & Dutse, 2008). Also, the level of private sector investments increased the need for fairly stated financial statements became more important. This surge in the private sector came along with many positive and negative aspects. The economy witnessed a rapid growth in the level of corruption, and fraud perpetuated by businesses.

This pointed to the need for further governmental efforts to regulate business reporting in the country (Ayoola-Akinjobi, 2010). Auditing is not yet well developed in Nigeria. Currently, there are two accounting bodies, Institute of Chartered Accountants of Nigeria (ICAN) and Association of National Accountants of Nigeria (ANAN), recognized in the country to regulate the practice of accounting, however, ICAN is the oldest and most dominant accounting body in Nigeria.

The house and senate approved a bill to set up a third accounting body (Certified Public Accountants of Nigeria, 1998), but the bill was not signed by President Obasanjo before he left office, and his predecessors are yet to sign the bill into law. While both bodies have witnessed great improvements in their regulation of the practice of accounting in the country, they have not done much in the area of auditing.

Recent reports of questionable accounting practices employed by some companies in Nigeria have brought the issue of auditor independence to the forefront, and put the auditing profession in a serious credibility crisis (Otusanya & Lauwo, 2010). In response to this, the public has called for auditors to be independent of their clients. Audit independence refers to the ability of the external auditor to act with integrity and impartiality during his/her auditing functions.

Two types of auditor independence were developed by Mautz and Sharaf (1961) namely practitioner-independence (or independence in fact), and profession independence (or independence in appearance). Communication of accurate financial statements is vital to the operation of the economy since users of financial statements depend on this information to make financial decisions.

To increase the confidence in their financial statements, companies utilize the services of external independent auditors to audit their books. Independent auditors audit the financial statements and express an opinion on the fairness of the statements. The confidence placed on these statements depends ultimately on the perceptions held by the users of these statements regarding the independence of the external auditors. While the external auditors may in fact be independent of the management of the company being audited, if they are perceived not to be independent, then the value of their opinions to the users of the statements is diminished.

PROJECT TOPIC- CHALLENGES FACING AUDITOR’S INDEPENDENCE IN PRIVATE SECTOR ORGANISATIONS IN NIGERIA

  • Statement of Problem

The concept of independence is a cornerstone of the accounting profession. The main aim of employing the services of an auditor in an organization is to audit the financial statement in order to produce a report that will add credibility to financial report in practical terms if independence of the auditor is in place. This research is to ascertain the challenges facing auditor’s independence on management decision making process and to proffer solutions on the ways forward to enhance auditor’s independence in Nigeria.

1.3   Research Questions

Below are research questions meant to direct the study.

  1. Does the effectiveness of auditor’s independence have an impact on the report given?
  2. Does the increase in credibility on the financial statement have an impact on user?

iii.    To what extent do auditors know and appreciate relevance of independence?

  1. To what extent can one appraise the areas of weakness and strength with a view to making recommendation on possible improvements where necessary?
  2. Of what relevant is the provision by statutory bodies and standard on auditor’s independence?

1.4   Objectives of the Study

The level of reliance on the audited financial statement by the users is not that encouraging due to the ineffectiveness, of auditor’s independence. The aim of this project is to achieve the following objective;

  1. To evaluate the impact of auditors independence on audited report.
  2. To increase credibility on the financial statement to the user.

iii.    To ensure that auditors know and appreciate relevance of independence

  1. To appraise the areas of weakness and strength with a view to making recommendation on possible improvements where necessary.
  2. To assess relevant provision by statutory bodies and standard on auditor’s independence and as certain how credible it has been. If not to evaluate and give necessary suggestions that will help appraise the system.

1.5   Statement of Hypotheses

In order to achieve the objective of this study, the following hypotheses are raised.

Hypothesis One

Ho:  Auditors’ independence does not have a direct impact on the auditor’s report.

HI:    Auditors independence have a direct impact on the auditor’s report.

Hypothesis Two

Ho:  There is no significant relationship between the provision of statutory bodies and auditors independence.

Hi:   There is significant relationship between the provision of statutory bodies and auditors independence.

Hypothesis Three

Ho:  There is no significant relationship between auditors and appreciating relevance of audit independence of auditors in private sector organization in Nigeria. 

Hi:   There is a significant relationship between auditors and appreciating relevance of audit independence of auditors in private sector organization in Nigeria.

Hypothesis Four

Ho:  There is no significant relationship between weakness and strength with improvement on audit dependence to private sector organization in Nigeria.

Hi:   There is a significant relationship between weakness and strength with improvement on audit dependence to private sector organization in Nigeria.

Hypothesis Five

Ho:  There is no significant relationship between the provision of statutory bodies and auditor’s independence to private sector organization in Nigeria.

Hi:   There is a significant relationship between the provision of statutory bodies and auditor’s independence to private sector organization in Nigeria.

1.6   Significance of the Study

This study aims at evaluating the impact of auditor’s independence on audited report and gives insight into the effect to the users of such reports. It is also to assess relevant provision by statutory bodies and standard on auditor’s independence and ascertain how credible it has been.

1.7 Scope of the Study

This research focuses on the independence of auditors and its impact on audit report in accounting and its scope is centered on selected audit firms in the country using some audit firms in Benin City, Edo state as case study. The study covers the range between 2008 -2013 and the sample size of 30 is used for the population.

1.8   Limitations of the Study

The limitation of this study was the difficulty in getting relevant journals that is related to the area of study.

1.9   Definition of Terms

Audit: it is a process carried out by suitably qualified auditor where the accounts of business entities, including limited companies, charities trusts and professional firms are subjected to scrutiny in such details as will enable the auditor.

Auditing: It is defined as the process by which a competent qualified independent person accumulates and evaluates evidence about quantifiable information relating to a specific economic entity for the purpose of ascertaining the compliance with any relevant statutory obligation.

Auditor: Is an auditor as an expert accountant who makes an examination of accounting data in order to form his opinion as to the reliability of those data.
Independence: This is the independence of the auditors mind in order to form an objective opinion of the financial statement examined by him without any direct interference from his client.

True and fair view: This means accounts prepare in accordance to the generally accepted accounting principles.

Audit Report: This is the opinion of the auditor after due examination of the financial statements. Audit report is a written summary of the findings of the auditors during their audit work along with their opinion on such findings. The report may either be the domestic report also called letter of weakness addresses to owners of the organization (in case of company’s shareholders).

PROJECT TOPIC- CHALLENGES FACING AUDITOR’S INDEPENDENCE IN PRIVATE SECTOR ORGANISATIONS IN NIGERIA

CONFLICT OF INTEREST AND THE AUDITOR INDEPENDENCE (A CASE STUDY OF PRICE WATER HOUSE COOPERS)

PROJECT TOPIC- CONFLICT OF INTEREST AND THE AUDITOR INDEPENDENCE (A CASE STUDY OF PRICE WATER HOUSE COOPERS)

Abstract

This project work titled “the impact of conflicts of interest on the auditor’s independence” using a price water house coopers as a case study, examines specifically the concepts of independence and conflicts that may arise when it is lacking. Independence are identified and discussed on how to manage threats. The primary and secondary sources of data were used in gathering information for the success of the project work. It was discovered that auditor’s conflict of interest greatly influence the auditor’s independence. It was concluded that the conflicts of interest exists from the auditor to the structures that govern the industry, the institutions and legislation. Finally, it was recommended that auditors should be chosen not by management of the company, but by the committee which should comprise of the Board of Directors (BODs).

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

Conflict of interest and auditor’s independence are two concepts that must be considered properly in this project work. If there is any way auditors’ conflict of interest affects his independence. To start with auditor’s conflict of interest according to Andrew (2004) is a setting where an auditor trade off the influence and been biased of his report. There are two types of conflicts of interest in this regard.

They are conflict where auditor earns reward from a third party between form and clients interest and conflict between the interests of two or more client e.g. where an auditor or audit team has a long term relationship. While auditor’s independence refers to as the independence of the auditor from parties that have an interest in the financial statement of an entity. This usually safeguard the auditor’s integrity and also an objective approach to the audit process.

It is obvious that there is auditor’s conflict of interest i.e. either of the two types of conflict of interest, there is usually auditor trade of the influence and been based that could make auditor not given accurate report, and then affect auditor independence. The definition of auditor and auditor’s independence over the decades, have evolved along with accounting profession itself the concept independence was considered of great importance, and the focus was am elimination of conflict of interest that arose from financial relationships between auditors and their clients.

The twin sides of a coin are the concept of audit and the concept of independence. The auditor who has lost his independence has lost his reason, he has become a dependent auditor and will be in conflict of interest with his clients. Independence remains as crucial an issue as it was in the nineteenth century, and is still required to be demonstrated.

PROJECT TOPIC- CONFLICT OF INTEREST AND THE AUDITOR INDEPENDENCE (A CASE STUDY OF PRICE WATER HOUSE COOPERS)

1.2   Statement of Problem

Financial reports are meant to be a formal record of business activities and these reports are meant to provide an overview of the financial position and profitability in both short and long term of companies to the users of these financial statements such as shareholders, managers, employees, tax analyst, banks, etc. But in recent times, the financial manipulations, weak internal control systems, ignorance on the part of the board of directors and audit committee, manipulation on the part of the reporting auditor and other fraudulent activities that occur within companies, creating a negative goodwill to the general public.

A typical example of a financial statement malfunction is the popular case of Enron. Enron was one of the largest energy companies in the US. By fraud and bribery, Enron executives avoided income taxes, and this lead to the downfall of this multi-billion dollar firm. Importantly, this wasn’t the first, a similar case appeared in 1973, when equity funding an insurance firm located in Los Angeles went bankrupt (Don, 2006).

In fact every year, a new business fraud is unraveled, often with similar components, corporate instability, uniformed accountants, high-level connections, and broke investors (Knapp, 2005). Enron started in July 1985 when Omaha-based inter-north merged with Houston natural gas. Kenneth Lay, who had originally held positions in academic and the government, became chief executive and chairman.

By 2001, Enron had grown to one of the of the largest energy companies in the world. However, the company sudden by unraveled and collapsed. Some other examples of corporate failure on the local scene are Lever Plc now Unilever in (1998) and African Petroleum (2000). From the above discussions, there is need to ensure credibility of financial statement of companies in order to increase users confidence and thereby affecting investors behaviour. This study seeks to investigate why corporate organizations fail and how it is occasioned by the independence of auditors.

1.3   Statement of Hypothesis

A research hypothesis is an assumption of statement, which may not be true concerning one or more population.

There are two types of hypothesis, the null hypothesis (Ho) and the alternative hypothesis (Hi). The null hypothesis is a negative type of proposition of the research hypothesis. The alternative hypothesis is accepted once the wall hypothesis is rejected. Below is the formulated hypothesis.

Hypothesis One

HO:   Conflicts of interest does not influence the auditors independence

HI:    Conflict of interest influences the auditors independence.

Hypothesis Two

HO:   Conflicts of interest does not cause bias judgment and decisions by an auditor

HI:    Conflict of interest can cause bias judgment and decisions by an auditor.

1.4   Objectives of the Study

The main objective of this research is to examine specifically the impact of conflict of interest on auditors’ independence.

The specific research objectives are:

  1. to assess the impact of interest influences on the auditors’ independence.
  2. to evaluate whether the conflict of interest can cause bias judgment and decisions by an auditor.

1.5   Scope of Study

The scope of this research was limited to price Water House Coopers, which is one of the largest professional service providers globally.

1.6   Significance of the Study

This study will help reveal the conflicts of interest of auditors, its impact on auditors’ independence and its findings and recommendations will be of benefit to:

  1. Auditors: The auditors will benefit from this study in the sense that it reveals the conflicts of interest which will be an advantage to them in carrying out their audit work.
  2. Individuals who may wish to be auditors in future. This study will serve as guidelines for them in the course of carrying out their audit exercise.
  3. Organizations that hire auditors high-lightening them on the rules governing the independence of auditors.

1.7   Limitations of the Study

So many limitations were met during the process of this research work. The first among others was getting information relevant to the research combining and relating the research work. Another limitation are:

Finance: There was also the challenge of inadequate finance faced by the researcher to carry on adequate research in respect of the aforementioned topic.

Time: There was often time consuming in sourcing for research materials and other relevant information. This, in addition to the above mentioned was a great challenge to the researcher.

1.8   Definition of Terms

Accountability: It is the obligation stewards or agents to provide relevant and reliable information relating to resources over which they have control and which have effects on others.

Accounting Principles: These are principles according to which the amounts of all items in a company’s account are to be determined.

Audit Opinion: This is an opinion expressed by an auditor upon financial statements,

Statement of Financial Position: This shows the assets, liabilities and capital of an organization at a particular data.

Statement of Comprehensive Income: This is a financial statement of an enterprises or income and expenditure.

Auditors Attitude: It is a combination of education, experience and judgement which provides a frame of mind, a point of view toward his work, that enables and auditor to appraise his problems accurately.

Audit Services: Fee based services provided by the qualities to provide reasonable assurance that the company’s financial statements are fairly presented.
Auditor: The external professional charged with the task of attesting to the fair presentation of company financial statements.

Auditor Independence: The expected relationship between the auditor and client in order to receive reasonable assurance that the judgement made by the auditor are free age any influence by the client or other parties.

Conflict of Interest: The perceived or actual state of an individual where the judgements and opinions are developed to promote the interests of the individual rather than the other interested stakeholders.

Non-Audit Services: Free based services performed by the auditing firm which are not related to the audit engagement.

Auditors Report: A report made by an auditor upon financial statements.

Financial Statements: The statement of financial position, statement of comprehensive income, statement of cash flows or total recognized gains and losses, notes and other statements and explanatory material all of which are identified in the auditors reports as being part of the financial statement.

Fraud: The use of deception to obtain an unjust illegal financial advantage or intentional misinterpretation by one or more individuals among management, employees, auditors or other parties.  

True and Fair View: The accounting standards obtained a legal opinion that stated true
and fair view which is to be adhered to by auditors.

Low-Balling: The reduction in audit fees by an auditor, so as to protect or establish the relationship between the auditor and clients and to build the relationship that could become profitable later.

Objectives Assessment: An opinion or a judgement about the financial statements of a company, that is made by an auditor, and is free from influence of personal feelings, from clients and other parties.

Audit Evidence: The information obtained in arriving on the condition on which he bases his opinion about the financial statements of a company.

Audit Fees: The combined and total fees generated by the auditor for providing service to the client.

Institution Provisions: This include auditing standard and auditing guidelines, the statements issued by profession accounting bodies setting up basic principles, procedures and ethics to be adopted by members in the conduct of audit and how they should be applied.

PROJECT TOPIC- CONFLICT OF INTEREST AND THE AUDITOR INDEPENDENCE (A CASE STUDY OF PRICE WATER HOUSE COOPERS)

CORPORATE FINANCIAL REPORTING AND AUDIT CHALLENGES IN NIGERIA

PROJECT TOPIC- CORPORATE FINANCIAL REPORTING AND AUDIT CHALLENGES IN NIGERIA

ABSTRACT

The creditability of corporate financial reporting and audit challenges in the economy is relevant if there is no bias in the preparation to favour a segment in the public. This study looks into issues affecting corporate financial reporting in Nigeria economy. Using the questionnaires I administered questions like relationship among internal control system, board size, audit committee, auditor’s independence and corporate financial reporting were asked. Empirical and theoretical review were re-viewed. In analyzing the hypothesis, z-test method was employed in testing the hypotheses which shows that board size and internal control system have a positive and significant relationship with corporate financial reporting. It was thus concluded that for corporate financial reporting should be more relevant, reliable and auditors should be granted more independent along with the audit committee in order to be more effective and efficient.

CHAPTER ONE

INTRODUCTION

  • Background to the Study

In any business entity, whether profit or non-profit, it has set of objective. It mobilizes resources from various sources to achieve set goal at the end of the period. This is necessary to determine how well these resources have been utilized. Where there is separation of ownership from management, the owners will want to know how judiciously these resources have been used. This is the stewardship function of accounting.

The function is discharged by the presentation of a report of the activities to owners by management; such report are usually conveyed by means of financial statement (Schipper and Vincent, 2003). The following objective of financial reporting information concerning economic entities, primary financial report is useful for economic decision making (FACB, 1999, IAEE, 2008).

Providing high financial reporting information is important because it will positively influence capital provider and other stakeholders in making investment credit and similar resources. Allocation decision enhancing overall market efficiency (IASB, 2006; IASB, 2008). Although both FASB and IASB stress the importance of corporate financial reporting, it is how over affected by the quality of auditing. This is due to its context specifically, empirical assessment of financial reporting inevitably including preference among myriad of constituent (Dechow and Dishes, 2002).

Statement of accounting Standard (information to be disclosed in financial statement) and section 334(2) of Companies and Allied Matters Act (CAMA), provides that financial obstacle shall include; the mission of statement comprehensive income policies, statement of financial income, note to the account, auditor’s report, directors report, value added statement of five years financial summary.

The financial statement must accurately represent the underlying economic activities of the organization. It is possible to have a discontinuity between induce doubt and the organization. When this occurs, the creditability such statement induces doubt and uncertainty in the mind of the various users of the financial statement. These, therefore means there is lack of uniformity between information available to the management and information available to the investing public (Bostosan, 2004).

There are two sources of information as regard financial statement, in the book keeping (financial report) these process include:

  1. Management understanding of underlying activities may not be accurately represented in financial statement and
  2. Investing public understanding or perception of information represented in financial statement may be different from that which has been documented.

Corporate financial reporting is aided by auditing stem from the fact that a lot of person’s requires corporate financial reports for different legitimacy and enhance companies images lack of proper audit or carelessness on the part of the auditors in auditing financial statement of companies, have led to investors making wrong decision, as well as closure of companies, who otherwise were thought to be doing well such as Enron in the United State as well as some companies and banks in Nigeria.

Corporate financial reporting is a communication of relevant qualitative and quantitative information for decision making. Management is entrusted with the legal responsibility of preparing and communicating such relevant information to the users. However, the management does not independently carry this task, but it is the joint effort by account researchers, management auditors and the government.

Financial statements make a case for reporting entity in their guest for indivisible funds. Where a reporting unit creates uncertainty in the minds of investors, it is perceived as risky. The effect is that investors demand a compensation for a perceived level of risk. This result to an increase in cost of capital of such economic unit. This is known as “capitals need hypothesis” (Choi, 1973) suggested that a prime mature for disclosure as to raise capital at the lowest cost (Cooke, 1991) posit that “a number of explanations can be advanced for the hypothesis”. In order to raise capital from the financial institutions, he says that the companies must increase their compliance with disclosure.

Disclosure in financial statement determine the level of transparency of such entities. Hitherto poor response of international investors has been adduced to lack of transparency not only of government but also of private economic sectors. Regulatory agencies such as Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC), has been perceived as ineffective.

This perception has been accentuated especially in situations where such banks have been given a clean bill of health by auditors. What this translates to be an economic environment characterized by lack of trust. In the last decade, studies have shown that the auditing profession has had to deal with a lot of challenges than it has done in its lengthy history which spans over one hundred years (Smith, Machosh et al, 2010). 

PROJECT TOPIC- CORPORATE FINANCIAL REPORTING AND AUDIT CHALLENGES IN NIGERIA

1.2   Statement of Problems

Principally, management activates are conveyed by means of financial statements. Where these financial statements introduced elements of doubts in the minds with the effect that the continued survival of the firm is threatened as it is starved by needed funds.

1.3   Research Questions

  1. What is the relationship between internal control system and corporate financial reporting?
  2. What is the relationship between board size and corporate financial reporting?
  3. What is the relationship between audit committee and corporate financial reporting?
  4. What if there is relationship between auditor’s independence and corporate financial reporting?

 

1.4   Objectives of the Study

Any organization that seeks to be successful must take pains to present a financial report devoid of fraudulent practices, as this improves the credibility of the company.

Any effort aimed at improving corporate reporting activities with has effect of enhance investors’ confidence as well as increase economic resources.

The key object of this study is to evaluate corporate financial reporting, how it has been affected by auditing as well as challenges of auditing practices over the years. Other objective includes:

  1. To ascertain if there is a relationship between internal control system and corporate financial reporting.
  2. To ascertain if there is a significant impact of board size on corporate financial reporting.
  3. To enquire out if there is a significant relationship between audit committee and corporate financial reporting.
  4. To examine the relationship between auditor’s independence and corporate financial reporting.

1.5   Statement of Hypotheses

        Hypothesis One

Ho:  There is no significant relationship between external control system and corporate financial reporting.

Hi:   There is a significant relationship between external control system and corporate financial reporting.

Hypothesis Two

Ho:  There is no positive relationship between board size and corporate financial reporting.

Hi:   There is a positive relationship between board size and corporate financial reporting.

Hypothesis Three

Ho:  There is no significant impact of audit committee on corporate financial reporting.

Hi:   There is a significant impact of audit committee on corporate financial reporting.

Hypothesis Four

Ho:  There is no significant relationship between auditor’s independence and corporate financial reporting.

Hi:   There is a significant relationship between auditor’s independence and corporate financial reporting.

1.6   Significance of the Study

The trust worthiness “of the research depend in what the counts as knowledge” (Lincoln and Guba, 1985). This research work on its conclusion together with solution of finding may arise. This will prove useful to some particular group of persons of otherwise for various needs some of the beneficiaries are shareholders. The shareholders are interested in affairs of the company. They want to know what the affair of the organization owns which are called asset, what the organization owes is called liabilities. They are which guarantees the dividend at the end of the financial year.

Public: The public have interest, particularly those resident in the immediate business environment they use accounting information to known the rate of profit, the organization is making by exploiting information to negotiate with the company to provide welfare facilities like school, hospital, scholarship and employment to their youth.

Potential Investors: Some business men have millions of naira to invest. Such investors in accounting information are to determine the most profitable organization. Where they will invest their money and get good returns.

It would also be useful for auditors in the sense that it would expose some of the issues that have to divided the auditing profession over time, and to provide answer to some pertinent question as regards auditing practice in Nigeria.

1.7   Scope of the Study

The scope of this study focuses on corporate reports on manufacturing companies and other financial institution in Nigeria. The subject matter of the study is corporate financial reporting and challenges of auditing practice; corporate of interest in the will of those item in sections 334(2) of CAMA 2004.

The time period for this study is between the period of pre-consolidation and post consolidation. Geographically, this study will be limited to Benin metropolis in Edo State capital.

1.8   Limitations of the Study

A subject of the nature entails a lot of work, however, the researcher’s limitation were low respondent, found it difficult to spare the researcher their time was also the problem of interest material as most of its required to be downloaded. The website were requesting for membership code as they were only available to existing members of their book. This proves to be a major constraint to the study.

PROJECT TOPIC- CORPORATE FINANCIAL REPORTING AND AUDIT CHALLENGES IN NIGERIA