CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
The concept of
misrepresentation of information in the financial statement tends to examine
those items that can alter the financial affairs of on the financial concern
(or an entity), audited by an auditor based on the financial statement
presented by the manager on the basis of true and fair view. The establishment
or introduction of the joint stock company increased the supply of capital for
commerce and industry. It was therefore, necessary for the owners of the
company obviously known as shareholders to delegate some of their numbers to
act as Board of Directors (BOD) to take care of daily activities of the
business concern.
The joint stock company act of 1844 in Britain was
the first legislation, which requires that all incorporated companies or
business should have the result of their daily activities known as the
financial statement to be examined by an auditor. Later developments required
that the auditor must be independent of his client, and be professionally
qualified to enable him (the auditor) express a qualified opinion on the
financial statement without bias.
Auditing was meant to serve for many purposes. So,
there should not be any form of fraud, error, or misrepresentation in audited
accounts in order not to create
conflict
between the interest groups. The critical examinations of its effects are the
basis for this works. The auditor over the years played the role of instilling
confidence in the public at large by revealing facts about companies, which
would otherwise be hidden to avoid misrepresentation and false information.
England in 1900 made it legally compulsory for every company or any
organization to appoint an auditor through acts of parliament.
Nigeria as a matter of fact, having
accessed the effects of misrepresentation of accounts gave recognition to
auditing through the companies and Allied matters acts 1990 and other earlier
promulgations.
1.2
STATEMENT OF THE PROBLEM
Misrepresentation of
information in a financial statement is a situation where an external auditor
who is appointed under S. 357 of Company and Allied Matters Act (CAMA), 1990
renders a false or unqualified opinion about the statement of affairs of a firm
or business entity. This felony is a very big problem with adverse effect on
the well-being of an organization; this is because it gives incorrect picture
or image of the financial status of the organization thereby misleading the
owners’
(Shareholders)
interest in the business concern, the creditors, financial institution and the
government. In accordance with;
INDEPENDENCE AND OBJECTIVITY: which
is one of the professional ethics of accountants (auditors) it states
that an auditor must at all time perform his work objectively and impartial
free or no partially from influence by any consideration which might appear to
be in conflict with this requirement. The essence of this theory is to ensure
honestly and unbiased opinion by an auditor in other to run away from adverse
effect of incompetent in financial report.
Government imposes
relevant taxes on companies or business concerns based on their audited
financial statement. Also the decision on lending habits by financial
institutions is based on financial statement which means that false information
will mislead both the government and the financial institution. On the other
hand, the owners of the business are also being misled. Apart from financial
statement, any false information either in academics, social and cultural life
usually misled.
The effects of misrepresentation among others is
that it can being an enterprise into liquidation, the interest parties in the
financial report such as government, shareholders, creditors, investors,
workers, other groups and statutory bodies are mislead and thereby creating
confusion among them causes inefficiency in the managerial operation of an
account is not encouraging because it works against management information and
organization efficiency.
According
to Sound Advice Tax Resources 102-1-knowing misrepresentations in the
preparation of financial statements or records:
A member should be considered to have knowingly
misrepresentation facts in violation of rule 102 when he or she knowingly-
a) Makes
Or permits or directs another to make, materially false and misleading entries
in an entity’s financial statement or records or,
b) Fails
to correct an entity’s financial statements or records that are materially
false and misleading when he or she has the authority to record an entry or
c) Signs
or permits or directs another to sign a document containing materially false
and misleading information.
1.3
STATEMENT OF THE OBJECTIVE
The aim of the study is
to examine the conditions in order to find the effects of misrepresentation of
information in the financial statement of business entity. In other words, it
is to know how accounts misrepresentation affects the smooth mining of a
business concern (entity) and other interested parties in the financial statement.
As a result of that the principle aims are;
(i)
To determine the means through which the
financial statement of an entity is altered or misrepresented.
(ii)
To determine the factors that induce the
act of misrepresenting the information in the financial statement.
(iii)
To
determine the effect of information in the financial statement.
1.4 RESEARCH QUESTIONS
(i)
What are the effect of misrepresentation of information in the financial
statement?
(ii) What measure can be employed to get
a dependable auditor?
(iii)
To what extent can an arrangement be made to eradicate account
misrepresentation of information in the financial statement by an auditor?
(iv)Does
misrepresentation of information in the financial statement has effect on
financial institution; business entities interest parties and the government
decision at large?
1.5
RESEARCH HYPOTHESES
Considering the
statement of problems, objectives of this study and the research question
posited above, the following hypothesis are postulated subject to text either
to accept or reject.
1) Ho
(Null hypothesis): Lack of staff motivation is not one of the causes of
misrepresentation of information in the financial statement in the bank.
H1 (Alternative hypothesis): Lack of
staff motivation is one of the causes of
misrepresentation of information in the
financial statement in the bank.
2) Ho
: That misrepresentation of information in the financial statement has no
effect on the banking operation
H1 : That misrepresentation of information in the
financial statement has effect on the banking operations
3) Ho
: misrepresentation prevention is not the sole responsibility of an auditor in
the banking system.
H1 : misrepresentation prevention is the sole
responsibility of an auditor in the banking system.
1.6
SIGNIFICANT OF THE STUDY
The researcher believes that the
recommendation given in this project work, if taken seriously will go a long
way to guide the management of a business entity in ensuring a high degree of
reliability in financial statement of the organization.
Every master in any actions or business appreciates
competent report from the management which has no tendency of fraud or errors
but enhances the true picture of the organization. Correct presentation of
information enhances adequate control, decision making, government legislation
and information technology.
Lastly, it will equally provide future researchers
with references basis on further study of the effect of misrepresentation of
information in the financial statement.
1.7
SCOPE OF THE STUDY
Many problems were faced in the course of carrying
this research work. The following problems formed the major ones;
1) Distance:
- This contributed to the limitation of this study since the case study
is located at different places from the researcher’s school. It was difficult
making constant visit to the place due to lack of time and other class work
which the researcher is taking alongside with the research work.
2) Finance:
- Finance
is one of the major problems encountered during the course of the study.
This was in terms of transportation fair and typing of questionnaire i.e. (to
and fro) to different destinations, it’s distribution to target respondents.
3) Extraction
of Useful Information: - This was another problem encountered;
the respondents were very busy with their works and pay less attention to the
questionnaire presented for their opinion. Unable to gather enough information
from other research work.
1.8
LIMITATION OF THE STUDY
The
limitation of the study includes the following;
1) Time:-
This is the major constraint faced by the researcher, owing the fact that
the researchers work was to be done along side with other important academic
work.
2) Finance:-
This
happens to be over-riding constraints now, establishment amount of money
was spent on the researcher work. The work as stated earlier involved
travelling to the place of case study and obtaining appointment for necessary
interviews distribution and collection of questionnaires.
1.9
DEFINITION OF TERMS
Misrepresentation:
This
is refers to the presentation of facts, altering the structures with
false information whether deliberately or none deliberately.
Auditor: An
auditor is an examiner that evaluates the correctness of the financial affairs
of a business organization. There are internal and external auditors. Internal
auditors are those that are appointed by the audited firms. In the first year
after their appointment, they will set up the permanent file and make themselves
familiar with the client and its history. External auditors are not appointed
by the audit firm but the come to audit the financial statement of the firm and
also ensure
that such company operates within the confinements
of the professional guidelines e.g. Accounting standard of IAS, Accounting
standard of NASB etc.
Auditing:
This
refers to an exercise whose objectives is to enable the auditors to express
an opinion whether the financial statements gives a true and fair view (or equivalent)
of the entity’s affair at the period end and of its profit and loss (or incomes
and properly expenditure) for the period then ended and have been properly
prepared in accordance with the applicable reporting framework.
Financial
Statement: This is the statement that shows the
financial power of an organization. It is usually made up of profit and
loss account, balance sheets, cash flow etc.
Information: Information
is a systematized, analyzed and processed raw data that gives the needed
information that management and shareholders used for decision making.
Organization:
This
is refers to the structure of network of relationship among individual
and positions in a work setting and the process by which the structure is
created, maintained and used.
Management:
This is a process by which the manager gets things done through human
efforts by which mangers creates, directs, maintain and operate purposeful
organization
through co-ordination and co-operative of human efforts with resources of the
organization.
Ethics: A character
trait of people in a given profession.
Fraud:
An
intentional plan or act to embezzle or misappropriate fund under one’s
control.
Error:
The
word error is used to refer to unintentional mistake in financial statement
whether of mathematical or clerical nature or whether due to over sight or
misinterpretation of the relevant facts.
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