CORPORATE FINANCIAL REPORTING AND THE CHALLENGES OF AUDITING PRACTICES IN NIGERIA
ABSTRACT
Corporate Financial Reporting is one of the petal issues in corporate financial existence. It provides an insight into the viability of a company’s corporate existence. Little wonder Higson (2003) opined that corporate financial reporting involve periodical financial report and accounts and other related document that highlights the financial position of an enterprise as well as its profitability. Corporate financial reporting is aided by proper auditing practices, hence the need to address the challenges facing the auditing practice such as lack of auditors independence. The need for a proper corporate report cannot be over emphasized as it forms the bed rock for various financial and investment decision to be made by varying parties such as investors, customers, shareholders. Corporate financial reporting is affected by factors such as internal control system, auditors independence, they determine the truthfulness of a corporate financial report. Lapses in corporate financial reporting was seen in the banking sector as it was found out that some of them falsified record and engaged in window dressing, thus could also be blamed on the auditors who had carried out auditing on these banks, hence the relationship between corporate financial reporting and auditing. In the world we live in today proper attention should be given to auditing as it facilitates proper financial reporting and thus gives credence to corporate financial report (Holland, 1999).
TABLE OF CONTENTS
CHAPTER ONE
1.1   Introduction
1.2    Statement of Hypothesis
1.3     Objective of the Study
1.4    Statement of Hypothesis
1.5    Scope of the Study
1.6    Significance of the Study
1.7     Limitation of Study
References
CHAPTER TWO: LITERATURE REVIEW
2.1    Introduction
2.2    Corporate Financial Reporting
2.3    Capital Market and Non-Financial Influences on
Corporate Financial Reporting
2.4    Quantitative Financial Statement
2.5    Qualitative Characteristics of Information in
Financial Report
2.6    Types of Financial Statement
2.7    Objective of Corporate Financial Reporting  
2.8    International Financing Reporting Standard (IFRS)
2.9    The Role of Management Incorporate Financial Reporting
2.10    Proactive Steps to Reduce Incidence of Inaccurate Corporate Financial Reporting
References
CHAPTER THREE: RESEARCH METHODOLOGY
3.1   Introduction
3.2   Research Design
3.3   Research Instrument
3.4   Data Source
3.5     The Population
3.6   Data Analysis
References                                                                                                

CHAPTER FOUR: INTRODUCTION
4.0    Data Presentation and Analysis
4.1    Data Presentation Based on the Personal Data
4.2    Testing of Hypothesis
CHAPTER FIVE:    SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATION
5.1    Summary
5.2     Findings
5.3    Conclusion
5.4    Recommendations Based on the Study
5.5   Future Research
Bibliography
Appendix
CHAPTER ONE
1.1     INTRODUCTION
          In any Business entity, whether profit or non-profit making, 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.
         This function is discharged by the presentation of a report of the activities to owners by management. Such reports are usually conveyed by means of financial statements.
         The primary objective of a primary report is to provide high quality financial reporting information concerning economic entities, primarily financial in nature, useful for economic decision making (FASB 1999; IASB, 2008). Providing high quality financial reporting information is important because it will positively influence capital providers and other
 stakeholders in making investment, credit and similar resource allocation decisions enhancing overall market efficiency (IASB, 2006; IASB, 2008).
         Although both FASB and IASB stress the importance of corporate financial reporting, it is however affected by the quality of auditing. This is due to its context specifically, an empirical assessment of financial reporting inevitably includes preferences among a myriad of constituents (Dechow and Dicher 2002, Schipper and Vincent, 2003; Botosan, 2004;
 Daske and Gebharat, 2006).
         Statement of Accounting Standard (information to be disclosed in financial statement) and section 334(2) of Companies and Allied Matters Act (CAMA) provide that financial statement shall include the provision of  profit and loss account, statement of account policies, balance sheet, notes to the account, auditor’s report, directors report, value added
 statement and five year financial summary.
         The financial statement must accurately represent the underlying economic activities of the organization. It is possible to have a discontinuity between the activities of an organization. When this occurs, the credibility of such statement induces doubt and uncertainty in the minds of the various users of statement. This therefore means that, there is lack of uniformity between information available to the management and information available to the investing public (Asymmetry).
         There are two sources of information asymmetry as regards to financial statement, in the book keeping (financial report) process which includes:
Managements understanding of underlying activities may not be accurately represented in financial statements.
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 which is the independent verification of the figures provided in financial statement to determine its truthfulness and fairness. The
 importance of auditing stems from the fact that a lot of person’s requires corporate financial reports for different reasons, sound audit gives financial statement legitimacy and enhances companies image. Lack of proper audit or carelessness on the part of the auditors in auditing financial statement of companies have led to investors making wrong decisions, as well as closure of companies, who otherwise were thought to be doing well such as Enron as well as major banks in Nigeria. Corporate financial reporting is a communication of relevant qualitative and quantitative information for decision making. Users of such information for thorough financial statements. 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 of accounting researchers, management, auditors and the government.
         Financial statements make a case for reporting entity in their quest for invisible 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 “Capital Need Hypothesis”. Choi (1973) suggested that a prime motive for disclosure is to raise capital at
 the lowest cost. Cooke (1991) posits that “a number of explanations can be advanced for this hypothesis”. In order to raise capital from the financial institution, he says that companies must increase their voluntary disclosure and increase their compliance with mandatory
disclosure.
         Disclosures 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 (SEC), have 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 is an economic environment characterised 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, 2002; Mactosh et al., 2010).
1.2    STATEMENT OF HYPOTHESIS
Principally management activities are conveyed by means 0f financial statements. Where these financial statements introduce elements of doubts in the minds of the share holders and potential investors, the effect is that the continued survival of the firm is threatened as it is starved by needed funds.
Against this backdrop the following research questions are being raised:
a.    What is the relationship between internal control system and corporate financial reporting?
b.    What is the relationship between auditor’s independence and corporate financial reporting?
c.    What is the relationship between board size and corporate financial reporting?
d.    What is the relationship between audit committee and corporate financial reporting?
1.3 OBJECTIVE OF THE STUDY
       Any company that wants to be successful must take pain to present a financial report devoid of fraud ulent practices, as this improves the credibility of the company. Any effort aimed at improving corporate reporting activities will have effect of enhancing investors confidence as well as increase economic activities.
       The key objective 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 objectives include:       
A    To ascertain if there is a relationship between internal control system and corporate financial reputing.
B    to ascertain the relationship between auditors independence and corporate financial reporting
C    to find out if there is a significant impact of board size on corporate financial reporting
D    to examine the relationship between audit committee and corporate financial reporting.
 1.4    STATEMENT OF HYPOTHESIS
1    HO:     there is no relationship between internal control system and corporate financial reporting.
     HI:     there is a relationship between internal control system and corporate financial reporting.
2    HO:     there is no relationship between auditor’s independence and corporate financial reporting.
    HI:     there is a relationship between auditor’s independence and corporate financial reputing.
3    HO:     there is no significant impact of board size on corporate financial reporting.
    HI:     there is significant impact of board size on corporate financial reporting
4    HO:     there is no relationship between auditors committee and corporate financial reporting
    HI:     there is a relationship between audit committee and corporate financial reporting.
1.5    SCOPE OF THE STUDY
This study focuses on corporate reports in the banking industry and other financial institutions in Nigeria. The subject matter of the study is “corporate financial reporting and challenges of auditing practice”. Corporate of interest in this study will be those item listed in sections 334(2) of CAMA 2004.
The time period for this study is between the period of pre-consolidation and post consolidation. The sample size for this study is banks listed on the Nigerian Stock Exchange. Geographically, this study will be limited to Edo State, Benin city.
1.6    SIGNIFICANCE OF THE STUDY
    The “trustworthiness” of research depends on “what counts as knowledge?” (Lincoin and Guba, 1985).
    This research work on its conclusion, together with whatever solutions of finding may arise, will prove useful to some particular group of persons or otherwise for various reasons in accordance with their varying needs. Some of the beneficiaries are:
Shareholders: The shareholders are interested in the affairs of the company. They want to know what the organisation owns called Assets and what it owes called Liabilities. They are also interested in profit made by the organisation which guarantees a Dividend at the end of the financial year.
Public: the public has interest, particularly those residents in the immediate business environment. They use accounting information to know the rate of profit, the organisation is making by exploiting their environment. The public uses accounting information to negotiate with the company to provide welfare facilities like schools, hospitals, scholarship and employment for their youth.
Potential Investors: Some businessmen have millions of naira to invest. Such investors use Accounting information to determine the most profitable organisation 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 bedevilled the auditing profession over time as provide answer to some pertinent questions as regards auditing practices in Nigeria.
1.7     LIMITATION OF STUDY
    A topic of this nature entails a lot of work however the researchers limitations were low response rate by the respondents, the respondent found it difficult to spare the researcher their time. There was also the problem of internet, materials as most of the required to be downloaded were requesting for membership codes as they were only available to existing members of their books.  
REFERENCES
Botosan, C. (2004), Discussion of a Framework for the Analysis of Risk Communication, The International Journal of Accountancy, 39, 289-295.
Busby, S. L. (1972), Selected Items of Information and their Disclosure in Annual Reports. The Accounting Review, Vol. XLIV. No. 3 (July).
Choi, F.O.S. (1973), “Financial disclosure and entry to the European Capital Market”, Journal of Accounting research (Autumn) pp.159-173.
Lerf, A.R. (1961), Corporate Reporting and Investment Decision
 (University of California).
Salehi, M. (2008), Evolution of Accounting and Auditors in Iran, J. Audit Pract. 5 (4): 57-74.
Lincoin, Y. S. and Guba, E.G. (1985), Naturalistic inquiry, Beverly Hills CA: Sage.
Smith, L.M. (2002). Luca Pacioli: The Father of Accounting, available at http:// acct.tamu.edu/smith/ethics/pacioli.htm, (accessed 26 march 2009).
Mactosh, M. O., Francis, W. M. and Ongocho, S. (2010). Public Trust on Auditors and the Auditing Profession Among Cooperative Society in Kissi-Kenya, Afric. J. Bus. M., 1:274-281.