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AN EVALUATION OF THE STATUTORY AUDITORS PERCEPTION OF

MANIPULATION THROUGH CREATIVE ACCOUNTING

BY

OMOZUYI, ESOSA OSASUMWEN


Matric. No. 110201225

BEING A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT


OF ACCOUNTING, FACULTY OF BUSINESS ADMINISTRATION,
UNIVERSITY OF LAGOS, AKOKA, IN PARTIAL FULFILMENT OF THE
REQUIREMENTS FOR THE AWARD OF THE BACHELOR OF SCIENCE
(B.Sc.) IN ACCOUNTING OF THE UNIVERSITY.

JUNE 2015.

DECLARATION
I hereby declare that I am the author of this research project titled "AN EVALUATION OF
THE STATUTORY AUDITORS PERCEPTION OF MANIPULATION THROUGH
CREATIVE ACCOUNTING", submitted to the Department of Accounting, Faculty of
Business Administration, University of Lagos, as a record of the original work done by me under
the supervision of DR. (MRS.) J.O. OGUNLEYE. I am responsible for all errors that may be
found in this work.

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OMOZUYI, ESOSA OSASUMWEN,

DATE

MATRIC. NO: 110201225.

CERTIFICATION
This is to certify that this research work titled "AN EVALUATION OF STATUTORY
AUDITORS PERCEPTION OF MANIPULATIONS THROUGH CREATIVE
ACCOUNTING", was carried out by OMOZUYI, ESOSOA OSASUMWEN, with Matric. No.
110201225, under my supervision.

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DR. (MRS.) J.O. OGUNLEYE

DATE

Project Supervisor,
Department of Accounting,
University of Lagos.

------------------------------------------

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DR. (MRS.) S.O. AJIBOLADE

DATE

Head,
Department of Accounting,
University of Lagos.

DEDICATION
This project is dedicated to God Almighty, the sustainer of life.

ACKNOWLEDGEMENTS
All praises are due to God Almighty for his countless mercies and blessings on me, my family,
my supervisor and all other persons that provided assistance, guidance and encouragement in the
successful completion of this project.
Special gratitude goes to my project supervisor, Dr. (Mrs.) J.O.Ogunleye, for her support and
understanding in the completion of this project, the Head of Accounting Department, Dr. (Mrs.)
Ajibolade, my course adviser Miss. Bunmi Ogunmeru, and all other lecturers, for their efforts in
ensuring that my stay in this school is fruitful.
Finally, I am most grateful to my parents Mr. and Mrs. Omozuyi and other members of my
family for their moral and financial support.

TABLE OF CONTENTS
Pages
Title Page

Declaration

ii

Certification

iii

Dedication

iv

Acknowledgements

Table of Contents

vi

List of Tables

ix

Abstract

CHAPTER ONE: INTRODUCTION


1.1 Background to the Study

1.2 Statement of the Problem

1.3 Aim and Objectives of the Study

1.4 Research Questions

1.5 Statement of Hypotheses

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1.6 Significance of the Study

1.7 Scope and Limitation of the Study

1.8 Definition of Terms

CHAPTER TWO: LITERATUR REVIEW


2.1 Introduction

10

2.2 General Review of Literature

10

2.2.1 Definition and Historical background of Creative accounting

11

2.2.2 Creative Accounting vs. Fraud

13

2.2.3 The Accounting regulatory framework

14

2.3 Theoretical Framework of the Study

15

2.3.1 Agency Theory

15

2.3.2 Corporate Governance

16

2.4 Empirical Review

18

2.5 Conceptual Framework

20

2.5.1 Factors that motivate Creative accounting

21

2.5.2 Techniques for Creative Accounting

24

CHAPTER THREE: RESEARCH METHODOLOGY


3.1 Introduction

26

3.2 Research Design

26

3.3. Population of the Study

27

3.4 Sample and Sampling Procedure

27

3.5 Data Collection Instrument

28

3.6 Statistical Tools and Analytical Procedure

28

3.7 Limitations of the Methodology

29

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS


4.1 Introduction

30

4.2 Presentation and Analysis of Data.

30

4.2.1 Analyses of respondents' bio-data.

30

4.2.2 Analysis of Research Question 1

34

4.2.3 Analysis of Research Question 2

36

4.2.4 Analysis of Research Question 3

39

4.3 Discussion of Findings

41

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS


5.1 Summary

43

5.2 Conclusions

44

5.3 Recommendations

45

BIBLIOGRAPHY

47

Appendix 1: Questionnaire

51
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LIST OF TABLES
Table 2.1: Potential gains and losses in/ from Creative accounting manipulation
Table 4.1 Sex of Respondent.
Table 4.2 Marital Status of respondents.
Table 4.3 Age of respondents.
Table 4.4 Length of Service in current employment.
Table 4.5 Position Occupied in the firm
Table 4.6 Professional Accounting Qualification Obtained
Table 4.7: What is the level of creative accounting observed by statutory auditors in practice?
Table 4.8 Frequencies
Table 4.9 Chi-square goodness of fit
Table 4.10 Do Nigerian auditors approve of creative accounting
Table 4.11 Frequencies
Table 4.12 Chi-square goodness of fit
Table 4.13 What factors do statutory auditors believe motivate management to engage in creative
accounting

ABSTRACT
This study aimed to examine the way auditors perceive creative accounting practices and what
auditors consider to be the reasons why management engage in such practices. The objectives of
the study included examining the level of creative accounting practice observed by auditors in
practice, getting the perception of the auditors on the morality or otherwise of creative
accounting practice and finding out what auditors believe are the factors that motivate
management to engage in creative accounting. To achieve these objectives 77 copies of
questionnaire were distributed to auditors. Statutory auditors were chosen due to the fact that
they are one of the categories of people equipped with the exposure and technical knowledge to
detect creative accounting manipulations. Two hypotheses were formulated and tested. Data
obtained were analyzed using descriptive analysis and the hypotheses were tested using ChiSquare goodness of fit. The study shows that auditors are of the opinion that management
engage in creative accounting to make financial ratios appear better, to reduce their tax liability
and to smoothen out profits.
Creative accounting practice was observed to be quite prevalent in Nigeria as many of the
sampled auditors claimed to witness cases of creative accounting when auditing firms and that it
is used frequently in deceiving investors. The study concludes that auditors perception of the
practice of creative accounting is that it is not morally right, creative accounting is totally
unethical and auditors have a duty to detect creative accounting practices. The study
recommends that there should be stricter penalties and sanctions imposed on erring companies
and individuals. This should deter the companies and individuals from engaging in such
practices.

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