Financial Reporting and Ethics - The Institute of Chartered ...

FINANCIAL REPORTING AND ETHICSAgency ProblemsAgency problems are treated in Section 11.4.2. However, it is herebyacknowledged that the agents of accountants and auditors are their professionalcolleagues, line staff or subordinates who may commit them on issues whichare not in the best interest of the firms. Mitigating such agency problems canbe done through staff motivation which promotes loyalty.Briefings are necessary between subordinates, colleagues and senior officersbefore embarking on the daily chores to streamline thinking and strategies.Seminars and conferences can re-orientate staff. Soothing words as “thankyou very much for job well done,” can be wonderfully rewarding. “A drop ofhoney catches more flies than a gallon of gall.” Nonetheless, sanctions areimposed as a last resort.The problems of accountants and auditors are, in most cases, adversarial. Chiefexecutive officers and board chairmen may override rules and regulations.They may set aside procedures and make mockery of the internal control system.Companies may conceal important information. Accountants and auditors whoare members of The Institute of Chartered Accountants of Nigeria should seekcounsel from the professional body in all their dilemma situations.11.14 CASES OF FAILAILURES OF CORPORATE GOVERNANCEThe wave of corporate scandals, especially in the United States of America,within the last few years, has been marked not only by the number of casesbut also the effect which they have had on investor confidence and marketvalues all over the world. Nigeria had its portion of the crises recently, withthe financial institutions, when the prices of shares nose-dived, wipping outbillions of naira in market value. Investor confidence, particularly in the sharesof banks, the fairness of the capital market and the credibility of companieswas rocked to its foundation. Some Nigerian banks have been accused of‘window dressing’ accounts and returns, granting un-collateralized and nonperformingloans, even to phoney companies and associates.11.14.1 Many corporate governance failures have been traced to a number offactors which include the following:(a) Poorly designed remuneration package;(b) Excessive use of share options. This development distorted thebehaviour of top management and members of the boards in theshort-run;(c) The use of stock options or rewards linked to the short-run shareprice performance. This led to aggressive earning management toachieve share price targets; and(d) When trading failed to earn the targets of earnings, manipulationof accounts to ‘window-dress’ situations, set in.240