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

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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
CORPORATE GOVERNANCEAccording to The Code (IFAC 2003), the situation in (d) above was veryapparent in the cases of companies Ahold, Enron, WorldCom and Zerox.A fairly representative list of cases and causes of corporate governancefailures is as per the table on page 241.Table 11.1 Showing Cases of Recent Failurailures es of Corporate GovernanceCompany Country/LocationCauses of Corporate GovernanceFailurailureses1. A hold Supermarket Netherlands (a) Trading never delivered earningstargets. Aggressive earningsmanagement.(b) Fraudulent accounting and reporting.(c) Weak internal controls.(d) Poor risk management.(e) Questionable ethical standards.(f) Behaviour at the top.2. Enron United States of (a) Questionable ethics.America (b) Behaviour at the top.(c) Auditors never queried questionableaccounting.(d) Aggressive earnings disposition ofmanagement.(e) Inefficient internal control system.(f) Poor risk management.(g) Hiding of corporate debts.3. World Com United States of (a) As for A hold and Enron.America (b) Expenses treated as capital expenditureto ‘window dress’ accounts.4. Parmalat Italy (a) Fake transactions underlyingaccountspreparation and reporting.(b) Weak internal controls.5. Tyco United States of (a) Massive looting by the chief executiveAmericaofficer.(b) Manipulation of business records andaccounts.(c) Non-existent internal controls.(d) Improper share deals.6. Xerox United States of (a) Non-existent internal controls.America (b) Accelerated recognition of revenue,for manipulation of accountspreparation and reporting.7. Wal-Mart Stores Inc. United States of (a) Non-compliance with governanceAmericastandards.241
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FINANCIAL REPORTING AND ETHICS1.3.3
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ACCOUNTING AND REPORTING POLICIESsu
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ACCOUNTING AND REPORTING POLICIES(j
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ACCOUNTING AND REPORTING POLICIES(i
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ACCOUNTING AND REPORTING POLICIES2.
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3AMALGAMATION, ABSORPTION ANDRECONS
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AMALGAMATION, ABSORPTION AND RECONS
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4ANALYSIS AND INTERPRETATION TION O
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ANALYSIS AND INTERPRETATION OF FINA
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5ACCOUNTING STANDARDS5.0 LEARNING O
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ACCOUNTING STANDARDS(i)(ii)(iii)(iv
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ACCOUNTING STANDARDSThere is no SAS
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ACCOUNTING STANDARDS5.2.4 Borrowing
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ACCOUNTING STANDARDS(iii)Certain pe
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ACCOUNTING STANDARDSby venture capi
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ACCOUNTING STANDARDSIFRS 7 Financia
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ACCOUNTING STANDARDSactivity, non-c
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ACCOUNTING STANDARDSin the year inc
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ACCOUNTING STANDARDS(v)(vi)(vii)whe
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ACCOUNTING STANDARDS(v)Actions requ
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ACCOUNTING STANDARDSAccounting stud
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6ETHICAL FRAMEWORK, CONCEPTSAND VAL
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ETHICAL FRAMEWORK, CONCEPTS AND VAL
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7THE ENVIRONMENT: CORPORATE,PROFESS
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THE ENVIRONMENT: CORPORATE, PROFESS
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8PROFESSIONAL ETHICS8. 0 LEARNING O
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PROFESSIONAL ETHICSobjectivity are
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PROFESSIONAL ETHICS(c)(d)The type o
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PROFESSIONAL ETHICSabout conflicts
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PROFESSIONAL ETHICS(d)(e)Confidenti
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PROFESSIONAL ETHICSA. III onlyB. II
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9DECISION MAKING IN ETHICS9. 0 LEAR
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DECISION MAKING IN ETHICS9.2 A FRAM
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ETHICAL THREATS AND SAFEGUARDS(d)We
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Page 191 and 192: 10ETHICAL THREATS TS AND SAFEGUARDS
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Page 195 and 196: ETHICAL THREATS AND SAFEGUARDSto th
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Page 201 and 202: ETHICAL THREATS AND SAFEGUARDSimmin
Page 203 and 204: ETHICAL THREATS AND SAFEGUARDSHowev
Page 205 and 206: ETHICAL THREATS AND SAFEGUARDS(iii)
Page 207 and 208: 11CORPORATE GOVERNANCE11.0 LEARNING
Page 209 and 210: CORPORATE GOVERNANCE11.3.1 Nature(a
Page 211 and 212: CORPORATE GOVERNANCEThe company sho
Page 213 and 214: CORPORATE GOVERNANCEtrust, possible
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Page 217 and 218: CORPORATE GOVERNANCE(a)(b)(c)(d)(e)
Page 219 and 220: CORPORATE GOVERNANCE11.6.1 The law
Page 221 and 222: CORPORATE GOVERNANCEILLUSTRAUSTRATI
Page 223 and 224: CORPORATE GOVERNANCEimitated. They
Page 225 and 226: CORPORATE GOVERNANCE(a)(b)Greenbury
Page 227 and 228: CORPORATE GOVERNANCE11.9.2 Boards d
Page 229 and 230: CORPORATE GOVERNANCErelationship wi
Page 231 and 232: CORPORATE GOVERNANCE(e)(f)(g)(h)(i)
Page 233 and 234: CORPORATE GOVERNANCE(vi)Inquisitive
Page 235 and 236: CORPORATE GOVERNANCE(e)ConsultancyA
Page 237 and 238: CORPORATE GOVERNANCEThe incoming au
Page 239: CORPORATE GOVERNANCEIn summary, acc
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Page 245 and 246: 12SOCIAL AND ENVIRONMENTALISSUES IN
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Page 269 and 270: APPENDIX IICOMPREHENSIVE QUESTIONS
Page 271 and 272: COMPREHENSIVE QUESTIONS AND SUGGEST
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Page 279 and 280: CASE STUDIES(iii)(iv)The floor sale
Page 281 and 282: CASE STUDIESShare price and dividen
Page 283 and 284: CASE STUDIESSUGGESTED SOLUTION(A) A
Page 285 and 286: CASE STUDY 3The following informati
Page 287 and 288: CASE STUDIESCASE STUDY 4Ologobojo i
Page 289 and 290: APPENDIX IVTable 1:SUMMARY OF INTER
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SUMMARY OF INTERNATIONAL ACCOUNTING
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APPENDIX VGLOSSARY OF TERMSAbsorpti
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GLOSSARY OF TERMSEthical Objectivis
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APPENDIX VIBIBLIOGRAPHYChambers Ham
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APPENDIX VIISTUDY AND EXAMINATION T
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STUDY AND EXAMINATION TECHNIQUES7.3
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INDEXAAbsorption, 17, 19, 39, 40, 4
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INDEXProfessional Behaviour, 136, 1
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