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This study was conducted to ascertain the role of accountants and auditors in checking distress in Nigeria banks. To achieve this objective, the following Nigerian bank were used as study area before their acquisition by more viable banks- First bank. Primary data were collected by using validated questionnaires and secondary data collection was by oral interviews and examination of some bank documents. Two hundred and fifty questionnaires were distributed among staff of the aforementioned bank in Anambra State and thereafter, two hundred and thirty-five of the returned questionnaires were valid and were subsequently subjected to descriptive statistical analysis to ascertain the roles and involvement of auditors in distress in Nigerian banks in line with the elements of the questionnaires. Analytical statistical tools such as means, standard deviations and percentages were used for the analysis. Chi-square and Student t-test were used as the major statistical tools for testing the hypotheses and comparing mean values. Result of the study indicated that there were collusion between accountants/auditors and management and there is aiding and abetting of management by external auditors to commit fraud. It was also found that there is gross negligence and improper performance on the jobs by accountant/auditors and in some instances, accountants/auditors are gagged by management and directors. Experience of accountants/auditors was also found to play a significant role in the quality of report submitted.
The major conclusion of this study is that auditor’s reports presented for distressed and failed banks fulfilled only the letter of the law. It is thus recommended that the law should be amended to make auditors criminally liable for negligent performance of duty in addition to the current civil liability.
1.1 Background To The Study
Distress in the Nigerian banking sectors is a problem that bank has in this recent time. This seems as if the regulatory authorities appeared to be fighting a losing battle to sanitize the system.
Ebtiodaghe (1996) observed that banking distress occurs when customers were unable the loss of their deposits and consequent breakdown of their contractual obligation. The central bank fails to meet its capitalization requirements, has a weak deposit base and is afflicted by mismanagement. Aderiu (1997) said that distress in banks I based on the banks examination rating system with the word “CAMEL” that is C=capital adequate, A = Asset quality, Management competence, E = earning strength, L = Liquidity sufficiency. The above mentioned is the aggregate areas that really qualifies a bank to be branded “ healthy or sick”.
A bank is considered healthy by the CBN if it maintains six criteria for instance capital paid up capital, sound management i.e bank meeting up with CBN rules, satisfy customers and shareholders interest, minimum liquidity of 30% not less than 10% of its liquid assets to be in treasury bill and certificates. In a situation where a bank defaults in one or few of the above criteria and fails to rectify its default position within a month, it is indeed qualified to be classified as distressed.
Where banks is unable to service its fixed costs, meet it debts obligations to its stakeholders has a net cash greater than its capital and can no longer operate profitably, the bank is deemed to have failed. Thus a failed banks is a bank which is unable to meet its obligations to its stakeholders as at when due arising from weakness in its financial, operational and managerial conditions.
The failed bank decree also defined “failed bank” as a bank whose license has been taken over by the CBN. Due to the inability of the regulatory authorities to bring back some of these distressed bank which failed eventually, the only way left in order to sustain public confidence and stability of the system is to revoke their licensed put them on liquidation.
Regrettably this has been the fate of some distressed banks in the country. Almost 36 banks are on distress.
1.2 Statement of problem
There have been allegation and accusation in newspapers, journals and publication that the causes the causes of the widespread distress in Nigeria banking sector are lack of objectivity and negligence on the part of Accountants/Auditors. They have been accused of not playing an effective role in these banks and hence have not adequately protected the integrity of these institutions as well as the following problems:-
- a) What role did the Accountant/Auditors play in checking of the Bank to avoid the entire distress syndrome?
- b) Did the Accountants/Auditors collude with the Directors and Management in the entire process?
- c) Do Auditors have are blame whatsoever where they are careless negligent or incompetent?
- d) Were qualified, test and proven Accountant/auditors appointed?
- e) Were the provisions of the law in CAMA, BOFID and so on observed in the choosing and appointment of Accountant or Auditor of the effected Bank?
- f) Did the Accountant or Auditor discover the true states of the banks that they were in precarious position?
- g) Did the Accountants/Auditors report their findings to the member directors/management?
- h) Were the Accountants/Auditors right in reporting their findings to the management? What if they did so?
- i) Did the Auditors issue unqualified true and fair view report in each cases of the failed banks prior to their failure or were there cases when Auditors issued qualified reports warning over the state of these bank.
- j) Were the Auditors truly independent in the real sense of it or were there factors real and subterranean that ended their desire or ability to report factually?
1.3 Objectives of the study
Against the background of the foregoing discussion it is necessary to find answer to some of the more pressing research questions. In line with this development, this research will pursue the following:
- To examine the extent to which Auditors Report on some failed Banks prior to
failure fulfilled the letters of the law.
- To determine the degree of independence enjoyed by Auditors of failed banks in
- To examine the appropriateness and legality of issuing different reports to management and members.
1.4 Research Questions
- a) To what extent is the distress in the banking sector attributable to the negligence, incompetence, and lack of independence or other acts of omissions of the auditors to detect frauds and errors?
- b) Are the Auditors equipped by training, calling and experience to discover the real present condition of the banks?
- c) Is it ethical or right for the auditor to report the true state of affairs to the bank management while issuing an unqualified opinion to the members?
1.5 Significance of the study
Every research work aims among other to make contributions to various area of practical and academic enhancement. This one is not different. It is expected that the body of literature wound have been enhance through the contribution of this work literature and material are gathered in order to define the role of auditors in the distress case. By condensing them together, they form a body/corpus that may be referred to by other researchers or users practitioner. In this way it is hoped that the work will make a significant contribution to theory and knowledge.
Furthermore, the role of auditors will be brought into more critical focus thereby enabling accountants as well as users of accounting report to be more accurately aware of their duties and expectation respectively.
1.6 Limitation of the study
With the revocation of distressed banks licenses and the consequent take over by some more viable banks it became very difficult to obtain more information from the affected banks mostly because they were in liquidation. NDIC was unwilling to disclose some information which they termed ‘classified’ while the staff of the affected banks were denied access to the records. This development constituted a very big obstacle and posed a limitation to this research.