APPRAISAL OF NIGERIAN BANKS COMPLIANCE WITH CBN CODE OF CORPORATE GOVERNANCE AND IT’S EFFECT ON BANK PERFORMANCE

IMPACT OF FINANCIAL REPORTING ON INVESTMENT DECISION OF EQUITY HOLDERS IN BREWERIES AND BANKING INDUSTRIES

ABSTRACT

This study examined the impact of Financial Reporting on investment decision of equity holders in Breweries and Banking Industries. The purpose of the study was to determine the impact financial reporting has on investment decisions of shareholders and other investors. Using residual equity theory and enterprise theory upon which the study is anchored and the body of literature on financial reporting pedagogies as conceptual guides, a five year data from five selected firms namely: Nigerian Breweries plc, Guinness Nigeria Plc, Zenith Bank plc, First Bank plc and Guaranty Trust Bank Plc were used in the study conducted in south east, Nigeria.  Financial reporting and equity holders were operationalized and measured. Data from the five selected firms were analyzed using regression and correlation statistics. The findings of the study show that: Profitability has a significant positive impact on equity holders’ investment decision. Dividend per share payout does not significantly affect equity holders’ investment decisions. There is a significant positive relationship between Earnings per share and investment decision. There is an insignificant positive relationship between leverage and investment decision. Liquidity of a firm has a significant positive effect on equity holders’ investment decision in the firm. The study concludes that financial reporting has a significant positive impact on equity holders’ investment decision. The study recommends that financial reporting statutory regulators should ensure credible financial reporting that would ensure reliable decision making.

CHAPTER ONE

INTRODUCTION

• BACKGROUND OF THE STUDY

The fundamental aim of financial reporting is to provide high-quality financial reporting information concerning economic entities or units, 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). The importance of reliable financial reporting as a vehicle for financial decision making cannot be over- emphasized and one of the fundamental problems in prior researches is the operationalization of the concept. The quality of financial reporting includes different context- specific domains and as such involves differences among constituents (Schipper & Vincent, 2003; Dechow & Dichev, 2002). In addition, the users within a user group may also perceive the usefulness of similar information differently given its context (Beest, Braam and Boelens, 2009).

 

Quoted organizations have as a matter of fundamental condition, the responsibility of making known those matters that concern their operations in order to help the investing public in their investment decision-making. Firms of different sizes aside their statutory obligation, endeavour to retain their shareholders and investors so as to attract new ones. A satisfying methodology of accomplishing the above is to make or publish the information concerning the organization as financial reporting. Such financial statement is essential in aiding the decision making abilities of accounting information users. Financial statement provides important information for a wide variety of decisions, and investors draw information from the statement of the firm in whose security they contemplate investing (Anaja & Onoja, 2015) ‘‘Decision makers who contemplate acquiring total or partial ownership of an enterprise expect to secure returns on their investment such as dividends and increase in the value of their investment’’ (p.2.). Dividends and increase in the value of shares of firms depend on the future profitability of the enterprise. Financial statement is a formal and comprehensive statement describing financial activities of a business organization such as the financial institutions. For such a business entity, financial statement is a statement that reports all relevant financial information, presented in a structured manner and in a form easy to understand for managerial use for taking prompt and informed decision making related to investment (IASB, 2007a) and also to decision making pertaining to cost planning, investment planning, expected returns and performance evaluation.

 

Anaja and Onoja (2015:2) posits ‘‘that the financial statement comprises balance sheet (for determining financial position), profit and loss statement (describes statement of comprehensive income), statement of equity changes (explain the changes of the company’s equity), and cash flow statements (reports on a company’s cash flow activities, particularly its operating, investing and financing activities). Although, these statements are often complex and may include an extensive set of notes to the financial statement and explanation of financial policies and management discussion and analysis (IASB, 2007b). The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statement are considered an integral part of the financial statements. However, the approaches that the notes and financial statement are presented and reported are critically for investment decision making by existing and prospective investors in order to earn optimal returns on their investments.

 

This indicates that financial statement methods in terms of information disclosure pattern, transparency, auditing, reporting standards, regulatory control and flexibility, corporate governance, and financial scandals have influence on investment decision making in any organization, especially in financial institutions with extensive range of investment activities that requires comprehensive financial facts that can be obtained from a financial reporting. Though, these financial statements are often prepared according to national standards, corporate governance, professional ethics, and code of ethics. It has been stressed that there is need for corporate ethics in the preparation of financial report. This to avoid financial reporting fraud and scandals that might hinders effective decision making process by management and other users of reports. The purpose of ethics in financial accounting reporting with expected standards is to re-orientate corporate organization on the need to abide by a code of conduct that facilitates public confidence in their services (Okafor, 2006).

 

It was observed that the roles of financial statement on investment decision making of financial institutions in Nigeria has some problems to both investors and managers of business organizations who are either not aware of the importance of interdependence relationship that exist between investors and financial organizations. The incidence of corporate failures, for instance, Enron Corporation and World.com in the year 2002, and other accounting scandals compounded by the global energy, food and financial crises leading to credit squeeze across the globe, have partly been attributed to impact of financial statement manipulations which portrayed some ailing companies as if they were sound. In Nigeria also, corporate failures and distresses have been witnessed in the banking sector. Evidence was the huge collapse of the commercial banks all due to massive accounting related frauds. This problem resulted in the establishment of Asset Management Company of Nigeria (AMCON) to prevent corporate failures particularly in the Nigerian banking sector by acquiring financially distressed companies.

 

This trend has now more than ever ensures that financial statements are sternly scrutinized. Investors, Financial analysts and other users of accounting information tend to use their critical eye to scrutinize financial statements. This has become necessary because audited financial statements, which used to provide assurance as to the healthy nature or otherwise of the firm are often not reliable as in the case of Enron Corporation.

 

The conceptual framework (CF) for international financial reporting (IASB, 2010) provides a conceptual basis for selecting the information characteristics which should be included in such a quality index. That is, the CF states that the degree to which financial reporting information is useful depends on its qualitative characteristics. Fundamental and enhancing qualitative characteristics are underlying attributes of information, which contribute to its decision usefulness.

 

The primary aim of the present study is to assess the impact of financial reporting on equity holders and other users of financial reports. For this reason the financial reporting is seen in terms of the fundamental characteristics (i.e. relevance and faithful representation) and the enhancing qualitative characteristics (i.e. understandability, comparability, verifiability and timeliness) as defined in the ED (IASB, 2008).

Equity holders are among the most important sources of financing firms. This is because it is the initial source of corporate funds and usually the last to extinguish. According to Nwoha (2007), this group comprises the shareholders or owners of a business who have an interest in the profit of the business and who can presume to wish to preserve the capital, which is invested in the business. Financial reporting essentially involves the preparation and issuing of financial statements. They are formal records of financial activities of corporate entities showing their financial condition for a given period of time. They are usually expected to comply with regulatory and professional requirements.

 

Financial statements serve as a means for assessing management’s performance in terms of how efficient and effective or otherwise it had used available resources in the course of trying to achieve corporate set goals, in the previous accounting period. The International Financial Reporting Standards (IFRS) states that the objective of financial statement is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the management stewardship of the resources entrusted to it. The degree of the usefulness of the financial statements as a tool for such assessment is dependent to a great extent, or the level of accuracy and reliability of the statements.

 

A financial statement that will meet the needs of any category of users must have the following qualities: reliability, understandable, simplicity, clear and logical manner, timely, accuracy, comparability, compliance with the relevant accounting standards. It should also comply with the relevant accounting standards as laid down by the Financial Reporting Council of Nigeria (FRCN).

 

A financial statement is said to be misleading if it lacks the qualities mentioned above. It contains fundamental errors or is prepared with the intention to deceive or confuse the users. Such deception can be carried out in a number of ways, among which are distortions of accounting records, falsification of transactions, omission of transactions, or misapplication of accounting principles etc. Many reasons can be adduced for the preparation of such misleading financial statements. One of such reasons is the demand for high returns by shareholders on their investments. This expectation of investors places management of some companies under undue pressure that they resort to indulging in unethical forms of financial-disclosure and reporting. Another reason is the quest to maintain a “giant” corporate status in the eyes of the business community despite some crippling internal problems, odds in the business terrain or sporadic changes in competitiveness. Manipulating the financials in order to satisfy the greed of company insiders- understating or reclassifying expenses is yet another reason. These of course set the stage for the failure of the company with time. The consequences of these unethical accounting practices include, but not limited to the following:

 

1. A yawning gap between reality and the reported position of the company such that any person placing reliance on such reports for decision making will be misled.
2. Erosion of investor’s confidence in corporate entities,
3. Attrition of revenue to the government via evasion or avoidance of taxes,
4. Reduction in the inflow of foreign direct and portfolio investment.

 

The list of users of financial statements is in exhaustive. Each group examines the financial statements based on areas of their needs. The basic users include shareholders, board & management, regulatory authorities, creditors, suppliers, financial analysts, researchers, prospective investors, government etc. These users expect the financial statements to contain information that would enable them among other things evaluate the performance and earning power of a business enterprise, compare its performance over time or with other enterprises within the industry, predict its future performance and continuity to enable them make investment decisions etc.

 

Accounting typically restricts itself to information in a normal set of financial statement, that is, a balance sheet, a statement of income, and a statement of retained earnings (Anglo-Saxon Countries), together with various footnotes and supporting schedules. Note and supplementary schedules may contain additional information that is relevant to the needs of equity holders and other users about the items in the balance sheet and income statement, such as disclosures about the risks and uncertainties affecting the enterprises and any resources and obligation not recognized in the balance sheet. IASC (2006).

Although a published annual report may include information about plans, new products, projected capital expenditures and the like, that is generally presented in such a way that is definitely separated from the original financial statement. Mautz and Sharaf, (2000). Fundamental questions are how much information and what form of presentation are necessary to enable users to form opinions and take decision, which are competent to them. Flint (2000, 15). One of the tasks of financial reporting is to reduce the tremendous mass of detailed information contained in a company’s business papers to manageable and understandable proportion. On the other hand, the summarization and condensation may be carried to such an extreme that users’ comparisons and distinctions are lost or concealed. Obviously too much or too little detail may be harmful.

 

Many companies make increasing shareholders value a key goal, if not the ultimate, because of direct and indirect influence from shareholders. Shareholders value refers to a company’s value less its debt. Since shareholders or equity holders elect a corporation’s directors, they can exert a significant amount of influence on a company and its policies, because directors know they can be fired if equity holders are not satisfied with their performance and decisions. That is why financial report of a company should be disclosed to the shareholders. One argument against public disclosure was that labour force would present pay demands to the management of highly profitable companies. If information was to be made public, the profit should be understated (potentially overstated in unprofitable companies) so that it would not harm the company. The ‘real picture’ could however, be given to the shareholders at the shareholders’ meeting.

 

Financial statements also have impact on new investors. When a company issues new shares of stock, it will most likely distribute financial statements to potential investors. ‘‘The potential investors will examine the financial statements to determine if they want to put money into the company’’ (Osuala et al, 2012:166).  Low earnings numbers could negatively impact the number of investors willing to put money into the company. In some cases, financial statements can even affect other businesses. Negative numbers by a leading company can sometimes lead to a negative outlook on other companies and this may drive down the stock prices on other companies in the same industry sector of the market.

Balance sheet, profit and loss account or income Statement, the Notes to the accounts, Statement of Sources and application of funds, value added Statements and historical financial Summary and these elements of financial statement provide information about the resources, obligation and the performance of the company in a clear, simple and understandable manner (p 166.)

 

• STATEMENT OF PROBLEM

The essence of financial reporting is to provide reliable, transparent, effective and efficient accounting information that would be of benefit to shareholders and other investors in making investment decisions. Company Management and Directors take responsibility of preparing the final account of their companies; and when such is prepared, it is expected to fulfil some fundamental statutory conditions or ethical conditions that would ensure that expected accounting information that are realistic, dependable are delivered and capable of fulfilling the yelling of investing public .When a company prepares its own final account purely for internal use by the Directors and Management, it can draft them in any way which is most suitable. Such accounts are supposed to be prepared with strict adherence to Accounting Principles.

 

However, the situation with the present accounting practice in some organizations leaves much to be desired. It is obvious that some organizations get involved in reporting information that is not consistent with their operations; for example some companies engage in insider trading of their own shares in order to increase the worth of such shares and to create the impression of competitive purchase of their shares (Oluwabiyi, 2014).

 

In Mid-October 2001, Enron Corporation, one of the largest companies in the world, shocked Wall Street by reporting huge losses and a dramatic reduction in shareholders’ equity. On December 2, 2001 Enron filed for chapter 11 bankruptcy. In January 2002, the U.S Justice Department began a criminal investigation which ultimately revealed accounting discrepancies in the form of overstated earnings, underreported losses, improper transactions and partnerships created to conceal liabilities from investors, as well as the illegal shredding of thousands of key accounting documents, emails, and memoranda by Enron and their accounting firm. This made the shareholders confidence to be sorely shaken which negatively impacted stock market prices, industry stability, and holdings on both personal and retirement accounts.  On the local scene, we also have some notable cases such as the failures of some Nigerian Banks in the early 1990’s, the case of Lever Brothers Plc (Now Unilever) in 1998 where overvaluation of stocks running into billions of Naira was discovered. Another was the case of the African Petroleum (AP) Plc in which the company’s Board concealed indebtedness to the tune of about N22 billion in its year 2000 offer for sale. We had yet the case of Cadbury Plc as well as that of Evans Medicals Plc in which the company’s record unsupported inventory balance of about five hundred and fifty million Naira in its year 2008 financial statements. The current case as we all know involves MTN Nigeria communications ltd which failed to delist 5.2 million subscribers who could not register their sim cards and was fined $5.2 billion dollars by Nigerian Communications Commission which were later reduced to 780 billion naira. (GJMST Vol. 1 Issue Pg 20).

 

These events above hold little promise for the accounting profession and corporate enterprise in Nigeria. This is because confidence erosion by investing public would deplete stock market as well as reduce drastically, corporate worth of organizations listed on the Nigerian Stock Exchange. In response to the above, this study investigates the impact of financial reporting on equity holders and other accounting information users. The study would endeavour to quantitatively measure the gains accruable to accounting information users if accurate, reliable and responsive financial reporting is upheld by corporate organizations in Nigeria.

 

1.3          OBJECTIVES OF THE STUDY

The main objective of the study is to investigate the impact of financial reporting on investment decision of equity holders in Breweries and Banking industries. The following specific objectives are formulated:

1. To determine the impact of profitability of a firm on equity holders’ investment decisions based on the financial statements of the company concerned.
2. To ascertain how dividend per share payout affects equity holders’ investment decisions.

• To assess the relationship between Earning per share as contained in the firm’s annual report and equity holders’ investment decision.

1. To determine the relationship between leverage of a firm and equity holders’ investment decision in the firm.
2. To ascertain the impact of liquidity of a firm on equity holders’ investment decision in the firm.

 

1.4          RESEARCH QUESTIONS

1. To what extent does profitability of a firm influences equity holders’ investment decisions?
2. To what extent does dividend per share payout affects equity holders’ investment decisions?

• What is the relationship between earning per share and equity holders ’investment decision?

1. What is the relationship between leverage of a firm and equity holders’ investment decision in the firm?
2. To what extent does liquidity of a firm affects equity holders’ investment decision in the firm.

 

1.5          RESEARCH HYPOTHESES

Following the aforementioned objectives and research questions, the following hypotheses are formulated in alignment. The hypotheses are stated in alternate.

1. Profitability of a firm has a significant and positive impact on equity holders’ investment decisions in the firm.
2. Dividend per share payout does significantly affect equity holders’ investment decisions.

iii.            Earning per share has a significant and positive impact on equity holders ’investment decision.

1. Leverage of a firm has a significant and positive impact on equity holders’    investment decision in the firm.
2. Liquidity of a firm has a significant and positive effect on equity holders’ investment decision in the firm.

 

 

 

1.6           SIGNIFICANCE OF THE STUDY

This study highlights the importance of financial reporting to equity holders in breweries and banking industries. The study is meaningful to them as it assists them to get appropriate information about the financial position and changes in an enterprise that is useful to a wide range of users in making economic decisions. It also meets the needs of other accounting information users. Economic decisions taken by users require an evaluation in the ability of an enterprise to generate cash or cash equivalents and of the timing and certainty of generation of such values. The economic decision may include, for example, whether to hold or sell their investments in a firm or whether to reappoint or replace its management.

 

Also to corporate accountants, this study would assists them to present their financial report based on rules and procedures necessary to define accepted accounting practice at a particular time period. This study is relevant to potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the public at large.  It is hopefully expected that this study’s findings and recommendations would be pivotal to other researchers who wish to make further research into the impact of financial reporting on users of accounting information.

 

1.7          SCOPE OF THE STUDY

This dissertation focused on the impact of financial reporting on investment decision of equity holders in Breweries and Banking industries.  Conceptually, the study is within the domain of financial reporting and accounting information usage. The geographic scope is within the South East Nigeria while the time scope involves the period of 2010 to 2014.

 

1.8          *LIMITATIONS OF THE STUDY

The study is constrained by the following undermentioned factors.

1. Financial Constraint: – Finance was one of the major constraints that limited the study. This is consequent upon the fact that the researcher sources of financial support were only sufficient to take on the scope covered in this study
2. Difficulty in Sourcing Materials: – It is also one of the major constraints in this dissertation. The impact of financial reporting to equity holders is a new economic concept adopted by the Securities and Exchange Commission, no doubt limited the study as the researcher had difficulties in searching out for these materials.

• Financial reporting as a fluid concept: The concept of financial reporting is a fluid and abstract concept whose operationalization could be subjective. For this reason, the concept is approached differently by different scholars in terms of measurement.

1.9           OPERATIONAL DEFINITION OF TERMS

1. Accounting Information: – This refers to data that are found in financial statement of organization. The information should be real (facts) that have a surprise effects on the receiver and to have a value greater than its cost and potentially evoke a response in the decision making.

 

1. Accounting Principles: – The term used to describe these practices is Generally Accepted Accounting Principles (GAAP). It encompasses the conventions; rules and procedures necessary to define accepted accounting practice at a particular time. Many of the policies are dictated by the IFRS and do not have much room for interpretation.

 

• Equity Shareholders: – This is the most important source of corporate finance. It is usually the first instrument to be issued by a firm and continues to play a dominant role throughout the lifetime of the firm.

 

1. Financial Reporting: – This is a financial statement prepared at the end of the year, which is to be reported to the shareholders, government or investors and to the public at large. It is presented in such a way that is definitely separated from the ordinary financial statements. It may include information about plans, new product, and projected capital expenditures.

 

1. Financial Statements: – These are statements of financial position or balance sheet, comprehensive income statement, cash flow statement, statement of changes in equity and value added. Financial statements are prepared based on a number of accounting policies and assumptions usually referred to as Generally Acceptable Accounting Principles (GAAP). In applying these GAAPs, accountants generally make judgments, which are expected to be logically deductible from the relevant GAAPs.
2. Intrinsic Value: – This is the value the security ought to have and will have when other investors have the same insight and knowledge as the analysts.

 

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CHAPTER ONE/INTRODUCTION

1.1 Background to the Study

The need for Environmental Accounting has become the concern and focus of nation’s and responsible corporate managements. It became one of the foremost issues on the agenda of nations and businesses earlier in the 1990s and the reasons for these were varied emanating from both within and outside of the firm and particularly at the global level (Okoye and Ngwakwe:2004:220-235). A lot of government enactments, laws and regulations on environmental protection have been made in several nations of the world including Nigeria. In the light of the awakening to environment protection, various laws and regulations such as the Environmental Impact Assessment Act, 1992 and the Department of Petroleum Resources (DPR) Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (EGASPIN: 2002) were enacted. These require corporate managements to consider the environmental implications of all internal decisions of their managements. Also, all organizations monitored by environmental policy agencies in Nigeria are expected to demonstrate much consideration in decision making. Environmentalists agree that it could be more cost efficient and beneficial for companies to acquire pollution prevention or clean technology than those of pollution clean-up. It is also observed that in environmental regulations, there is a shift from the ‘command and control’ approach to market-driven forms in which pollution prevention alternatives are replacing pollution cleaning approach. It follows therefore, that determining the appropriate pollution prevention approach may lead to additional decisions to be taken by management. Such decisions may include selecting capital expenditures, and in the opinion of Shield, Beloff and Heller (1996:5), expenditures such ‘as markets for emissions’ allowances development, may require companies to determine whether it is more cost beneficial to buy or sell these allowances, giving the cost of avoiding the covered emissions.

Environmental issues for purpose of economic and cost accounting have also been controversial even though the topic has been identified for discussions for the past four decades. This is because common criteria for value measurement of non-marketed, non-monetized resources and impact on externalities have not been agreed.

Previously, corporate organizations have ranked business considerations based on profitability. Companies have also recognized all indirect expenditures as overheads without paying attention to the environment. Conventional accounting practice has not recognized environmental accounting for materials, water, energy and other natural resource usage.

Besides, conventional accounting has not provided for such practice and particularly for accounting for impact on externalities. According to B. Field and M. Field (2002), little was recognized of the environmental depletion and degradation to the environment until a few well-meaning people in the developed countries realized that it was no good having great corporate profits and material well-being if they come at the cost of large scale of the ecosystem by which we are nourished. It became clear that degradation, pollution and accelerated destruction of the ecosystem and the depletion of non-renewable environment biodiversity would soon become very dangerous to human existence. Field and Field,(2002) conclude that, ‘what once were localized environmental impacts, easily rectified, have now become widespread effects that may very well turn out to be irreversible.’

The world at large has need to evaluate, assess and effect accounting reporting for raw materials, energy consumption and use of natural resources which have systematically depleted the environment. Besides, the negative impact on the biodiversity through human and industrial activities and the nations’ need to protect the environment, have made for global regulations. These regulatory environmental laws however, require only voluntary disclosure in financial statements of environmental information on industrial emissions, degradations, industrial wastages and all activities which impact negatively on the environment. As a result of the great impact on the ecology of oil and gas producing environment of the Niger Delta in Nigeria, which has caused political unrest in the area, Owolabi (2007:63) is of the opinion that the political unrest in the Niger Delta cannot be wished away until there is a policy to incorporate environmental concerns into the nation’s oil and gas industry planning, management and decision making. On environmental costs, he concludes that ‘Costs and benefits need to be properly attributed, a clear distinction made between the generation of income and the drawing down of capital assets through resource depletion or degradation.’

Notable studies in environmental accounting are the Ontario Hydro Full Cost accounting (1993) and the AT & T Green Accounting of the U.S. Environmental Protection Agency (1993). Also, the industrial green substance emissions (Carbon dioxide, Methane and Hydro fluorocarbons) and the penalties resulting from the Kyoto Protocol (December 1997) have made it a requirement for corporate organizations to take serious considerations and actions on corporate capital projects and investments.

In the light of the background of increasing environmental attention, and the fact that the oil and gas sectors having profound production impact on the environment, the study explores the effect of environmental accounting and reporting on corporate performance.

1.2 Statement of the Problem

Environmental accounting involves the process of communicating the social and environmental effects of organizations’ economic actions to particular interest group within society and to society at large. As such it involves extending the accountability of organizations (particularly companies) beyond the traditional role of providing a financial account to the owners of capital, in particular, shareholders. Such an extension is predicated upon the assumption that companies do have wider responsibilities than simply to make money for the shareholders (Grayet al, 1987). In this case it is a comprehensive approach to ensure good corporate governance that includes transparency in its social activities.

The problem is that conventional approaches of cost accounting have become inadequate since conventional accounting practices have ignored important environmental costs and activities impacting consequences on the environment. Corporate neglect and avoidance of environmental costing leave gap in financial information reporting. There is no completeness and correctness of fair view to users of financial information, such as shareholders, environmental regulatory agencies, environmentalists and potential financial investors. For example, degradation or other negative impact on the environment could affect corporate financial statement such as create actual or contingent liabilities and may have adverse impact on asset values of the company. Consequential effect on corporate organizations may result in incurring future capital expenditure and cash flows which may impinge on going concern as balance sheet secured loans may not be secure after all if land values for instance are affected by environmental factors. Also, the limited awareness of environmental costing principles and methodology has become an important issue to be addressed. If vital environmental issues and activities are not disclosed, financial statement cannot be said to reveal state of a ‘true and fair view of affairs’ and such has impact on a firm. It is important too, to note that ethical investors will only invest in ethical companies and therefore, will watch out for these ethically responsible companies. Due to this problems which has impact on corporate organization, this study will therefore, evaluate the effect of environmental accounting and reporting on corporate performance.

1.3 Objectives of The Study

The objective of this study is to ascertain the effect of environmental accounting and reporting on corporate performance. Other specific objectives are as follows:

1. To ascertain the kind of effect environmental cost have on cooperates firm profit making.

2. To ascertain the extent environmental cost affects profit making of a firm.

3. To determine the level the performance of a corporates firm can be affected by environmental cost.

4. To identify the role of environmental cost disclosures on corporate performance.

5. To investigate the level which environmental accounting and reporting enables cooperates firm to manage their resources.

1.4 Research Questions

To enable the researcher obtain relevant information from the respondent, the following research questions were designed and posed:-

1. What kind of effects does environmental cost have on profit making of a cooperate firm?

2. To what extent does environmental cost affect profit making of a firm?

3. To what level can the performance of a corporates firm be affected by environmental cost?

4. What is the role of environmental cost disclosure on corporate performance?

5. To what level can environmental accounting and reporting enables corporate firms to manage their resources?

1.5 Research Hypotheses

The following five (5) hypotheses are formulated to test each of the responses of the respondents to the research questions raised.

H01: There is no significant effect of environmental cost on profit making of a corporate firm.

H02: No significant relationship exists in environmental cost and the extent of profit making of a firm?

H03: There level of performance of corporate firms is not significantly affected by environmental cost.

H04: Environmental cost disclosure in a corporate firm has no significant role on the performance of a firm.

H05: Environmental accounting and reporting has no significance in a corporate firm’s resource management.

1.6 Significance of the Study

This will be of benefit to corporate firms in helping them to engage and adequately provide environmental protection agenda in their internal policies on investments and projects which impact on environment. This approach will facilitate protection of the eco-efficiency and competitiveness among corporations in all productive sectors of the economy. The study will facilitate environmental cost reporting responsiveness and disclosure to investors and environmental regulatory bodies. It will assist in efficient cost valuation of environmental remediation and compensation to affected communities particularly the Oil & Gas areas of the Niger Delta in Nigeria by corporate bodies impacting on the environment. A design and conceptual bases for environmental cost accounting and disclosure in corporate financial statement will facilitate efficient valuation of degradation in affected communities. Besides, it will also be beneficial to corporate organizations as ethical investors and the environmentally conscious general public will watch out for ethical responsible companies. This study will assure commitment of the corporate organizations in Nigeria to international agreements on environmental regulations which will in turn assure sustainable development of environment and the eco-system in Nigeria. It will further enable corporate firms to effectively manage their resources and indicate area in which they can improve in their level of performance.

1.7 Scope of the Study

The scope of the study covers the effect of environmental accounting and reporting on corporate performance. It also covers ten (10) years (2003-2012) of financial environmental accounting effect of three quoted oil and Gas Company and the effect on the performance of these corporate firms.

1.8 Definition of Terms

The following operational terminologies used in the study are defined in order to enable a clear understanding of various accounting terms used in the study.

• Environmental accounting in the context of national income
• This type of accounting, as used in this study refers to natural resource accounting. These entail statistics about a nation’s or regions consumption of natural resources. It also takes into account the extent, quality and valuation of natural resources which are either renewable or non-renewable.
• Environmental accounting in the context of financial accounting
• This refers to the preparation of financial reports to external users using international financial reporting standard (IFRS).This is financial reporting to external users conveying the impact on environment and activities impacting on eco-efficiency.

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The issue of tax evasion and avoidance have generated a considerable interest and concern to the governments and finance experts recently; this is because of their socio-economic implications and the effects on government revenues and fiscal viability in the long run. Asada (1997) in Bassey (2014) expressed that the issue of personal tax in Nigeria is being handled with levity hand and it is very disappointing and problematic of all the taxes in the tax system today. In spite of the fact that tax is now being considered as a huge source of generating revenue for government in the place of dwindling oil prices in the international market. A well organized society, say a country or state government owes some fundamental obligations to the people it governs, these obligations are in the forms of provisions of basic social amenities such as good roads, health, security of lives and properties, shelter, good water and others, the citizens on their own part are expected by the government to make equitable contribution in the form of tax. It is against these background that government levy taxes on its citizenry to pursue the above stated objectives it owns to the people.

The claim above suggests that taxpayers over the years have demonstrated unpatriotic act through such means as concealment of profit and inference with revenue agents through corrupt practices, therefore, personal income taxation in Nigeria requires proper handling of the taxation system to ensure that everyone pays his/her tax as at when due. Taxes have period because there is no choice (consider the pay as- you-earn PAYE), due to the requirements of tax clearance certificates and, in most cases because of coercion by the government (use of task force and personnel), as a condition for recurring public sector benefits or social services rendered by the government even before attempting to contest elections, therefore, the desires to uplift one’s society is the first desire of every patriotic citizen, the patristic citizen, however, pay taxes because it is a civic responsibility and for others because they want the government to succeed. This is perhaps due to the fact that the pace of development and growth in any economy is closely tie to taxes compliance rate. Tax payment is a civic responsibility everyone must perform to ensure that government finance or run public utilities as well as perform other social responsibilities. Taxes, thus constitutes the principal sources of government revenue, an effective tax system ought to satisfy the twin purpose of raising maximum revenue and at the same time encourage production. In an effectively managed tax system, the two purposes are not inconceivable provided the beneficial effect of government expenditure and incentives for production exceed the unfavourable effect of taxation. Adinkrah (2011) posited that an effective tax system aside from maximizing revenue for development, ought, if well structured and managed elicit a feeling of common purpose, joint responsibility or obligation amongst the taxable persons in a state or a country.

However, it has been observed that one of the greatest challenges facing the Nigerian tax system is the problem of tax evasion and avoidance, while tax evasions is the unlawful and deliberate violation of the law in order to escape payment of tax which is unquestionably imposed by law of the tax jurisdictions, tax avoidance is the native means by which the taxpayer seeks to reduce or revenue altogether his ability to tax without actually breaking the law. This “Twin devils’ have created a great gulf between actual and potential revenue, the government has for the umpteenth time complained to the widespread incidence of tax avoidance and evasion in the country as companies and other taxable persons employ various tax avoidance devices to escape or minimize their taxes or deliberately employ fraudulent ways and means of evading tax altogether sometimes with the active connivance of the tax officials as pointed out by Likita (2013), since tax is a principal sources of government revenue, if persons are able to escape by legal or illegal means the tax to which they should logical be subject under the general scope of the tax, the theoretical equity of the tax to a long measure is lost. Tax evasion and avoidance is undoubtedly denying the government the tax revenue, which result in huge difference between potential and actual tax collection, the major challenge borders on the collection of taxes particularly from the government officials who always believe they are above the law, and also to the businessmen, contractors, professional practitioners like lawyers, Doctors, Accountants, Architects down to traders. Hence, the poser raise is on the efficiency and effectiveness of Voluntary Assets and Income Declaration Scheme in ensuring effective and appropriate tax payment in Nigeria.

1.2 Statement of the Problem

Nigeria due to her natural endowment in area of crude oil is generally regarded as an “oil rich” nation and everything seems to revolve around it, with national budgets inclusive. This image of being oil rich has made those at the helm of affairs focus on sharing the little national cake rather than focusing on how to bake a bigger one. This result of this is that the tax system has not been working well which makes oil revenue to be the only source of revenue for the government. Take for example Nigeria is produced just over 2 Mbpd as against the United States of America’s over 9 Mbpd. With this, the US do not herself to be an “oil rich” country – this is because, the economy runs on tax revenue, not oil.

In the year 2016, South Africa total tax revenue was about N27 trillion as compared to that of Nigeria which was about N6 trillion total tax collected by all levels of government. Altogether with oil revenue, Nigeria generates about N10 trillion (circa $33B). Even without corruption, this amount is barely enough to fund transportation alone (roads, rail, water and air travel infrastructure and maintenance). So, more than anything else, the problem is that not many of us pay the right amount of tax as required by law. Government upon learning this, they resolve to curb the issue of tax evasion and avoidance. It therefore, came up with what is called Voluntary Assets and Income Declaration Scheme.

1.3 Research Objectives

The general objective or main objective of this study is to examine the effectiveness of Voluntary Assets and Income Declaration Scheme (VAIDS) in curbing tax evasion in Nigeria by using some selected residents in Ota, Ogun State, Nigeria, as a case study. The specific objectives are:

1. i) To investigate how Voluntary Assets and Income Declaration Scheme (VAIDS) has contributed to effective tax collection in Nigeria
2. ii) To examine the reasons for the establishment of Voluntary Assets and Income Declaration Scheme (VAIDS) in Nigeria

iii) To identify the benefits of Voluntary Assets and Income Declaration Scheme (VAIDS) to Nigerian government

1.4 Research Questions

The following are some of the questions which this study intends to answer:

1. i) In what ways have Voluntary Assets and Income Declaration Scheme (VAIDS) has contributed to effective tax collection in Nigeria?
2. ii) What are the reasons for the establishment of Voluntary Assets and Income Declaration Scheme (VAIDS) in Nigeria?

iii) What are the benefits of Voluntary Assets and Income Declaration Scheme (VAIDS) to Nigerian government?

1.5 Hypothesis of the Study

Ho: VAIDS has not been effective in Curbing Tax Evasion in Nigeria

Hi: VAIDS has been effective in Curbing Tax Evasion in Nigeria

1.6 Significance of the Study

It is vital to know that this research work will generally find solution to the existing and anticipated problem tax evasion in Ogun state and Nigeria at large. It will help the Ogun state government in collecting tax with ease and the taxpayer benefiting from it through provision of social facilities and infrastructures for the state. It will enhance the taxpayers’ understanding that tax payment is a civil duty and is being paid by a patriotic citizen of the state.

1.7 Scope of the Study

This study is designed to examine the effectiveness of Voluntary Assets and Income Declaration Scheme (VAIDS) in curbing tax evasion in Nigeria by using some selected residents in Ota, Ogun State, Nigeria, as a case study. The study will therefore be carried out among the residents of Ota, Ogun State, Nigeria.

1.8 Limitation of the Study

The limitations in this study are the difficulties encountered during the research work. In some cases, the researcher was mistaken for agent gathering information for one panel of inquiry or the other. Also, some members of staff of internal revenue of Ogun State that saw the need for this research and attended to this researcher’s data need do not have access to tax payers’ files and records. The issue of tax causes a lot of friction and reaction from the taxpayer, therefore many of them turn down being interviewed or filling of questionnaire. Some that responded were not educated; therefore there is a need for translation and interpreting of questionnaire to their native dialect before they could respond.

1.9 Definition of Terms

The following terms were used in the course of this study:

Tax evasion: is the use of illegal means to avoid paying your taxes. Tax evasion occurs when the taxpayer either evades assessment or evades payment.

Tax compliance: means making tax payments and producing and submitting information to the tax authorities on time and in the required formats.

Voluntary Assets and Income Declaration Scheme: an initiative designed to encourage voluntary disclosure of previously undisclosed assets and income for the purpose of payment of all outstanding tax liabilities.

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