ROLE OF INTERNAL AUDIT IN BUSINESS GROWTH (A CASE STUDY OF DIAMOND BANK PLC)

ABSTRACT

This study is devoted to assessing the role of internal audit an instrument for improving the business growth. The methodology employed include personal interview, written question and library research, various recommendations were made in a bid to improve the business growth via internal audit. The economy today is known to be characterized by incessant frauds, forgeries and mismanagement of public properties. This though a global phenomena, has recorded an outstanding growth in the Nigeria bussiness growth. It outs across all sector of the economy; call for prompt appraised of internal control system is however weighted down by a lot of factors. The inability to reconcile the accounting systems, control system, regularly is more or less a heaven for fraudulent and unscrupulous staff, A problem which the consequences is incompetent manpower shortage. The train of irregularities and mismanagement has got to an extent that insufficient are not made, the economic future will become a menace rather than fortune to the populace. The point therefore is that the internal audit department should be hastily equipped with competent and qualified staff and modern facilities so that internal audit can still play its role in improving the bussiness growth.

CHAPTERONE

1.0                                             INTORDUCTION

1.1 BACKGROUND OF THE STUDY

The substance of every economic entity depends on its ability to achieve its goal and objectives management for the achievement of corporate goals. Wither or not management will achievement this goal depends on how strong and reliable the growth of any corporate body largely depends on the effectiveness and efficient of the internal control system.

Therefore management has a duty of or ensuring that a strong and reliable control system exists within the organization for accountability and country.

For accountability within the organization the conduct at audit is mentionable. This is because account prepared by management may not disclose fraud deliberately misleading or failed to confirm to regulations. Therefore the necessary of auditing to cooperative organization cannot be overemphasized as thus will help the safeguard of the assets of the organization by detection and prevention of all kind of misappropriation and fraud within the organization. Over the years business and corporate organizations run into problems of liquidation. Bankruptcy and insolvency as a result of not only economic fact in the business environment but as a result of management in adequate and inefficient to mange. The internal activities of the organization therefore creating room for financial malpractice within the organization. Thus many corporate bodies run into liquidation as a result of fraud and misappropriation of funds (working capital) within the organization. These are funds that are supposed to be used for expansion of business activities.

Thus, auditing as a professional activity is to birch the gaps and lapses of management activities and to repent to the owner of business on the financial position of the business.

According to the American Accounting Association (AAA) committee on basic Auditing concept (1971), auditing and evaluating process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events o ascertain the degree of corresponding between those assertion and establishment to interested users. The Nigeria auditing guidance sees auditing as an independent tax the appointed and or in pursuance of his appointment and in compliance within any relevant statutory obligations.

From the above, it is clear that despite need of auditing by management within the organization, government also requires the account are audit annually before they publisher. However there are two objective of auditing in any corporate entity, the primary and secondary objects, the projective of auditing require the auditor to give report on this opinion on account investigated.

1.2 STATEMENT OF THE PROBLEM

In our present business environment the news of insolvency, bankruptcy and liquidation have become frequency news handling in magazines. Several factors are responsible for those ugly issues. The issue of liquidation is not only attributed to the business environment bur internal management problems. Therefore the following problems are identified

• The issue of forgery of public fund for personal interest.
• Lack of sense of responsibility and other forms of social values.
• Low level of official awareness.
• Weakness of internal control system to monitor the activities of management.

1.3 PURPOSE/OBJECTIVE OF THE STUDY

At the end of this study. The following objectives are expected to be achieved.

• To identify the causes of fraud in public parastatals
• To examine how audit could help in the prevention and control of fraud.
• To examine the existence of internal control system in the organization

1.4 RESEARCH QUESTIONS.

• What role can auditing play in the eradication minimization of fraud?
• Does this bussiness have internal auditors?
• Does this bussiness have internalauditor(s)?
• Do the bussiness allow the internal auditor(s) freehand to perform his function
• How does your bussiness perceive auditing?
• Do you think fraud can draw this bussiness liquidation?
• Does your bussiness allow internalauditor(s) freehand to perform their function?
• Has fraud know to have taken place on suspected on this company
• What type of fraud was suspected in the bussiness
• Are all daily expenditure authorized and accounted for by concerned authorities?
• Does internal audit department check all sources and application of fund?
• Do you think audit can prevent the suspected fraud in your company?
• Are there any checks and balances in the administration and management of the company?
• Is the internal audit department independent?

1.5 RESEARCH HYPOTHESIS

Hypothesis is a prediction or conjecture state well in advance of observation about what can be expected to occur induce stated or given condition Asika (2004)

This research work “audit as a tool for prevention and control of fund” will be tested in the process of the research analysis as follows

H1: there is a significant relationship between audit and the prevention and control of fraud

H2: there is no significant relationship between audit and the prevention and control of fraud.

 1.6 SIGNIFICANCE OF THE STUDY

This study will go a long way helping all corporate to organization on the possibilities and consequence of financial recklessness and misappropriation of fund in business and probably the solution to ineffectiveness in the management firms.

Secondly, this study is significant because focused on corporate bodies which are the bedrock of every economy at large, this granting the continuity of corporate entities.

The study will encourage management to review and establish strategies to achieve maximum efficiency and effectiveness in order to bring about the desired return to contributors (shareholder).

Finally, this study, by using auditing as a tool, for prevention of fraud will help to ensure accountability, reliability and discipline within the management of companies in Nigeria.

1.7 SCOPE OF THE STUDY

The research works was carried out in yenagoa capital city of bayelsa state, Nigeria. The scope of this research work is limited to companies operating in yenagoa within effective reference to scripan nig Ltd.

However, the study will cover relevant areas such as auditing, fraud prevention, detection and control of fraud in the management of companies operating in Nigeria.

1.8 LIMITATION OF STUDY

This research is focused on the lack of adequate books and research inertial or the school library.

The bussiness under study is at a consideration distance from the research institution. Hence distance problem, another glaring limitation here is financial constraint in carrying out the study.

However, an optimum balance of application scarce resources is maintained in carrying out the study.

 

1.9 DEFINITION OF TERMS

Audit: An audit of financial statement is an exercise whose objective is to enable auditor express an opinion on the account presented by management at the end of the years on whether on his opinion the account show true and fair view or otherwise.

 Internal control system: Internal control is the whole system of control, financial and other wise established by government to evaluate and checkmate the activities of the organization at every point in time.

Internalauditing(s) These are set of professionally qualified auditors (Accountancy that members of ICAN /ANAN) who are not members of the organization, appointed by the shareholder/ directors to audit the financial statement prepared by management.

Error: This is an un-intentional mistake in financial statement book of account.

Fraud: This is an intentional act to falsely misrepresent the true state of monetary transaction as fund in the books of account.

Irregularities; this is an intentional distortion of financial statement or book of account often accompanied by the false files and record.

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AUDITORS’ LIABILITIES TO ORGANIZATIONS AND SOCIETIES IN GENERAL

 

ABSTRACT

The belief that whenever an auditor is engaged with any business organization, the objective(s) of such organization are likely to be achieved, seems not to stand the test of time, considering the rate of business failures and the inherent loss of economic resources resulting from such failures by the stakeholders.

Financial statement is one of the tools which companies employ to present and ex-ray their performance or position over a period of time. It is the duty of Auditors to examine these financial statements and ensure that what companies claim to have, really exists. Stakeholders place their reliance upon these audited statements for their economic decisions. Surprisingly, some of these financial statements that have been reported to have shown a true and fair view and complied with relevant statutes by an auditor, turns out to be a reverse.

It is on the premise of the above, that this research project was set out to actually position. Those factors, which are responsible for the unreliable reports that subsequently lead to business failures, have been unraveled. The researcher also went ahead to portray the impact of these unreliable company financial statements in economy and the possible panacea.

Primary and secondary sources of data were employed, questionnaires were served to company Directors, Financial controllers and senior Accountants engaged with the selected organizations. These companies are manufacturing industries, financial institutions and trading concerns that prepares annual financial statement. On collection of the information (data) from the respondents, they were analyzed using tables, percentages, bar charts and chi-square (X²).

Discoveries were made at the end of the study as follows: That business organizations don’t achieve their objectives with the engagement of auditors, irrespective of the fact that these auditors certify the financial statement after a thorough examination. This unreliable report from corporate  auditors goes a long way in misleading the shareholders, government and the entire society leading to the rampart business collapse in the recent time. It was also discovered that the non-independent of auditors and their dual role (e.g. being financial adviser and auditor at the same time) to a company, influences them to give a misleading report.

After the above findings, recommendations were made, thus: Different arms of the law, including Banks and other Financial institutions Board (BOFID), Companies and Allied Matters Decree (CAMD), According  Professional Bodies and other regulatory agencies should step in through educating all the concerns, instituting monitoring teams that will ensure compliance to all the laws enacted.

These steps if followed, will no doubt, restore reliance and accountability in relation to the company financial statements in one hand, and the auditors’ report in the other hand

 

CHAPTER ONE

 

• INTRODUCTION
• BACKGROUND OF THE STUDY:

The origin of auditing is as a result of the separation of ownership from control. It is instituted to protect the interest of the owners by ensuring that financial statements are justifiable. Because of the separation of ownership from control, it becomes necessary of those managers entrusted with the owners of financial and economic resources to present their financial reports to their employer. The reports presented might contain errors, omission, and frauds or even refuse to disclose relevant information. For these reasons, the owners may hold some reservations about the credibility of the managers’ reports.

For the owners to be satisfied and even for the managers to be justified to establish and maintain their integrity, it becomes necessary to invite an independent party, one who is not involved with either party to examine the reports for the purpose of expressing an opinion as to the truth and fairness of the reports. The independent party’s duty is not just mere examination of the accounts from which the financial statements were prepared, rather, it include collection of all relevant information thought necessary to satisfy section 360 (3) of companies and Allied Matters Decree (CAMD) 1990. It is obvious that the owners may not be skillful enough or have time to go through this reports in order to assure themselves that the report presented contain no errors or omissions. This independent party is known as AUDITORS or professional accountants. They go extra miles in order to ensure that the financial statement contains no errors, omissions or frauds or where it exists, they detect it. These become their statutory duties or liabilities to organization that invited them.

In the past, investors rely solely on the advice given to them by their financial consultants rather than analyzing the financial statements by themselves. Today there has been a great change on that direction. Many stakeholders including the Government focuses on the financial statements as one of their most reliable source or instrument of assessing the viability or otherwise of companies. Below are some of the interested parties:

1. Owners or share holders of companies
2. Creditors and debenture holders.
3. Employees of organizations
4. Government agencies
5. Accountants and
6. The general public

One question which these managers seem to ask when they report to the owners is: can the owners believe the report? Since the report may contain errors, non-disclosure of frauds, and some omission, thereby  misleading.

The panacea to this problem of misleading financial statements lies in appointing independent auditors to investigate the accounts and reports. It is therefore the responsibility of these auditors to ensure that they discharged their duties according to the law. Since it is a liability on the auditors, they should exercise reasonable care and skill to enable them form an unbiased opinion based on their findings.

Auditors are liable under different laws: the common law; the civil law; and the criminal law.

 

1.1.2  Under Common Law

The general presumption is that any one who is under obligation to exercise care and skill (whether imposed by specific contract or otherwise) must exhibit a reasonable level of care and skill that will conform with the general standards of that particular trade. Failure to exercise such care and skill will render a person liable for damages for any person to whom such duty is owed.

 

1.1.3  Under Civil Law

          Under section 368(1) of CAMD 1990, a company’s auditor must exercise all such skill and diligence, as is reasonably necessary in each particular circumstance. Where a company suffers loss or damage as a result of the failure of its auditor to discharge the fiduciary duty imposed on him as set out above, the auditor shall be liable for negligence and the directors or members can institute an action against him for negligence.

For a company that is in the process of winding-up the auditor may be held liable as an officer of the company and if found guilty of misfeasance, he may be required to contribute to the extent of the loss arising from his breach of trust.

 

1.1.4  Under Criminal Law.

          The auditor may be found criminally liable in the following circumstances:

• If he willfully makes a statement which he knows to be materially false.
• If he publishes or allows to be published a statement which he knows to be false or misleading.
• If he makes a forecast which he knows to be misleading with a view to inducing someone to enter into an agreement.

There are many situations where some reckless auditors fail to comply with the above laws, their fiduciary duties and responsibilities, and consequent upon that, held liable. It may be interesting to sight some of these cases.

 

1.1.5  Arthur Anderson v. Enron (2003).

Enron, an energy company in America indicted Arthur Anderson – the 5^th rated world leading Auditing firm also in America on March 14^th, 2002, for satisfying a misleading financial statement prepared by Enron staff without reporting the discrepancies to the shareholders. The charges include:

1. Shredding documents relating to Enron.
2. Failure to report to the shareholders the main disclosure of some subsidiaries of Enron in the financial statement which he audited;

• Failure to report to the shareholders the non provision for contingent liabilities in the same statement; and

1. Outright destruction of an account, which he audited when the matter is already under investigation.

Similarly, the same Andersen was made to refund one hundred and thirty million dollars ($130M) for a questionable audited account by Waste Management Company also in America in 1990.

 

1.1.6  R.V WALICE V. STONE (1954)

It was submitted that stock and work-in-progress had been valued at a figure considered to be false, accepted an explanation by the managing Director of various alterations in the stock sheets without making any independent investigation, the auditor was convicted in respect of his having signed the report recklessly and was fined $ 299, or alternatively go to jail for six months.

 

1.1.6  RE-LONDON V. GENERAL BANK (1895).

          The Bank had advanced large sums of money to customers on securities, which were grossly inadequate. The interest on these loans were ordinarily credited to the profit and loss account but were never realized. Had adequate provisions been made, the profit and loss account would have shown a loss. The auditor failed to report to the shareholders, the fact that the financial statements are not properly drawn-up. On liquidation, an action was brought against the auditor for negligence and was held liable.

THE COMPANIES AND ALLIED MATTERS DECREE (CAMD) 199-, SECTION 360

This decree gives all the companies in Nigeria, the guideline for their operations. It also went further to stipulate the duties and rights of auditors. In section 360 (1) it stated that their duty is to investigate all the records to enable them give their opinion. In section 360(3) it also state that they should state their findings after investigations .Section 360(3) gave them rights of access to all the documents and information of the company which they are auditing . Section 368(2) stipulated the fines or charges to any auditor who deviates from his responsibilities, and so on.

Cases of the above nature are not exhaustive but only to serve as a deterrent. Different arms of the law have codified the duties, rights, responsibilities and liabilities of auditors such that it becomes embarrassing for any person who held himself out as a professional auditor to deviate from the laws. However, in such an attempt, such an auditor may be made to bear the consequences.

 

1.2     STATEMENT OF THE PROBLEM

The liability of an auditor appointed by the owners or shareholders of any organization is to ensure that the financial statement prepared from the books and records of that enterprise portrays the actual position of that entity. It is also the auditors’ liabilities to report to the owners of the business whether the financial statement  show a true and fair view of that organization and also comply with the relevant laws, these  liabilities / duties are spelt out by an Act governing the activities of companies in Nigeria. The Act is known as Companies and Allied Matters Decree (CAMD) 1990. Section 360(1) stated their duties as to investigate all relevant books and documents to enable them give an unbiased opinion. Section 360(3) gives them their rights of access to the documents, while section 368(2) gave enough clue as to what might be their punishments when they go astray.

In view of these facts, there is a popular belief that with the appointment of an auditor in any business organization, the objective (s) of that enterprise, to a great extent, may be achieved. This belief however, appears not to stand the test of time since an auditor is supposed to be a watch-dog, considering the rate of business failures irrespective of the presence of auditors in many business organizations today.

Since the engagement of auditors in business organizations seem not to bring about achievement of organizational goals, one may begin to enquire as to, what might be the cause of such anomalies; whether the cause could be that some auditors are not qualified before going into practice or that some of them are influenced by the managers for selfish interest. More still, whether they exercise enough independence or not well remunerated. The writer argues that none of the above factor is enough for an auditor to compromise his integrity and repute. For an auditor to certify a financial statement which might contain some errors, omissions or even frauds, thereafter misleads the owners of the company and the interested public is a serous offence that demands adequate punishment.

This study is therefore commissioned to investigate the cause(s) of the aforementioned problem. It is also the intension of the researcher to seek for the solutions and thereafter offer some recommendations based on the findings.

 

1.3     OBJECTIVE OF THE STUDY

          With the perception that some auditors do not discharge their responsibilities as required by the law and that some company directors and staff may sometimes prepare a faulty financial statement, thereby misleading the owners of businesses and societies in general contributing to the failures in businesses in the recent time, the objective of this study among others are:

1. To evaluate the performance of auditors in carrying out their statutory duties.
2. To identify the duties and rights of auditors under the law.
3. To determine the extent of independence which auditors exercise in their duties.
4. To ascertain the perception of auditors Vis-à-vis the liabilities and the relevant punishments.
5. To evaluate the appropriate penalty that can be metered to erring auditors.
6. To determine to what extent can the deviation of auditors from the norms, could contribute to business failures.
7. To determine the extent of reliance which the owners of businesses and societies place on auditors.
8. To see whether these financial statements could actually contain some errors, omission or frauds and what factors may influence the perpetrators.
9. To finally make recommendations, based on the research findings, on how to ensure the independence of auditors, and thereafter ensure that the users of financial statement can rely on them.

 

1.4     SIGNIFICANT OF THE STUDY

This study is primarily designed to identify the duties and rights of auditors in relation to financial statements- prepared by the directors of companies. It will also help to clarity the penalties to the auditors who may deliberately or recklessly give a false impression on the financial statement, which they audited. It will at the same time discourage those auditors who may deviate from the independence [as the major trait in audit] and dance to the tune of management for selfish interests.

Furthermore, the shareholders and other potential investors will henceforth rely on the reports issued by the auditors. The auditors would realize the extent owners of businesses and societies in general place on them and ensure that their integrity is not brought down.

The government and all its agencies, the societies and all stakeholders will assure themselves that their investments and interests are well protected. Finally the investment environment would be stable and crises free. Furthermore, the already disenchanted investors and the society in general will have a course to smile.

 

1.5     SCOPE/LIMITATION OF THE STUDY

          This study is primarily directed to company auditors, the owners or shareholders of business organizations, senior employee of various organizations, Government owned companies and the society in general.

The study is expected to research through different business organizations like: Manufacturing Industries, financial institutions and trading concerns established throughout Nigeria but owing to various constraints including time and financial resources, it would be narrowed to Enugu and Anambra states respectively.

Un-co-operative attitude from the company employees, who may not want to given out information (for fear of implication) could be a serious constraint, but the researcher is of opinion that with his wealth of opinion such hindrance may be insignificant.

 

1.6     HYPOTHESIS

It is the belief of the researcher and the general belief that with the appointment of an auditor in any business organization, the objective(s) of that organization may be achieved. The purpose of this study is therefore to establish whether that general belief is true or false. So many factors may be responsible for this belief. Some of these factors are stated below:

1. Auditors are specifically trained to assist business organizations with a view to achieving their goals.
2. Auditors are statutorily supposed to work independently.

• Auditors appreciate the extent of reliance being placed upon them by business owners, Government and the societies.

1. Punishment awaits any auditor who may deviate from his statutory responsibilities.

Hypothesis will be formulated such as to uphold or reject the general belief that with the appointment of an auditor in any business organization, the objective(s) of that organization may be achieved.

Formulation of hypothesis

HO:   Business organizations achieve their objective(s) when an auditor is engaged.

H1:    Business organizations don’t achieve their objective(s) when an auditor is engaged.

If the Null hypothesis (Ho) is upheld from the data collected, the Alternative hypothesis (H1) is therefore rejected.

Where the Null hypothesis is rejected, in which case, the alternative hypothesis is accepted, whichever may be the case, the prospects of statutory auditors engaged with business organizations, analysis would be carried on that in subsequent studies.

 

1.7     DEFINITION OF TERMS

 

LIABILITY

Liability is something for which one is responsible for, especially by law.

AUDITOR

An auditor is a person who examines the financial statement with a view to expressing an opinion as to whether these statements give a true and fair view and comply with the relevant statutes.

FINANCIAL STATEMENT

          Financial statement is the summary of the financial transactions of an organization for a given period, for example, one year. It is prepared from the documents and records of a financial nature of that organization.

TRUE AND FAIR VIEW.

1. True: means consistent with the relevant facts. It is a matter of facts and not subject to judgment or opinion.
2. FAIR: This definition is imprecise as it involves a number of thoughts, and can only be defined under the following headings:
   • Expectation: Any user of financial statement for instance, has a reasonable expectation that it should conform to generally accepted accounting principles.
   • Relevance: from the point of view of a reader (financial statement), fair implies that the view given by the financial statement is relevant to the information needs of the user.
   • Objectivity: The user considers the financial statements by reference to externally verifiable facts. Such verifiable facts are the existence of specific assets such as cash. Debtors, stocks, etc.
   • Freedom from bias: The reader assumes that the producer of the financial statement does not have any personal bias.

INDEPENDENCE

This means freedom from any bias. It also implies an objective opinion without any pressure from all angles against the auditor or whoever may be in such position.

SHAREHOLDERS

The shareholders are the owners of business organizations and other potential investors.

FRAUDS

          Frauds exist when officers of a given organization collude among themselves or with the third parties to do away with the cash or other assets of that organization

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EVALUATING CORPORATE GROWTH AND SURVIVAL THROUGH MERGERS AND ACQUISITIONS. (A STUDY OF SOME SELECTED BANKS IN NIGERIA).

ABSTRACT

This study ascertains the influence of merger and acquisition as a growth and survival strategy. The crisis facing so many corporate firms as a result of capital inadequacy has led to the collapsing of so many firms. As a result, it is the objectives of this study to evaluate the impact of merger and acquisition on growth and survival of corporate firms using banks as study, to ascertain whether the banks have grown and survived as result of merger and acquisition.  A survey research method was applied. Data were collected through primary and secondary sources. The population samples were drawn from two groups i.e. Access Bank and First City Monument Bank.  A judgmental sampling technique in which 45 and 50 of each samples were selected was adopted for convenience sake. Data were analyzed using “Z” test as an inferential statistics for testing of differences in perception of participants on merger and acquisition as a means of growth and survival and improving its earning per share. Ratios of the banks used for study were employed for evaluation purposes. A regression analysis was adopted to express the quantitative relationship among variables i.e. Return on Capital Employed (ROCE) and Earning per Share (EPS), used in this study -the financial ratios for pre-merger and post-merger. The result obtained after the analysis showed that merger and acquisition act as a means for growth and survival and improvement of earning per share of the banks. Based on this, the study recommends that firms should re-train and re-educate its employees on the new company’s culture so as to ensure a smooth transition and improved processes

CHAPTER ONE

INTRODUCTION

• Background of Study

Growth is necessary to determine the performance and continuity of any business organization. Without growth, a business can hardly survive and attract funds from shareholders.

The use of merger and acquisition as a growth and survival strategy in an economy like Nigeria appears to be on the increase in recent times. This is not surprising, considering the large number of business failures as result of adverse micro and macro economic climate (Igweike, 2008).

In the face of such hostile business climate, however, some business organization that belongs to the “wise group’’ started thinking of how to pull their resource together by the way of merger and acquisition as a survival cum growth strategy.

Business merger and acquisition has played an important role in the growth and survival of many firms in Europe, USA, and Nigeria. Firms are less likely to grow through mergers and acquisitions when stocks are booming (Beckenstein, 1979).

Aggregate financial market conditions do not impact on the nature of merger or acquisition. The relation between GDP growth and growth of firms through mergers and acquisitions is positive when firms seek immediate increases in production capacity in a growing economy. The desire for firm to grow through a merger or an acquisition might in turn be tempered by bad business conditions. In overall the empirical evidence between GDP growth and growth of firms through mergers and acquisitions is limited and mixed (Beckenstein, 1979). Industry variables are operationalized by assessing concentration and sales growth in the industry. According to Luypaert (2008), in highly concentrated industries, firms tend to recognize the impact of their policies and actions on one another. This could influence reactions to changes in competitive behavior like quantity restrictions, tacit collusion and horizontal mergers and acquisitions to increase the concentration within an industry which may help firms to realize market power. Thus, a positive relation between industry concentration and external growth may arise particularly in related mergers and acquisitions. Conversely, when the industry is already highly concentrated, it could have a lower incidence of mergers and acquisitions as there is less room left for further consolidation. Also, antitrust authorities may closely scrutinize newly planned deals when industries are already highly concentrated.  Large and profitable firms often have or can better access financial resources that are needed to acquire other firms. Moreover large firms are expected to engage more in diversifying mergers and acquisitions as there may be few opportunities left for growth in their own industry ceteris paribus. These financial resources can also create value when used to acquire a financially constrained target firm thus a positive relation between profitability, firm size and merger and acquisition (Gaughan, 2002).

 

• Statement of Problem

In height of the confusion and tumults of the modern business environment globally, some firms have folded up while others only managed to keep afloat. It is but interesting to observe that in the midst of such unfavorable business environment, some enterprises do not merely survive but post super profit. The logical question is what factors could account for the divergent fortunes of some firm of identical size and status in the same industry and operating in the same economy?

Merger and acquisition has become one of the fashionable surviving strategy for many companies.

It is therefore, the intention of the study to investigate the effect of merger and acquisition on the performance of some selected banks in Nigeria.

Further more the study will also seek to establish any possible relationship as otherwise between profitability of a company or increase in its earning per share and its merger and or acquisition scheme.

At this junction, it may be pertinent to acknowledge the view of some experts that many business fusion and acquisition had often resulted in disappointment, as the profit level of the business organization went down. Should this be, the organization wishing to diversify or expand its operation would be compelled to seek out any ailing firm with suitable production plant and technology as well as good distribution network.

 

 

 

 

 

 

 

 

 

 

 

 

• Objectives Of Study

The study is a deliberate effort to evaluate merger and acquisition as a strategy of survival and growth. The objectives of the study include:

1. To appraise the financial position of the banks before and after the mergers and acquisitions.
2. To know whether these banks selected has grown and survived through mergers and acquisitions.

• To find out whether the profitability of these banks has grown as a result of the merger and acquisition.

 

• Statement Of Hypothesis

The hypotheses formulated for this study are:

• Ho: Corporate firms have not grown and survived through mergers and acquisitions.

Hi:    Corporate firms have grown and survived                                through mergers and acquisitions.

• Ho: The earning per share of the banks has not            improved since the mergers and

Hi:    The earning per share of the banks has improved since the mergers and acquisitions.

 

• Scope and Limitation of Study

This study evaluates corporate growth and survival through mergers and acquisition with special reference to Access bank and First City Monument Bank. The study will not cover the entire banks that were merged and acquired, due to time constraint and finances. Time constraint poses a problem since it will be an uphill task to visit all the banks that were merged since they are dispersed all over the country. Finance; due to lack funds the researcher may not be able to visit all the branches of the banks selected for study. Thus, the materials required for the study may not be easily collected.  Hence the researcher will base her conclusion(s) on the findings from the two banks selected for the study.

 

 

 

• Significance of Study

With the recent increase in the incidence of investigation and bankruptcy of corporate firms together with dwindling economic situation of the country, there is need for the examination of the effect of business merger and acquisition in the performance of Nigeria business organization. It is however believed that with the study of the companies that are involved with the strategy of merger and acquisition as a means of survival, one would be able to assess the profitability and viability of the strategy being widely adopted in the Nigeria business environment as a survival cum growth strategy.

• Investors: This study will benefit the investor with regards to assessing the financial position of the firm.
• Management: Results obtained will help management to assess the effect of merger and acquisition on the performance of the company.
• Researcher: This study will serve as a secondary source of data for research purposes.

It is in the light of the foregoing that the subject of this study is considered very significant.

 

1.7   Definition of Terms

Merger: A merger is a process where two previously autonomous companies combine to form a larger company under the common control of a new company comprising of all or a substantial number of the shareholders of both companies. As a result of this arrangement a new company is thereby formed.

Acquisition: An acquisition may be defined as transactions or a series of transactions, where a person (individual, group of individuals, or company) acquires control over the assets of a company either directly or indirectly by obtaining control of the management of such a company.

Growth: This is the process of increasing or developing in size.

Survival: This is the state of continuing to live or to exist.

Corporate Firm: This means a business organization of people who work as a team towards achieving an objective.

Conglomerate: This is when two firms in completely different industries merge, such as a brewing company merging with a high technology company. For example, Nigerian Brewery (NBL) has diversified its businesses through mergers and acquisitions, allowing NBL to get into new areas.

Pre-merger: This is the period before the merger arrangement, where the individual companies have separate identities.

Post-merger: This period after merger arrangement has occurred and a new company has been formed.

 

1.8   A Brief History of Access Bank:

Access Bank Plc is a full service commercial bank with headquarters in Nigeria and operations cross Sub-Saharan Africa and the United Kingdom.  It was incorporated in February 1989 as a privately owned financial institution and commenced banking operations in May 1989.  It was listed on the Nigerian Stock Exchange in 1998. The Bank’s Over the Counter (OTC) Global Depository Receipts (GDRs) are traded on the London Stock Exchange.

In deploying products and services, Access Bank adheres to responsible business practices and readily commits resources to social investments in fulfillment of its corporate social responsibility convictions.  The Bank has more than 1,000,000 investors.  The Bank’s Shareholders’ fund is in excess of US$1.2 billion and its strategic intent is to rank among the top 3 Nigerian banks by 2012. Access bank is a full service commercial bank with a network of over 100 branches and service outlets. In 2005 it acquired Marina and Capital Bank (the former Commercial Bank- Credit Lyonnais Nigeria).

The Bank demonstrates exemplary performance in its financial and non-financial disclosures. Its strengths include a highly diverse Board membership; competent, dynamic and responsible management; strong economic value and good ethical practices and transparent processes.  The list of international organizations that are in partnership with Access Bank Plc includes the Netherlands Development Finance Company (FMO), the International Finance Corporation (IFC), Visa International, US EXIM and China EXIM Bank.  The understanding and commitment of the Bank’s employees, over 850,000 Shareholders, millions of customers and several partners across the world have been critical to Access Bank’s progress and success. The impact of business merger with Intercontinental Bank is multidimensional and have resulted in geometrical growth across key performances.

 

1.9   A Brief History of First City Monument Bank

First City Monument Bank (FCMB) is a full service banking group, headquartered in Lagos, Nigeria.

FCMB is the flagship company of the First City Group, one of Nigeria’s leading comprehensive financial services providers. From its early origins in investment banking as City Securities Limited in 1977, FCMB (established in 1982) has emerged as one of the leading financial services institutions in Nigeria, a top 10 bank with subsidiaries that are market leaders in their respective segments.

FCMB was incorporated as a private limited liability company on 20 April 1982 and granted a banking license on 11 August 1983. On 15 July 2004, the Bank changed its status from a private limited liability company to a public limited liability company and was listed on the Nigerian Stock Exchange by introduction on 21 December 2004. During the consolidation of 2005, the bank merged with Cooperative Development bank Limited, Nigerian -American Bank limited and eventually acquired Midas Bank limited.

The Bank completed the acquisition of Finbank Plc in February 2012. Following the acquisition, the FCMB Group now has 1.7 million customers, 330 branches and cash-centers spread across every state of the Federal Republic of Nigeria and a presence in the United Kingdom (through its FSA-authorized investment banking subsidiary, FCMB UK) and a representative office in the Republic of South Africa

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