CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Employment creation and the boosting of income opportunity are some of Nigeria’s top challenges today. Democratic governance has placed them at the top of its policy priorities. Government policies and strategies are now being geared to encourage and support the private sector in generating growth in self-employment. Although government has been the major employer in Nigeria’s formal sector, the development of the economy and the growth of employment opportunities actually depend on the investment decision of the private sector made up mainly of major corporate investors and medium — scale businesses, but this also includes small —scale entrepreneurs, artisans and innovators. The need for eective or sound corporate governance and financial reporting among small and medium term enterprises in Nigeria cannot be over emphasized. There is a link between financial reporting and corporate governance. Corporate governance broadly can be defined as the set of processes, policies, laws and institutions aecting the way a company is directed. It also includes relationship among the stakeholders of the company and a definition of the goals for which it is governed (OECD, 2004; Cadbury Committee, 1992; Economic issues, (2002).
In the early days, most attention focused on rules and policies to share power between principals and agents and govern management activities. Within the past few years, it has become evident that financial reporting is a core element of corporate governance. Without transparent, relevant, reliable information, a company’s stakeholders are not able to assess management performance, and to make the investment decisions they need o make. The sudden demise of large, well-established companies such as significant financial reporting restatements at Shell, Xerox, Ahold and many others have shaken not only confidence in financial reporting, but into the financial system as a whole. As a consequence, stock markets have been occurring for several years, and pension systems worldwide have been under pressure. Financial reporting today is perceived, no longer as a low — priority bookkeeping exercise, but a central function for directing a company under good corporate governance principles.
1.2 STATEMENT OF THE PROBLEM
In Nigeria, most businesses in the formal sector are not publicly listed. In a survey of enterprises in six randomly selected states found that only 13.3% of the enterprises are listed in the Nigerian Stock Exchange (NSE), while 48.5% are limited liability companies. Thus close to 38% of companies operating in the formal sector operate outside the provisions of the company law and nearly 87% of formal sector businesses may be operating outside the legislation governing the capital market. In 2010, there were 599 (6.05%) public limited companies in Lagos state while private limited companies were 2.688 (27.15%) sole proprietorships form of businesses in the formal sector in the state as they constitute nearly 59% of registered enterprise. Partnerships constituted about 7% of the enterprises.
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