EFFECT OF CREATIVE ACCOUNTING ON SHAREHOLDERS WEALTH (A CASE STUDY OF SOME SELECTED BANKS IN JOS LGA, PLATEAU STATE)
1.1 BACKGROUND OF THE STUDY
According to International Accounting Standard Board (IASB, 2007 a), for users of financial report to make economic decisions, financial reports must provide
useful information. This information can only be useful if it fulfills basic qualitative characteristics of financial statements. The International Accounting
Standard Board (IASB, 2007b) Framework emphasizes that relevant financial information should be predictive or confirmatory in nature. This should be such
that the financial information of a specific entity will be considered material when its omission influences economic decision of its users. The managers are
entrusted to require, take care and grow the shareholders’ wealth. Salome, (2012), explains that information or data asymmetry creates agency conflict
between management and shareholders as explained the agency theory. Accountants, who are stewards of shareholders, collaborate with administrators in
manipulating accounting figures instead of showing the real and honest view of financial accounts. A need therefore arises to spot creative accounting
practices, how they are practiced, as well as looking at the eect
they have on shareholders’ wealth. In step with Maria et al., (2013), the anticipations of a
corporation changing into reality, an excellent ought to generate trust with associate correct image reinforces a sense that such a corporation active
transparency is safe. The liberty of choices allowed by most accounting restrictive bodies are characterized by inadequacy of accounting laws, their
heterogeneous and therefore the evolving method of harmonization encourage a rise in inventive accounting practices. They also emphasized that creative
accounting and fraud are practiced when enterprises face financial diiculties
and are motivated by the desire to deceive. These practices will disappear only
with the fading of their primary causes. The accounting regulators in charge of limiting practices of creative accounting should consider circumstances that
allow its practices. There are people who are trying to minimize the impact on the system set up despite the number of standards and frameworks set up by
the accounting profession. Studies carried out internationally and locally indicate the existence of creative accounting in companies. Ozkaya,(2014) studied
creative accounting practices in the Turkish government specifically in the public sector. These practices manifested in hidden debts acting IMF’s
stabilization program forecasts. Ogiedu and Odia,(2013) stated that in Nigeria the creative accounting practices are prevalent and attributed to bad corporate
governance. Salome,(2012) studied strategies used by accountants in Nigeria to practice creative accounting and found out that they use profit eroding
mechanisms which lead to drastic consequences like corporate scandals and collapse both international and locally as in the case of WorldCom and Enron. In
Nigeria, there are companies that over-report their financial performance to meet targets and please ever demanding shareholders. This highlights the
existence of creative accounting. According to Kamau et al., (2012), this trend has now more than ever ensures that financial statements are sternly
scrutinized. Nyabuti et al.,(2015), discovered robust association between the variables (creative accounting and financial performance) among listed
companies in Nigeria. Most companies use creative accounting practices abusively.
1.2 STATEMENT OF THE PROBLEM
Creative accounting and earning management are euphemisms for accounting practices that tend to circumvent, albeit, cleverly, or manipulate the rules of
standard accounting practices or the spirit of those values. They are characterized by dubious complications and use of ‘novel’ ways of presenting income, assets or liabilities.
There are many reports of price manipulation, profit overstatement, and accounts falsification by some dubious stewards which rendered the financial reporting ineective.
The business failures of the past decade however, have been closely associated with corporate governance failure which involves a number of parties, management board of directors, auditors and some investors (Ezeani, 2010).