1.1 Introduction
Forensic Accounting is the application of accounting principles, theories and discipline to facts or hypothesis at issues in a legal dispute and encompasses every branch of accounting knowledge. Forensic accounting is the tripartite practice of utilizing accounting, auditing and investigative skills to assist in legal matters. It is the specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation (AICPA, 2004). More and more forensic accountants are been called up to meticulously search through documents, discover new information and help in putting together the irregular pieces of company’s financial puzzle to solve the vexing problems.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
Forensic accounting has become very important issue by researchers and scholars in recent years in several countries in the world today. The need for forensic accountants arose because of the failure of audit system in the organizations as the organizational internal and external audit fail to discover certain errors in the managerial system. Business performance has increased over several years in the world and this performance is mainly measured in the terms of profitability. Businesses contain transactions which generate information for better analysis of business performance and forensic accounting is a delivery system for accounting.
Banking industry are seen as a driving force for the promotion of large part of the economy (Khan and Jawaid, 2004) and they contribute immensely to the economic growth and development of any country. With an upsurge in financial accounting fraud in the current economic scenario experienced, prevention and detection of fraud has become an emerging topic of great importance for academic, research and industries.
In this age of high technology, fraud investigators can no longer be satisfied with just auditing or accounting skills, these investigators should be trained as forensic accountants and this training should include an extensive knowledge of accounting information systems (Bressler, 2006; Manning, 2005; Ramaswamy, 2005). The failure of internal auditing system of the organization in identifying the accounting frauds has led to use of specialized procedures to detect financial fraud, collective known as forensic accounting (Kranacher and Stern 2004).
The incidence of bankruptcy, fraud and solvency in major financial institution in Nigeria especially those quoted on the Nigeria Stock Exchange in recent time poses a threat accounting profession because of its perennial nature. This has resulted to unending questions as to whether forensic accounting actually play any significant role towards the attainment of accountability, transparency, ,prevention of insolvency and fraud, and increase in profit making ability of quoted banks especially that which is currently happening in our major or key financial institution and other corporate organizations in the recent case of Skye Bank.
The integration of accounting, auditing and investigative skills yield the specialty known as Forensic Accounting. Forensic Accounting provides an accounting analysis that is suitable to the court which forms the basis for discussion, debate and ultimately dispute resolution. It encompasses both litigation support and Investigative Accounting. It is a specially practiced area of accounting that describes engagement that result from actual or anticipated disputes or litigation.
The increasing frauds, decline in financial performances, financial malpractices, solvency and other fraudulent activity cases in quoted business firms have placed forensic accounting issues as top concern for both the international community and policy makers (Jonathan et al., 2010). Forensic Accountants who also act as Liquidation Officers may be expected to report irregularities in company’s accounts by enhancing transparency, accountability and developing techniques for it early detection and also proffers a way of preventing it occurrence.
The primary orientation of forensic accounting is explanatory analysis (cause and effect) of phenomena, including the discovery of deception (if any), and its effects introduced into an accounting system’s domain (Silverstone, 2004). Forensic accountants are called upon to play important pre-emptive roles, offering independent assurance in such diverse areas as audit committee advisory services, merger and underwriting due diligence, investment analyst research and enterprise risk management.
Profitability on the other hand refers to the positive gain from an investment or business operation after subtracting for all expenses opposite of loss (Proimos, 2009). Profitability on a company is the difference between the income of the business and all its costs/expenses. He also notes that it is normally measured over a period of time. Profits are an important source of investment funds (Külter and Demirgünes, 2007). Profit can be used to buy more stock, improve technology or expand the premises. A business than does not make a profit will fail, potentially affecting employees, suppliers and the local community because their overall operations depend on profits.
In this age of high technology, fraud investigators can no longer be satisfied with just auditing or accounting skills, these investigators should be trained as forensic auditors and this training should include an extensive knowledge of accounting information systems (Bressler, 2006; Manning, 2005; Ramaswamy, 2005). However, it is needless to say that, the failure of internal auditing system of the organization in identifying the accounting frauds has led to use of specialized procedures to detect financial fraud, collective known as forensic accounting (Kranacher and Stern 2004).
Therefore, in First Bank PLC, Offa where the research was carried out, the activities that was conducted is to know the Impact of Forensic Accounting on the Profitability of Quoted Bank in Nigeria.
1.3 Statement of Problems
Investigation revealed that the Corporate financial fraud could be drawn from recent bank failure in Nigeria where management has fraudulently given loans without board approval and yet such bank annual report has been unqualified (Eyisi & Ezuwore, 2014), and when these loans cannot be recovered it tends to lead to decrease in profit making ability of organization and well affect their liquidity position. Though, the use of forensic accounting is not yet common in Nigeria, the rate at which financial irregularities in Nigeria is spreading especially in the banking sector has put the focus on the need for forensic accounting techniques to be utilized. The large number of financial statement fraud in the banking industry has become a concern to the nation as evidence in the inability of the law enforcement agents to successfully track down perpetrators. Several activities of Nigerian banks are not efficiently subjected to forensic analysis, and in order to response to these changing fraudulent activities that is going on in quoted corporate firms the skills of forensic accountants which include investigators and legal experts to combat this corporate menace is paramount.
The accounting profession has in the recent past been challenged with entrenching quality in the financials reports which is perceived as the hallmark of the profession. Recent developments tend to establish the contrary. The banking sector in Nigeria has had several reasons to be overhauled in the recent past, the basic reasons being that they do not worth what they claim (Sanusi,2010). The case of Enron and Worldcom as earlier cited also lay credence to this assertion and brought to the fore the extent of damage that poor quality financial reports can do.
Finally, previous studies have showed a relationship between forensic accounting and detection and prevention of frauds, some have even research on role of forensic accounting on bankruptcy proceeding and other related constructs, these studies are from the developed nations and had looked mostly at incidence of fraud without looking deeply on the multiplicative effect of forensic accounting on profitability of these corporate firms, i.e. Forensic accounting, financing, investing, fraud, financial reporting and corrupt practice systems and how all these affect profitability and quoted firm business performance.
1.4 Aim and Objectives of Study
The aim of the study is to examine the Impact of Forensic Accounting on the Profitability of Quoted Bank in Nigeria using First Bank PLC, Offa as a case study. In achieving this aim, the following specific objectives were laid out as follows:
- To determine how forensic accounting reduce and prevent fraud in the Nigerian banking industry;
- To ascertain impact of forensic accounting on treasury and forex operation in quoted Nigeria banks;
- To examine the role of forensic accounting on loan processing and cash management in quoted Nigerian banking industry;
- To ascertain the extent to which ratio analysis affects fraudulent loans in deposit money banks;
- To evaluate the efficacy of Forensic Accounting in improving faithful representation of annual audit report of quoted commercial banks; and
- To determine the differences between the roles of forensic accountants and conventional accountants in curbing fraud and financial crimes in quoted Nigeria banks.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Are there any efficacies of Forensic Accounting in improving faithful representation of annual audit report of quoted commercial banks?
- Does forensic accounting helps to reduce and prevent fraud in the Nigerian banking industry?
- To what extent does forensic accounting impact on treasury and forex operation in quoted Nigeria banks?
- What are the role of forensic accounting on loan processing and cash management in quoted Nigerian banking industry?
- To what extent does the ratio analysis affects fraudulent loans in deposit money banks?
- What are the differences between the roles of forensic accountants and conventional accountants in curbing fraud and financial crimes in quoted Nigeria banks?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There is no significant relationship between Forensic Accounting and profitability of quoted commercial banks in Nigeria.
- H1: There is a significant relationship between Forensic Accounting and profitability of quoted commercial banks in Nigeria.
Hypothesis Two
- H0: Application of Forensic Accounting does not significantly reduce fraudulent practices in quoted commercial banks.
- H1: Application of Forensic Accounting significantly reduces fraudulent practices in quoted commercial banks.
1.7 Significance of Study
This study will continue to be of interest to management of companies, auditors and other users of financial statements, It will also give them positive insight on the conceptual and theoretical review of forensic accounting practices and skills and how it can help increase the business performance of quoted financial institutions in Nigeria, as well as improving potential investor trust in the activities of corporate firms.
Stemming the tide of fraud by forensic accountants will go a long way in alleviating the economic hardship being experienced currently by the general public, and would also help again in reassuring the stakeholders and also raising their confidence level in the financial institution which they have controllable interest in.
Finally this study will be of great significance to schools and students, it will serve as a reference point for future researchers who will want to research more on the topic.
1.8 Scope of Study
The scope of the research is focused on the Impact of Forensic Accounting on the Profitability of Quoted Bank in Nigeria using First Bank PLC, Offa as a case study.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this establishment to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Forensic Accounting: It is the application of accounting principles, theories and discipline to facts or hypothesis at issues in a legal dispute and encompasses every branch of accounting knowledge (AICPA, 2004).
