Checking Distress In The Nigerian Banking Sector As The Role Of Accountants And Auditors

Project and Seminar Topics with material for Banking and Finance

Checking Distress In The Nigerian Banking Sector As The Role Of Accountants And Auditors


This study was conducted to ascertain the role of accountants and auditors in checking distress in Nigeria banks. To achieve this objective, the following Nigerian bank were used as study area before their acquisition by more viable banks- First bank. Primary data were collected by using validated questionnaires and secondary data collection was by oral interviews and examination of some bank documents. Two hundred and fifty questionnaires were distributed among staff of the aforementioned bank in Anambra State and thereafter, two hundred and thirty-five of the returned questionnaires were valid and were subsequently subjected to descriptive statistical analysis to ascertain the roles and involvement of auditors in distress in Nigerian banks in line with the elements of the questionnaires.

Analytical statistical tools such as means, standard deviations and percentages were used for the analysis. Chi-square and Student t-test were used as the major statistical tools for testing the hypotheses and comparing mean values. Result of the study indicated that there were collusion between accountants/auditors and management and there is aiding and abetting of management by external auditors to commit fraud. It was also found that there is gross negligence and improper performance on the jobs by accountant/auditors and in some instances, accountants/auditors are gagged by management and directors. Experience of accountants/auditors was also found to play a significant role in the quality of report submitted.

The major conclusion of this study is that auditor’s reports presented for distressed and failed banks fulfilled only the letter of the law. It is thus recommended that the law should be amended to make auditors criminally liable for negligent performance of duty in addition to the current civil liability.

Chapter One


1.1 Background to the Study

Distress in the Nigerian banking sectors is a problem that bank has in this recent time. This seems as if the regulatory authorities appeared to be fighting a losing battle to sanitize the system.

Ebtiodaghe (1996) observed that banking distress occurs when customers were unable the loss of their deposits and consequent breakdown of their contractual obligation. The central bank fails to meet its capitalization requirements, has a weak deposit base and is afflicted by mismanagement. Aderiu (1997) said that distress in banks I based on the banks examination rating system with the word “CAMEL” that is C=capital adequate, A = Asset quality, Management competence, E = earning strength, L = Liquidity sufficiency. The above mentioned is the aggregate areas that really qualifies a bank to be branded “ healthy or sick”.

A bank is considered healthy by the CBN if it maintains six criteria for instance capital paid up capital, sound management i.e bank meeting up with CBN rules, satisfy customers and shareholders interest, minimum liquidity of 30% not less than 10% of its liquid assets to be in treasury bill and certificates. In a situation where a bank defaults in one or few of the above criteria and fails to rectify its default position within a month, it is indeed qualified to be classified as distressed.

Where banks is unable to service its fixed costs, meet it debts obligations to its stakeholders has a net cash greater than its capital and can no longer operate profitably, the bank is deemed to have failed. Thus a failed banks is a bank which is unable to meet its obligations to its stakeholders as at when due arising from weakness in its financial, operational and managerial conditions.

The failed bank decree also defined “failed bank” as a bank whose license has been taken over by the CBN. Due to the inability of the regulatory authorities to bring back some of these distressed bank which failed eventually, the only way left in order to sustain public confidence and stability of the system is to revoke their licensed put them on liquidation.

Regrettably this has been the fate of some distressed banks in the country. Almost 36 banks are on distress.

1.2 Statement of Problem

There have been accusations in newspaper journals and publications that the causes of the widespread distress in Nigerian banks is lack of objectivity and negligence on the part of accountants / auditors. They have been accused of not playing an effective role in these banks and hence have not adequately protected the integrity of these institutions as well as the interest of the owners.

The above situation has given rise to the following problems

  1. What role did the accountant/auditors play in the entire distress in banks?
  2. Did the accountants’ auditors enter into secret agreement with the directors and management in the entire process?
  3. Do auditors have any blame whatsoever, where they careless, negligent or incompetent?
  4. Were qualified, tested and proven accountants/ auditors appointed?
  5. Where the provisions of the how in – CAMD and sop on observed in the choosing and appointment? Of accountants/auditors of the affected banks?
  6. Did the accountants, auditors discover the true states of the banks that they were in a dangerous position?
  7. Did the accountants/auditors report their findings to the members and directors / management
  8. Where the accountants/auditors right in reporting their findings to the management? What if they do so?
  9. Did the auditors issue unqualified true and fair view report in each case of the failed bank prior to their failure or were cases when the auditors issued qualified reports warning over the state of these banks?
  10. Were the auditors truly independent in the real sense of it or were there factors real and ability to report factually?

1.3 Objectives of the Study

Against the background of the foregoing discussion, it becomes necessary to find answers to some of the more pressing research questions. In line with this the research will pursue the following objectives.

  1. To what extent was the distress in the banking sectors attributable to the negligence, incompetence, lack of independence and other act or omissions of the auditor?
  2. Were the auditors equipped by training, calling and experience to discover the real present health of the banks, and did they do so?
  3. Was it ethical or right for the auditors to have reported the true state of affairs to the bank management while issuing an unqualified opinion to the members?

1.4 Research Questions

  1. To what extent is the distress in the banking sector attributable to the negligence, incompetence, and lack of independence or other acts of omissions of the auditors to detect frauds and errors?
  2. Are the Auditors equipped by training, calling and experience to discover the real present condition of the banks?
  3. Is it ethical or right for the auditor to report the true state of affairs to the bank management while issuing an unqualified opinion to the members?

1.5 Significance of the Study

Every research work aims among other to make contributions to various area of practical and academic enhancement. This one is not different. It is expected that the body of literature wound have been enhance through the contribution of this work literature and material are gathered in order to define the role of auditors in the distress case. By condensing them together, they form a body/corpus that may be referred to by other researchers or users practitioner. In this way it is hoped that the work will make a significant contribution to theory and knowledge.

Furthermore, the role of auditors will be brought into more critical focus thereby enabling accountants as well as users of accounting report to be more accurately aware of their duties and expectation respectively.

1.6 Limitation of the Study

With the revocation of distressed banks licenses and the consequent take over by some more viable banks it became very difficult to obtain more information from the affected banks mostly because they were in liquidation. NDIC was unwilling to disclose some information which they termed ‘classified’ while the staff of the affected banks were denied access to the records. This development constituted a very big obstacle and posed a limitation to this research.

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary

The general and specific assessment, analysis and interpretation of the results of the research objective revealed the following:

  1. That the extent of the distress in Nigeria banks is attributed to the lack of independence of accountants/auditors in the performance of their duties. The auditors were found to gang up and collude with the management to malpractices. This implies that their opinions were influenced by the management and directors and this adversely.
  2. That the negligence and improper performance of jobs by auditors and accountants is not highly responsible for the blame apportioned on them over the distress issue. The auditors did not perform their duties with due care and skill which is expected of experience, skilled and professional, expert they regard themselves are. This finding explains the different liabilities to third party the auditor were accused of incurring. In order words, the auditors are guilty of this misfeasance liable to any loss incurred to third party and acts performed negligently.
  3. That only a few percentages of them were inexperienced. Thus, the majority were in a position to discover the real present health of the Banks, given their training, calling and experience. Yet, their banks collapsed. This implies that the auditors failed to report their discoveries in their various client banks.
  4. That auditor’s issue different report to shareholders and the management while on the other hand they issue a concise report without the observed weaknesses to shareholders. This further explains the finding which revealed that auditors are more loyal to management/directors than the shareholders that employed their services. This adversely affects their performance and they dissatisfy the shareholders. They were expressing and reporting an unqualified opinion to the shareholders which was professionally unethical.
  5. That the auditors report in the failed banks fulfilled only the letter of the law instead of both the intention and letter of the law. This show that the auditors judgment were not of standard.

Finally, those auditors should be made criminally liable for negligent performance of duty in addition to their current civil liability in order to reduce further loss.

5.2 Conclusion

This project discussed distress in the Nigerian banking sector and examined the role of accountants/auditors play in these banks before they eventually collapsed. The project used some selected banks like Diamond Bank Plc as a background to the study.

However, from the result revealed by the study, it has come to a conclusion that auditors did not play an effective role in their respective client banks. The allegations made against them cannot completely be said to be false. The manifestation of independent which is the underlying requirement for any audit engagement showed that they failed in their statutory duties both in approach, theory, practice an attitude to work.

Besides, were this was in doubt or impaired in the course of their work either by management or directors, they should have resigned and give details of this in their representation to the members. Unfortunately, this was not the case. They went ahead expressing opinions that were not objective and unqualified which did not show a true and fair view of the financial statements of these distressed banks.

Having found guilty of negligence in the performance of their duties, implying that they did not exercise due cares and skill, how could they have discovered the real present health of the banks? However, being specialist with high integrity, they still went ahead issuing qualified opinion to the member’s one wonder what happened to their professional ethics.

Honestly, in the court of public opinion and the reasonable man, the accountants/auditors are party responsible for the distress ad failure of banks in Nigeria.

5.3 Recommendation

The following recommendations are being made for accountants/auditors in order to check further re-occurrence of distress in Nigerian banks and a repetition of the failed banks episode.

  1. There should be a re-definition of the auditors’ role from that of a watchdog to a professional expert. Watchdogs can be experts, but experts need not be watchdogs. The auditors need to act beyond their legal requirements. By training, auditors should have an enquiry attitude not suspicious of anybody, but nonetheless suspecting that there may have been an error honest or fraudulent. An enquiry mind need not blood bound like a detective dog. But does not just do-watch, coming in with a enquiring minds worse than coming with an unassuming and inquisitive.
  2. Government should expand the role of auditors. An expansion in the role of auditors will also involve an increase in their remuneration. This will allow the auditors to go more and more into the activities of the institution being audited and it will allow them to bring more information out.
  3. Reputable firms should be hired to audit the accounts of the banks.
  4. The institute of chartered accountants of Nigeria (ICAN) should promptly investigate all accountants and auditors of collapsed banks and discipline erring members.

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