The Impact Of Corporate Financial Scandal On Firms Profitability (A Case Study Of Cadbury Nigeria Plc)

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The Impact Of Corporate Financial Scandal On Firms Profitability (A Case Study Of Cadbury Nigeria Plc)


Abstract


Access to sustainable microfinance services enables owners of micro-enterprises to increase income level in the economy, create employment opportunities and reduce their vulnerability to external shocks. It also enable poor household to move from by struggle for survival to planning for the future investing in better nutrition and empowering them socially.

The Research work is therefore aimed at evaluating the micro enterprises access to micro credit in which a research design instrument (Questionnaires) was give out to some micro enterprises in a stratified sampling area to collect the relevant information needed for proper presentation and analysis.

Pearson coefficient of correlation(r) shows a strong relationship between having awareness of microfinance services and having access to micro credit, as one of the micro finance service by the micro enterprises and those that have access to micro credits even though all the micro enterprises were aware of it but not all of them have access to it due to some reasons.


Table of Content


  • Title page
  • Certification
  • Dedication
  • Acknowledgement
  • Abstract

Chapter One:

Introduction

  • 1.0 Introduction
  • 1.1 Statement of problems
  • 1.2 Research objectives
  • 1.3 Research question
  • 1.4 Research hypothesis
  • 1.5 Significance of the study
  • 1.6 Scope and limitation of study
  • 1.7 Historical background of study
  • 1.8 Definition of terms

Chapter Two:

Literature Review

  • 2.1 Introduction
  • 2.2.1 Definition of financial statement of fraud
  • 2.2 Types of financial statement fraud scheme
  • 2.2.1 Fictitious revenue
  • 2.2.2 Timing Difference
  • 2.2.3 Improper assets valuation
  • 2.2.4 Concealed liabilities and expenses
  • 2.2.5 Improper and / or inadequate disclosure
  • 2.3 Indicator to financial statement scandal/fraud
  • 2.4 Tools to detect fraudulent financial statement the financial statement analysis.
  • 2.4.1 Vertical analysis
  • 2.4.2 Horizontal analysis
  • 2.4.3 Ratios
  • 2.4.3.1 Sales growth index (S G I)
  • 2.4.3.2 Gross marginal index (G M I)
  • 2.4.3.3 Asset Quality Index (A Q I )
  • 2.4.3.4 Days Sales Receivable Index (D S R I )
  • 2.4.3.5 Sales, General and Administrative Expenses Index
  • 2.5 Ratio analysis and financial statement
  • 2.6 Significance of ratio analysis
  • 2.7 Limitations of ratio analysis
  • 2.8 Classifications of ratio

Chapter Three:

Research Methodology

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.3 Research population/sampling
  • 3.4 Sample size
  • 3.5 Sampling techniques
  • 3.6 Sources of data collection
  • 3.6.1 Primary source
  • 3.6.2 Secondary source
  • 3.7 Data analysis techniques
  • 3.8 Constraints in data collection

Chapter Four:

Data Analysis and Interpretation

  • 4.1 Introduction
  • 4.2 Respondents characteristics and classification
  • 4.3 Data presentation and analysis
  • 4.3.1 Analysis of respondents Bio-data
  • 4.3.2 Analysis of Individual statement
  • 4.4 Testing of hypothesis

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary of findings
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References

Chapter One


1.0 Introduction

Thus, this study is intended to examine the effects of financial misstatement or scandals on firm‘s profitability. The study will also cover the control and precautions to financial scandal. The study also examine how best to handle scandals to ensure efficiency and effectiveness of firms.

The practice of manipulating the financial statement to bolster company’s position is not new

According to the Association of Certified Fraud Examiners (ACFE) fraud is the deliberate misrepresentation of the financial position of an enterprise, accomplished through the intentional misstatement or omission of amounts or disclosures in the financial statement to deceive financial statement users. Also, financial scandals are fraud called misrepresentation of facts, and its key elements are: –

  1. A material false statement
  2. Knowledge of its falsity
  3. Reliance on the false statement by the victim, and
  4. Damage suffered by victim

Financial scandals meet the above criteria. The financial scandal is false because of the degree of manipulation to present a ‘picture’ that is grossly different from the truth. Those behind it, the top management know it is false, but want users (banks investors, public) to rely on it, and there is high risk of financial loss to those who invest in money losing ventures


1.2 Statement of Problem

The major problem of financial scandals is its adverse effect on the firm’s profitability and the detriments it holds on the firm’s reputation.

However, this is evident in the findings carried out on First Bank Nigeria Plc and its directors in the financial decisions of the firm’s financial misstatement carried out by the Securities and Exchange Commission (SEC).


1.4 Research Objectives

The main objectives of this proposed research shall be:

  1. To examine the effects of corporate financial statement fraud on firm’s profitability.
  2. To identify reason(s) why such falsification is largely perpetrated by management
  3. To examine how perpetrated scandals are designed to benefit the organization
  4. To find out how financial fraud affects the organization generally.

1.5 Research Questions

For the purpose of this research work, the following research questions will be dealt with.

  1. Is there any significant relationship between financial scandals and firm’s profitability?
  2. Has the falsification of financial statement improved the volume of investors?
  3. Is there any significant relationship between financial scandals and investor’s turnover?
  4. Are financial scandals aided by the management to the firm’s benefits?

1.4 Research Hypothesis

The under listed points are turned into assumptions and in the cause of this research work shall form the field work.

Hypothesis:

  • H0 – Null Hypothesis
  • Hi – Alternative Hypothesis
  1. H0: Corporate financial scandals have no relationship with firms’ profitability
    Hi: There is a relationship between corporate financial scandals and firms profitability.
  2. Ho: Corporate financial scandals are not aided by management.
    H1: Most corporate financial scandals are management aided
  3. Ho: Financial scandal does not affect the overall performance of the firm
    H1: Financial scandals will always affect the overall performance of the firm
  4. H0: Corporate financial misstatement would not lead to high risk of financial loss to investors
    H1: corporate financial misstatement would lead to high risk of financial loss to investors

1.7 Significance of the Study

“The effects of corporate financial scandals on firm’s profitability” as a subject of study is a research study that worth it in all aspects of time wasted in carrying out the work.

The beneficiaries of this study are traceable to owners of the business, the stakeholders, banks, investors and the government. Thus this work is based on the following premise:

  1. To looks at the reasons why management opts to end fraud.
  2. To look at the essence of an auditor in the prevention of fraud in an organization.
  3. To show the true picture of the organization to interested investors who will like to invest their monies in such.

1.8 Scope and Limitation of Study

This study is intended to examine the effects of financial misstatement or scandals on firm‘s profitability. The study will also cover the control and precautions to financial scandal. The study shall also examine how best to handle scandals to ensure efficiency and effectiveness of firms.

However, the major constraints of this project work are non availability of sufficient time and material resources required for a more in-depth research from authorities of Cadbury Nigeria plc. In spite of all these constraints, an attempt has been made to maximize the available resources.


1.7 Historical Background of Study

Cadbury Nigeria Plc, an associate of Cadbury Schweppes – the global leader in the confectionary market, has its history dates back to the 50s. The company began as an offshore of Cadbury Fry Export Limited by a British company.

In 1960, the company began with small packing operation and grew very rapidly to a point where the factory was then built. In effect, Cadbury Nigeria was formally incorporated in January 1965 and thereafter took over the control of all Cadbury Fry (export) limited assets and activities in Nigeria.

Cadbury Nigeria went public in 1976, when more of its shares were sold to the public. Cadbury Schweppes holds 46% and many Nigerians own the remaining 53.7%.

Currently, the company has over 54,000 share holders in her register. Also, the company‘s business is in three major parts; The confectionary – mostly sugar confectionary, the food drinks and food seasoning with an array of 22 popular brands in its portfolio not minding that it started with only two products.


1.8 Definitions of Terms

In cause of this research work, the under listed are common terms used.

1. Fraud

An act of deception deliberately practiced to gain unlawful or unfair advantage, such deception being directed to the detriment of another.

2. Profit

An excess of revenue over associated expenses for an activity or over a period. It is the surplus of revenue inflow over expenditure out flow on related transactions

3. Financial Statements

These are balance sheet, profit or loss accounts statement of sources and applications of funds, notes and other statements which collectively are intended to show a true and fair view of financial position.

4. Ratio

An index that relates two numbers usually by dividing one number by the other

5. Balance Sheet

This is a firms’ statement of assets and liabilities.

6. Income Statement

Is a record of a company’s receipt and payment.

7. Assets

These are properties on money which is used to finance a business.

8. Liabilities

These are obligations owed to be fulfilled or money borrowed in order to finance the business

9. Investors

These are individuals or financial institutions that invests in a business concern

10. Revenue

Is the totality of income generated by a business concern from varying sources?


Chapter Five


5.0 Summary, Conclusion & Recommendations

5.1 Summary of Findings

This research was propelled by the researcher’s intention to assess the effect of corporate financial scandals on firm’s profitability with particular reference to Cadbury Nigeria Plc, Agidingbi, Lagos. For the needed objective to be achieved, questionnaires, personal interviews and observations were used by the researcher. A set of fifty (50) questionnaires was administered to both the management, staff of the company and some stakeholders. All result to the questions were collected and presented.

However, in the cause of this research (personal interview), the following findings emanated;

  1. The finding has confirmed a significant and overstatement of the company’s financial position over a number of years.
  2. The company’s former Managing Director in concert with the company’s board since year 2002 used stock buy backs, cost deferrals trade loading and false suppliers’ stock certificates to manipulate its financial reports that were issued to the public and filed with appropriate commission.
  3. That both Bunmi Oni and Ayo Akadiri, a former executive director stated that the use of the sale and stock buy – back as well as the issuance of false stock certificates schemes were motivated by what they called “profit management desire/action” and that off-shore payments were made to Executive Directors to cushion the devaluation of their pay by soaring inflation.
  4. An undocumented and undisclosed offshore account was maintained and operated by the company, from which the executive directors were paid offshore remunerations without the approval of the committee responsible for fixing remunerations of Executive Directors and not recorded in the company’s financial report and account.
  5. The company’s executive directors, senior financial Accountant/Head of accountants, sales operations and development controller, head of internal audit were the master minds of the financial malpractices perpetrated through the falsification of sales figures, over statement of profits/assets and false suppliers certificate to manipulate its financial records/report
  6. The company also failed/refused and/or neglected to deliver funds en – bloc to the company registrars for the payment of dividends declared to shareholders.
  7. The company’s chairman stated in the 2001 annual report and account that the company had taken over the payment of dividend and this continued up to 2006 despite the commissions letter directing it to allow the union registrars Ltd (the company’s Registrar) to perform its function.
  8. The company’s head of accounts, sales operation and internal audit respectively generated incorrect data and were also involved in the preparation of the false report and statement.
  9. The audit committee of the company failed and neglected to discharge their statutory responsibilities under section 359 (4) and (6) of the Companies and Allied Matters Act (CAMA) by:
    • Failing or neglecting to examine the auditor’s report and making proper recommendations thereon to the Annual General Meeting;
    • Failing or neglecting to review and make proper findings on management matters in conjunction with the External Auditors and departmental responses thereon;
    • Failing or neglecting to keep under review the effectiveness of the company’s accounting and internal control system and ensuring that appropriate investigations are carried out by internal auditors into some aspects of the company’s activities which ought to be of interest or concern to the committee.

The aforementioned findings shows clearly that corporate scandals are largely perpetrated by Company’s Executive Directors for personal interest and not to bolster firm’s financial position, thereby causing much detriment to the concerned company through dis – investment of shareholders, heavy penalty melted by relevant authorities, suspension from the Stock Exchange, depreciation of shares’ market value, etc.


5.2 Conclusion

The manipulation of financial statement to bolster financial position did not start with Cadbury Nigeria Plc. and will not end with them. But the integrity of the concerned profession (i.e. the Executive Directors, Senior Financial Accountants, Sales Operations and development controller, head of Internal audit) must be held in esteem especially the accounting profession.

The audit committee must sharpen their tools and be vigilant to see beyond the numbers and respond accordingly.


5.3 Recommendations

Having understudied the effect of corporate financial scandals on firm’s profitability, it is therefore imperative to offer the following recommendations which I consider as a pointer to curbing if not outrightly but to minimal, financial scandals in any form especially Cadbury Nigeria Plc.

Any organization that plans well is tending towards effectiveness and efficiency. In the case of Cadbury Nigeria Plc., lack of proper planning as regards appropriate Executive members led to its scandal. Therefore, programs should be properly thought out and planned before execution.

The power of the managing director as regard approval should be subjected to audit scrutiny. Also, the issuance of stock certificates should be at the approval if the firm’s Board.

The company’s audit committee should be vigilant to see beyond the numbers presented and respond accordingly before recommendation to the Annual General Meeting. The company should again keep under review the effectiveness of its accounting and internal control system and ensuring that appropriate investigations are carried out by the internal auditors into some aspects of the company’s activities which ought to be of interest or concern to the stakeholders.


The Impact Of Corporate Financial Scandal On Firms Profitability (A Case Study Of Cadbury Nigeria Plc)


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The Impact Of Corporate Financial Scandal On Firms Profitability (A Case Study Of Cadbury Nigeria Plc)


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