European Journal of Accounting, Auditing and Finance Research

Vol.4, No.8, pp.62-84, August 2016

___Published by European Centre for Research Training and Development UK (www.eajournals.org)
DOES FORENSIC ACCOUNTING ENHANCE QUALITY OF FINANCIAL
REPORTING IN NIGERIA? : AN EMPIRICAL INVESTIGATION
Onyekwelu Uche Lucy1, Ugwu Kevin Okoh2 and Nnamani John Nnaemeka3
1
Department of Accountancy, Enugu State University of Science & Technology Enugu.
2
Doctorate Scholar, Nnamdi Azikiwe University, Awka, Anambra State Nigeria
3
Department of Accountancy, Enugu State University of Science & Technology,
Enugu.

ABSTRACT: This study examines the effectiveness of Forensic Accounting in engendering

qualitative financial reporting in Nigeria using the banking sector as a reference. The
research adopted empirical, survey and descriptive approach. Secondary data for this study
were sourced from the annual reports of the chosen banks. Simple five scale binomial
ranging from 0-4 were used to analyse the secondary data (financial reporting quality) of the
selected banks. Primary data were also sourced to elicit information from accountants using
structured questionnaire based on Likert 5-Scale with each containing fifteen questions. A
five scale Likert structured questionnaires were administered to a sample size of Two
Hundred and Fifty respondents. Respondents were chosen by simple stratification. Pearson's
Correlation Coefficient statistical tool was used to analyse the primary data. The study
reveals that the fundamental qualitative characteristics (relevance and faithful
representation) of financial reporting accounting and the enhancing qualitative
characteristics (understandability) can be significantly enhanced through Forensic
Accounting. Analysis of the primary data further attested to the above revelations. To this
end, the researcher recommends that relevant regulators of accounting practice in Nigeria
such as the Financial Reporting Council of Nigeria and other relevant accounting bodies
should ensure that forensic accounting be deeply entrenched to enhance the quality of
financial statements and indeed the financial reporting system in Nigeria. Key industrial
regulators such as the Central Bank of Nigeria, NDIC, SEC and so on should at regular
intervals commission forensic accounting to ensure compliance on the key variables such as
relevance, faithful representation, understandability and so on by the annual reports
submitted to them by agencies of government and the organised private sector. They should
also train and re-train their members on the intricacies of forensic accounting as regards
these variables to enhance the utility capital providers and other stakeholders derive from
financial reporting in Nigeria.
KEYWORDS: Forensic Accounting, Financial Reporting Enhancement, Nigeria.

INTRODUCTION
Background of the study
The primary objective of financial reporting is to provide high-quality financial reporting
information concerning economic entities, primarily financial in nature, useful for economic
entities to achieve useful economic decision making (FASB, 1999; IASB, 2008). Providing
qualitative financial reports is important because it will positively influence capital providers
and other stakeholders in making investments, credit and similar resource allocation decision
thereby enhancing overall market efficiency(IASB, 2008). According to Warshavsky(2012),

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Vol.4, No.8, pp.62-84, August 2016
___Published by European Centre for Research Training and Development UK (www.eajournals.org)
Financial Reporting Quality relates to the ability of a company's reported performance to best
symbolize its true earnings. He further argues that analysts, investors and management have
deployed dozens of forensic indices that aid the forensic accountant in assessing the
probability of performance index manipulation by a suspect company. Warshavsky(2012),
observed that because the financial statement are the responsibility of company's
management, transactions can be structured to best achieve a desired accounting result by
reporting key financial transactions to the company's advantage. He stresses that the quality
of a company's earnings is one facet of an investigation that is often overlooked in the
financial forensic process.
The banking sector which is considered very volatile and sensitive has gone through some
moments of deep rooted crisis with the very recent being the abrupt removal and trial of five
Chief Executive Officers and spontaneous dissolution of their boards. The issues that led to
this action by the apex bank the Central Bank of Nigeria(CBN) were mainly blamed on poor
corporate governance which saw some insider abuses leading banks having negative balance
in their shareholders' funds. Following this, the CBN conducted a forensic audit which
confirmed that the Chief Executives have filled very misleading financial reports to the CBN
and other regulators. Their reports saw misstatements and misrepresentation of key financial
reporting variables, concealment of actual figures which constituted bad loans and advances
(Sanusi,2010).
Otusanya(2012) in (Ahamad, Zayyad and Rasak, 2013) observes that the Central Bank of
Nigeria independence examination conducted on the five indicted banks in 2009 revealed
how corrupt practices and manipulation of financial statements have concealed huge funds as
non-performing loans. The report further reveals that out of the loan portfolio of N2.8 trillion,
the aggregate non-performing loans were 40.81%. The recently widely reported case of
police pension scam also points to the need to revamp the current trend of quality assurance
approach on financial statements by incorporating forensic accounting,(Ahamad, Zayyad and
Rasak, 2013). The process has heralded a new era demanding total disclosure of facts that
would enable financial statement play the key role of educating and informing existing and
potential investors on the true financial position of any organisation, hence the study of
forensic accounting. Ramaswamy(2007) submits that Forensic Accounting can analyse and
uncover possible financial reporting manipulations that is suitable for presentation in court.
The place of Forensic Accounting in entrenchment of quality assurance of financial statement
cannot be overemphasized. The issue of quality is very critical to the usefulness that financial
reports could serve and Forensic Accounting which looks beyond mere adherence of financial
reports to policies and principles but goes further to verify the underlying facts that could be
tendered as evidence even in the courts has been veritable in the strengthening of quality of
reports being issued by accountants.
Financial Reporting Quality which encompasses the earnings quality, is a broader concept
that not only refers to financial information but also to disclosures and other non-financial
information useful for decision making included in the report(Beest, Braam and Boelens,
2009). The FASB and IASB(2008) expressed their desirability of measuring the quality of
financial reports and this was followed up basically by two basis of the fundamental
characteristics(relevance and faithful representation) and the enhancing qualitative
characteristics(understandability, comparability, verifiability and timeliness) ways of
assessing the quality of financial statements.

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Vol.4, No.8, pp.62-84, August 2016
___Published by European Centre for Research Training and Development UK (www.eajournals.org)
The forensic accountant fills that gap between other expectations on the financial statements
to fulfill the yearly statutory requirements of presenting a true and fair view of the financial
position of the organisation but would go further in ensuring that the documents and other
underlying facts are tenable in the case of litigation. The rest of this paper will x-ray the
role of the forensic accountants in enhancing the quality assurance of financial statements.

Statement of Problem:
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. This study therefore seeks to establish the extent to which Forensic
Accounting as an aspect of accounting can help in achieving qualitative financial statements
that could aid stakeholders in making better investment decisions.
Many researchers have measured the quality of financial reporting indirectly by focusing on
attributes that are believed to influence quality of financial reports such as earnings
management, financial restatements and timeliness (Barth, Beaver and Lang, 2008; Schipper
and Vincent, 2003; Cohen, Krishnamorthy and Wright, 2004). Despite, a considerable
interest in the effectiveness of accounting standards on the quality of financial reporting,
empirical literature emerged that offers contradictory findings about the questions to what
extent accounting standards contribute to the decision usefulness of financial reporting
information (Beest,et al. 2009).
The enhancement of financial investigation will not only unveil the untoward acts of
criminals, lead to recoveries but this may only be achievable if auditors who have been
conversant with the tricks involved in the manipulations of figures are involved in financial
investigations and make necessary impact to improve on quality assurance on financial
statements which are the basic records presented (Ahamad,Zayyad and Rasak,2013). Their
study however reveal that conducting an independent audit and incorporating it into periodic
audit will most likely not enhance financial crime investigation especially in the aspect of
early detection and confirmation of fraud. The incorporation of forensic accounting skills into
conventional may actualize timely detection and confirmation of manipulations of financial
reports as forensic accounting is based on the premise of looking for indicators of abnormal
occurrences in the accounting and financial reporting system, McKittrick (2009).
From the foregoing, it is evident that researches have been done on the impact of forensic
accounting on prevention of financial frauds while little or no extant study has been on the
need to employing forensic accounting to enhance quality assurance of financial statements
and hence the justification for this study. The study is also further necessitated by the
divergent views of scholars on the effectiveness of forensic accounting on quality assurance
of financial statements while many anchor theirs on earning quality. This study specifically
seeks to x-ray the potency of forensic accounting in entrenching qualitative financial
reporting in Nigeria.

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___Published by European Centre for Research Training and Development UK (www.eajournals.org)
Objectives of the Study
The broad objective of this study is to appraise the effectiveness of forensic accounting in
achieving quality assurance on financial reporting in Nigeria. Specifically the study will:
(i) Determine the effectiveness of Forensic Accounting in enhancing the relevance of
financial statements.
(ii) Evaluate the efficacy of Forensic Accounting in improving faithful representation of the
financial reports.
(iii) Ascertain the effectiveness of Forensic Accounting in boosting the understandability of
financial statements.

Research Questions:
The following research questions will guide this study:
(i) How effective is Forensic Accounting in enhancing the relevance of financial
statements?
(ii) To what extent can Forensic Accounting help to improve faithful representation of
financial reports?
(iii) To what extent does Forensic Accounting boost the understandability of financial
statements?

Research Hypotheses
This study has the following null hypotheses:
(i) H0: Forensic Accounting does not significantly enhance the relevance of financial
statements.
(ii) H0: Forensic Accounting does not significantly improve the faithful representation of
financial reports.
(iii) H0: Forensic Accounting does not significantly boost understandability of financial
statements.

REVIEW OF RELATED LITERATURE

Conceptual Framework
Origin and Development of Forensic Accounting:
Forensic accounting also known as investigative accounting or forensic audits can be said to
be a new field in accounting in Nigeria and borne out of the need of ensuring quality
assurance of financial statements. Joshi (2003) ascribed the origination of forensic accounting
to Kutilya, the first economist to openly recognize the need for accountants to tender
evidence in the court. Pouloubet(1946) as cited by Kasum(2009) coined the word ''forensic
accounting'' but Crumbley and Apostolou(2007) asserts that forensic accounting can be traced

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Vol.4, No.8, pp.62-84, August 2016
___Published by European Centre for Research Training and Development UK (www.eajournals.org)
to 1817 court decision where a young Scottish accountant issued a circular advertising his
expertise in arbitration support in 1824'' while Pouloubet was probably the first to publish the
phrase ''forensic accounting''.

Forensic Accounting Defined

The word ''Forensic'' relates to crime solving. It is the application of science to decide
questions arising from crime or litigation and thus introduced in the accounting domain to
serve as a more reliable and evidential means of enhancing financial investigations and
prevention or reduction of financial impropriety in all forms Modugu and Anyaduba(2013).
Forensic accounting relates to deterring, detecting and investigating frauds in financial
reporting (Kristic, 2009). Encarta dictionary (2011) defines it as auditing practices carried out
to detect possible criminal activities concealed in financial accounts. It is the integration of
accounting, auditing and investigative skills (Zysman, 2004). Howard and Sheetz(2006)
define it as a process of interpreting, summarizing and presenting complex financial issues
clearly, succinctly and factually often in a court of law as an expert.

Financial Reporting Qualities:

The IASB(2008) explicitly express the desirability of constructing a comprehensive
measurement tool to assess the quality of financial reporting considering all dimensions of
decision usefulness. Hence, this measurement tool considers all the qualitative characteristics
because these characteristics determine the decision usefulness of financial reporting
information. Epistein and Jermakowicz(2010) while citing IASB(2008) stated that financial
reporting qualities can be broadly divided into fundamental characteristics(relevance and
faithful representation) and the enhancing qualitative characteristics (understandability,
comparability, verifiability and timeliness).
(1) Fundamental Qualitative Characteristics: These are the most important and
determine the content of financial reporting information, IASB (2008). They comprise
relevance and faithful representation.
(a) Relevance: Relevance refers to the capability of making a difference in the
decisions made by users in their capacity as capital providers. This concept will be
tested in order to improve the comprehensiveness of the quality assessing measurement
tool by considering a broader perspective on predictive value including both financial
and non-financial information. Predictive value is the ability of past earnings to predict
future earning (Francis, LaFond, Olsson and Schipper,2004; Lipe,1990; Schipper and
Vincent, 2003). Predictive value explains information on the firm's ability to generate
future cash flows.
(b) Faithful Representation: This shows or assesses financial reporting information
by measuring if information faithfully represents economic phenomena the information
purports to represent. Thus, annual reports must be complete, neutral and free from
material error(IASB, 2008). Faithful representation is measured using five items
namely: neutrality, completeness, freedom from material error and verifiability (
Willekens, 2008; Rezae,2003; Cohen, et al, 2004; Jonas and Blanchet, 2000; Maines
and Wahlen,2006; Gaeremynck and Willenkens; Kim,et.al, 2007, and Beest, 2009). The
study therefore adopts some proxies such as free from bias; valid and well grounded
arguments; neutrality, unqualified report and corporate governance statement.

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___Published by European Centre for Research Training and Development UK (www.eajournals.org)
(2) The Enhancing Qualitative Characteristics: The enhancing qualitative
characteristics can improve decision usefulness when the fundamental qualitative
characteristics are established. However, they cannot determine financial reporting
quality on their own, IASB (2008). These qualities are: understandability,
comparability and reliability.
1. Understandability: This attribute will increase when information is classified,
characterized and presented clearly and concisely (Beest et, al, 2009). Understability is
referred to when the quality of information enables users to comprehend their meaning
(IASB, 2008). The standard is measured using five items that emphasize the
transparency and clearness of the information presented in annual reports (Jonas and
Blanchet,2000; Courtis, 2005; IASB, 2006). Jonas and Blanket (2000) submitted that if
annual report is well-organised, it is easier to understand where to search for specific
information. Disclosure information and in particular the notes to the balance sheet and
income statement , may be valuable in terms of explaining and providing more insight
into earnings figure(Beretta and Bozzolan, 2004).
2. Comparability: This characteristic measures the quality of information that enables
users to identify similarities in and differences between two sets of economic
phenomena (IASB, 2008). This implies that similar situations should be presented the
same while different situations should be presented differently. To this extent
comparability is measured using six proxies that are focused on consistency.
3. Timeliness: This qualitative characteristic defined the ability of information being
made available to decision makers before it loses its capacity to influence decisions
(IASB, 2008) and refers to the time it takes to reveal the information and is related to
decision usefulness in general. The natural logarithm of number of days between year
end and that the signature on auditor's report after year end is the basis for examining
the quality of information in annual reports (Beest, et.al. 2009).

Forensic Accounting and Quality Assurance of Financial Statements:

The increasing spate of devolution of power from ownership to management has increased in
the last decade and has now more than ever triggered off the need for quality assurance of
financial statements. A qualitative financial statement should be devoid of any misstatement
or misrepresentations. Kristic(2009) advocates the need for the broader accounting public and
users of financial statements to base their decisions on information that shows the real picture
of financial and revenue position of an enterprise. Fraudulent misrepresentation can range
from overvaluation of inventory and improper capitalisation of expenses to misstatement of
earnings and embezzelement(Harris & Brown 2000; Messmer,2004 in Digabriele, 2008).

Forensic accounting and qualitative financial reporting - skill and attributes:

If the forensic accountant must suceed in his assignment, he must have knowledge and
understanding of fraudulent financial transactions,legal processes, high acumen of elements
of fraud and criminology concepts and above all investigative skills Singleton, et. al. (2000)
in Njanike, Dube,Mashayanye(2009) .The forensic accountant must be part corp, part lawyer,
part accountant and partly a psychologist. Honrenbeech(2002) in Njanike, et.al.(2009)
acknowledge that a forensic auditor should have a well developed professional
skeptism(sniffer attitude and investigative mind), analytical and logical mind, personal
integrity, expertise in internal controls and acumen in interviewing techniques.

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Fraud and Omissions as key causes of poor quality financial reporting
Fraud has generally been described as that unlawful acquisition of property (EFCC Act,
2004). However, fraud as defined by Kristic(2009) may be most apt for this study when he
says that fraud are acts that are undertaken with the intent of making financial statements
incorrect and falsified. He further avers that financial reporting fraud could be perpetrated by:

 False presentation of facts that has important character;

 The awareness of a perpetrator about the falsity of presentation and
manifestation of total negligence of the truth;
 Persons that receives information treats it as reliable and relies on it in making
decision;
 Eventual financial damage that the user of the information bears is created.

Theoretical Framework
Accountability is the bedrock of every business and so ''Agency Theory'' upon which this
study is underpinned propound the relationship between manager (agent) and owner
(principal). The Agency Theory explains a situation where the agent is hired to manage the
company on behalf of the principal asserting that the separation of ownership and control
give rise to information asymmetry where managers have better information on the firms'
current and future performance than the principal(Investor Words, 2011 as cited by
Ofor(2014). The Agency Theory further assumes that ''no agents are trustworthy and if they
can make themselves richer at the expense of their principals they will'' (ICAEW, 2005 as
cited by Ofor, 2014).

Empirical Reviews
Some of the empirical studies related to this study have thus far revealed divergent outcomes.
Notable among this studies are:
Warshavsky (2012) who in his study titled ''Analyzing Earnings Quality as a Financial
Forensic Tool; while propagating the Beneish Model, stated that the model is used to identify
companies that manipulate their earnings. The model employs eight model approach
presented as financial indexes. The study detected the financial performance rate of many
corporations including Enron, and so on. The study therefore concluded that companies like
Enron and World com corporations had their earnings manipulated to enable the management
achieve targeted financial reporting variables.
Modugu and Anyaduba(2013) while studying ''Forensic Accounting and Financial Fraud,
adopted the survey research approach, distributed 5-Scale Likert questionnaire to a sample
size of 143 respondents, drawn from accountants in public and organised private sector. The
hypothesis shows a significant agreement among stakeholders on the effectiveness of
Forensic Accounting in fraud control, improving financial reporting and internal control. In a
related study, Kasum(2008) researched on ''The relevance of Forensic Accounting to
Financial Crime in Private and Public sector of Third world economies. The researcher
adopted the empirical survey cum exploratory approach. Questionnaires were distributed to
diverse class of professionals comprising accountants, lawyers, economists and bankers.
Analysis were done using Z-Score test of mean computed for the first three hypotheses and
Z-Score test of proportion was computed for the last hypothesis. The study reveals that there
is an alarming rate of corruption among the third world countries and that it is not only

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crumbling the economy but also affecting innocent national's standard of living and image.
The study further reveals that the services of the experts (forensic accountants) are more
required in developing economies and more especially in the public sector than developed
economies. Ogodogun(2011) studied ''Reducing Corruption in the Public Sector: The
Forensic Accounting Pedagogy''. The study adopted the descriptive approach and tested
hypotheses. The study used the Pearson Product Moment Correlation Coefficient and the
Spearman rank order correlation. A sample size of 124 of accountants in public service of
Edo, Delta and Bayelsa states. 4-Point Likert Scale. Questionnaires were administered.
Findings of the study were that there exists a significant relationship between corruption and
forensic accounting; there is a very strong relationship between poor accounting records and
corruption practices in the public sector and there is significant relationship between
corruption and poor economic development.
Enofe, Mgbame, Ayodele and Okunbo(2013) in Forensic Accounting: A Tool for Detecting
Fraud in Nigeria Business Environment while adopting the descriptive survey, distributed 50
questionnaire based on 5-Scale Likert Scale, 3 research hypothesis formulated and used
SPSS to analyse data. The findings show that forensic accounting services are required in
Nigeria; Forensic Accounting is an effective tool for detecting fraud in Nigeria business
environment. Ahmad, Zayyad and Rasak(2013) in their study titled ''An empirical
examination of the role of forensic audit in enhancing financial investigations in Nigeria''
employed the use of primary data collated via questionnaire based on 5 Likert-Scale
administered among 240 accountants. They used the Pearson correlation coefficient
statistical tool and multiple regression for analysis of data. They concluded that while
forensic audit ensure earlier detection and confirmation of fraud and thus enhance financial
crime investigations in the country but submitted that introducing independent audit skill into
periodic audit will most likely not boost financial crime investigations especially in the aspect
of early detection and confirmation of fraud.
Ramaswamy(2007) argues that in investigative accounting, one small transaction that looks
suspicious could be the thread that unravels a big accounting misdemeanour hence the need
for forensic accounting. Okoye and Akamobi(2009); Owojori and Asaolu(2009), Izedomin
and Agbame(2011) in Modugu and Anyaduba(2013) acknowledge the increasing incidence
of fraud and fraudulent activities in Nigeria perpetrated through financial statements
manipulations and regretted it is gradually becoming a normal way of life. Kasim(2009)
observes that perpetration of financial irregularities are becoming the speciality of both
private and public sector in Nigeria as individuals perpetrate fraud and corrupt practices
according to the capacity of their office. Enofe, et. al.(2013) regret that the specific problem
with fraud in Nigeria business environment is the negative effect on corporate earnings and a
loss of investors' confidence. Jristic(2009) studied ''The role of Forensic Accountants in
Detecting Frauds in Financial Statements''. The paper submits that inaccurate financial
statements provide incorrect picture of earning capacity and financial position of an
enterprise on which basis users, including all classes of stakeholders make their decision and
consequently get exposed to fraud.

SUMMARY OF LITERATURE
From the foregoing reviews( conceptual, theoretical and empirical reviews), the study has
been able to establish that the ability of Forensic Accounting in checkmating fraud has been

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carried out by various scholars both in Nigeria and in foreign countries. However, to the
extent of our review no study has been carried out specifically to appraise the potency of
Forensic Accounting in entrenching qualitative financial reporting in the banking industry
both in Nigeria and overseas countries and this is the gap this study seeks to fill.

RESEARCH METHODOLOGY
Research Design: This study adopted the empirical, survey and descriptive approach.
Population: The population for this study comprised all the Twelve Deposit Money banks
listed in the Nigeria Stock Exchange. The population for the purposes of the primary data
consists of all accountants in Nigeria.
Sample Size: A sample size of five banks was randomly selected from where the secondary
data were sourced. However, since the population for the primary data consists of all the
accountants in Nigeria and this population will be pretty too large for this study, the
researcher decided to narrow its respondents to five diverse groups namely the
accountants in audit practice, those who prepare the financial who are in the banking
industry, those in the academia, public and other organised private sectors. The
justification of this choice of groups is primarily based on their inclusion in previous
studies (Modugu and Anyaduba, 2013; Ahmadu, et al.(2013) Kasum, 2012; Lowe and
Pany,1995 Abdulaziz, 2009).
Sources of Data: Both primary and secondary data were employed for this study as already
indicated. Secondary data were sourced from the annual financial statements of the five
banks being studied. Primary data were sourced through questionnaires which were used to
elicit information from respondents comprising accountants from diverse fields as indicated
in 3.3.1.
The primary data were sourced using the 5-Scale Likert questionnaire showing: 5=Strongly
Agree; 4=Agree; 3= Undecided, 2= Disagree and 1= Strongly Disagree. Each questionnaire
has fifteen questions. Questionnaires were administered to accountants who were
stratified into five main groups thus:
Audit Firms 50
Academia 50
Public Sector 50
Financial Institutions(Banks) 50
Other Organised Private Organisations 50
250
Secondary Data: Secondary data for this study were sourced using the financial statements
of five randomly selected banks.
Test for reliability: The test for reliability has to do with the stability and consistency of an
instrument across different times. It is a measure that indicates the extent to which a research
instrument is without bias (error free) and hence ensures consistent measurement across
times and across the various items in the instrument''(Tariq, 2009). To attain this, the
researchers conducted a Cronbach's Alpha test with the aid of SPSS 17.

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Tools for Data Analysis: The primary data were analysed using Pearson's Correlation
Coefficient and Multiple Regression is used for the analysis upon which it will make
inferences. The degree of relationship between the dependent variable and each independent
variable will be measured using the Pearson's Correlation Coefficient. However, the
secondary data were analysed using binomial scale ranging from 0-4, where 0 = Absence of
variable; 1= Low indication of variable; 2= average; 3= very significant indication and 4=
excellent.

Model Specification
The proposed model of the relationship among the variables for the analysis is as following:
Y = BO +B1X1+B2X2+E
Where Y= quality assurance in financial statement
X1 = forensic accounting skills in the annual audit
X2 = independent forensic accounting of financial statement s on annual basis.
BO ,B1,B2 = Regression Coefficients
E = error term
Source: Ahmadu, et.al, 2013

PRESENTATION AND ANALYSIS OF DATA

Table 1: Operational measures utilized for the qualitative characteristics of Annual
Reports(2012)
Qualitative Items FBN ZENITH GTB UBA
ACCESS Characteristics

Relevance
RR 1 AR discloses forward-
looking information 2 3 2 1
2
RR 2 AR discloses information in
terms of business opportunities
and risk 3 2 2 2
3
RR 3 The Company uses fair value as
Measurement basis 2 3 1 2
2
RR 4 AR provides feedback information
on how various market events and
significant transactions affected the
company 0 0 2 0
1
Faithful Representation:
FRR1 AR explains the assumptions
and estimates made clearly 2 3 2
3 2

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Researcher's ratings on financial reporting variables as indicated in the financial
statements of above named banks based on binomials (0 to 4). Here 0=Absence
of proxy in Financial Statement; 1=Poorly done; 2=Good; 3=Very Good;
4=Excellent

*Note: RR= Relevance Rating; FRR: Faithful Representation Rating; UR=

Understandability Rating; CR= Comparability Rating and AR: Annual
Report

TABLE 1 Continues:
FRR2 AR explains the choice of
accounting principles vividly 3 3 3 3
3

FRR3 AR highlights positive and

negative events in a balanced
way when discussing the
annual performance 2 3 2 3 3

FFR4 AR includes an unqualified

auditor's reports 3 3 3 3 3

FFR5 AR extensively discloses

information on corporate
governance issues 3 3 2 3 3

Understability:
UR1 The annual report
is well organized 2 3 2 2 3
UR2 The notes to the
balance sheet and the
income statements are
clear 3 3 2 2 3

Source:Researcher's ratings on financial reporting variables as indicated in the

financial statements of the above banks based on binomials 0-
4 where 0=Absence of proxy in Financial Statement;
1=Poorly done; 2=Good; 3=Very Good; 4=Excellent

*Note: RR= Relevance Rating; FRR: Faithful Representation Rating; UR=

Understandability Rating; CR= Comparability Rating and AR= Annual
Report

UR3 Graphs and Tables clarify

the information presented 3 3 2 2 3
UR4 The use of language and
technical jargon is easy 3 3 3 3 3
to follow in the

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annual report 3 3 2 3 3

UR5 The annual report included

a comprehensive glossary 2 0 0 0 0

Comparability
CR1 The notes to changes in
Accounting policies explain
the implications of the change 3 3 3 2 2

CR2 The notes to revisions

in accounting estimates and
judgements explain the
implications of the revision 3 3 2 3 3

CR3 The company's previous

accounting period's figures
are adjusted for the effects of
the implementation of a change
in accounting policies or revisions
in accounting estimates. 3 3 3 3 3

CR4 The result of current accounting period is

compared with result in
previous accounting period. 3 3 2 3 3

CR5 Information in the annual

report is comparable to information
provided by other organisations. 4 4 4 4 4

CR6 The annual report present

Financial index numbers and ratios. 1 0 0 1 0

Timeliness:
Natural logarithm of amount of days it took
for the auditor signed the auditors' report
after book-year end 3 3 3 3 3

Researcher's ratings on financial reporting variables as indicated in the financial

statements. based on binomials (0 to 4) where 0=Absence of proxy in Financial
Statement; 1=Poorly done; 2=Good; 3=Very Good; 4=Excellent
*Note: RR= Relevance Rating; FRR: Faithful Representation Rating; UR=
Understandability Rating; CR= Comparability Rating and AR= Annual Report

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Presentation of Data: Data gathered through the questionnaire are presented in tables. In all,
a total of Two hundred and fifty questionnaires were distributed and responses analysed.

Table 1: Distributed Questionnaire: Analysis of respondents by sector of employment

Sector Total Total returned Total withheld Returned as

distributed % of total
Public 50 41 09 0.82
Financial 50 36 14 0.72
Industry
Academia 50 42 08 0.84
Manufacturing 50 28 22 0.56

Auditors in 50 32 18 0.64
private
practice
Total 250 179 71 0.716

Source: Field Survey, 2014

Table 1 shows that Two Hundred and Fifty questionnaire were distributed among
accountants who are stratified according to the sectors of their employment. One
hundred and Seventy Nine (179) representing 71.6% were completed and returned
while seventy one 71 or 28.4% were withheld.

Table 2. Cronbach Reliability Analysis

Cronbach's Alpha No. of items

.792 20
Source: Researcher's computations using SPSS, 17.
Table 2 above examines the properties of measurement scales and the items that compose the
scales to determine the degree of its reliability. The Cronbach Alpha Coefficient should
ideally be between 0.7 to 0.8. This is in line with studies by with studies done by Modugu
and Anyaduba(2013) and Ahmad,et.al(2013). The Cronbach coefficient for this study can be
said to have performed at an acceptable reliability value of 0.792 as Cronbach value less than
0.7 than the range indicate an unreliable scale. Therefore the instrument used in gathering the
data is reliable.

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ANALYSIS OF DATA
Test of Hypotheses
Hypothesis One: Forensic Accounting does not significantly enhance the relevance of
financial statement.

Table 3: Forensic Accounting and enhancement of relevance of financial reports

Item No. Statement No returned
1. Forensic accounting will enhance disclosure of forward- 179
looking information.
2. Forensic accounting will produce annual reports that will 179
disclose information in terms of business opportunities and
risks.
3. Forensic skills will enhance use of fair value as 179
measurement basis.
4. Forensic accounting will help produce annual reports with
feedback information on how various market events and 179
5. significant transactions affected the company.
Forensic Accounting will aid the production of annual 179
reports that will be specific and industry based.

Source: Field Survey, 2014

The statements in Table 3 above relates to the research hypothesis one (1) which was
developed to proffer answers to research question 1. The data gathered from the response
were used to test hypothesis one. The result of the test is presented thus:
Hypothesis 1: Forensic Accounting does not significantly enhance relevance of financial
statements.
Table 4: Correlation between the Forensic Accounting and relevance of financial
statements.

Enhancement of the Inclusion of

relevance of Forensic accounting
Financial during conventional
Statements accounting
Pearson correlation 1 0.168*
Sig.(2-tailed) 0. 049
Enhancement of
relevance of N 176 179
financial statements
Pearson correlation 0.168* 1
Sig.(2-tailed) 0.47
Forensic Accounting N 176 179
*Correlation is sig at the 0.05 level (2-tailed)
Sources: Researcher's computation using SPSS, 17; 2014(See Appendix one for response to
questionnaire).

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Hypothesis Two: Faithful representation of financial statements is not significantly enhanced
through forensic accounting.

Table 5: Forensic Accounting and Faithful Representation of financial statements

Item No. Statement No returned

5 Forensic Accounting will enable the production of annual 179
reports that explains the assumptions and estimates clearly.
6. Forensic Accounting will ensure the produce annual reports 179
that explains the choice of accounting principles clearly.
7 Forensic Accounting will highlight the positive and 179
negative events in a balanced way when discussing the
annual results.
8 Forensic Accounting is likely to disclose if auditor's report 179
is qualified or not.
9. Forensic Accounting will extensively disclose information 179
on corporate governance issues.

Source: Field Survey, 2014

Hypothesis Two: Forensic accounting does not significantly improved faithful
representation of financial statements
Table 5: Correlation between Forensic Accounting and Faithful Representation of financial
reports.

Improvement of Forensic
faithful accounting skills
representation of during conventional
financial statements audits.
Improvement of Pearson correlation 1 0.183*
Faithful Sig.(2-tailed) 0. 045
representation
N 177 179

Forensic accounting Pearson correlation 0.183* 1

Sig.(2-tailed) 0.052
N 175 179
*Correlation is significant at the 0.05 level (2-tailed); Source: Researcher's computation
using SPSS

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Hypothesis Three:
Table 8: Forensic Accounting and increased of understandability of financial
statements

Item No. Statement No returned

9 Forensic Accounting enhances the production of annual reports 179
with clearly stated notes to statement of financial positions and
income statements.
10 Forensic Accounting aids annual reports that are well 179
organised.
11 Forensic Accounting enhances the use of graphs and tables that 179
will clarify the information presented.

12. Forensic Accounting can aid the use of language and jargon 179
which will be easy to follow in the annual reports.

Forensic accounting will enhance the production of

13. comprehensive glossary 179
Source: Field Survey, 2014
Hypothesis Three: Forensic Accounting does not be significantly boost understandability of
financial statements.
Table 6: Correlation between Forensic Accounting and boosting of understandability of
financial statements.

Boosting of Forensic
undertandability of accounting during
financial reports the conventional
accounting.
Boosting of Pearson correlation 1 0.168*
understandability of Sig.(2-tailed) 0. 49
financial statements
N 177 177

Forensic Accounting Pearson correlation 0.168* 1

Sig.(2-tailed) 0.49
N 177 177
Source: Researcher's computation using SPSS *Correlation is significant at the 0.05 level
(2-tailed)

Discussion of the results

The results suggest that forensic accounting will enhance relevance, faithful representation
and understandability of financial statements thereby entrenching qualitative financial
reporting in Nigeria banking industry as confirmed by hypotheses 1,2 and 3. It therefore
suggests the acceptance of the alternative hypotheses as indicated by the p values of
0.049, 0.042 and 0.47 indicating a value that is less than 0.05( 5% level of significance).

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A conclusion is inferred that Forensic Accounting will most significantly enhance the
financial reporting quality in Nigeria banking industry.
Table 4: shows the result of hypothesis one which states that there is no significant
relationship between Forensic Accounting and enhancement of relevance of financial
statements. The result reveals that there is a positive and significant relationship between
Forensic Accounting and the enhancement of relevance of financial statements. The null
hypothesis is rejected and the acceptance of the alternative. Thus Forensic
Accounting does significantly enhance the relevance quality of financial
statements.

Table 5: This table shows the result of the test of second hypothesis which states that
Forensic Accounting does not significantly enhance faithful representation of financial
statements. The result indicates that there is significant relationship between forensic
accounting and faithful representation and hence the acceptance of the alternative
hypothesis. The null hypothesis is therefore rejected. The result therefore indicates that
forensic accounting will enhance faithful representation.
Table 6: This table tested the third hypothesis which states that Forensic Accounting does
not significantly enhance understand ability of financial statements. The result shows that
there is significant relationship between Forensic Accounting and enhancement of
understadability of financial reports and hence the acceptance of the alternative
hypothesis. The null hypothesis is therefore rejected. The result therefore indicates that
forensic accounting does significantly enhance understandability.

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

Summary of Findings: This study has appraised the impact of forensic accounting in
enhancing the quality of financial statements. The major findings of the research are as
follows:
(1) The analysis on this hypothesis shows that there is significant and positive relationship
between forensic accounting and relevance of financial statement. This result
collaborate previous studies (Modugu and Anyaduba, 2013; Jovan, 2009; Kasum,
2008).
(2) The second hypothesis shows that there is a strong relationship between forensic
accounting and faithful representation and hence agrees with Modugu, &
Anyaduba, (2013).
(3) The analysis on the third hypothesis depicts a very strong correlation between forensic
accounting and understandability of financial statements and collaborates (Modugu and
Anyaduba, 2013, Ogodogun, 2011).

Conclusion
This study has appraised the impact of forensic accounting in enhancing the quality assurance
of financial statements. Content analysis of the financial statements of the banks understudy

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was done. The research also in addition used the Survey/descriptive research design
approach. Questionnaire were designed and distributed to elicit opinion of respondents which
are accountants cutting across those in auditing, banking, manufacturing, academia and
public sectors. Two hundred and fifty questionnaires were distributed while one hundred and
seventy nine were returned. Though the study of forensic accounting is fairly new and has not
gained statutory recognition in Nigeria, the study advocates that forensic accounting has the
potentials that will positively impact on quality of financial statements produced in Nigeria.

Recommendations
Sequel to the findings of this study, the researchers recommend:
(1) That accountants should acquire training in forensics to enable them carry out this
investigative aspect and be in a position to offer advises that could unravel those issues
which has mitigated quality assurance of financial statements.
(2) Forensic accountants should be employed to fortify the internal control of various
organisations while reports are benchmarked against the fundamental and enhancing
qualitative attributes in order to appreciate organisations that have adhered to the
requirements.
(2) Accounting Regulators in Nigeria such as the Financial Reporting Council and other
relevant accounting bodies should develop programmes to ensure certification of
accountants in this area of accounting.
(3) The government of Nigeria through the National Assembly should enact a law to make
forensic accounting/audits a statutory requirement for publicly quoted companies.
(4) The various universities and other tertiary institutions' authorities should formalize the
study of forensic accounting by integrating it into their programme of study in the
various departments of Accountancy.

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APPENDIX 1: QUESTIONNAIRE
Instruction
Please tick(x) in the boxes provided. The information sought is for research purposes and
your responses will e treated with utmost confidentiality.
Educational qualification SSCE ( ) OND/NCE ( ) B.Sc./HND ( ) MBA/M.Sc. ( )
Ph.D( )

S/No Variables SA A UN D SD Total

1. Forensic accounting will enhance
disclosure of forward-looking 102 70 0 5 2 179
information.
2. Forensic accounting will produce
annual reports that will disclose 98 66 2 9 4 179
information in terms of business
opportunities and risks.
3. Forensic skills will enhance use of 92 82 6 6 3 179
fair value as measurement basis.
4. Forensic accounting will help 87 82 0 5 5 179
produce annual reports with
feedback information on how
various market events and
significant transactions affected the
company
5. Forensic Accounting will enable 96 65 7 7 4 179
the production of annual reports
that explains the assumptions and
6. estimates clearly. 92 67 06 08 06 179
Forensic Accounting will aid the
production of annual reports that
will be specific and industry based.
7. Forensic Accounting will ensure 78 98 1 1 1 179
the produce annual reports that
explains the choice of accounting
8. principles clearly. 89 71 6 5 8 179
Forensic Accounting will highlight 102 68 2 5 2 179
the positive and negative events in
9. a balanced way when discussing
the annual results. 92 67 06 05 09 179

10. Forensic Accounting is likely to

disclose if auditor's report is 63 100 4 3 9 179
qualified or not.
11. Forensic Accounting will 139 30 5 2 3 179
extensively disclose information on
corporate governance issues.
12. 87 66 10 8 8 179

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Forensic Accounting enhances the
production of annual reports with 79 58 12 17 13 179
13. clearly stated notes to statement of
financial positions and income
statements. 85 60 08 11 15 179
Forensic Accounting aids annual
14. reports that are well organised.

15. Forensic Accounting enhances the

use of graphs and tables that will 42 112 16 06 03 179
clarify the information presented.

Forensic Accounting can aid the

use of language and jargon which
will be easy to follow in the annual
reports.
Forensic accounting will enhance
the production of annual reports
with comprehensive glossary

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