CREATIVE ACCOUNTING AND CORPORATE DYSFUNCTION IN NIGERIA

Creative Accounting deals with manipulation of figures in the financial statements to show a view which ought not to be. According to Investopedia creative accounting is accounting practices that follow required laws and regulations, but deviate from what those standards intend to accomplish. It capitalizes on loopholes in the accounting standards to falsely portray a better image of the company. Manipulating numbers or figures to get a favourable impression has a long history. According to Balaciu and Vladu (2010), ambition of making figure more appealing or the opposite, if the case, is as old as 500 years. Venetian trade men at those times recorded the transactions between themselves by double-entry bookkeeping with ink and quill-pen in main and subsidiary books.  If there arose any inconsistencies, the inkwell was occasionally knocked over on these books in order to make entries illegible and inconsistence. This shows that manipulative behaviour of trade or business people is not a new phenomenon and dates back to centuries ago.

The term “creative accounting” was first originated with the movie “The Producers” by Mel Brooks in 1968. In that same year, creative accounting first became popular as a term among financial and economics journalists in United Kingdom media. Griffiths (1968), city editor of London Evening Standard, was the first to bring the term to the public notice by his seminal book. By this book, he made the public become aware of the fact that the flexibility in the accounts could be used for creative accounting (Jones 2011). Accuracy and reliability of the financial statements are crucial for the stakeholders of the firms in order to make appropriate decisions. This fact has become more important in recent years starting from 2001 by the collapse of Enron, and its importance has intensified with the recent financial crisis because of the bankruptcy of major financial institutions like the Oceanic bank, Fin. bank, Intercontinental bank, etc. There were a number of cases of failed banks in Nigeria within the past decade which affected many stakeholders. The list of cases linked to creative accounting in Nigeria is being investigated. The recent change of board members in Cadbury Nig. Plc was as a result of doctoring of accounts to cover up certain inadequacies and unscrupulous deals perpetuated by the management. In 2009, the Central Bank of Nigeria (CBN) sacked five (5) bank managing directors and executive directors for mismanagement and alleged fraud. This has affected the stability and growth of the Nigerian financial system since some of the said banks are no longer operational. 

It is therefore arguable that the practice of creative accounting is inimical to the continual growth of the Nigerian economy. In 2013, the House of Representatives Committee on Finance accused commercial banks in the country of sundry sharp practices, including tax evasion, non remittance of government revenue and outright falsification of their accounts. In a report released on the 25th of August 2013, the committee said it had uncovered a lot of discrepancies in the data submitted to it by the banks, including the outright refusal to present documentary evidence of revenue remittances, blank violations of existing laws, self exemption from existing rule, false declaration and manipulation of financial information.

Preliminary findings showed that the published audited accounts of some banks were at variance with the figures the banks submitted to the committee during investigation. It was then revealed that many banks blatantly engage in the creative accounting technique of inflating their operating costs to reduce exposure to taxes. In other words, over the years, the Nigerian government lost billions of Naira in fraudulent and under-hand dealings corruptly designed by some banks to evade taxes. The effect of this large scale corruption on the nation’s economy is unquantifiable. Most corporate organizations have always been connected with fraud and have always been affected at the long-run by financial collapse.