FORENSIC ACCOUNTING AND FINANCIAL STATEMENT QUALITY
ABSTRACT
       This study investigated the impact of forensic accounting on the quality of financial statements. Our specific objectives were to determine whether forensic accounting improves the relevance of financial statements, examine whether forensic accounting improves faithfulness of financial statements and evaluate if forensic accounting aid the understand ability of financial statements.
The research is a survey study conducted with the aid of primary data. With constructed questionnaires, we elicited information from our sampled respondents which we used for analyses and based the report of our study on. Two hundred (200) questionnaires were sent out but one hundred and ninety five (195) were returned by our respondents and found usable, amounting to 97.5%. Ordinary Least Square (OLS) method of research analysis was used to analyse our data with the aid of econometric software known as Eview 7.
The outcome of the study showed that faithful representation of financial statements (FAREP) and understandability of financial statements (UNDER) both had significant and positive relationship with forensic accounting (FOREN). But relevance of financial statements (RELE) is found to exhibit non-significant and positive relationship with forensic accounting (FOREN). We recommend that accountants should acquire training in forensic accounting to enable them carry out this investigative aspect of financial statements in order to provide quality assurance.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the study-     -    
Statement of  Research Problem    
Research Question    -    -    -    -
Objectives of the Study    -    
Research hypotheses    -    -    
Scope of the study    -    -    -    
Significance of the Study -    -
CHAPTER TWO:  LITERATURE REVIE
     Introduction    -    -    -
2.2    Forensic Accounting    -    -
2.3    Financial Reporting Quality    -    -    -
2.4    Relevance of Financial Statement     
2.5    Faithful Representation of Financial Statement -  
2.6    Understandability of Financial Statement -
2.7    Theoretical Review    -    -    
2.7.1    Agency cost Theory    -    -    
2.7.2   Stewardship Theory   -      -        -         -     
CHAPTER THREE:  METHODOLOGY
3.1    Introduction    -    -    -    
3.2    Research Design    -    -    -    
3.3    Population and sampling        -    -    -
3.4    Sources of Data    -    -    -    
3.5    Model Specification    -    -    -
3.6    Measurement of Variables        
3.7    Method of Data Analysis    -    -
CHAPTER FOUR: DATA PRESENTATION, ANALYSES AND INTERPRETATION
4.1.    Introduction    -    -    -    -
4.2    Demographic Data on the respondents    - -      
4.3    Data Analysis and interpretation      -  
4.4     Hypothesis Testing     -        -     
4.5     Discussion on Findings -    -     
4.6     Descriptive Statistics    -    
4.7Correlation Matrix            ---
4.8     Estimation of Variables
CHAPTER     FIVE:  SUMMARY, CONCLUSION     AND RECOMMENDATION
5.1    Introduction    -    -    
5.2    Summary of Findings -    -    -    -
5.3       Conclusion -    -         -      -     -       
5.4    Recommendations    -    -    -
5.4.1   Recommendation for Further Studies -    -     
Bibliography    -    -    -    -    
 Appendix     -    -    --
CHAPTER   ONE
                                                              INTRODUCTION
1.1 Background to 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 (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 therebyenhancing overall market efficiency (IASB, 2008). According to Warshavsky,Marcus, and Woodbury (2012), 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 et al.(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 (Onyekwelu,2010). 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).
According to Ahamad, Zayyad and Rasak (2013) 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 et al, 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 are 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&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.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. It is against this back drop that we engage on the study of forensic accounting and quality of financial statement.
1.2 The Statement of the Research 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. Ojaide (2000) submits that there is an alarming increase in the number of fraud and fraudulent activities in Nigeria emphasizing the visibility of forensic accounting services.  According to Owojori and Asaolu (2009);Izedomin and Mgbame (2011) there is increasing incidence of fraud and fraudulent activities in Nigeriaand these studies have argued that in Nigeria, financial fraud is gradually becoming a normal way of life. As Kasum (2009) notes, the perpetuation of financial irregularities are becoming the specialty of both private and public sector in Nigeria as individual perpetrates fraud and corrupt practice according to the capacity of their office. Consequently, there is a general expectation that forensic accounting may be able to stem the tide of financial malfeasancewitnessed in most sectors of the Nigerian economy.
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 & Lang, 2008). 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 as 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 et al., 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 needtoembark on our study. Following from the stated problem above, the research questions are:
(i) To what extent is forensic accounting effective in enhancing the relevance of financial statements?
(ii) To what extent can forensic accounting help to improve faithful representation of financial statements?
(iii) To what extent does forensic accounting boost the understand ability of financial statements?
              1.3 The Objectives of the Study
    The broad objective of this study is to investigate how forensic accounting improves the quality of financial statement. The specific objectives are to:
(i) determine to what extent is forensic accounting effective in enhancing the relevance of financial statements;
(ii) examine to what extent can forensic accounting help to improve faithful representation of financial statements and
(iii) evaluate to what extent does forensic accounting boost the understand ability of financial statements.
1.4 The Hypotheses of the Study
Following from the objectives of the study above; the hypotheses are stated in null form below:
  1. HO1: Forensic accounting is not effective in enhancing the relevance of financial statements.
  2. HO2: Forensic accounting does not improve faithful representation of financial statements
3. HO3: Forensic accounting does not boost the understand-ability of financial statements.
1.5 The Scope of the Study
        The scope of this study is limited to accountants who fall into four main groups. The groups are: audit firms, academia, public sector and private sector. This grouping arises majorly because they have fair knowledge of the subject of our study. The location of our study is Benin-city, Edo state. The choice of Benin-city is hinged on the proximity to the researchers. Hence, our target groups are located among practicing auditors, academic institutions, private and public institutions in Benin-city.
              1.6 The Significance of the Study
The general expectation is that forensic accounting may offer some respite to the seeming vulnerability ofconventional accounting and audit systems to financial fraud. Consequently, the incorporation of modern forensic auditing techniques in audit in Nigeria is seen as timely inorder to prepare the accounting profession to deal effectively with the problem of unearthing ingenious fraudschemes arising from audit failure to detect frauds in Nigeria. Centre for Forensic Studies (2010) report in Nigeriastates that if well applied, forensic accounting could be used to reverse the leakages that cause corporate failures.This can be attributed to the fact that proactive forensic accounting practice seeks out errors, operational vagariesand deviant transactions before they crystallize into fraud. The study of forensic accounting and quality of financial statements is relevant because:
To the best of our knowledge arising from available literature, most of the previous studies have focused on forensic accounting, fraud control, corruption and skills. For example see the works of Enofe, Okpako and Atube (2013); Modugu and Anyaduba(2013). There is need to embark on a study to measure the level of contribution of forensic accounting to financial statements quality assurance.
1.7 The Limitations of the Study
    This study is not without its limitations like every other study.
1. There is dearth of literatures that measures the relationship between forensic accounting and our selected independent variables that represent financial statements quality.
2. Since our study is dependent on the use of primary data, the opinion of our respondents may not perfectly measure our questions. But this does not have any short coming on the report of our study as this is a common case with primary data.
3. Another limitation is that we do not have a defined population size in this study. This is the case because the scope of our study which covers accountants in audit firms, academia, private and public sector is not statistically fixed. Hence, our sample size is as deemed appropriate for a study of this nature that is empirically alright.