THE FINANCIAL REPORTING QUALITY OF FIRMS IN NIGERIA 2010-2013
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY:
Every business organization, whether public or private that is being operated in Nigeria is set up to achieve predetermined and defined goals most of which are profit oriented. In order to make sure that these goals and objectives are achieved, a well-developed financial report is adopted by these organizations to suit each set goal or objective.
The quality of financial reporting has always been an issue of interest among regulatory bodies, shareholders, researchers and the accounting profession itself. This is due to the fact that financial reporting has been a principal means of communicating financial information to users. Financial reporting is the process of producing statements that disclose an organization’s financial status to management, investors and government.The primary objective of financial reporting is to provide high-quality financial reporting information concerning economic entities, primarily financial in nature, useful for economic decision making (FASB, 1999; IASB, 2008). Providing high quality financial reporting information is important because it will positively influence capital providers and other stakeholders in making investment, credit, and similar resource allocation enhancing overall market efficiency (IASB, 2008).Accurate financial report is very vital for firms, this is because it will help the organization maximize its profits and minimize losses which is the aim of every organization. When it comes to assessing the quality of the financial reporting and audit process, it seems that audit side receives most of the attention. Focusing on financial reporting quality is also as important. The quality of financial reporting is to promote transparency and deliver high quality annual report through comprehensive disclosure.
The responsibility for regulating accounting and financial reporting in Nigeria is shared by three main statutory bodies. The Corporate Affairs Commission (CAC), which is responsible for the supervision of company formation, registration, management, incorporation and winding up. The Securities and Exchange Commission (SEC) for regulating the capital market, and the Nigerian Stock Exchange (NSE), for ensuring compliance with the listing rules and reporting requirements for firms quoted on the Exchange in addition to providing a trading platform for quoted equity and debt. These legislations have the purpose to ensure the improvement of financial statements in respect of reliability and usefulness for decision-making, which should lead to a recovery of the public trust in financial reports.
           There is a growing interest in published accounts of companies in Nigeria and worldwide owing to the collapse of giant firms like Enron. The distress phenomenon in the banking sector which led to the fall in share prices on the floor of many stock exchanges has heightened the quest for qualitative financial reports. This is because of the fact that it is difficult to operationalize and measure financial reporting quality. The myriad of problems faced in firms in Nigeria are not far from the reason that financial reporting quality is hard to measure .This is because financial reporting quality is context and user specific and because of its context-specificity, an empirical assessment of financial reporting quality inevitably includes preferences among a myriad of constituents (Dechow and Dichev, 2002; Schipper and Vincent, 2003; Botosan, 2004; Daske and Gebhardt, 2006). Since different user groups will have dissimilar preferences, perceived quality will deviate among constituents. In addition, the users within a user group may also perceive the usefulness of similar information differently given its context. As a result of this context and user specificity, measuring quality directly seems problematic (Botosan, 2004)
This study seeks to contribute to improving measurement of financial reporting quality by examining how selected characteristics of firm size, leverage, board size, and profitability affect financial reporting quality in Nigeria.
1.2  STATEMENT OF RESEARCH PROBLEM:
The turbulent effects of the global financial crisis have highlighted the critical importance of credible high quality financial reporting. However, credible high quality financial reporting is difficult if not impossible to achieve in some firms in countries especially Nigeria because of the inability to get an objective measurement of financial reporting quality in the midst of two problems of context specificity and user specificity.
    In light of the above contention, the following research questions are raised:
1.3 RESEARCH QUESTIONS:
How does firm size affect its financial reporting quality?
How does leverage affect the financial reporting quality of a firm?
How does the board size affect the financial reporting quality of a firm?
How does firm profitability affect its financial reporting quality?
1.4: OBJECTIVES OF STUDY:
To determine how firm size affects financial reporting quality
To examine how leverage affects the financial reporting quality
To ascertain how the board size of a firm affects its financial reporting quality
To determine how firm profitability affects its financial reporting quality
1.5 STATEMENT OF HYPOTHESIS:    
Ho: There is no significant relationship between firm size and financial reporting quality.
Ho: There is no significant relationship between the leverage and the financial reporting quality.
Ho: There is no significant relationship between board size and the financial reporting quality.
Ho: There is no significant relationship between profitability and the financial reporting quality.
1.6: SCOPE OF THE STUDY:    
        This study aims to examine the impact of selected characteristics on firms’ financial reporting quality. In determining the financial reporting quality of firms in Nigeria, listed firms in the Nigerian Stock Exchange will be examined and period of behavior will be confined to 2010-2013.
1.7: SIGNIFICANCE OF STUDY
This study will improve measurement of financial reporting quality of firms in Nigeria  thereby promoting a high quality financial reporting
This study will serve as a reference point for making financial reporting decisions in firms
This study will serve as a research material for future research purposes
1.8: DEFINITION OF TERMS:
FINANCIAL REPORT:
A Financial Report (or Financial Statement) is a formal record of the financial activities of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form easy to understand. They typically include basic financial statements, accompanied by:
STATEMENT OF FINANCIAL POSITION: This is a report that shows the company’s assets, liabilities, and ownership equity at a given point in time.
STATEMENT OF FINANCIAL PERFORMANCE: Also known as statement of comprehensive income, statement of revenue and expense, profit and loss report, reports on a company’s income, expenses, and profit over a period of time. A profit and loss statement provides information on the operation of the enterprise. This include sales and the various expenses incurred during the stated period.
A STATEMENT OF CASH FLOWS: Reports on a company’s cash flow activities, particularly on its operating, investing, and financing activities.
FINANCIAL LEVERAGE:    
          Financial leverage is the degree to which a company uses fixed-income securities such as debt and preferred equity. The more debt financing a company uses, the higher its financial leverage. A high degree of financial leverage means high interest payments, which negatively affects the company’s bottom-line earnings per share.
PROFITABILITY: This simply means yielding profit (remuneration). It is measured in the income statement, this is essentially the listing of income and expenses during a period of time usually a year.
CORPORATE AFFAIRS COMMISSION: An autonomous body responsible for regulating the formation and management of companies in Nigeria. The Corporate Affairs Commission was established by the companies and allied matters act, which was promulgated in 1990 to regulate the formation and management of companies in Nigeria.
SECURITIES AND EXCHANGE COMMISSION:  It is an agency that holds the primary responsibility for enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nation’s stock and option exchanges, and other activities and organizations, including the electronic security markets in Nigeria.