Financial Reporting as a Corporate Governance Tool for Strengthening Corporate Business in Developing Economies: Lessons from Nigeria

 

By Udu, Eseni Azu, Ph.D (UNIZIK), Ph.D (NIGERIA), Lecturer, Faculty of Law, Ebonyi State University, Abakaliki, Nigeria, P.O. Box 1397, Abakaliki, Nigeria; Email: This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Abstract

 

Corporate administration and financial audit remain the most important aspects of corporate governance that makes management accountable to stakeholders for stewardship to a company. Thus, the separation of ownership from control of business has made the rendering of stewardship a critical key to corporate governance. Therefore, timely presentation of financial information, which reflects the economic consequences of transactions and events, is a part of good corporate governance. This paper is aimed at appraising financial reporting as a tool for strengthening corporate business to guarantee economic development and sustainability. This paper has employed a doctrinal approach of data collection hinged on appraisal and analysis. Overall, it found that there exists poor quality financial information, which beclouds the market assessment of the value of the securities appropriately, thereby weakening the passive monitoring of the corporate management. Because of the above, there has been a regression in corporate governance, due to poor quality financial reporting. It is therefore recommended that the legal framework for corporate governance should be strengthened. The enforcement mechanism should also be fashioned to compel legal compliance to the corporate governance principles in complementarity to ethical compliance by corporate managers. Directors as trustees are obliged by law to present their stewardship report in the form of financial statements (i.e. balance sheets, profit and loss accounts and statements of changes in financial position) as well as a statement of how the business was managed, to the shareholders at specific times, usually at Annual General Meetings (AGM) for consideration and possible approval. This practice of corporate governance is targeted at ensuring and strengthening the accountability of directors to shareholders.

 

Introduction

 

Financial reporting as a concept involves the disclosure of financial information to management and the public about how the company is performing over a specific period. Financial reports are usually issued on a quarterly and annual basis. This is different from management reporting, which is financial information that is disclosed to those inside the company to be used to make decisions within the company. Financial reports are included in a public company's annual report. The board of directors comprises of professional people who are appointed by the company to direct and manage the business and its corporate resources for the benefits of the resource owners. This assertion assumes that directors do not have any equitable interest in the organization. It is difficult to separate corporate financial reporting from corporate governance. There may be two reasons for this. First, shareholders have the right to receive information timely on the economic consequences of transactions entered into by the company and other events on the financial position and performance of the company. Secondly, high quality financial information helps the market to value the shares and other securities appropriately and thus strengthen the passive monitoring of the executive management by those who do not have control rights. Due to the above, there has been an improvement in corporate governance due to right quality financial reporting.[1]The place of financial reporting and auditing in the enhancement of good corporate governance cannot therefore be overemphasised. The requirement for transparency is reflected in the obligations of financial reporting and auditing, narrative reporting and business review placed on the board of directors. At any rate, corporate responsibility is meant to be captured under Social and Environmental Reporting and Sustainability/Development Reporting to be prepared and presented by board of directors during general meetings of members.[2] These obligations are however different from the fiduciary duties of directors, which are owed to the company.[3] The paper argues that financial reporting and auditing enhances corporate governance to ensure accountability by board of directors to shareholders.

 

Financial Reporting as a Corporate Governance Tool

 

The major objective of financial reports is to supply information on which management decision-making is based. This will require complete and accurate disclosure of both quantitative and qualitative data.[4] This is in line with the long-standing principle in financial reporting that requires fair and adequate disclosure in order for a good corporate governance to operate.[5] Section 331 (1) and (2) of the Companies and Allied Matters Act (CAMA)[6] states: ‘Every company shall cause accounting records to be kept … the accounting records shall be sufficient to show and explain the transactions of the company and shall be such as to: Disclose with reasonable accuracy at any time, the financial position of the company, and enable the directors to ensure that many financial statements prepared under this part comply with the requirements of this act as to the form and content of the company’s financial statements.

 

Notably, financial reporting serves two primary purposes. First, it helps management to engage in effective decision-making concerning the company's objectives and overall strategies. The data disclosed in the reports can help management discern the strengths and weaknesses of the company, as well as its overall financial health. Second, financial reporting provides vital information about the financial health and activities of the company to its stakeholders including its shareholders, potential investors, consumers, and government regulators. It's a means of ensuring that the company is being run appropriately. Note that if a company is publicly traded, it is subject to some very strict reporting regulations enforced by the Securities and Exchange Commission (SEC).[7] An audit is the verification of a company’s book and records, performed by an independent expert usually external expert, with a view to ascertaining its compliance with the accounting policy of the company and accounting standard rules.[8] It involves an examination and therefore an investigation into the past history, records and data about a company in order to gauge and discover the legality of the business operations, transactions, tax reporting and the overall handling of finance within the business. The essence of auditing is to ascertain that the books of account correspond with the accounting policies of the company as well as the accounting standards set out by the standard-setting boards. Generally, accountants must use Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs).[9] More so, the audited account must show the financial status of the company as it constitutes the proof of the financial status of a company, and as the courts have it, it is the best way of showing the financial position of the company at any given time.[10] The various changes in accounting, financial reporting and auditing were all designed to provide protection to investors. This is being achieved by importing a duty of accountability upon the managers of a company.[11] Auditing is used to provide the needed assurance for investors when relying on audited financial statements. More so, the role of auditing is to reduce information asymmetry in accounting to members, and to minimise the residual loss resulting from managers’ opportunism in financial reporting. Effective and perceived qualities (usually designated as apparent quality) are necessary for auditing to produce beneficial effects as a monitoring device.[12] Thus, it is as important as the effective audit quality. 

 

Audit quality implies that the auditor discovers an anomaly in the financial statements, and reveals it.[13] As an objective approach, auditing is concerned with an expert opinion on the fairness with which financial statement present in all material respects, a company’s financial position, results of operations and cash flows in conformity with GAAP. Again, to be able to express such an opinion, the auditor must examine the financial statements and supporting records using sound auditing techniques.[14] Given that corporate governance is concerned with aligning the interests of stakeholders with that of management and that the principles of integrity, transparency and adequate disclosure requirements are essential components of good corporate governance, it follows therefore that auditing is employed in observation of these social responsibility bearing in mind the effect that the reporting of the financial statement will have on the shareholders and the community at large. 

 

The Act requires the accounting records in particular to contain entries from day to day of all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place and a record of the assets and liabilities of the company.[15] According to a learned writer,[16] financial statement (through financial reporting) shows the annual state of affairs of the company and they are vital and indeed, of crucial importance not only to members of the company but also to third parties dealing with it. While the financial statements enable a member to know, for instance, whether his investments are growing or depreciating and whether to sell off or retain his shares in the company, they provide a potential investor with information which would either persuade him to invest or dissuade him from investing in a company.[17]

 

The practice of financial reporting serves as an overview of financial activities of a company. It is a standard practice for companies to prepare and present financial statements in a clear and concise manner for both the company and stakeholders in compliance with the regulations of the locale the company is domiciled, and according to the prescriptions of the board authority to maintain continuity of information and presentation across borders. By virtue of section 331 (1) (2), every company is required to keep accounting records in accordance with this section which shall be sufficient to show and explain the transactions of the company so as to disclose with reasonable accuracy, at any time, the financial position of the company and to enable the directors to ensure that any financial statements prepared under this part comply with the requirements of this Act as to the form and content of the company’s financial statements.[18]

 

Financial reporting has gradually become a slightly complex activity that is of interest to many persons throughout modern and contemporary society. In the past, it was a relatively simple practice primarily of interest to small group of industrialists and financiers. The development of financial reporting within individual countries differs due to the influences of the territory of each country.[19] For instance, the British view has traditionally been that the main purpose of financial reporting is to provide information for investors across the European continent. The European view has been that financial reports can be used for several purposes or more specifically for corporate governance purposes.[20]As it is, this paper defines financial reporting and accounting as the product of corporate accounting and external reporting systems that measure and publicly discloses audited and qualitative data concerning the financial position and performance of firms. Thus, financial accounting or reporting is the fundamental source of independently certified and promoting systems that provide valuable information to corporate control mechanisms that help to alleviate the agency problem which results from the separation of managers and financiers.[21] For investors to make good and crucial investment decisions, it is imperative to understand the theory of principal-agency relationships. 

 

Suffice it to say that this theory will be crucial for investors as it will provide them with adequate information with regards to financial reporting. Thus, principal-agent relationship exists between two contractual parties in business terms. It occurs when a person (an agent) acts on behalf of another (the principal). For the shareholders (i.e. the principal) engage management (agents) to act on their behalf and in full authority as delegated to the management to carry out the intention of the shareholders.[22] Given that most agents are experts at taking important decisions, however, when the decisions are conflicting with the interest of the principal, there is bound to be problem arising in this relationship because the principal is unable to monitor the agent’s activities perfectly and get the exact information as the agent without expending any cost hence, the risk of opportunistic behaviour on the side of the management. Often, this heads to information asymmetry, a system where one party has more or better information than the other. This creates an imbalance of power in transactions leading to a kind of market failure in the worst case.

 

Examples of this problem are adverse selection,[23] moral hazard[24] and information monopoly.[25] Furthermore, agency costs are incurred by the principal while attempting to avoid a moral hazard on the part of the agent. Although, this cost might be expected but not to a large extent, and it could be reduced through strict monitoring measures for effective reduction in agency costs. Therefore, the principal must enforce their interest through monitoring and controlling the agent.[26] Monitoring simply means the gathering of additional information about the firm’s current & future financial and economic possibilities and other information which are considered necessary for shareholders meetings. 

 

On the other hand, control signifies restrictions of certain management activities like decisions about the number of retained earnings. However, it might not be completely possible for the principal to affect this monitoring measure due to high cost involved and shareholders are indeed never able to replace management completely. So, there always remains a certain level of risk of opportunistic behaviour from the agent’s side due to principal financial limitations. Deduced from above is where the need for corporate governance comes from and why it is important in the contemporary world of corporations. Emphatically, the original need for corporate governance stems from the separation of ownership and control in publicly held companies. Investors seek to invest their capital in profit-making firms so that they can enjoy this profit in the future. Many investors lack the time and enterprise necessary to operate a firm and ensure that it provides an investment return. Thus, investors hire individuals with management expertise to run the company daily to see to it that the company’s activities enhance its profitability and long term performance. However, these managers and or directors often take actions that affect the value of shareholders’ investment.[27] Such attitude of management obviously affects the performance and financial viability of the firm and illustrates the need for corporate governance. More so, the principal and concept of corporate governance has arisen due to the high-profile collapses that were witnessed across the world of which Nigeria was no exception. The scandals precipitated concerted efforts at evolving codes of best practices for companies. There have been instances of corporate fraud on the international scene, which eventually led to the collapse of notable companies. A very popular example is the Enron case in the US.[28]

 

The collapse of Enron, for instance, had a negative impact on Arthur Andersen, an auditing firm that helped it to call the shots. Some of the company’s principal officers were prosecuted, convicted and sentenced to various terms. Rank Xerox is another popular case.[29] The company had to pay a fine to the tune of 10m dollars following the US SEC investigation of its accounting practices. Other examples are the WorldCom[30] and Parmalat[31] saga in Europe. On the local scene, we also have some notable cases such as the failure of some Nigerian banks in the early 1990’s. Another one is the case of Lever Brothers Plc[32] (now Unilever) in 1998 where over-valuation of stocks running into billions of Naira was discovered. Another is the case of the African Petroleum (AP) Plc where the company’s Board concealed its indebtedness to the tune of about 22 Billion Naira in its offer for sale of shares in 2000. Again, the Cadbury Nigeria Plc’s overstatement of its audited financial statements in its Annual Reports and Accounts for 2005 is another case in point. Upon review of Cadbury’s annual report, the SEC wrote to Cadbury on a letter dated September 22, 2006 to express concern about issues arising from the report in the areas affecting profitability, worsening leverage ratio, deteriorating cash flow, inadequate disclosure, non-compliance with corporate governance code, and obtaining loans for the payment of loans and for the payment of dividends to shareholders contrary to SEC regulations.[33] Also, a very recent case concerning the African Petroleum Plc[34] shares has brought to light the issue of corporate governance practices in a country like Nigeria. Following these collapses therefore, organizations have come to the realization that to maximize returns on their investment, accurate information need to be adequately provided for to reassure investors and the public alike, whose investment decisions are influenced by such information provided for, hence, the need for corporate governance. Thus, corporate governance is a system by which companies are directed and controlled.[35] It is concerned with holding the balance between social and economic goals between individual (shareholder) and communal goals. The aim is to align as nearly as possible the interests of individuals, corporations and society. It implies rules and regulations that ensure that a company is governed in a transparent and accountable manner such that the enterprise survives and meets the expectations of its shareholders, creditors and stakeholders of which society forms a large part of. 

 

Having noted the concept of corporate governance in passing, it would be difficult trying to separate financial reporting from corporate governance.[36] This is the basis that shareholders have the right to receive information timely on the economic consequence of transactions entered into by the company and other events on the financial position and performance of the company. Therefore, timely presentation of financial information, which reflects the economic consequences of transactions and events, is a part of good corporate governance. 

 

More so, high quality financial information helps the market to assess the shares and other securities appropriately and thus strengthens the passive monitoring of the executive management by those who do not have control rights (e.g. analyst and credit rating agencies). As a result, high reporting improves corporate governance. Therefore, it is not surprising that with increased focus on corporate governance, the focus on corporate financial reporting has also increased. Almost every country has initiated action to improve the quality of financial reporting to enhance the value relevance of the financial information provided in financial statements. Prudence, reliability and relevance are the cornerstones of financial reporting.[37] Application of the principles of prudence requires a company to recognize a loss or a liability immediately it is identified, while it prohibits a company to recognize an income unless it is earned and its collectability is reasonably certain. Thus, the principle of prudence is a check against the opportunistic behaviour of the management that has the incentive to defer recognition of a loss or liability and to advance the recognition of income. 

 

Although accounting is moving away from the historical cost basis of accounting, standard-setters have not yet given up this concept of prudence.[38] Notably, the use of accounting information in corporate governance mechanisms can be explicit (direct) or implicit (indirect). Financial report is explicitly used in managerial incentive contracts or debt contracts (direct use), but also contributes to the information contained in stock prices (indirect use). Furthermore, financial accounting information is both an output of the governance process, since it is produced by managers, and also an input since it is used in corporate control mechanisms.[39] As a result, additional governance mechanisms are required in order to ensure the quality, integrity, transparency and reliability of the accounting information supplied by managers, such as adequate internal control systems, independent board members, vigilant audit committees and independent external auditors.[40] Financial accounting information is an input of the governance process.[41] Fundamentally, corporate disclosure and transparency are vital for a strong corporate governance framework. Transparency, which is a desirable characteristic of financial reporting, can be defined as “the extent to which financial reports reveal an entity’s underlying economic reports.”[42] The need for accurate, reliable, timely and accessible financial and non-financial business information is imperative to maintain corporate accountability. As earlier mentioned, the effusion of corporate frauds and failures obviously bring company directors, accounting regulations, auditors and in general the accounting profession into sharp focuses.[43] This brings up the need to examine the role of financial reporting in corporate governance and the extent to which financial reporting serves the needs of corporate governance for the benefit of a wide range of stakeholders and for the befit of society in general. 

 

It is pertinent to argue that effective system of corporate governance requires an effective financial reporting system, and that an effective financial reporting system requires a well-ordered system of financial accounting.[44] Thus, it follows that where there is accurate, timely and transparent disclosure, certain fraudulent acts and failures would be prevented. One of such situations that transparent corporate financial reporting helps to combat is the financial statement fraud. Financial statement fraud[45] is a deliberate attempt by corporations to deceive or mislead especially investors and creditors, by preparing and disseminating materially misstated financial statements. Misstated financial statement may involve liabilities, or failure to disclose transactions or other information material to a fair presentation of the reported result of operations, and for materially misleading disclosures.[46] Among the most common motivations for companies to commit financial statement fraud are the constant pressure to meet earning projections competition for capital and the perverse compensation arrangements.[47] Imhoff[48] argues that within the U.S. financial reporting environment, managers have increasingly been offered mainly through cash bonus and stock option plans based on accounting results, incentives to manage earnings and to delay or conceal bad news. Financial reporting as a corporate governance tool connects the people that are involved in corporate governance such as the management including the board of directors, auditors, information distributors, analyst and shareholders. It is the bridge that connects the company with the external parties and will be the measurement to determine the performance or outcome of the company. 

 

The financial information is the first source of independent and true communication about the performance of company managers. This relevance makes the financial reporting as the main attraction to management influence.  The integrity of financial reporting is highly dependent on the performance and conduct of those involved in the financial reporting ecosystems, particularly directors, management and auditors.[49] In other words, the integrity of financial reporting relies on corporate governance. The board of directors has a primary responsibility of overseeing the firm’s financial reporting process. This board of directors together with management will try to produce a financial statement that shows that the company achieved a recommendable profit. The independent person that reviews the corporate reporting is the auditor. They need to follow the auditing standard with competence, diligence and integrity. They are supposed to give their opinion on the reported information.[50] It is the duty of the directors to prepare financial statements. The Companies and Allied Matters Act[51] provides in section 334 (1) that the directors must, in respect of each financial year of a company, prepare financial statement for the year which will include the following: 

 

A statement of the accounting policies;

The balance sheet as at the last day of the financial year; 

A profit and loss account or, in the case of a company not trading for profit an income and expenditure account for the financial year;

Notes on the accounts;

The auditor’s report; 

The director’s report; 

A statement of the source and application of fund; 

A value-added statement for the financial year;

A five-year financial summary, and

In the case of a holding company, the group financial statements.[52]

 

The financial statements of a private company however, need not include the matters stated in paragraphs (a), (g), (h) and (i) above.[53] The shareholders usually understand the limitations of the corporate structure from its inception, and often appoint representatives to serve their interests. So, the directors and management have duties and must exercise these duties to the shareholders with diligence and with care. They should never be negligent in performing their duties, especially when preparing the financial statement in every occasion. In a viable financial reporting as a very important tool in corporate governance, there are certain basic features that must be present. These characteristics are prudence, reliability, relevance and comprehension.

 

Information is reliable if it is free from bias and error and can as supposed be depended on by the public who are in one way or the other affected by the result, as represent events and transactions faithfully. Difficulties of measurement can at times affect the reliability of information as financially reported. In addition, information of the financial statement must not be designed to influence anybody or body of persons, because it can affect its reliability negatively. The financial statement if reliable has the following attribute associated with it,[54] namely: representational faithfulness, meaning that for the information or statement to be reliable, it must represent accurately the transactions and other circumstances of the entity. One piece of information may be relevant to the extent that it represents the true transactions of the entity but the circumstances on which the entity operates may render the information unreliable. Others include substance over form, that for the financial statement to be reliable, it should reflect the substance of the transaction and not necessarily the legal form.[55] Another one is neutrality. It means that such financial statement should be designed in such a way that it should not intentionally or by default, mislead the user to plan which the preparer desires. Also, the financial statement must be complete, and balance between costs and benefits.[56]

 

Furthermore, another characteristic of financial statement is that the information must be relevant. Information in a financial statement is relevant if it helps to influence the economic decisions of users. It will thus help them to evaluate present events and forms the basis for predicting future events as they relate to the entity. It is also to be relevant if it helps to correct previous faulty evaluation that was made in relation to the entity. In addition, the financial statement must be presented in such a way that it is readily understandable by the people concerned who have reasonable knowledge of business, economic activities and accounting and who are willing to study this information diligently.

 

In all the above, there must be the existence of true and fair report. This means that the financial statement must represent and have the attribute of being true and fair to the best of their knowledge that is the directors that are mandated to prepare the financial statements. These will all ensure that good and effective financial reporting as a tool in corporate governance will be actualized if the directors and the auditors, etc. are diligent enough and not negligent in their respective duties.43

 

Financial Reporting Failure Leads to Corporate Governance Failure and Vice-Versa 

 

Corporate governance which is characterized by transparency, accountability, probity, and the protection of shareholders’ rights, cannot be said or proved to exist if there is poor financial reporting. In fact, poor financial reporting can lead to corporate governance failure, and the concerned and affected company can go into bankruptcy. That is why it is usually emphasised that financial reporting is a very vital tool in effective corporate governance. To buttress the above statement, there have been occasions of corporate accounting scandals. Corporate scandals that happen today are not unique. It is continuous from previous episodes that pose threats to the nation’s economy. At the end, either the auditor(s) or the management is to be blamed. So, a good, true and fair financial reporting will ensure that the company functions and lives, but in the other way around, the reverse will be the case.

 

One of such corporate accounting scandal resulting from poor financial reporting is the case of Enron.[57] Enron accounting scandal was a popular one. Enron was established in 1985 as US based energy company and it was prosperous in its early life that its stock rose to by 311% in 1990s. Though the sign of distress in the company started emerging in 1997 when it wrote off $537 million to settle a contract dispute with another company. It became obvious that Enron was in serious problem when in November, 2001 it restated its account of 1997-2000 to correct accounting abnormality. The restatement brought down its reported earnings for this period by $591 million and increased the debt by $658 million. Consequently, the credit rating agents downgraded the company and it filed for bankruptcy in December 2001. Arthur Andersen that was the auditor of Enron was accused of negligence in its duty and was criticized of compromising its professional position for financial gain and this led to the winding up of the firm.[58] Other corporate accounting scandals are the case of Parmalat, an Italian company, Worldcom,[59] a US-based telecommunication company, among others. To be considered also in respect of corporate accounting scandal is Perwaja Steel Sdn. Bhd,[60] a Malaysia-based company. One of the wellknown corporate governance failures in Malaysia is the scandal of Perwaja Steel Sdn. Bhd. Perwaja was established in 1982 by HICOM BhD, a company owned by the government in collaboration with Japanese Company, Nippon Steel Corporation to fulfill the government’s mission in implementing the heavy industrial policy. The corporate governance of Perwaja was collapsed due to misconduct in the directorship. The director has paid RM 74.6 million to Japan’s NKK Corporation without getting approval from board of directors or tender committees. Later it was revealed that the payment was made via Hong Kong based firm. No qualification of accounts was made by the external auditors during the period 1992 to 1995 with respect to Perwaja’s accumulated losses. Investigation revealed that there was an alarming lack of an internal control system within Perwaja. There are inaccurate records, and this demonstrated a failure of corporate governance in which internal control mechanisms were short-circuited by conflicts of interest that enriched certain directors and has an impact on the reporting failure.[61] 

 

These cases of corporate scandals show that the importance of financial reporting is very crucial in corporate governance. And that if there is true and fair financial reporting, it will be very difficult for a company to go bankrupt but instead it will immediately redress the wrong as stated and discovered in the financial statements.  

 

Narrative Reporting as part of Corporate Governance Measure

 

Narrative Reporting describes the non-financial information included in annual reports to provide a broad and meaningful picture of the company’s business, its markets position, strategy, and performance and prospects. This includes the director’s report, the chairman’s statement, the directors’ remunerations report and corporate governance disclosure.[62] These make-ups of narrative reporting shall be explained seriatim:

 

The Directors Report

 

Directors are required to prepare in respect of each financial year, a director’s report which will be attached to the balance sheet.[63] Therefore, every company must attach to the balance sheet and profit and loss account a director’s reports.[64] According to section 342 of CAMA, there shall be prepared in respect of each year a report by the director which shall contain the following:

 

The names of persons who, at any time during the year, were directors of the company.[65]

The financial activities of the company and its subsidiary in the course of the years.[66]

Any significant change in the financial activities of the company and its subsidiaries.[67]

The report shall also state the matter, and give the particulars required by Part I of Schedule 5 to the CAMA.[68]

 

On the scope of coverage of director’s report, section 342(1) of CAMA provides that the report shall contain a fair view of the development of the business of the company and its subsidiaries during the year and their position at end of it.[69] Secondly, the director’s reports shall state the amount (if any) which they recommend should be paid as divided and the amount (if any) which they propose to carry to reserves.[70] The law provides for punishment for failure to comply with the requirement. Accordingly, any failure to comply with the requirement of CAMA as to the matters to be stated and the particulars to be given in the director’s report, every person who was a director of the company immediately before the end of the period prescribed for laying and delivery of financial statements, shall be guilty of an offence and liable on conviction to a term of imprisonment for more than 6 months or to a fine of N500.[71] The above provision for punishment notwithstanding, it shall be a defence for the director to prove that he/she took all reasonable steps for securing compliance with the requirements in question.[72]

 

 

Chairman’s Statement

 

Recall that the annual report of a company is a key information source for shareholders of such company to find out its performance in the previous financial year. Its content can be divided into two main categories: quantitative and qualitative. The section under quantitative category is basically the financial statement of the company. However, the qualitative category consists mainly of the chairman’s statement and management discussion. Chairman's statement is a report by a company's chairman once a year that gives information to shareholders about the company's performance during the past year. The chairman’s statement is getting more attention as investors realize that by going through these contents they can gain insight into the overall company performance, business activities, and development and future directions.[73] In an annual report, the chairman’s statement is always located at the start of the report. Since it is a voluntary disclosure,[74] the statement usually comprises what the senior management of the company wants to disclose to the public. Arguably, the Statement exaggerates positive news during the good years and places less focus in bad news in lack lustre years.[75] When a company reports good performance and prospect, the words used in the chairman’s statement tend to be more optimistic, compelling and assertive.  

 

Interestingly, if the company is reporting poor performance, lengthy explanations about business activities or financial performance are withheld especially to those involving issues. Besides, when negative issues are brought up, the explanation given tends to be ambiguous and will most likely focus on external factors beyond the management’s control. In some cases, when the chairman is trying to hide bad news from the public or facing crisis that has not yet been made known to the public, and the statement might avoid words that indicate certainty or commit the company to a position. Often, the chairman’s statement uses graphs and pictures for support.[76] The chairman’s statement also displays apologies for problems that occurred during the year.

 

The Directors Remuneration Report

 

Directors' remuneration reports includes a directors' remuneration policy, and an annual report on remuneration in the financial year being reported on, and on how the current policy will be implemented in the next financial year. By virtue of section 268 of CAMA, a managing director shall receive such remuneration (whether by ways of salary, commission or participation in profits, or partly in one way and partly in another) as directors may determine. According to Orojo,[77] the remuneration of directors is, as a rule, regulated by the Act and articles, but unless so provided, or  there is an agreement to that effect, they are  not entitled to remuneration for services since they are not servants of the company, but are in the position of managers. Accordingly, the remuneration of the directors shall from time to time be determined by the company in a general meeting and such remuneration shall be deemed to accrue from day to day.[78] Also that the directors may be paid all traveling, hotel and other expenses properly incurred by them in attending  and returning from meeting of the directors or any committee of the directors or general meetings of the company or in connection with the business of the company.[79] What is clear from both section 267 and 268 of CAMA is that the remuneration of managing director is a mandatory obligation imposed on the company by CAMA to be determined, however, by directors, but on the part of the directors, the company shall not be bound to pay them, unless where the company agrees to pay or same is fixed by the article of association. Such agreement to pay is usually at the general meeting. And where remuneration of director has been fixed by articles, it shall be alterable only by a special resolution.[80] Consequently, the remuneration of directors is no longer required to be stated in the prospectus, but the aggregate amount of directors’ emoluments must be shown in the notes to the narrative reporting.[81] This report will enable the shareholders to review the agreement to pay directors or alter the article to make changes to the fixed remuneration of the directors where necessary.

 

Corporate Governance Disclosure

 

It has been recognized that the ‘prize’ which companies should pay for the privileges of incorporation and limited liability should be a fair degree of openness and publicity about their affairs. The Companies Acts have been largely based on this philosophy.[82] In response to recent corporate governance scandals, governments have adopted several regulatory changes. One component of these changes has been increased disclosure requirements. It has been reported[83] that a major barrier to the flow of relevant information is the risk of opportunism inherent to the manager’s influence in the firm, which is referred to as an incomplete or distorted disclosure of information and calculated efforts to mislead, distort, obfuscate or otherwise confuse the public and shareholders. Companies and Allied Matters Act makes provisions for disclosures with respect to the individual interest of members in the share capital of a public company.[84] The aims for this requirement of disclosure by CAMA are as follows:

 

To reveal the identities of persons who may be acquiring shares in the company with a view to controlling it.

To enable the company make its own investigations in this respect without resort to an investigation ordered or supervised by the Corporate Affairs Commission.

To help check abuse and corruption. The disclosure obligations are directed towards two areas namely shares held in trust and substantial shareholding.[85]

 

There is also a requirement of disclosure in respect of loans and other transactions favouring directors and officers.[86] More generally, the principle of cooperate governance disclosure demands for publicity of every decision of general meeting and that of the directors which affects business activities or interests of the members of the company and/or the public. This corporate governance disclosure is usually made as part of the annual report as stipulated by the CAMA.[87] According to Ofo,[88] beyond the disclosure made in the annual reports of companies as stipulated by the CAMA, there is real need to take further steps to ensure that shareholders actually get corporate information. The information could be provided in a dedicated corporate governance section in a company’s website. The corporate governance section or report of the annual financial statement should contain appropriate websites references and links to enable shareholders to access the information.

 

Business Review

 

Generally, the functions of the board of directors include inter alia: Defining the business or businesses in which the company shall engage and setting the company’s long term objectives and strategic plans and ensuring that there is adequate machinery for planning.[89]

 

In case of every company, there shall be prepared in respect of each year a report by the directors containing a fair view of the development of the business of the company and its subsidiaries during the year and of their position at the end of it.[90] In making the business review, the directors’ report should give details of the general nature of the business, changes in its asset value, director’s shareholdings, training matters, acquisition of its own shares, policy to be disabled, health and safety matters and employee participation policy.[91]

 

Business review is properly reflected in the financial statement prepared by director. Accordingly, financial statements of a company shall consist of the following items:

 

Statement of the accounting policies

The balance sheet as at the last day of the year

A profit and loss account or in the case of a company not trading for profit, an income and expenditure account for the year.

Notes on the accounts;

The auditors’ reports;

The directors’ report;

A statement of the source and application of fund;

A value-added statement for the year

A five-year financial summary

In case of a holding company, the group financial statements.[92]

 

When these items are presented appropriately, they stand as a general review of business of a given company.

 

Social and Environment Reporting

 

Social and environmental reporting is usually captured in the chairman’s statement. People generally feel that business and other organizations have social obligations and responsibilities. Social responsibility includes obligations that an organization including company owes the general public and to specific interest groups and they arise from organizational activities that affect society to a greater degree.[93]

 

In respect to companies, a social responsibility is embodied under the concept of corporate social responsibility.[94] In Nigeria, society has been placing increased demands on big business organizations for greater social responsibilities in the next decade. There has been pressure on business to be involved in solving social and economic problems.[95] The concern includes employee welfare, working conditions, pollution, product safety, marketing practices, employment and community development among others.75 Companies embark on these provisions purely on moral and ethical grounds and never as a legal obligation. Since the investors’ money is involved in such developmental expenditures, the directors, as part of the annual accountability, are required to report on the company’s social outreach for the year. A new plan may be presented through the reporting for consideration by the shareholders at the general meeting.[96]

 

On the other part, environmental reporting is a national policy as required by Environmental Impact Assessment Act (EIAA).[97] One of the objectives of environmental impact assessment[98] is to establish, before a decision is taken by any person, authority, corporate body or unincorporated body, including the Government of the Federation, State or Local Government intending to undertake or authorize the undertaking of any activities, those matters that may likely or to a significant extent affect the environment or have an environmental effect on those activities, and same shall be taken into account.[99] Secondly, the Act[100] has also the goal of encouraging the development of procedures for information exchange, notification and consultation between organs and persons when proposed activities are likely to have a significant effect on boundary or trans-state or on the environment of bordering towns and villages.[101] Experiences all over the world have revealed that failure to incorporate and institutionalise EIA into a project and the production process at the outset generally results in higher costs later for curative health and environmental programmes to control pollution and manage industrial wastes.[102]

 

Environmental responsibility of companies, especially those that their activities affect environment, forms part of the concept of corporate social responsibility. Under the Nigerian law, a registered company can only engage in and apply its funds for businesses which are authorized by its object clause in the memorandum of association.[103] It will therefore be ultra vires for a company acting through the directors to expend its resources for social, political, environmental or charitable purpose except such is justified as being in the interest of the company and to promote its prosperity. The possible exceptions to this rule are where the company’s object expressly permits the use of the company’s money for a specified purpose without any reference to the relevance or utility of the expenditure to the company’s prosperity and where the company, being a charitable organization, applies its funds for a charitable purpose.[104]

 

As noted above, as far as Nigerian company law is concerned, there is no obligation on a company to act as a good corporate citizen or with altruistic sense of responsibility towards the environment. This has however, been made possible because the objects clause of companies these days is framed so widely as to permit necessary discretion or to engage in any business or activity which will promote the interest of the company.[105] Also, National Policy on Environment imposes an obligation on corporate bodies to take responsibility toward the environment. Thus, if a company expands its funds voluntarily for improving the environment, such expenditure need to be reported to the shareholders at the general meeting. Also, plans for the environment must also be presented before the shareholders for approval or rejection or even amendment. This duty of environmental reporting becomes very necessary since the object/business clause may not have specifically authorized environmental expenditure.[106]

 

Presumably, acting under the above requirement and exceptions, Nigerian companies indeed have been engaging in one charitable giving or other activities for the improvement of the environment. Some of the examples of these social and environmental responsibilities include the building by Guinness Nigeria Limited of an Eye Hospital in Onitcha,[107] bursaries and scholarships have been provided for secondary and universities education by companies like UAC Nigeria Limited,[108] P.Z Nigeria Limited[109] and Gulf Oil Company (Nigeria) Limited.[110] Equally, research grants and professional chairs in universities have been endowed by First City Merchant Bank Limited,[111] Unity Bank of Africa Limited[112] and International Merchant Bank Limited.[113] With particular reference to environmental improvement, Mobil Producing Nigeria Limited[114] as well as other major oil producing companies have constructed several kilometres of roads in rural areas; provided water, electricity and built schools for rural communities where they operate.[115] All these constructions, buildings, grants and charitable donations are presented in the annual general meeting of a company as ‘Social and Environmental Reporting’.                                   

 

Sustainability/Development Reporting

 

According to Black’s Law Dictionary,[116] sustain means ‘to support or maintain especially over long period’. Also, development means ‘a human created change to improve….’ When combined, sustainable development means development that meets the needs of the present without compromising the ability of future generations to meet their own needs…. It is a process of change in which exploitation of resources, the direction of investments, the orientation of technology development, and institutional change are all in harmony and enhance both current and future potential to meet human needs and aspirations.[117]

 

Company business or corporate activities should be carried out in such a way as not to obstruct or endanger human and environment development. The social environment in which corporate bodies operate should be preserved for future generation to utilize for continuity of life and its environment. Sustainability forms part and parcel of corporate social responsibility. Regarding a company, its implication is that a company should not cut the bridge after crossing all in effort to make profit or achieve success. The motive for profit or success must be balanced with the need to sustain or develop the sources available for present and future utilization. When a company spends its resources to develop the environment, it should be accounted for. This is the basis for sustainability/development reporting. The Financial Reporting Council has produced guidance on the strategic report and other aspects of narrative reporting, and its Financial Reporting Unit reports provide the results of discussions with investors on best practice disclosures areas.[118] 

 

Conclusion and Recommendation

 

Notably, while the financial reporting process provides investors and creditors with information about the entity’s performance, it also impacts the current and future wealth position of its managers. For this reason, the use of accounting performance measures in management compensation contracts has been the most thoroughly researched corporate governance issue. There is however, poor quality financial information, which blurs appropriate market assessment concerning the value of company securities. There is consequential regression in corporate governance due to poor quality financial reporting. Therefore, the paper recommends that the legal framework for corporate governance should be strengthened. The enforcement mechanism should also be fashioned to compel legal compliance to the corporate governance principles in complementarity to ethical compliance. However, the external financial reporting-corporate governance relationship is not limited to financial compensation and results alone, since governance accountabilities are also affected by corporate social and environmental impacts. The reporting environment of a publicly held firm includes a monitoring network comprised of those who follow the firm in the role of owner or investor, an intermediary such as an analyst or an investment banker, and who have actual overnight responsibility such as the external auditor. Ironically, the role of external auditors has been perceived as the most important factor in defecting and preventing financial statement fraud. In recent years, however, the entire corporate governance system (board external auditor, committee, top management team, internal auditors, external auditors, and governing bodies) is responsible for ensuring the integrity, transparency and quality of financial statements. In conclusion, timely, accurate and transparent disclosure of the financial statement of the company is a sine qua non for the observance of good corporate governance, hence, the essence of financial reporting in helping investors to make good investment decisions.

 

 

 

References

 

Adejemi, S.B. & Fagbemi, T.O.,  ‘Audit Quality, Corporate Governance and Management, Vol.5, N0-5, 2010 p. 171 169-179. 

De Anglo, L.E., ‘Auditors size and Audit Quality,’ Journal of Accounting and Economics, 3, 1981, pp 183-199. 

Aguolu, O., Fundamentals of Auditing, 3rdedn, (Institute for Development Studies, Nigeria, 2008) p. 570. 

Ajogwu, F., Corporate Governance in Nigeria, Law and Practice (Lagos Center for Commercial Law Development 2007) p.21.

What is the Different between GAAP and GAAS? What are some examples?’, Available at:  https://www.quora.com/What-is-the-different-between-GAAP-and-GAAS-What-are-some-examples, accessed on 23/03/ 2018. 

Baker, R. & Idallagey, P.,. ‘The Future of Financial Reporting in Europe: Its Role in Corporate Governance,’ The International Journal of Accounting, 35:2, 2000, pp. 173-189.

Broadly, D & D.T. Dohmateu, ‘Auditing and Its Role in Corporate Governance,’ Bank for International Settlements, FSI Seminar on Corporate Governance for Banks, 20 June, 2006. 

Companies and Allied Matters Act (CAMA), Cap. C20, Laws of the Federation of Nigeria, 2004, section. 331 (3).

Companies and Allied Matters Act (CAMA), Cap. C20 Laws of the Federation of Nigeria (LFN) 2004, ss.331, 342 and 357.

CAMA, Cap. C20 LFN 2004, ss.279, 280 and 282.

Cap. C2O Laws of the Federation of Nigeria, 2004.

Livestock Feeds Plc v. Igbino Farms Ltd (2002) 5 NWLR (Pt.759) CA 118 at 134. 

Crowther, D. & Jatana, R., ‘Agency Theory: A Case of Failure in Corporate Governance: in Crowther, D. & Jatana, R., (eds), International Dimensions of Corporate Social Responsibility, 1, 2005, pp. 135-152.   

Orojo, O.J., Company Law and Practice in Nigeria, 5thedn, (Dayo Orojo of Royet and Day Publications Ltd, 2008) p. 295.

Udu, E.A., Principles of Company Law and Practice in Nigeria (Lagos: Mbeyi & Associates (Nig.) Ltd), p. 228. 

Ordelheide, D., ‘True and Fair View: A European & a German Perspective’, European Accounting Review, 2:1, 1993, pp. l & 90; Kuhner, C., ‘Maintaining Economic Stability as a Motored for Statutory Accounting Requirements,” the European Accounting Review, 6:44, 1997, pp. 33-754.

Bushmen, R.M. and Smith, P.A.J., ‘Financial Accounting, Information & Corporate Governance’, Journal of Accounting & Economics, 32:1-3 2001, pp. 237-333.

Olugbenga, W.D., ‘Significance of Financial Reporting to Stakeholders in Nigeria - Investors Perspective, Business Economics and Law Journal, 2070.

Ledyard, J.O., ‘Market Failure, The New Palgrave Dictionary of Economics, 2nd ed. 200.

Olugbenge, T.J.D., ‘Significance of Financial Reporting to Stakeholders in Nigeria- Investors’ Perspective’, Business Economics & Tourism, 2070. 

Triole, J., ‘Corporate Governance’, Economics, 69, No.1 2001, p. 2.

Segal, T., ‘Enron Scandal: The Fall of a Wall Street Darling’, available at: https://www.investopedia.com/updates/enron-scandal-summary/, accessed on 23/03/ 2018.

Romero, S. and Atlas, R.D., ‘Worldcom's Collapse: The Overview; Worldcom Files for Bankruptcy; Largest U.S. Case’, available at: http://www.nytimes.com/2002/07/22/us/worldcom-s-collapse-the-overview-worldcom-files-for-bankruptcy-largest-us-case.html, accessed on 22/03/ 2018.

Borland, V., ‘The Saga of Parmalats Collapse’, available at: https://www.ft.com/content/c275dc7c-cd3a-11dd-9905-000077b07658, accessed on 23/03/2018.

Why Bunmi Oni, Auditor Must be Prosecuted,’ https://www.proshareng.com/articles/Frauds%20&%20Scandals/Why-Bunmi-Oni,-Auditor-Must-Be-Prosecuted/847, accessed on 23/03/ 2018.

Sista, S., Cadbury Nigeria Investigation, available at: http://nigeriavillagesquare.com/forum/threads/cadbury-nigeria-investigation.6493/, accessed on 22/03/ 2018.

AP's Share Price Scam: NSE/SEC Steps in. (Otedola Vs Dangote), available at: http://nigeriavillagesquare.com/forum/threads/aps-share-price-scam-nse-sec-steps-in-otedola-vs-dangote.30875/, accessed on 23 March, 2018. 

Cadbury, S.A., ‘Report on the Committee on the Financial Aspects of Corporate Governance,’, (London: Gee Limited / Professional Publishing Limited, 1992) p. 21. 

Bhattacharyya, A.K., ‘Transparent Financial Reporting: Essential for Corporate Governance’, Economic Policy, 2012, 17 September. 

Sloan, R.G., ‘Financial Accounting and Corporate Governance: Discussion’, Journal of Accounting and Economics, 32:1-3, 2001, pp. 337-347.  

Rezaee, Z., Causes, Consequences and Deterrence of Financial Statement Fraud,’ Critical Perspectives on Accounting, 16:3, 2005, pp. 277-298.

Arvanitidouetal, V. ‘The Role of Financial Accounting Inormation in Strengthening Corporate Control Mechanisms to Allenate Corporate Corruption; University of Macedonia, Greece 

Barth, M.E. & Sdipper, K., ‘Financial Reporting Transparency’, Journal of Accounting, Auditing & Finance, 23:2, 2008, pp 173-190. 

Parker, L.D., ‘Financial and External Reporting Research; the Broadening Corporate Governance Challenge’, Accounting and Business Research, 37:1, 2007, pp 39-54.  

Dooly, D.V., ‘Financial Fraud: Accounting Theory and Practice’, Fordham Journal of Corporate & Financial Law, September, 8 2002, pp. 53-88. 

Fahnestock, R.T. & Yost, G.C., ‘The Rationale for and Implications of Recent Business Failures on the Accounting Professions,’ Journal of Accounting and Fiancé Research, 12:5, 2004, pp. 18-131. 

Imphoff, E.A., ‘Accounting Quality, Auditing and Corporate Governance,’ Accounting Horizons, September 17, 2007, pp. 117-128.  

Norwani, N.M., et al, ‘Corporate Governance Failure and Its Impact on Financial Reporting Within Selected Companies’, International Journal of Business and Social Science, vol. 2 No 1 (November, 2011), p. 207.    

Alabede, J.O., ‘The Role, Compromise and Problems of the External Auditor in Corporate Governance’, Research Journal of Finance and Accounting, Vol. 3 No 9 (2012), available at URL www.iiste.org, accessed on 21/09/ 2013. p. 119.

‘The Enron Case Study: History, Ethics and Governance Failures, available at: http://www.applied-corporate-governance.com/enron-case-study.html, accessed on 23/03/2018.   

‘The Perwaja Steel Scandal,’ available at: https://wtfreport.wordpress.com/2011/12/15/the-perwaja-steel-scandal/, accessed on 23/03/2018.

Bourne, N., Principles of Company Law, 3rd edition, (London: Cavendish Publishing Ltd, 1998) p.203.

Gan, L., et al, Social and Environmental Reporting, available at: https://www.slideshare.net/NaomiODonoghue/social-and-environmental-reporting-an-essay, accessed on 24/03/2018.

Seberu, O.J. and Aremu, O.S., Department of Banking and Finance: The Polytechnic, (Ibadan Nigeria, 2010) p.96.

Kaur, P., ‘Social Reporting: Meaning, Uses and Scope’, available at: http://www.yourarticlelibrary.com/accounting/financial-reporting/social-reporting-meaning-uses-and-scope/57360, accessed on 24/03/2018.

Environmental Impact Assessment Act (EIAA), Section 1(a).

Environmental Impact Assessment Act, op. cit., note 78, section.62.

Omaka, C.A., ‘The Concept of Environmental Impact Assessment in Nigeria’, Ebonyi, State University Law Journal, Vol. 2 No 1 (2007) p. 67.

Re Horsley and Wright Limited (1982) ch. 442 cited in Omotola, J.A., Environmental Laws Including Compensation (Lagos: UNILAG, 1990) p. 82.

Omotola, J.A. op. cit., note 83, pp. 82-83.

National Policy on Environment, available at: http://www.nesrea.gov.ng/wp-content/uploads/2017/09/National-Policy-on-Environment.pdf, accessed on 24/03/

Imoh-Ita, I., ‘Corporate Social Responsibility of Mobil Producing Unlimited and Julius Berger Nigeria Limited in Akwa Ibom State’, British Journal of Humanities and Social Sciences, 73 April 2015, Vol.13(1), p. 77. 

Black’s Law Dictionary, 8th Editions.

World Commission on Environment and Development (1987) Report, also known as Brundt Land report.

Financial Reporting Council of Nigeria Act, No. 6, 2011, sections 8(2), 30 and 53(2).



[1] Companies and Allied Matters Act (CAMA), Cap. C20 Laws of the Federation of Nigeria (LFN) 2004, ss.331, 342 and 357.

[2] Ibid., note 1, section 331..

[3] CAMA, Cap. C20 LFN 2004, ss.279, 280 and 282.

[4] Available at: http://m.business-standurd.com/wapnew/storypage-content.php, accessed on 19/02/2018. 

[5] Aguolu, O., Fundamentals of Auditing, 3rdedn, (Institute for Development Studies, Nigeria, 2008) p. 570. 

[6] Cap. C2O Laws of the Federation of Nigeria, 2004.

[7] Investment and Securities Act, 2007, section 60(1).

[8] Ajogwu, F., Corporate Governance in Nigeria, Law and Practice (Lagos Center for Commercial Law Development 2007) p.21. 

[9]What is the Different between GAAP and GAAS? What are some examples?’, Available at:  https://www.quora.com/What-is-the-different-between-GAAP-and-GAAS-What-are-some-examples, accessed on 23/03/2018.

[10]Livestock Feeds Plc v. Igbino Farms Ltd (2002) 5 NWLR (Pt.759) CA 118 at 134. 

[11] Crowther, D. & Jatana, R., ‘Agency Theory: A Case of Failure in Corporate Governance: in Crowther, D. & Jatana, R., (eds), International Dimensions of Corporate Social Responsibility, 1, 2005, pp. 135-152.   

[12] Adejemi, S.B. & Fagbemi, T.O.,  ‘Audit Quality, Corporate Governance and Management, Vol.5, N0-5, 2010 p. 171 169-179. 

[13] De Anglo, L.E., ‘Auditors size and Audit Quality,’ Journal of Accounting and Economics, 3, 1981, pp 183-199. 

[14] Braodlly, D & D.T. Dohmateu, ‘Auditing and Its Role in Corporate Governance,’ Bank for International Settlements, FSI Seminar on Corporate Governance for Banks, 20 June, 2006. 

[15] Companies and Allied Matters Act (CAMA), Cap. C20, Laws of the Federation of Nigeria, 2004, section. 331 (3). 

[16] Orojo, O.J., Company Law and Practice in Nigeria, 5thedn, (Dayo Orojo of Royet and Day Publications Ltd, 2008) p. 295.

[17] Available at: https://www.edupristine.com/blog/financial-reporting, accessed on 21/03/ 2018.

[18] Udu, E.A., Principles of Company Law and Practice in Nigeria (Lagos: Mbeyi & Associates (Nig.) Ltd), p. 228.

[19] Baker, R. & Idallagey, P.,. ‘The Future of Financial Reporting in Europe: Its Role in Corporate Governance,’ The International Journal of Accounting, 35:2, 2000, pp. 173-189: 

[20] Ordelheide, D., ‘True and Fair View: A European & a German Perspective’,

European Accounting Review, 2:1, 1993, pp. l & 90; Kuhner, C., ‘Maintaining Economic Stability as a Motored for Statutory Accounting Requirements,” the European Accounting Review, 6:44, 1997, pp. 33-754.

[21] Bushmen, R.M. and Smith, P.A.J., ‘Financial Accounting, Information & Corporate Governance’, Journal of Accounting & Economics, 32:1-3 2001, pp. 237-333.

[22] Olugbenga, W.D., ‘Significance of Financial Reporting to Stakeholders in Nigeria - Investors Perspective, Business Economics and Law Journal, 2070.

[23] This refers to a market process in which undesired results occur when buyers and sellers have access to different information; the bad products or services are more likely to be selected, 

[24] A moral hazard is a situation where a party will have a tendency to take risks because the costs that could result will not be borne by the party taking the risk. 

[25] Ledyard, J.O., ‘Market Failure, The New Palgrave Dictionary of Economics, 2nd ed. 200, Abstract. 

[26] Olugbenge, T.J.D., ‘Significance of Financial Reporting to Stakeholders in Nigeria- Investors’ Perspective’, Business Economics & Tourism, 2070. 

[27] Triole, J., ‘Corporate Governance’, Economics, 69, No.1 2001, p. 2. 

[28] Segal, T., ‘Enron Scandal: The Fall of a Wall Street Darling’, available at: https://www.investopedia.com/updates/enron-scandal-summary/, accessed on 23/03/ 2018.

[29] Locke, R.R., ‘The Collapse of the American Management Mistique’, available at: https://books.google.com.ng/books?id=-5CuI9nGvOcC&pg=PA166&lpg=PA166&dq=Rank+Xerox+collapse&source=bl&ots=ZmHXCL2Bul&sig=00PmgFgNIf3OVZlO2cL3dhIU5zg&hl=en&sa=X&ved=0ahUKEwia_sPZiIPaAhUFJ8AKHYDTBysQ6AEIOzAG#v=onepage&q=Rank%20Xerox%20collapse&f=false, accessed on 23/03/2018.

[30] Romero, S. and Atlas, R.D., ‘Worldcom's Collapse: the Overview; Worldcom Files for Bankruptcy; Largest U.S. Case’, available at: http://www.nytimes.com/2002/07/22/us/worldcom-s-collapse-the-overview-worldcom-files-for-bankruptcy-largest-us-case.html, accessed on 22/03/ 2018.

[31] Borland, V., ‘The Saga of Parmalats Collapse’, available at: https://www.ft.com/content/c275dc7c-cd3a-11dd-9905-000077b07658, accessed on 23/03/ 2018.

[32] ‘Why Bunmi Oni, Auditor Must be Prosecuted,’ https://www.proshareng.com/articles/Frauds%20&%20Scandals/Why-Bunmi-Oni,-Auditor-Must-Be-Prosecuted/847, accessed on 23/03/ 2018.

[33] Sista, S., ‘Cadbury Nigeria Investigation’, available at: http://nigeriavillagesquare.com/forum/threads/cadbury-nigeria-investigation.6493/, accessed on 22/03/2018.

[34] AP's Share Price Scam: NSE/SEC Steps in. (Otedola Vs Dangote), available at: http://nigeriavillagesquare.com/forum/threads/aps-share-price-scam-nse-sec-steps-in-otedola-vs-dangote.30875/, accessed on 23/03/ 2018.

[35] Cadbury, S.A., ‘Report on the Committee on the Financial Aspects of Corporate Governance,’, (London: Gee Limited / Professional Publishing Limited, 1992) p. 21. 

[36] Bhattacharyya, A.K., ‘Transparent Financial Reporting: Essential for Corporate Governance’, Economic Policy, 2012, 17 September. 

[37]Ibid, note 24. 

[38]Ibid, note 24.

[39] Sloan, R.G., ‘Financial Accounting and Corporate Governance: Discussion’, Journal of Accounting and Economics, 32:1-3, 2001, pp. 337-347.  

[40] Rezaee, Z., Causes, Consequences and Deterrence of Financial Statement Fraud,’ Critical Perspectives on Accounting, 16:3, 2005, pp. 277-298.

[41] Arvanitidouetal, V. ‘The Role of Financial Accounting Inormation in Strengthening Corporate Control Mechanisms to Allenate Corporate Corruption; University of Macedonia, Greece 

[42] Barth, M.E. & Sdipper, K., ‘Financial Reporting Transparency’, Journal of Accounting, Auditing & Finance, 23:2, 2008, pp 173-190. 

[43] Parker, L.D., ‘Financial and External Reporting Research; the Broadening Corporate Governance Challenge’, Accounting and Business Research, 37:1, 2007, pp 39-54.  

[44] Baker, R. & Idallagey, P., ‘The Future of Financial Reporting in Europe: Its Role in Corporate Governance, The International Journal of Accounting, 35:2, 2000, pp. 173-187  

[45] Rezaee, Z., ‘Courses, Consequences, and Difference of Financial Statement Fraud,’ Critical Perspectives on Accounting, 16:3, 2005, pp. 277-298. 

[46] Dooly, D.V., ‘Financial Fraud: Accounting Theory and Practice’, Fordham Journal of Corporate & Financial Law, September, 8 2002, pp. 53-88. 

[47] Fahnestock, R.T. & Yost, G.C., ‘The Rationale for and Implications of Recent Business Failures on the Accounting Professions,’ Journal of Accounting and Fiancé Research, 12:5, 2004, pp. 18-131. 

[48] Imphoff, E.A., ‘Accounting Quality, Auditing and Corporate Governance,’ Accounting Horizons, September 17, 2007, pp. 117-128.  

[49] Norwani, N.M., et al, ‘Corporate Governance Failure and Its Impact on Financial Reporting Within Selected Companies’, International Journal of Business and Social Science, vol. 2 No 1 (November, 2011), p. 207.    

[50] Ibid, note 37, p. 208.

[51]Ibid, note 37, p. 209..

[52] Companies and Allied Matters Act (CAMA), Cap. C20, Laws of the Federation of Nigeria, 2004, S. 334(2). 

[53] Ibid, note 40, section 334(3).

[54] Aguolu, O., Fundamentals of Auditing, 3rd edn, (Institute for Development Studies, Nigeria, pp. 578-581.  

[55] Asvanitidouetal, V., ‘The Role of Financial Accounting Information in Strengthening Corporate Control Mechanisms to Alleviate Corporate Corruption, University of Macedonia, Greece.

[56] Udu, E.A., Principles of Company Law and Practice in Nigeria, op. cit., note 18, p. 230.

[57] Alabede, J.O., ‘The Role, Compromise and Problems of the External Auditor in Corporate Governance’, Research Journal of Finance and Accounting, Vol. 3 No 9 (2012), available at URL www.iiste.org, accessed on 21/09/ 2013. p. 119   

[58] ‘The Enron Case Study: History, Ethics and Governance Failures, available at: http://www.applied-corporate-governance.com/enron-case-study.html, accessed on 23/03/ 2018.

[59]Ibid, note 44, p.120.

[60] Norwani, N.M., et al, ‘Corporate Governance Failure and its Impact on Financial Reporting Within Selected Companies’, International Journal of Business and Social Science, vol. 2 No 1 (November, 2011), p. 208.

[61] ‘The Perwaja Steel Scandal,’ available at: https://wtfreport.wordpress.com/2011/12/15/the-perwaja-steel-scandal/, accessed on 23/03/ 2018.

[62] Available at: www.nortonrosefulbright.com/knowledge,accessed on 26/02/2018.

[63] Orojo, J.O., Company Law and Practice in Nigeria, 5th edition (London: Lexis Nexis, 2008) p.303.

[64] Bourne, N., Principles of Company Law, 3rd edition, (London: Cavendish Publishing Ltd, 1998) p.203.

[65] Companies and Allied Matters Act, op. cit, (footnote 1), section 342(2).

[66]Ibid, note 50, section 342.

[67]Ibid, note 50, section 342.

[68]Ibid, note 50, section 342 (3).

[69]Ibid, note 50, section 342(1)(a).

[70]Ibid, note 50, section 342(1)(b).

[71]Ibid, note 50, section 342 (6).

[72] Companies and Allied Matters Act, op. cit, note 1, section 342(7).

[73] Companies and Allied Matters Act, op. cit, note 1, section 334.

[74] Meaning there is no regulatory requirement or accounting guide-lines that applies to it.

[75] As a result of the exaggeration of good news of profits or economic presentation of facts of loss, the unsophisticated investors may be misled by optimistic message presented by the chairman.

[76] ‘Securities Industries Development Corporation’, available at: www.min.com.my/articles/investment, accessed on 2/03/ 2018.

[77] J.O. Orojo, op. cit, note 48, pp. 278-279.

[78] Companies and Allied Matters Act, op. cit, note 1, section 267(1).

[79] Companies and Allied Matters Act, op. cit, note 50, section 267(2).

[80]Ibid, note 62, section 267(2).

[81] J.O. Orojo, op. cit., note 48, pp. 279-280.

[82] Sealy, L.S., Cases and Materials in Company Law, Sixth edition, (London: Butterwork, 1996) p.585; Bauley, J. and lain MC Callum, Company Law, (London: Heine Mann, 1990), p.8.

[83] Cadbury Report (1992).

[84] Companies and Allied Matters Act (CAMA), op. cit, note 50, section 94-98.

[85] Orojo, op cit., note 48, p.202.

 

[87] See sections 340 and 341 of CAMA; see also sections 273 and 277 of CAMA.

[88] Ofo, N., Corporate Governance in Nigeria: Prospects and Problems’, Apogee Journal of Business Property and Constitutional Law, Vol. 1 No.4, (2010), p.20.

[89] Badaiki, A., ‘Exercise of Company’s Powers and Shareholders’ Control of Corporate Management’, LASU Law Journal. Vol. IV, Issue 1 (2001) p.79.

[90] Companies and Allied Matters Act, op. cit, note 50, section 342.

[91] Bourne, N., op. cit., note 49, p.203.

[92] Companies and Allied Matters Act, op. cit., note 1, section 334(2).

[93] Gan, L., et al, Social and Environmental Reporting, available at: https://www.slideshare.net/NaomiODonoghue/social-and-environmental-reporting-an-essay, accessed on 24/03/2018.

[94] The Concept of Corporate Social Responsibility may be seen as the moral and ethical content of managerial and corporate decisions over and above the programmatic requirement imposed by legal principle and market economy 

[95] Seberu, O.J. and Aremu, O.S., Department of Banking and Finance: The Polytechnic, (Ibadan Nigeria, 2010) p.96.

[96] Kaur, P., ‘Social Reporting: Meaning, Uses and Scope’, available at: http://www.yourarticlelibrary.com/accounting/financial-reporting/social-reporting-meaning-uses-and-scope/57360, accessed on 24/03/2018.

[97] Cap. E12, Laws of the Federation of Nigeria, 2004.

[98] Article 1 (VI) of Expoo Convention defined Environmental Impact Assessment as ‘a national procedure for evaluating the likely impact of a proposed activity on the environment.

[99] Environmental Impact Assessment Act (EIAA), Section 1(a).

[100] Environmental Impact Assessment Act, op. cit., note 78, section.62.

[101]Ibid, note 78 section 1c.

[102] Omaka, C.A., ‘The Concept of Environmental Impact Assessment in Nigeria’, Ebonyi, State University Law Journal, Vol. 2 No 1 (2007) p. 67.

[103] Companies and Allied Matters Act, op. cit, note 50, section 27(1)(c).

[104]Re Horsley and Wright Limited (1982) ch. 442 cited in Omotola, J.A., Environmental Laws Including Compensation (Lagos: UNILAG, 1990) p. 82.

[105] Omotola, J.A. op. cit., note 83, pp. 82-83.

[106] National Policy on Environment, available at: http://www.nesrea.gov.ng/wp-content/uploads/2017/09/National-Policy-on-Environment.pdf, accessed on 24/03/2018.

[107] Available at: https://www.guinness-nigeria.com/gn-foundation/health/, accessed on 24/03/2018.

[108] Available at: http://www.uac.edu.au/equity/, accessed on 24/03/2018.

[109] Available at: https://ngstudents.com/2018/03/19/apply-for-pz-cussons-chemistry-challenge-2018-http-pzchemistrychallenge-com/, accessed on 24/03/2018.

[110] Available at: http://ncfnigeria.org/news-publications/ncf-news/itemlist/category/6-about-ncf?start=14, accessed on 24/03/2018.

[111] Available at: http://www.fcmb.com/csr, accessed on 24/03/2018.

[112] Available at: https://www.unitybankng.com/download/UnityBank_Plc_Annual_Report_and_Accounts2_2014.pdf, accessed on 24/03/2018.

[113] Omotola, J.A., op. cit, note 84 p. 84.

[114] Imoh-Ita, I., ‘Corporate Social Responsibility of Mobil Producing Unlimited and Julius Berger Nigeria Limited

in Akwa Ibom State’, British Journal of Humanities and Social Sciences, 73 April 2015, Vol.13(1), p. 77.

[115] Ibid, note 85, p. 84.

[116] Black’s Law Dictionary, 8th Editions.

[117] World Commission on Environment and Development (1987) Report, also known as Brundt Land report.

[118] Financial Reporting Council of Nigeria Act, No. 6, 2011, sections 8(2), 30 and 53(2).