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EFFECT OF MISREPRESENTATION OF
INFORMATION-IN-A-FINANCIAL-STATEMENT
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
The concept
of misrepresentation of information in the financial statement tends to examine
those items that can alter the financial affairs of on the financial concern
(or an entity), audited by an auditor based on the financial statement
presented by the manager on the basis of true and fair view. The establishment
or introduction of the joint stock company increased the supply of capital for
commerce and industry. It was therefore, necessary for the owners of the
company obviously known as shareholders to delegate some of their numbers to
act as Board of Directors (BOD) to take care of daily activities of the
business concern.
The joint
stock company act of 1844 in Britain was the first legislation, which requires
that all incorporated companies or business should have the result of their
daily activities known as the financial statement to be examined by an auditor.
Later developments required that the auditor must be independent of his client,
and be professionally qualified to enable him (the auditor) express a qualified
opinion on the financial statement without bias.
Auditing was
meant to serve for many purposes. So, there should not be any form of fraud,
error, or misrepresentation in audited accounts in order not to create conflict
between the interest groups. The critical examinations of its effects are the
basis for this works. The auditor over the years played the role of instilling
confidence in the public at large by revealing facts about companies, which
would otherwise be hidden to avoid misrepresentation and false information.
England in 1900 made it legally compulsory for every company or any
organization to appoint an auditor through acts of parliament.
Nigeria as a
matter of fact, having accessed the effects of misrepresentation of accounts
gave recognition to auditing through the companies and Allied matters acts 1990
and other earlier promulgations.
1.2
STATEMENT OF THE PROBLEM
Misrepresentation
of information in a financial statement is a situation where an external
auditor who is appointed under S. 357 of Company and Allied Matters Act (CAMA),
1990 renders a false or unqualified opinion about the statement of affairs of a
firm or business entity. This felony is a very big problem with adverse effect
on the well-being of an organization; this is because it gives incorrect
picture or image of the financial status of the organization thereby misleading
the owners’ (Shareholders) interest in the business concern, the creditors,
financial institution and the government. In accordance with;
INDEPENDENCE
AND OBJECTIVITY:
which is one of the professional ethics of
accountants (auditors) it states that an auditor must at all time perform his
work objectively and impartial free or no partially from influence by any
consideration which might appear to be in conflict with this requirement. The
essence of this theory is to ensure honestly and unbiased opinion by an auditor
in other to run away from adverse effect of incompetent in financial report.
Government
imposes relevant taxes on companies or business concerns based on their audited
financial statement. Also the decision on lending habits by financial
institutions is based on financial statement which means that false information
will mislead both the government and the financial institution. On the other
hand, the owners of the business are also being misled. Apart from financial
statement, any false information either in academics, social and cultural life
usually misled.
The effects
of misrepresentation among others is that it can being an enterprise into
liquidation, the interest parties in the financial report such as government,
shareholders, creditors, investors, workers, other groups and statutory bodies
are mislead and thereby creating confusion among them causes inefficiency in
the managerial operation of an account is not encouraging because it works
against management information and organization efficiency.
According to
Sound Advice Tax Resources 102-1-knowing misrepresentations in the preparation
of financial statements or records:
A member
should be considered to have knowingly misrepresentation facts in violation of
rule 102 when he or she knowingly-
a) Makes Or
permits or directs another to make, materially false and misleading entries in
an entity’s financial statement or records or,
b) Fails to
correct an entity’s financial statements or records that are materially false
and misleading when he or she has the authority to record an entry or
c) Signs or
permits or directs another to sign a document containing materially false and
misleading information.
STATEMENT OF
THE OBJECTIVE
The aim of
the study is to examine the conditions in order to find the effects of
misrepresentation of information in the financial statement of business entity.
In other words, it is to know how accounts misrepresentation affects the smooth
mining of a business concern (entity) and other interested parties in the
financial statement. As a result of that the principle aims are;
(i) To
determine the means through which the financial statement of an entity is
altered or misrepresented.
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