article1381160542_Unegbu and Tasie
.pdfAfrican Journal of Business Management Vol.5 (10), pp. 3813-3827, 18 May, 2011
Available online at http://www.academicjournals.org/AJBM
DOI: 10.5897/AJBM10.419
ISSN 1993-8233 ©2011 Academic Journals
Full Length Research Paper
Identification of false financial statements: A pre-ante tool for investment decisions, solvency analysis and bankruptcy predictions
Angus O. Unegbu,* and George O. Tasie
School of Business and Entrepreneurship, American University of Nigeria, Yola, Nigeria.
Accepted 29 December, 2010
This research paper tested the efficacy of ‘CPT Analyses’ model |
for identifying false financial |
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statements. The CPT analyses model equation is represented thus |
Ag = |
p |
− N |
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Pv |
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further some relevant literatures in an attempt to develop analytical tool for detecting false financial statements. Three null hypotheses were formulated and tested with samples of fifty-one companies’ financial statements. The decision outcomes of CPT analyses model were validated with T-test and Chisquare statistical tools. Out of the fifty one financial statements tested, 37% were found to be falsified. 57% of the predicted Companies that falsified their financial statements had been liquidated as at 2010. It was found that CPT analyses model can significantly discriminate between falsified and non-falsified financial statements. The proposed ‘CPT” analyses, showed that investment decisions and applications of corporate insolvency predictive models are useful only when financial statements are not falsified. It also showed that users of financial statements are at risk of forming opinions based on distorted and inaccurate information. The paper demonstrates that conducting and implementing the proposed ‘CPT’ analyses for detection of false financial statements will, undoubtedly be helpful to professionals such as auditors, forensic accountants, insolvency practitioners, tax authorities, investors, consultants, banks and other users of financial statements.
Key words: Falsified financial statements, fraud, investment decisions, insolvency and bankruptcy.
INTRODUCTION
Financial Statements of Companies are considered very important by the stakeholders. It among other things contains accounting information. Financial statements are useful for the assessment of a company’s liquidity, solvency and financial flexibility. It also helps in evaluating the past and future performances of the company. Users of financial statements (such as company’s managers, stockholders, bondholders, security analysts, suppliers, lending institutions, employees, labor unions, regulatory authorities, Government and the general public) uses it to make valued decisions according to their areas of interest. The assumptions of the
*Corresponding author. E-mail: tassiego@yahoo.co.uk
aforementioned are that the financial statements contain no material misstatements and are not fraudulently prepared to deceive or to cloud the decision of the users. Also recently, prediction of financial distress and business failures are increasingly becoming an area of interest for Consultants and Researchers due to the current global meltdown. Beaver (1966) started the pioneering study in this area and many models had been stipulated for predicting corporate insolvency and bankruptcy but none of these studies ever postulated or inferred that the financial statements they employed as a material base for analyses may have been falsified. Investment decisions are usually made based on the information contained in published financial statements on the ground that in corporate governance, the Directors of Corporate Organizations have a duty to inform the
3814 Afr. J. Bus. Manage.
owners and general public correctly about the organization’s affairs. However, evidence suggests that if the analogy is valid, the case of ‘Enron’ in the U.S.A, Cadbury in Nigeria and other organizations that became bankrupt over night would not have occurred.
Literature review
Reeve and Warren (2008) defined financial statements as financial reports that summarize the effects of events on a business. Kieso, Weygandt and Warfield (2007) asserted that financial statements are useful for the assessment of a company’s liquidity, solvency and financial flexibility. They further stated that Financial Statements also helps in evaluating the past and future performances of the company. According to Gibson (2009), users of financial statements (such as company’s managers, stockholders, bondholders, security analysts, suppliers, lending institutions, employees, labor unions, regulatory authorities, Government and the general public) uses it to make valued decisions according to their areas of interest. They went further to state that the principal financial statements of a corporation are income statement, the balance sheet, and the statement of cash flows.
Unegbu and Azubike (2007) citing section 334 (2) of Companies and Allied Matters Act of Nigeria 1990, posit that financial statements do include;
i.Statement of the Accounting Policies.
ii.The Balance Sheet as at the last day of the accounting period of the company.
iii.Income Statement of the Company for the period under consideration.
iv.Notes to the accounts and a five year financial summary.
v.Cash flow Statement.
vi.Auditor’s report.
vii.Directors’ report.
viii.The Group Financial Statement (in the case of a holding company) and
ix.Value added Statement.
Gibson (2009) asserted that income statement summarizes revenues and expenses and gains and losses, and ends with the net income for a specific period, while balance sheet shows the financial condition of an accounting entity as of a particular date. Unegbu (2007) follows a similar line of arguments by maintaining that Cash flow statement reconciles the ‘Net Income’ from Income Statement with that of ‘Cash’ that appears in the Balance sheet of any organization. Again, in a similar submission, Gibson (2009) recapitulated his earlier arguments by stating that the statement of cash flows provides an explanation of the changes that occurred in the firm’s cash balances for a specific period.
The users of Financial Statements such as Owners and Managers of Organizations depend on financial statements so as to make important business decisions of investment, divestment, liquidity decisions, financing decisions and dividend decisions. Managers also require that an in-depth financial analysis be carried out on each of the firm’s financial statements in order to understand the figures recorded and to use the outcome of the analysis to communicate a message to other stakeholders. Employees need financial statements in order to negotiate terms regarding labor union, individual rankings, promotion and compensations. Financial institutions make use of financial statements to ascertain creditworthiness of potential loan seekers. Government and her agencies rely on financial statements for resource charges and allocations. The lists of interest of users are as many as are identifiable users of financial statements. However, Cash flow statement serves a very important function of reconciling items, usually cash that appeared in the Balance Sheet and the profit that generated such Cash. It is this function of ‘reconciliation’ that places the Cash Flow Statement an important document for identifying without a financial statement is falsified or not.
In a bid to help Investors, Owners and Financial Analysts many financial distress predictive models have been developed by various researchers and academics pioneered by Beaver (1966), on the assumption that such financial statements are devoid of material misstatements and that they are not fraudulently prepared. More accurate and complex models had been put forward as seen in the works of; Aziz and Dar (2006), Charitou, Neophytou Charalambous (2004), Dambolena and Shulman (1988), Altman (1968), Heine (2000), Altman (2000), Bharat and Barin (1977), Benston (2003), Papoulias and Theodossiou (1992). The efficacy of these predictive models are based pre-ante that published financial statements are not fraudulently prepared with intent to deceive since in corporate governance, Iyoha (2010) the Directors of Corporate Organizations have a duty to inform the owners and general public correctly about the organization’s affairs. However in a bid to meet the expectations of financial statement users, Managers tend to falsify financial information. Naser and Pendlesbury (1992), Beasley, Carcello and Hermanson (1999), Mulford and Comisky (2002), Pietesz (2007), and Okoye, Ukenna and Ugwanyi (2009) studied the reasons and motives behind fraudulent preparation of financial statements. Okoye, Ukenna and Ugwuanyi (2009) further asserts that Creative (fraudulent accounting) accounting is at the root of a number of accounting scandals such as the case of Enron & WorldCom in the U.S.A (Cheeseman,2005), Cadbury Nigeria Plc, Unilever Nigeria Plc, African Petroleum Nigerian Plc and Afribank Nigerian Plc.
Beasley, Carcello and Hermanson (1999) asserts that fraudulent financial statements do come mainly from the
under mentioned, are mostly relevant to the Nigerian environment:
i.Very small companies, many were not listed in the stock exchanges.
ii.Top managements of these companies were involved in the fraudulent reporting.
iii.The board or audit committees of such companies appeared to be very weak.
Iv. The founders and board members owned a significant portion of the companies.
Although the above scholars were not specific in terms of certain organizations, their arguments are relevant and evocative of most organizations. Abbott, Parker and Peters (2000) investigated the impact of audit committee characteristics on the likelihood of financial misstatements. They found out that independence of the committee is significantly negatively related to misstatement, but the size of the committee and the financial expertise of the audit committee members are not significant. This finding therefore eliminates the impact of audit committees in firms that are found to act independently. Independence however is in the mind.
In the course of our research, we are of the view that apart from the stipulations of Beasley, Carcello and Hermanson (1999) other tendencies that might lead to quick fixes resulting to falsifications of financial statements are:
i.Having solvency problems and/or are under administration,
ii.Negative retained earnings,
iii.Negative Working Capital,
iv.Negative Earnings before interest and tax,
v.Dormant for two years or during the preceding year,
vi.Being re-organized, refinanced and/or in the process of be sold,
vii.Companies that have discontinued a section(s) of their operations, and
viii.Companies that recently metamorphosed from Private Company to Public Company.
Nigeria is a developing country and emerging economy whose exports are mainly crude oil. According to Tran (2008), emerging economies are nations that have large territories and populations, and they are undertaking extraordinary development projects that call for new infrastructure, such as power-generating plants and telecommunications systems. Other emerging economy will include South Korea, Malaysia, Singapore, and Taiwan, and, of course, with development comes increased demand for consumer goods, like computers and washing machines. These countries have pursued economic policies leading to faster growth and expanding trade and investment with the rest of the world. The International Trade Administration cited Nigeria, South
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Africa, Brazil, Turkey, India, Malaysia etc as emerging economies/markets. In the context of Nigeria most firms are founded, if not owned by strong individuals with high political influence on high level public and private appointments. Thus corporate environment in Nigeria is similar to events that can lead to manipulation of financial statements or creative accounting as listed by Beasley, Carcello and Hermanson (1999). From this argument it can be implied that the approach does not help in business and entrepreneurship development. Board or Top Management of Companies falsify financial statements to make it look good to investors, lenders, to pay less tax to Government, to secure lucrative contracts or to inflate profits for the purposes of getting high commissions. These manipulations have no end, it continues till it is blown up to the public by way of corporate insolvency, bankruptcy and business failure. High corporate failures deter further business and entrepreneurship developments. Financial Statements from Nigeria are supposed to conform to the provisions of the local financial standard, that is, Statements of Accounting Standards (SAS), and this will in turn adhere to stipulations of International Financial Reporting System. These standards ensure that bench-marks for financial statement preparation and presentation are maintained. It also helps auditors to form opinion on whether the financial statements are in conformity with the affairs of the organization. It advocates that users of financial statements be on the same platform in the interpretations of these statements. Ethically, the financial statements ought to contain information it meant to communicate to her stakeholders. The Directors of Corporations owe a duty of accurate reporting to the owners of the business to advance entrepreneurship developments.
International Financial Reporting Standards IFRS (2007) states that the International Standards Accounting Board (ISAB) objective requires that similar transactions and events be accounted for and reported in the same way. However, transactions and events that are not similar should be accounted differently, both within an entity over time and among entities. Adherence to International or local reporting standards does not in any way exempt financial statements from fraudulent misstatesments. It is the duty of Auditors to express opinion on financial statements as to whether the financial statements represent the affairs of the business. To do this, auditors need to know whether the financial statements contain material misstatements and/or whether such statements are fraudulently prepared in the first instance. However, auditors obligate preparation and presentation of financial statements duty to the Directors, thus only concerns themselves with apparent misstatements. Fraudulently prepared financial statements therefore become hard to detect. Messier, Glover and Prawitt (2008) assert that misstatements can result from errors or fraud. The term ‘error’ refers to unintentional
3816 Afr. J. Bus. Manage.
misstatements of amounts or disclosures in financial statements. The term ‘fraud’ refers to an intentional act by one or more individuals among management, those charged with governance, employees or third parties, involving the use of deception to obtain an unjust or illegal advantage. To financial analyst and other external stakeholders of organizations, who have no access to data catchment documents and books of accounts of the organization they are examining, the issue will be how to determine whether the financial statements for which they are using as bases of decisions and opinions contain material misstatements and/or fraudulently prepared. Conclusively, what differentiates ‘Fraud’ from ‘error’ is ‘intent’. Messier, Glover and Prawitt (2008) opined that it is very difficult to determine ‘intent’. We, the researchers hereby propound a model for detecting ‘intent’ in published financial statements. This model, we caption ‘CPT Analyses model’.
The CPT analyses model
‘CPT’ is acrimony for ‘Cash flow Statement and Percentage Trend analyses. The Net Income is very relevant in this model because as an external stakeholder without access to the organization’s source documents and books of accounts, it becomes essential to adopt the ‘indirect method’ of Cash flow preparation and presentation. Percentage trend analyses is determination of existence of a given percentage trend increases or decreases in the financial statements as presented from preceding years to the present or from one item in the financial statements to another. For the model to detect 99% accurately of false financial statements, a financial statement of (with its corresponding year) a company needs to be obtained. The corresponding/preceding year will be termed the base year, while the current year is the financial statement to be predicted rightly prepared or intentionally falsified.
The model equation is given thus: Ag = pV − N Pv
Where; Ag = Angus range, Pv = Parameter Values (We
advocated for ten Scale point parameters or questions for ascertaining false financial statements) and N = No answers from the assertion parameters or questions. The ten parameter questions are:
1.The Cash Flow Statement was forced to balance with an entry or there is a new in the financial statements that has no contra effects or lacks from the previous year?
2.There exist given percentage trend(s) in any of thefinancial statement’s variables?
3.Is there apparent sudden material change(s) in Longterm investments, Long-term loans, Leases, Deferred
taxes, Provisions or write-offs that affect Cash Flow Statement computations?
4.Are there material item(s) omitted or added in any financial statement or not professional correctly reflected in the Cash Flow Statement?
5.Tax paid or Tax liability computations/shown in any financial statement cannot be reconciled with that shown in the Cash flow Statement?
6.Dividend paid/outstanding shown in the financial statements cannot be reconciled with the figures reflected in the Cash flow Statement?
7.Gains or losses from Disposals Fixed Assets are not correctly shown in the Cash Flow Statement and/or treatment of acquisitions or disposals in the financial statements lacks professional assertion?
8.There exists a treatment in any financial statement that lacks professional assertion?
9.Is there end of year transfers from intra-group transactions or foreign partners that lacked established prior year events but affect current year’s Cash flow statement computation?
10.There are changes to non-cash items or provisions without details, notes after the base year but affects current year Cash flow Statement?
CPT application
The model is easy to apply. Individual firm’s cash flow statement is re-prepared with the actual variables (figures) as presented in the Income Statement and Balance Sheet. A financial statement with inherent material misstatement(s) will fail to reconcile ‘net income’ from Income statement with that of ‘Cash’ in the Balance Sheet. Alternatively, the above parameter questions will be posed and diligently answered. Where this hurdle is met, a haphazard percentage trend analyses is applied first vertically on material events and then horizontally on the Income statement and that of the Balance Sheet. Where a given increases or decreases trend is visible, the financial statement contains inherent falsehood, craftily prepared through accounting engineering. Using the contents of falsified financial statement as a base for testing corporate insolvency or as a yardstick for appraising investment decisions becomes less useful.
Statement of the problem
Financial statements are useful for the assessment of a company’s liquidity, solvency and financial flexibility. It also helps in evaluating the past and future performances of companies. Users of financial statements (such as company’s managers, stockholders, bondholders, security analysts, suppliers, lending institutions, employees, labor unions, regulatory authorities, Government and the general public) use it to make valued investment and other business decisions according to their areas of
interest. The assumptions of the aforementioned are that the financial statements contain no material misstatements and are not fraudulently prepared to deceive or to cloud the decision of the users. Also many studies have been carried out resulting into assertions that corporate insolvency and bankruptcy can be predicted years before they occur but none of these studies ever postulated or inferred that the financial statements they employed as a material base for analyses may have been falsified. It is against the aforementioned backgrounds that this study intends to explore CPT analyses model for detecting false financial statements, pre-ante tool for Insolvency analysis, Bankruptcy predictions and Investment decisions.
Research objective
The main objective of this research is to ascertain how external stakeholder of a firm can determine whether a financial statement is falsified before using such a financial statement as a base for investing, appraising and taking other decisions. The specific objectives are to test the efficacy of ‘CPT’ Analyses model in detecting false financial statements, using Nigeria published Financial Statements and to test that assertion that falsification of financial statements is a significant cause of corporate sudden liquidation, Bankruptcy and Winding up.
Scope of the study
This research is limited to testing the efficacy of CPT model on fifty-one financial statements of companies that were obtained during the course of the research. The basis of selection of the companies is based having one or more of the stated ill-health attributes that can elicit tendencies for quick-fixes such as:
i.Very small companies, and not listed in the stock exchanges.
ii.Top managements of these companies are owners of the firms and/or are related parties to the owners of such firms.
iii.The board or audit committees of such companies appeared to be very weak, if not non-existent.
ivThe founders and/or board members owned a
significant portion of the companies.
v.Having solvency problems and/or are under administration.
vi.Negative retained earnings.
vii.Negative Working Capital.
viii.Negative Earnings before interest and tax.
ix.Dormant for two years or during the preceding year.
x.Being re-organized, refinanced and/or in the process of be sold.
xi.Companies that have discontinued a section(s) of their operations, and Companies that recently metamorphosed
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from Private Company to Public Company
Significance of the study
The study highlights need of added assurance that financial statements for which investment and business decisions are based on is prepared without the intention to deceive or distort decisions of their users. The model built from this study will serve as a pre-ante tool for Insolvency analysis, Bankruptcy predictions and Investment decisions.
Research questions
1.Is it possible to deliberately falsify financial statements by Directors of Corporate organizations?
2.Can falsified financial statements be detected to be falsified, highlighting reasons for the assertion(s)?
3.Is falsification of financial statements is a major cause of sudden corporate liquidations, Bankruptcy and winding up?
Research hypotheses
H1: CPT analyses Model cannot significantly discriminate between non-falsified and falsified financial statements.
H2: Falsification of financial statements is Not significantly linked to sudden corporate liquidations, Bankruptcy or winding up.
H3: The results generated by CPT analyses Model would not be correct by chance at 10% significance level.
METHODOLOGY
To answer the research questions and test stated null hypotheses, We identified 51 companies that possesses some of the attributes listed by Beasley, Carcello and Hermanson (1999) in which they asserted that fraudulent financial statements do come mainly from firms with under mentioned environments;
1.Very small companies, many were not listed in the stock exchanges.
2.Top managements of these companies are owners of the firms and/or are related parties to the owners of such firms.
3.The board or audit committees of such companies appeared to be very weak, if not non-existent.
4.The founders and board members owned a significant portion of the companies.
In addition to the above four attributes, we also included the following unique characteristics which shows symptoms of ill-health that might lead to quick fixes such as falsification of financial statements. The symptoms are;
i. Having solvency problems and/or are under administration,
3818 Afr. J. Bus. Manage.
ii.Negative retained earnings,
iii.Negative Working Capital,
iv.Negative Earnings before interest and tax,
v.Dormant for two years or during the preceding year,
vi.Being re-organized, refinanced and/or in the process of be sold,
vii.Companies that have discontinued a section(s) of their operations, and
viii.Companies that recently metamorphosed from Private Company to Public Company.
The research design involves accessing at least two consecutive years’ financial statements of the identified firms. The technique of analysis employed is CPT Analyses, an acronym for Cash Flow and Percentage Trend Analyses. To test stated hypotheses and validity the outcomes of CPT analyses, we employed a non-parametric statistical tests using Pearson Chi-square and parametric statistical tool of T-test. The significant level for which they are tested is at 10%. SPSS is used to compute and analyze the results of the t-test and chi-square. Percentages were also used in the analysis of the results.
RESULTS
The fifty financial statements possessing one or combinations of the unique features of conditions that might necessitate urge for falsifications of financial statements or quick fixes were subjected to CPT analysis. The name of the Company, their unique features for selection, parameter issue(s) detected by CPT analyses and CPT conclusions are shown in Table 1.
SPSS T- test and Chi-Square data analysis and results
To run the above data with SPSS in order to compute for both T-Test and Ch-Square output, the procedure to follow are:
i.Enter ‘CPT Decision’ as a variable, coding Falsified as ‘0’ and Non-Falsified as ‘1’.
ii.Liquidated Status as at 2010 is entered as a variable but coded ‘2’ and ‘3’ for Yes and No respectively.
iii.Frequency of occurrence is entered into a third variable without coding but used as a weight case.
iv.At the SPSS data-view, the absolute facts are entered at the frequency column according to their respective codes.
To run T-Test, the procedure |
is thus; |
Analyze |
Compare means Independent |
Samples |
T-Tests. |
The results using frequency of occurrence and liquidated status as at 2010 respectively are shown in Tables 2 and 3.
To run the Chi-Square test, the procedure is thus;
Analyze Descriptive |
Statistics Crosstabs. The |
outputs are displayed in Tables 4 to 6. |
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DISCUSSIONS |
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The application of CPT |
analyses on the financial |
statements of the 51 Companies elicited various decision outcomes. To test H1 we used the results of SPSS outputs 1 and 2.
From SPSS output1, 19 financial statements out of 51 tested were found to be falsified. SPSS output 2 showed that Levene’s test for equality of variances is significant (p =0.024 which is less than 0.10), the two tailed result therefore would be read from equal variances not assumed. The result for one tailed test amounted to
.0355. In summary, the SPSS t-test outputs tell us that the value of t is -1.855; at 39.509 degrees of freedom and that it was significant at p< 0.1 because p = 0.0355. We therefore conclude that the null hypothesis which states that CPT analysis model cannot significantly discriminate between falsified and non-falsified financial statements is hereby rejected. The above conclusion had been further validated by No. 3 SPSS Chi-square output which shows that 52.4 % of the financial statements analyzed to be falsified had been liquidated as at 2010 and those analyzed not to be falsified had 68.8% of them still in operation. This validation shows that the CPT analyses
model discriminate ability is significantly high.
To test and validate hypothesis 2, we made use of SPSS chi-square outputs 3 to 5. Output 3 tells us that of the 19 falsified financial statements, 52.4 of them had been liquidated as at 2010. From SPSS output 4, the Pearson chi-square statistic shows a value of 3.494. This value is highly significant as p is 0.062 which less than 0.1. Thus we conclude that falsification of financial statements leads to sudden corporate liquidation, bankruptcy and winding up, thereby rejecting the hypothesis which states that falsification of financial statements is not significantly linked to sudden corporate liquidation, bankruptcy and winding up.
In order to test H3, SPSS chi-square output 5 is evoked. All the values displayed are all significant as p= 0.062 which is less than 0.1, indicating that a value of the test statistic that is this big is unlikely to have happened by chance, we reject the null hypothesis which states that the results generated by CPT analyses model would be correct by chance at 10% significant level.
MANAGERIAL IMPLICATIONS AND CONCLUSION
The main objective of this research is to ascertain how external stakeholder of a firm can determine whether a financial statement is falsified before using such a financial statement as a base for investing, appraising and taking other managerial decisions. The determination of whether a financial statement is falsified or not is very crucial before further decisions will be made based on it and this is the managerial relevance of CPT analyses model. It will be a waste of time and resources to apply insolvency or bankruptcy predictive models on company affairs based on financial statements that are falsified. It will also amount to disservice to use falsified financial statements as a basis for investment, strategic and other
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Table 1. Companies tested and result of CPT analyses decisions |
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S/No. |
Name of |
Unique features |
Financial year |
Parameter issues detected |
CPT |
CPT |
Status |
of |
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company as |
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company |
tested |
result |
decision |
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at 2010 |
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1 |
Talcon |
More than 51% of the |
2002 |
1) Motor Vehicle valued N112,500 1st January 2002 was not added at |
0.5 |
Probably |
Liquidated |
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Securities |
Company's Shares held |
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31st Dec. 2002 to arrive at the NBV as at 31st Dec.2002.The figure was |
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falsified. |
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Limited |
by a shareholder |
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not shown in depr. either. 2) A Long term investment worth N8, 818,260 |
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in 2001 was stated at Nil value in 2002. There is no realization from this |
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source to show disposal in 2002 Cash flow Statements. 3) Dividend of |
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N10m declared in 2001 and another of N10m declared in 2002, with a |
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Cash Flow Statement showing that N10m dividend was paid for in 2002, |
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yet the Balance Sheets of 2002 and 2001 showed Dividend liabilities of |
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N10m each. 4). Deposit for shares of N5, 035,727 shown as a Source of |
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Financing activity in 2002 is not reflected in the Notes of Liabilities. 5. |
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Increases in provision for doubtful account was not shown in the P& L. |
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2 |
Tantalizers |
More than 52% of the |
2008 |
1) Loans taken for the year amounted to N483, 750,000 as per Note 11; |
0.3 |
Probably |
Going |
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Plc |
shares are held by two |
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however amount shown as sources from long-term loan is recorded as |
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falsified. |
concern |
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shareholders. Preceding |
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N298, 005,673(This figure is merely inserted as a balancing figure). 2) |
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year with Negative |
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Payments made in respect of Pension amounting to N26, 193,535 |
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Working Capital. |
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reduced Pension liabilities in the Balance Sheet but was not shown in |
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the Financing activity outflows. 3) Provisions made in respect of |
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pensions for the year amounted to N57, 369,943 but was not written |
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back to P& L as a non-cash item. |
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3 |
International |
More than 52% of the |
2001 |
None was detected. |
0 |
Probably |
Going |
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Breweries |
shares are held by two |
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not |
concern |
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Plc |
shareholders. |
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falsified. |
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4 |
Lucky Chas |
Family Company |
2000 |
1) Bank Overdrafts not shown in the Cash flow Statement. 2) Tax paid |
0.3 |
Probably |
Liquidated |
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Nigeria Ltd |
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not reflected in the Cash Flow statement correctly. Provisions for Tax |
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falsified. |
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were treated as tax paid. |
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5 |
Sparnoon |
More than 52% of the |
2005 |
1) Increases in Creditors in 2005 are N11, 757,173 and not N11, |
0.3 |
Probably Liquidated |
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Nigeria Ltd |
shares are held by three |
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700,173 as reflected in the Cash Flow Statement. An amount was |
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falsified. |
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shareholders. Two |
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omitted during computations yet the accounts balanced. |
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consecutive year's negative working capital, accumulated retained earnings and EBIT
3820 Afr. J. Bus. Manage.
Table 1. Contd.
6 |
Sparnoon Nigeria Ltd |
More than 52% of the shares |
2004 |
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are held by three shareholders. |
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Two consecutive year's |
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negative working capital, |
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accumulated retained earnings |
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and EBIT |
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7 |
Sacoma Trading Company |
Family Company |
2005 |
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Ltd. |
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8 |
Eyre and Spottiswoode |
More than 52% of the shares |
2004 |
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Nigeria Ltd. |
are held by two shareholders. |
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9 |
R.T. Briscoe Nigeria Plc |
More than 46% of the shares |
2008 |
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are held by three shareholders. |
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10 |
Tripple Gee and Company |
More than 46% of the shares |
2003 |
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Plc |
are held by three shareholders. |
|
|
|
Two consecutive year's |
|
|
|
negative working capital |
|
1) No provisions for taxation in the Income |
0.4 |
Probably |
Liquidated |
Statements but taxes are inserted as paid in 2003 |
|
falsified. |
|
and 2005 and are shown as prior year adjustments |
|
|
|
of tax under provisions. 2) The figure shown as tax |
|
|
|
under provisions for 2003 is N25, 778 in value |
|
|
|
added statement and Note 11 but shown as N125, |
|
|
|
778 in Cash flow Statement. |
|
|
|
Figure in the Cashflow for investment in Fixed |
0.3 |
Probably |
Liquidated |
Assets not correctly reflected in the Assets |
|
falsified. |
|
Accounts. |
|
|
|
Tax paid in the Cash flow statement did not |
0.3 |
Probably |
Liquidated |
reconcile with the profit and loss and that of the |
|
falsified. |
|
Balance Sheet figures. |
|
|
|
Cash paid to suppliers & employers cannot be |
0.1 |
Probably |
Going |
substantiated |
|
Not |
concern |
|
|
falsified. |
|
1) Increases in Creditors from 2002 to 2003 is |
0.3 |
Probably |
Going |
N27,028,000 and Not N26,277,000. 2) Net transfer |
|
falsified. |
concern |
to Gambbou is N158,958,000 and Not |
|
|
|
N158,950,000 as shown in 2003 Cash Flow |
|
|
|
Statement. 3) From Tax liability shown in Note 7, it |
|
|
|
means that a total tax of about N1, 307,000 was paid but Not shown in the Cash Flow statement?
11 |
Albarka Air Plc |
More than 52% of the shares |
2003 |
None was detected |
0 |
Probably |
Liquidated |
|
|
are held by three shareholders. |
|
|
|
not |
|
|
|
Two consecutive year's |
|
|
|
falsified. |
|
|
|
accumulated retained earnings |
|
|
|
|
|
|
|
and EBIT |
|
|
|
|
|
12 |
Union Diagnostic and |
More than 57% of the shares |
2008 |
None was detected |
0 |
Probably |
Going |
|
Clinical Services Plc |
held by seven shareholders |
|
|
|
not |
concern |
|
|
|
|
|
|
falsified. |
|
|
|
|
|
|
Unegbu and Tasie |
3821 |
|
Table 1. Contd. |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
13 |
Hospitality Marketing Family Company |
2003 |
1) Dividend paid shown in the Cash flow statement was |
0.6 |
Probably |
Liquidated |
|
|
|
Concepts |
|
not shown in the Value added statement. 2) Tax paid |
|
falsified. |
|
computation is not accurately reflected if we put the liability shown in the Balance Sheet opening and close tax liabilities into consideration. 3) Tax payable for 2002 shown in the Value added statement is different from that shown in the Income statement for the same year. 4) Under provision of tax shown in Note 11 has no originating basis.5 There is sudden realization that prior year's liabilities had been overstated.
14 |
Hospitality Marketing Family Company |
2004 |
|
Concepts |
|
15 |
Nestle Products |
Principal activity is the |
2001 |
|
Limited |
lease/hire of its land and |
|
|
|
production facilities to her |
|
|
|
holding company Nestle |
|
Nigeria Plc. 2000 and 2001 turnover, the same.
Tax liability of 2,450,981 add to current year's |
0.3 |
Probably |
Liquidated |
provision less amount shown as paid in the current |
|
falsified. |
|
cash flow statement did not equal to tax liability for the |
|
|
|
current year. 2 There is a sudden realization that there |
|
|
|
is under estimate of expenses for 2003 amounting to |
|
|
|
N395, 028. |
|
|
|
1) A motor vehicle stated as N3,113,000 as at |
0.3 |
Probably |
Liquidated |
31/12/00 turned into N3,399,000 as at 1/1/01 |
|
falsified. |
|
16 |
Nestle Products |
Principal activity is the |
2000 |
|
Limited |
lease/hire of its land and |
|
|
|
production facilities to her |
|
|
|
holding company Nestle |
|
|
|
Nigeria Plc. |
|
17 |
Meriden Martime |
71% of their shares are in few |
2004 |
|
Offshore Services |
hands |
|
|
Limited |
|
|
18 |
Mocoh Axis Nigeria |
Two consecutive years' |
2007 |
|
Limited |
Negative Working Capital, |
|
|
|
negative Accumulated |
|
|
|
retained earnings and EBIT |
|
Total tax liability computed in 1999 amounted to |
0.3 |
Probably |
Liquidated |
N64,131,000 and tax paid in 2002 amounted to N1,000 |
|
falsified. |
|
therefore it is wrong to add the paid tax to tax liability |
|
|
|
as at 31/12/00 as shown in Note 5.2 |
|
|
|
None was detected |
0 |
Probably |
Liquidated |
|
|
not |
|
|
|
falsified. |
|
Going Concern capacity of the company seems to be in |
0.1 |
Probably |
Liquidated |
doubt. All the fixed assets of the company had been |
|
not |
|
disposed of in the previous year. |
|
falsified. |
|
3822 |
Afr. J. Bus. Manage. |
|
|
|
|
|
|
|
Table 1. Contd. |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
19 |
NI Plant Services |
Two consecutive years' negative |
2008 |
No turnover for the year. No fixed assets |
0 |
Probably |
Liquidated |
|
|
|
Nigeria Limited |
Accumulated retained earnings and |
|
for the year. |
|
not |
|
|
|
|
EBIT |
|
|
|
falsified. |
|
20 |
Hallmark Paper |
Two consecutive years' Negative |
1998 |
None was detected |
0 |
Probably |
Under |
|
|
|
Products Plc |
Working Capital, negative |
|
|
|
not |
Administration |
|
|
|
Accumulated retained earnings and |
|
|
|
falsified. |
|
|
|
|
EBIT |
|
|
|
|
|
21 |
Saipem Logistics |
The company is controlled by a |
2008 |
Note 5 referred to in the cash flow |
0.2 |
Probably |
Liquidated |
|
|
|
Services Limited |
holding company outside Nigeria. |
|
statement did not show computed tax paid |
|
not |
|
|
|
|
Two consecutive years' negative |
|
in 2007 accurately. There are material |
|
falsified. |
|
|
|
|
Accumulated earnings and EBIT. |
|
interests on bank overdrafts paid for both |
|
|
|
|
|
|
|
|
years but there were no bank overdraft |
|
|
|
|
|
|
|
|
liabilities at the end of each year. |
|
|
|
22 |
International Breweries |
Two consecutive years' Negative |
2001 |
|
PLC |
Working Capital, negative |
|
|
|
Accumulated retained earnings and |
|
|
|
EBIT. More than 51% of the Shares |
|
|
|
are held by three shareholders. |
|
23 |
ABB Oil & Gas Nigeria |
Shares held by two shareholders. |
2005 |
|
Limited |
Company dormant for a long time. |
|
|
|
No Turnover for over two years. |
|
24 |
ABB Oil & Gas Nigeria |
Shares held by two shareholders. |
2004 |
|
Limited |
Company dormant for a long time. |
|
|
|
No Turnover for over two years. |
|
25 |
Gese Derdirabe Nigeria |
Family Company |
2007 |
|
Limited |
|
|
26 |
Maintenance |
More than 51% of the shares are |
2003 |
|
Contractors Ltd |
held by two shareholders. |
|
Deferred Taxation reversed in the year is |
0.1 |
Probably |
Going concern |
shown as N7, 331,000 in the P& L but |
|
not |
|
shown as N7, 336,000 in Note 9. |
|
falsified. |
|
None was detected |
0 |
Probably |
Liquidated |
|
|
not |
|
|
|
falsified. |
|
None was detected |
0 |
Probably |
Liquidated |
|
|
not |
|
|
|
falsified. |
|
Tax provisions in the P &L for the two |
0.3 |
Probably |
Going concern |
years were treated as Tax paid in the |
|
falsified. |
|
Cash flows. Deposit for shares shown in |
|
|
|
the Cash flow statements is different from |
|
|
|
that shown in Note 3. |
|
|
|
Transfers to and out of the company did |
0.4 |
Probably |
Liquidated |
not reflect accurately their originating |
|
Falsified. |
|
entries. |
|
|
|