Abstract
The rise of accounting scandals has prompted the need to improve the relevance of financial reporting by setting up good corporate governance structures. The relationship between corporate governance and fraudulent activities has been strongly debated in the developed countries. It is recently that attention has turned to the study of corporate governance and financial reporting in developing countries. This paper examines and investigates the effects of corporate governance codes in curbing fraudulent activities in private organisations in Nigeria. This means that this paper is comparing two codes, the one of 2011 and the newer one of 2016. Specifically, this piece of work focuses on the characteristics of boards of directors and audit committees of 20 private companies listed on the Nigerian Stock Exchange during the period 2011-2016, by analysing whether the independent directors on boards and audit committees are associated with reduced levels of fraudulent activities. The objective of this study is to: 1) Ascertain whether a higher number of independent directors on boards of directors are associated with less fraudulent activities. 2) Investigate whether audit committees comprising independent directors are associated with less fraudulent activities. The study gathered data from the companies on the Nigerian stock exchange and the fraudulent activities variable, which is used to refer to either financial fraud or manipulated earnings was measured by discretionary accruals according to Dechow et al. (1995). The financial statements of the companies were used to determine discretionary accruals and the corporate governance variable data were obtained from the company’s corporate governance information as presented in their annual reports. The results supported the null hypotheses:1) Companies with higher number of independent directors on boards are associated with less fraudulent activities. 2) Companies with audit committees comprising independent directors are associated with less fraudulent activities. Therefore, the study adds to the limited research of the relationship between corporate governance mechanisms and fraudulent activities in Nigeria. It has also provided empirical evidence on the importance of some of the regulatory requirements established by the Nigerian Corporate Governance Codes. Key words: Corporate governance, financial fraud, manipulated earnings, board of directors, independent directors, audit committee.
Highlights
Controlling and managing corporate businesses has continued to be an issue to investors, lenders, creditors, government, accountants, regulators and all types of stakeholders in the world today
The Pearson correlation of the independent directors and manipulated earnings variables were negative and significant at .001, which is below the 5% significant level
It is clear that the independence of directors on boards, the establishment of Audit Committees with independent directors as members, through their monitory/supervisory roles have effectively reduced fraudulent activities used in this study as manipulated earnings practices
Summary
Controlling and managing corporate businesses has continued to be an issue to investors, lenders, creditors, government, accountants, regulators and all types of stakeholders in the world today. Taxation recent corporate governance codes in Nigeria has enhanced supervisory roles on the board of directors to eradicate managers’ inaccuracies of financial reporting because investors, practitioners and regulators doubt the integrity of financial reporting after the various accounting scandals over the years. Shareholder groups became increasingly critical of how management groups and boards of directors oversee their organisations. They complained about management's lack of proper accountability, ineffectiveness, excessive managerial compensation, and a general lack of focus on the importance of shareholders’ relationship with management
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