Accounting Ratios and False Financial Statements Detection: Evidence from Nigerian Quoted Companies

International Journal of Business and Social Science

Vol. 5, No. 7(1); June 2014

Accounting Ratios and False Financial Statements Detection: Evidence from

Nigerian Quoted Companies

Alade Sule Omoye PhD

Senior Lecturer

Department of Accounting

University of Benin

Benin City

Emmanuel Eragbhe PhD

Senior Lecturer

Department of Accounting

University of Benin, Benin City

Abstract

The paper investigated accounting ratios and false financial statements detection among firms quoted in the

Nigerian Stock Exchange. Accounting data were obtained from the reported financial statements of 30 sampled

firms in financial and non financial sectors covering a time frame of five (5) years (2007-2011).The statistical

instrument employed was Pooled Data Binary Logit regression. Data collected were run with E-Views 7 and

SPSS 20. The findings revealed that investment and liquidity ratios were significantly related to financial

statements fraud. It was recommended that accounting ratios should be critically examined by investors and

stakeholders so as to detect probabilities of financial statements fraud occurrences, and also Government

regulatory authorities like the Nigerian Stock Exchange, Security and Exchange Commission, Central Bank of

Nigeria, Financial Reporting Council of Nigeria and others should ensure that financial statements of firms are

properly screened and endorsed by them before being released to the public.

Keywords: Accounting ratios, financial statement, Frauds, Firm size

1.

Introduction

The separation of ownership from control has necessitated management running the affairs of the firm for their

self interest. Financial statements prepared by management tend to be deceptive. The demise of high profile firms

like Enron and WorldCom in the United States of America, Northern Rock in the United Kingdom, Metagelshaft

in Germany, Parmalat in Italy, Afribank Plc, Union bank Plc, Bank PHB, Spring Bank Plc, Oceanic bank,

Intercontinental bank plc, African Petroleum Plc,...