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.

1.3 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.
(ii) To determine the factors that induce the act of misrepresenting the
information in the financial statement.
(iii) To determine the effect of information in the financial statement.

1.4 RESEARCH QUESTIONS
(i) What are the effect of misrepresentation of information in the financial
statement?
(ii) What measure can be employed to get a dependable auditor?
(iii) To what extent can an arrangement be made to eradicate account
misrepresentation of information in the financial statement by an auditor?
(iv)Does misrepresentation of information in the financial statement has effect
on financial institution; business entities interest parties and the government
decision at large?

1.5 RESEARCH HYPOTHESES
Considering the statement of problems, objectives of this study and the
research question posited above, the following hypothesis are postulated subject to
text either to accept or reject.
1) Ho (Null hypothesis): Lack of staff motivation is not one of the causes of
misrepresentation of information in the financial statement in the bank.
H1 (Alternative hypothesis): Lack of staff motivation is one of the causes of
misrepresentation of information in the financial statement in the bank.
2) Ho : That misrepresentation of information in the financial statement has no
effect on the banking operation
H1 : That misrepresentation of information in the financial statement has
effect on the banking operations
3) Ho : misrepresentation prevention is not the sole responsibility of an auditor
in the banking system.
H1 : misrepresentation prevention is the sole responsibility of an auditor in
the banking system.

1.6 SIGNIFICANT OF THE STUDY
The researcher believes that the recommendation given in this project work,
if taken seriously will go a long way to guide the management of a business entity
in ensuring a high degree of reliability in financial statement of the organization.
Every master in any actions or business appreciates competent report from the
management which has no tendency of fraud or errors but enhances the true picture
of the organization. Correct presentation of information enhances adequate control,
decision making, government legislation and information technology.

Lastly, it will equally provide future researchers with references basis on
further study of the effect of misrepresentation of information in the financial
statement.

1.7 SCOPE OF THE STUDY
Many problems were faced in the course of carrying this research work. The
following problems formed the major ones;
1) Distance: - This contributed to the limitation of this study since the case
study is located at different places from the researcher’s school. It was
difficult making constant visit to the place due to lack of time and other class
work which the researcher is taking alongside with the research work.
2) Finance: - Finance is one of the major problems encountered during the
course of the study. This was in terms of transportation fair and typing of
questionnaire i.e. (to and fro) to different destinations, it’s distribution to
target respondents.
3) Extraction of Useful Information: - This was another problem
encountered; the respondents were very busy with their works and pay less
attention to the questionnaire presented for their opinion. Unable to gather
enough information from other research work.

1.8 LIMITATION OF THE STUDY
The limitation of the study includes the following;
1) Time:- This is the major constraint faced by the researcher, owing the fact
that the researchers work was to be done along side with other important
academic work.
2) Finance:- This happens to be over-riding constraints now, establishment
amount of money was spent on the researcher work. The work as stated
earlier involved travelling to the place of case study and obtaining
appointment for necessary interviews distribution and collection of
questionnaires.

1.9 DEFINITION OF TERMS
Misrepresentation: This is refers to the presentation of facts, altering the
structures with false information whether deliberately or none deliberately.
Auditor: An auditor is an examiner that evaluates the correctness of the financial
affairs of a business organization. There are internal and external auditors. Internal
auditors are those that are appointed by the audited firms. In the first year after
their appointment, they will set up the permanent file and make themselves
familiar with the client and its history. External auditors are not appointed by the
audit firm but the come to audit the financial statement of the firm and also ensure that such company operates within the confinements of the professional guidelines
e.g. Accounting standard of IAS, Accounting standard of NASB etc.
Auditing: This refers to an exercise whose objectives is to enable the auditors to
express an opinion whether the financial statements gives a true and fair view (or
equivalent) of the entity’s affair at the period end and of its profit and loss (or
incomes and properly expenditure) for the period then ended and have been
properly prepared in accordance with the applicable reporting framework.
Financial Statement: This is the statement that shows the financial power of an
organization. It is usually made up of profit and loss account, balance sheets, cash
flow etc.
Information: Information is a systematized, analyzed and processed raw data that
gives the needed information that management and shareholders used for decision
making.

Organization: This is refers to the structure of network of relationship among
individual and positions in a work setting and the process by which the structure is
created, maintained and used.
Management: This is a process by which the manager gets things done through
human efforts by which mangers creates, directs, maintain and operate purposeful organization through co-ordination and co-operative of human efforts with
resources of the organization.
Ethics: A character trait of people in a given profession.
Fraud: An intentional plan or act to embezzle or misappropriate fund under one’s
control.
Error: The word error is used to refer to unintentional mistake in financial
statement whether of mathematical or clerical nature or whether due to over sight
or misinterpretation of the relevant facts.