The preparation of stewardship report from the accounting point of view is the role of management, who oversees the affairs of the business organization on behalf of the owners usually the shareholders. This stewardship report represents the financial statements covering the operating performance and the financial position of a company. It is usually prepared by the directors and addressed to the shareholders as a fulfilment of their agency responsibility. Suffice to say that if all the facts concerning financial transactions were properly and accurately recorded, and if the owners and managers of business enterprises were entirely honest and sufficiently skilled in matters of accounting and recording, there would be little need for independent auditing. However, human nature being as it is, there probably will always be a need for the auditor to ensure the provision of dependable financial information which is essential to the very existence of our society and the business world.
The incidences of financial scandals as well as the recent collapse of major corporate institutions in the USA, Asia and Europe have succeeded in bringing to limelight, the sin-qua-non role of sound governance practice in corporate institutions, thus making the concept of ‘corporate governance’ a topical issue across borders today. There has been a considerable debate in recent times concerning the need for strong corporate governance, with countries around the world drawing up guidelines and codes of practice to strengthen governance. The term corporate governance can be defined as the system, procedure, structure or mechanism established by cooperate body which the aim of controlling the affairs of the entity to a path that will maximize value to its shareholders. Most business researchers stress that corporate governance is about ensuring that business is run well and investors received a fair return. Most researchers provide a more encompassing definition of corporate governance as the system by which business corporations are directed and controlled. The corporate structure specifies the distribution of rights and responsibilities among different participant in the corporation such as the board managers, shareholders and other stakeholders. It spells out the rules and procedures for making decision on corporate affairs. By doing this it provides structure through which the company’s objective are set and the means of attaining those objectives and monitoring performance. An important component of the information system of an economy is financial reporting, through which an enterprise conveys information about its financial performance and condition to external users, often identified with its actual and potential claimants.
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Credibility in this usage means that the financial statements can be believed; that is, they can be relied upon by outsiders, such as trade creditors, bankers, stock holders, government and other interested third parties. Therefore Credibility is “The quality of being generally accepted and trusted” (Oxford Advanced Learner’s Dictionary of English). Audited financial statements are now the accepted means by which business corporations report their operating results and financial position. The word audit when applied to financial statements means that the statements of financial position, income and changes in equities /retained earnings are examined with an audit report prepared by independent public accountant, expressing a professional opinion as to the fairness of the company’s financial statements. On the other hand, Confidence is the feeling that you can trust, believe in and be sure about the abilities or good qualities of something or somebody. Audit competence can only be achieved if public confidence on audit reports can be improved significantly. Both credibility and confidence goes hand in hand and each variable impacts on each other to achieve the audit quality and competence the users of financial statement desires. However, management failure arising from co-operate governance failure over the years had contributed to the loss of credibility in audit reports. The solution to this problem of credibility in financial and audit reporting lies in appointing an independent person and public confidence in audit reports is enhanced when the profession encourages high standards of performance and conduct on the part of all practitioners‟.
Financial reporting is the process that creates stewardship assertions in the form of financial and non-financial business information statements reflecting the results of activities and transactions of an entity for a period of time (Wikipedia). Financial Reporting centre’s on information disclosure for the purpose of decision making by various users. So many users exist with diverse interests. Therefore, financial reports communicate between the Directors and the outsiders including the owners and the general public. The knowledge of quality of financial reporting is not only the quantum of shareholders value being created, but also how the knowledge could be released to them to aid their decision-making. The relationship between corporate governance and quality of financial reporting was the subject matter to many researchers in the past two decades. The development of global markets demonstrates an efficient role that corporate governance in preventing fraud and management misconduct. It has been that corporate governance is essential since it guarantees minimum level of assurance to the stakeholders and best management of company’s asset without being abuse by individuals. Good corporate governance by boards of directors is recognized to influence the quality of financial reporting, which in turn has an important impact on investor confidence (Levitt, 2011 and 2015). Studies have shown that good governance reduces the adverse effects of earnings management as well as the likelihood of creative financial reporting arising from fraud or errors. Traditionally, the external auditor has also played an important role in improving the credibility of financial information. Current trends however seem to show that despite these efforts, the subject of ethically sound reporting by organization to their shareholders, the government as well as the entire public portrays the scenario of a battle yet to be won as the level of compliance by the primary stakeholders of these firms as well as its consequent effectiveness remain of utmost concern. For the record, reported cases of poor as well as fraudulent financial reports and governance issues have cut across both large and small firms, world known and otherwise. Examples of these firms are; Enron, World Com, Xerox, Lever Brothers (Unilever Plc.), Savannah Bank, as well as Cadbury Nigeria Plc. to mention a few.
The consistent organizations failures and financial crisis in the country has raised questions on the consistency of the Corporate Governance practices. The questionable role of auditor's in ensuring the quality, reliability and credibility of financial report has been a debate. This is because auditor's independence from their clients can be compromised through poor regulation and supervision of the auditing practice. Provision of non- audit services to the client, auditor's personal interest in the client's business among others. Thus effective and perceived qualities (usually designated as apparent quality) are necessary for auditing to produce beneficial effects as a monitoring device. Emphasis on the interest in the corporate governance practices of modern corporations, particularly in relation to auditing and accountability has increased following the high-profile collapses of a number of large corporations in the recent years, most of which are characterized by accounting and auditing fraud and the scenario worsened with the recent national and global financial crisis. The code of corporate governance for banks in Nigeria specified that there should be an external auditor of high integrity independence and competence. This stems from the need that the various changes in accounting, financial reporting and auditing were all designed to provide protection to investors. In essence, auditing is used to provide the needed assurance for investors when relying on audited financial statements. More precisely, the role of auditing is to reduce information asymmetry on accounting numbers, and to minimize the residual loss resulting from managers’ opportunism in financial reporting.
Corporate governance is concerned with ways in which all parties interested in the wellbeing of the firms ensure that managers and other insiders take measures or adopt mechanisms that promote accountability. Lack of corporate governance codes in firms have been responsible for the collapse of many business organisation through abuse of power; recklessness in handling of finances leading to financial misappropriation; inability to follow laid down internal control systems leading to lack of credible organizational leadership especially as it affects hiring of manpower; flouting of laid down policies that should act as a guide in achieving organizational goals.