Checking Distress In The Banking Sector The Role Of Accountants And Auditors

BACKGROUND TO THE STUDY
1.1 INTRODUCTION
Distress in the Nigerian banking sectors is a problem that bank has in this recent time. This seems as if the regulatory authorities appeared to be fighting a losing battle to sanitize the system.
Ebtiodaghe (1996) observed that banking distress occurs when customers were unable the loss of their deposits and consequent breakdown of their contractual obligation. The central bank fails to meet its capitalization requirements, has a weak deposit base and is afflicted by mismanagement. Aderiu (1997) said that distress in banks I based on the banks examination rating system with the word “CAMEL” that is C=capital adequate, A = Asset quality, Management competence, E = earning strength, L = Liquidity sufficiency. The above mentioned is the aggregate areas that really qualifies a bank to be branded “ healthy or sick”.
A bank is considered healthy by the CBN if it maintains six criteria for instance capital paid up capital, sound management i.e bank meeting up with CBN rules, satisfy customers and shareholders interest, minimum liquidity of 30% not less than 10% of its liquid assets to be in treasury bill and certificates. In a situation where a bank defaults in one or few of the above criteria and fails to rectify its default position within a month, it is indeed qualified to be classified as distressed.
Where banks is unable to service its fixed costs, meet it debts obligations to its stakeholders has a net cash greater than its capital and can no longer operate profitably, the bank is deemed to have failed. Thus a failed banks is a bank which is unable to meet its obligations to its stakeholders as at when due arising from weakness in its financial, operational and managerial conditions.
The failed bank decree also defined “failed bank” as a bank whose license has been taken over by the CBN. Due to the inability of the regulatory authorities to bring back some of these distressed bank which failed eventually, the only way left in order to sustain public confidence and stability of the system is to revoke their licensed put them on liquidation.
Regrettably this has been the fate of some distressed banks in the country. Almost 36 banks are on distress.
This study will also highlight in chapter 2, the main internal causes of distress and its implication on the Nigeria economy.

1.2 STATEMENT OF PROBLEM
There have been accusations in newspaper journals and publications that the causes of the widespread distress in Nigerian banks is lack of objectivity and negligence on the part of accountants / auditors. They have been accused of not playing an effective role in these banks and hence have not adequately protected the integrity of these institutions as well as the interest of the owners.
The above situation has given rise to the following problems
1. What role did the accountant/auditors play in the entire distress in banks?
2. Did the accountants auditors enter into secret agreement with the directors and management in the entire process?
3. Do auditors have any blame whatsoever, where they careless, negligent or incompetent?
4. Were qualified, tested and proven accountants/ auditors appointed?
5. Where the provisions of the how in – CAMD and sop on observed in the choosing and appointment? Of accountants/auditors of the affected banks?
6. Did the accountants, auditors discover the true states of the banks that they were in a dangerous position?
7. Did the accountants/auditors report their findings to the members and directors / management
8. Where the accountants/auditors right in reporting their findings to the management? What if they do so?
9. Did the auditors issue unqualified true and fair view report in each case of the failed bank prior to their failure or were cases when the auditors issued qualified reports warning over the state of these banks?
10. Were the auditors truly independent in the real sense of it or were there factors real and ability to report factually?
These are problems that arise and questions that demand answers. However this project is not in a position to seek answers to all the questions it become necessary to define the objectives around the questions which can be answered within the constraints.

1.3 OBJECTIVES OF THE STUDY
Against the background of the foregoing discussion, it becomes necessary to find answers to some of the more pressing research questions. In line with this the research will pursue the following objectives.
1. To what extent was the distress in the banking sectors attributable to the negligence, incompetence, lack of independence and other act or omissions of the auditor?
2. Were the auditors equipped by training, calling and experience to discover the real present health of the banks, and did they do so?
3. Was it ethical or right for the auditors to have reported the true state of affairs to the bank management while issuing an unqualified opinion to the members?

1.4 SIGNIFICANCE OF STUDY
Every research work aims among others to make contributions to various areas of practical and academic enhancement. This one is not different. It is expected that the body of literature and material are gathered in order to define the role of auditors in the distress case. By gathering them together they form a body that may be referred to by others researchers. In this way it is way it is hoped, the work will make a significant contribution to theory and knowledge.
Further, the role of auditors will be brought into more critical focus thereby enabling accountants as well as users of accounting report to be more accurately aware of their duties and expected respectively.

1.5 SCOPE OF STUDY
This study will focus attention on the distress in Nigeria banks. The work bank or phrase banking industry does not include development banks of the new financial intermediaries such as community banks, peoples bank, primary mortgage institution and finance commercial and merchant banks with particular reference to those that have gone into liquidation.
This research will also dwell on the role of accountants/auditors in checking the present distress and a failure in the Nigeria banks. Accountants/auditors in this sense will include only external auditors. It will examine critically their duties as it relate to their client banks.
However the remedies and solutions to this distress will also be discussed.

1.6 LIMITATION OF STUDY
With the canceling by the law of 36 distressed banks licenses and the consequent take over by Nigerian Deposit Insurance corporation (NDIC) for the purpose of liquidation, It became near impossible to obtain any kind of information form the affected banks most because they are on liquidation. NDIC was unwilling to disclose some information which they termed “classified” while the staff of the affected bank were denied access to the records. This development constituted a very big obstacle and posed a limitation to this research.

1.7 DEFINITION OF TERMS
FAILED BANK
A failed bank is a bank that is unable to meet its obligations to its stakeholders as at when due arising from weakness in its financial operational and managerial conditions which could have rendered it either not liquid.
LIQUIDATION
Liquidation means to wind up a commercial firm (e.g bank) to become bankrupt.
CAPITAL ADEQUACY
Capital adequacy is the level of capital necessary for bank as determined by the supervisory and regulatory authorities to assume the banks financial health and soundness
FINANCIAL INTERMEDIATION
Financial intermediation is the traditional business of banks whereby bank mobilize funds from surplus spending units and allocate such funds to the deficit units.
NON-PERFORMANCE LOANS AND ADVANCE
Non – performing loans and advance are those loans and advance which have remained unserviced for up to 90 days and above. Loans and advance not serviced for 90 days are classified as substandard, 180 days as bad and 365 days as lost.
CAPITAL EMPLOYED:
Proprietors or store holders interest plus long term loans and debentures.
FRAUD
Dishonest behavior for the purpose of gain which may be punishable by law.
AUDITING
Auditing is the independent examination of financial statements of an organization for the purpose of being able to form an opinion as a basis for making an objective report.

1.8. STATEMENT OF HYPOTHESIS
For the purpose of this study, the following hypothesis are formulated;
HYPOTHESIS 1
Null HYPOTHESIS [H0] :- To what extent was the distress in the banking sector attributable by the negligence, incompetence, lack of independence or other acts of omissions of the auditor.
Alternative Hypothesis [H1]:- Distress in the banking sector did not attribute by the negligence, incompetence, lack of independence or other acts of omission of the auditor.
HYPOTHESIS 2
NULL HYPOTHESIS [H0]:- Where the auditor equipped by training, calling and experience to the discover the real present health of the banks, and did they do so ?.
Alternative Hypothesis [H1] :- Auditors did not eauipped by training, calling and experience to discover the real present health of the banks.
Hypothesis 3
Null Hypothesis [H0] :- was it ethical or right for the auditor to have reported the true state or affairs to the bank management while issuing an unqualified opinion to the member ?.
Alternative Hypothesis [H1] :- It was not ethical for the auditor to have reported the true state or affaires to the bank management while issuing an unqualified opinion to members.