Distress In Nigerian Banking Sector – Role Of Accountants And Auditors

Checking Distress In The Nigerian Banking Sector – The Of Accountants And Auditors (A Case Study Of First Bank Of Nigeria Plc., Awka)

Checking Distress In The Nigerian Banking Sector – The Of Accountants And Auditors (A Case Study Of First Bank Of Nigeria Plc., Awka)


Distress has been defined in various ways. The oxford English Dictionary second Edition [ 1989] defined distress as the sore pressure or strain of pressure physical, financial or otherwise. The American Heritage Dictionary of English language [1969] also defined distress as the act of causing suffering to someone, to bring into difficult circumstances.

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However, distress in the banking context otherwise called financial distress is a situation of financial difficulty in a bank. E P Akpala [1995] observed a financial distressed bank as any bank which is generally in a poor financial condition and which by extension has a serious implication for rendering debt payment.

The central bank Nigeria [1990] as noted earlier in chapter 1 defined distress in a bank as a situation where a bank fails to meet its capitalization requirement has a weak deposit base and is affected by mismanagement.

When a bank shows sign of inability to meet its financial obligation that fall due; The regulatory agencies [the CBN and NDIC] take certain step in evaluating what is to be done. The consideration include ; the stating of the bank involved; the asset base of the bank and the effect of the liquidation of such a bank would have on the economy in evaluating the status and the asset base of the bank for example; the regulatory agencies consider first and foremost the spread of ownership and the extent of damage the shareholders would suffer in the event of liquidation for example; the liquidation of a state owned bank would affect a large number of people than the liquidation of a privately owned bank.

Also the liquidation of a large bank with wide spread of ownership and large asset base ; would affect the economy more adversely than the liquidation of a privately owned bank.

Basically; a shows early signs of distress when it is unable to meet its financial obligation that due such as interbank indebtedness and obligation to depositors. Such a situation can be caused by the deposit base of the bank; its inability to meet its capitalization requirement and poor management.

There are generally fur classes of a distress condition;

1. Not liquid but solvent.

2. Insolvent but liquid.

3. Not liquid and insolvent.

4. And troubled as a result of shareholders quarrel.

Insolvency in the banking industry refers to a condition in which the sum of a bank asset is less than its liabilities including capital.

A bank inability to honour current customer obligation means that the bank is not liquid.[Agenyi Ademu [19967].

A bank that is not liquid would typically be forced to suspend payment to its depositors; perhaps for short period default on maturity claims such as inter-bank placement. However, a technically insolvent bank could remain sufficiently liquid long after it became insolvent if it has a large deposit base, while a technically solvent ban k could be afflicted by liquidity problems due to miss-match between the maturity of its assets and liabilities.

A bank classification as distress is based on the bank examination rating system with the word “CAMEL” That is

C = Capital Adequacy

A = Asset quality

M = Management Competence

E = Earning strength

L = Liquidity sufficiency

A bank performance is rated from “1” to “5” in any of these areas “1” is for best performance. It is the aggregate or composite rating of performance in the above mentioned areas that qualifies a bank be branched “healthy or sick”. A bank is considered healthy by the CBN if it maintain the following six criteria.

a) A minimum cash reserve of 6%

b) A minimum liquidity of 30%

c) Capital adequacy of at least 8%

d) Not less than 10% of liquid assets to be in treasury bills and certificates

e) Statutory minimum paid-up capital

f) Sound management which defines the capacity of a banks administration to meet CBN rules satisfy customers and storeholders interest.

Before any bank can be declared distressed, it must have defaulted in all the six criteria mentioned for more than a month. At times, due to unforseen circumstances, a bank might default in one or a few of the criteria, but it should be able to rectify its default position within a month. If however, it fails, it qualifies to be termed distressed, Ademu (1997). A distressed bank is however different from a “failed bank” which is defined b y the failed Bank Decree as “a bank or financial Institution whose license has been taken over by the CBN or the NDIC”. It is perceived as a bank which is unable to meet its obligation 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 or insolvent (CBN(NDIC,1995). This was earlier noted in chapter 1. However, the relevant stakeholders to a bank will include the depositors, the owners of the bank and the economy at large. From the foregoing it will be clear that failed banks will not only include the liquidated banks b ut also the problem banks that have exhibited some form of weakness in their financial, operational and managerial conditions which have rendered them either not liquid or insolvent.

2.2 Distress In The Nigerian Banking Sector

Ademu (1997) observed that the scale of distress in the Nigerian banking sector goes not too much until 19879. Before then, serious incidents of distress were relatively few and far between and generally control by the monetary authorities. The existence since then is of much deeper and more widespread incidence of traceable among others to, unhealthy competition arising from the rapid expansion of banks and non-bank institution, the limited deposit bases of several of the relatively new banks, the relatively large stock of non-performing assets in the portfolio of a number that change rapidly the interest rate especially in the interbank market for reserve balance and inside abuse and unprofessional conduct in a number of financial institutions (CBN) Annula report and statement of account (1994). These manifestation became known with some policy shocks in 1988 with the CBN directives to banks that Naira backing for foreign exchange application be lodged with the CBN. This was followed by another directive in 1989 requiring public sector deposits to be transferred to the CBN. CCBN Annual Report and statement of occupants (1994). These two directives exposed the liquidity positions of some banks to danger. What was then thought to be a temporary liquidity problem for a few banks soon caught up with a lot of banks.

From 1990, the number of banks that was declared technically insolvent rose steadily to 24 in 1993 and 34 in 1994. (CBN) Annual report and statement account (1996). The banks are financial distress during the year accounted for N16.7 million or 10.3 percent for the deposit percent of the system’s outstanding loans and advances. More than two-thirds of the aggregate loans and advances of such banks were non-perforating while their aggregate adjusted capital stood at N4.7 billion. While the initial core group distressed banks identified in 1970 were all owned by state government, identified composition has since become diversified in terms of ownership and include a significant number of privately owned banks. Akpala (1995) observed that as at the beginning of 1993, distress in the financial system spread to a wider circle of banks, primary mortgage institutions and finance companies. Between this period and 1995 till date, a total of 36 banks licenses have been revoked and put on liquidation. The incidence of banks failure witnessed ins the 1950s cannot be compared with the present situation. Infact the picture has been more dark.

A total of 38 banks were distressed in December 1993, This rose to55 in December 1994 the market share of the 60 distressed banks in deposit mobilization was N70.8 billion constituting 33.5% for total industry deposit of N211 billion and loss and advances of N66.5 billion constituting 38% of the industry’s total loans and advances of N175.9 billion. The distressed banks were accordingly overlent with average loans to deposit ratio of 94 percent. In addition, these distressed banks accounted for the N44.5 billion of 77 percent of the total bad debts of N57.8 billion in tight system. Thus non-performing credit over N44.5 billion in distressed banks constitute about 67 percent of their total credit. This implies that for every one Naira of credit given out by these distressed banks only about 33 kobo is collectable.

The capital invested by the owners in the distressed banks have been completely destroyed due to largely amount of non-performing credits. Altogether the 60 distressed banks had a are capitalization requirement ofN24.3 billion as at December 1995. The insurance risk exposure of the NDIC to the 60 distressed banks is estimated at N36.9 billion which is six times the corporations insurance fund of about N6 billion as at December 1995.

It is important to note that the difference in the numbers of distressed banks may have resulted from the use of different indicators by the two authorities. However, what is important is that at least 60 banks were distressed.

The extent and magnitude of distress may have worsened as 36 more banks have been quit in liquidation

(See appendix 1).

2.3 Emergence Of Distressed Banks In Nigeria Historical Background

According to Ademu (1997), the history of financial distress and bank failure in Nigeria state back to the late 1940 and early 1950s otherwise known as the free-bank era. The current experience which became more manuifest since 1993 has the resemblance of the earlier one ins terms of causative factors. However, each occurred in different institutional and regulatory environment. There absent was a pool of trained and experienced personnel in economic and financial matters.

However in May 1989, distress in the banking system first came to existence after the withdrawal of treasury funds forms the licensed banks e.g National bank of Nigeria. By 1993, distress has become widespread in the Nigerian banking sector leading to the closure of four banks in early 1994, Following the grave distressed financial condition of these banks, the merchant bank limited, Alpha merchant bank limited and united commercial bank limited and their licensed revoked by the CBN .

The number of banks officially classified as problems banks especially in recent times is on thaw increase and have continued to be a serious concern to the government and the regulatory authorities. By December1992, the number rose to fifteen (15), and up to thirty-eight (38) as at December 1993 and fifty five (%%) as at 31st December 1994, As at December, 1995 out of about 120 banks, 60 were considered distressed, 5 had been liquidated, 5 were under interim management boards and 17 had been taken over by the CBN. The distress in the banking system diminished slightly following the sustained implementation of the failure resolution frame work introduced, thereby putting the number of distressed banks at 52 as at the of December 1996.

Implications Of Distress For The Economy

Ebtiodaghe (1996) observed that the intermediating role of banks and their relevance both in transmission of monetary policies and in the payment system underline their importance as well as the problem that bank distress at the prevailing dimension in our economy could cause something bad. There, an industry wide insolvency of banks such as the one being experience in Nigeria, should be expected to retard, the economy’s rate of capital formation, reduce its level of employment and output and ultimately, the backslid of economic growth.

In the course of mobilizing financial surpluses bank issue claims (securities) on themselves to the fund owners. Such securities become less attractive in the event of widespread insolvency thereby increasing the holders risk exposure and also making them lose confidence in the banking system. This clearly paralyzed the development of a good banking culture. But more importantly, this development will cause the banks cost of intermediation to rise as banks will kneed to pay higher returns to attract and retain deposits. Coupled with this, there will also be great comprehensive uncertainly such that the perceived real returns on financial assets will be lowered.

Another serious danger posed by widespread distress among banks is threat to the development of an efficient payment mechanism. Settlement of transactions will become mainly cash-based with its associated risks. Also the effectiveness of monetary policies will be reduced direct proportion to the extent of loss of confidence in the banking system as reflected in the instability that will characterized the demand for money and the proportion of money in circulation that will be outside the banking system as banks on longer serve as safe depositories.

In Nigeria today, the fact of cash and carry basis transactions accounts for the lunge pool of fund in the informal sector estimated to be as much as about 50% of total money supply. A good proportion of this represent idle fund that could have been effectively utilized in the productive sector if the banking system is stable, safe and sound. The cash-based nature of our economy not only chokes the development of the financial services industry by restricting efficient resources allocation and financial intermediation.

Also there will be financial cost to be incurred by the economy in order of resolve the distress problem. This would even be more sever for a depressed economy that is already on the path of declining growth for example, the present financial condition of the hard core distress banks are tending towards irreversible distress situation Ebbiodghe (1996) also observe that the cost of recapitulating the distressed banks amounts to N36.6 billion while that of liquidation is up to N18 billion.

2.5 Causes Of Bank Distress In Nigeria

Some have argued that the present bank distress in Nigeria is self inflicted. (Business Times (1996). As if to support this view the central Bank of Nigeria in a public notice January 1998 stated: It should be stressed that the failure of a bank is largely the result of mismanagement indeed badly led and managed banks would fail in spite of the constant endeavours of the regulatory/supervisory authorities. In this connection it should be noted that under the same macro economic and regulatory environment various banks have continued.

Whatever the case may be we shall discuss these of actors under two broad heading viz internal and external environment but with particular emphasis on the internal causes.

2.5.1 Internal Environment

The internal environment relate to those factors primarily within the banking industry. The most prominent are management, fraud, non-performing loans and advances, capital inadequacy.

2.5.2 Inept Management

According to Alhaji Yahays (1995), The quality of management has been established as a significant factor in shaping the health of a bank and indeed the banking industry. Infect the difference between sound and unsafe banking on the other hand is the equality of management.

From the above, it would appear that management is a decisive factor in determining the life or death of a bank. Consequently when banking license was liberalized banks and finance houses grew by leaps and bounds. This rapid growth of the banking system seriously diluted the quality of bank management.

Okogi (1996) cities reported cases where bank managers accountants and customers colluded to deliberately cheat the bank. He further points out that is common to observe individuals enjoying more than 50% of equity share capital as loan facilities in contravention to stipulation in financial guidelines that such loan facilities should not exceed 10%. Thus, deliberate financial indiscipline, constantly committed by managers, accountants cashiers and clerks in collaboration with customers was a major contributory cofactor.

Inept management was evident in credit administrations. Many of the banks had poor credit policies and incases where good policies were in place, such policies were never implemented faithfully. Some banks management environments were often characterized by instability f tenure of director and by management staff, frauds, weak internal control system as will as contraventions of well intended statutory regulations.

United commercial bank, commercial trust bank and group merchant bank, commercial trust bank and group merchant bank all owned by payable holdings are cases in point. They are all now in liquidation as well as progress bank plc Oladepo (1995) writing on progress bank had this to say, The banks problems are multi-dimensional: frequent board changes bogged it down just as frequent court cases exposed its side the management did not help matters. It granted loans far excess of the banks ability and accusing fingers have been pointing in different directions among the principal actors. It is not surprising that progress bank which within 13 years of inception established 40 branches and five agencies making it one of the biggest banks in the country and effectively replaced the grounded African continental bank which had been to the Igbo what the National Bank of Nigeria was to the Yoruba failed the way it did. Management dug its grave. Same is the case with other failed banks. Indeed the real cause of bank distress in bad corporate governance as other Causes of distress results from bad management.

2.5.3 Non-perforating Loans And Advances

Non-performing loans have assumed a disturbing dimension in the Nigerian banking industry especially with the introduction of the prudential guidelines. It has be come one of the greatest ‘killer diseases” in our banking industry.

As earlier stated the rapid growth of banking system saw many individuals without the requisite skills, regulation, knowledge and professional experience managing banks. This type of managers and directors were more interested in securing loans for their companies friends and relations. They grant connected loans without going through the policy procedure of hate institution. Very often no security is provided such securities are not perfected before draw-down.

2.5.4 Capital Inadequacy

The principal functions of capital in any bank is to serve as the means by which losses not covered by current earnings, thus enabling the bank to regain equilibrium and re-establish a normal earning pattern.

A bank is as strong as its capital base and steady growth in shareholders funds is a sure sign that a bank is sdoing well. Macullock (1963) in concluding his piece to America bankers said that the capital of a bank should be a reality not a fiction and that it should be owned by those who have a good number of the countries loans have been undercapitalized till date. It was evident that most banks operated with depositors money to the extent that a good number often had paid up capital which were not up to 20% of deposit liabilities. These banks were thus not owned by men who had money to lend out by those who borrowed from depositors. In addition the banks capital were no longer a reality. The situation could also be attributed to the fact that many of the banks were established with very little capital. In particular most of the state government owned banks.

The new generation banks which were involved in sharp practices, reckless and unbridled lending policies and procedures were equally afflicted by this virus. The consequent erosion of the paid-up capital including reserves resulted in their inability to attain the required minimum adjusted capital /net loans and advance s ratio of 1.10 and capital risk weighted assets ratio of 8% respectively.

Today the minimum paid up capital is 25 billion whether the banks will meet this deadline is debatable. Most banks which were recently put in liquidation.

The only way out for such banks is recapitalization.

2.5.5. Liquidity

Liquid connotes the ability of a bank to meet its financial obligation as and when due. It is achieved through efficient funds management. It involves the acquisition deposit and other liabilities which are used for creation of assets for the growth of the bank’s balance sheet. Currently, the prescribed minimum liquidity ratio for banks in Nigeria is 30%.

Liquidity sets in when a bank’s obligations to its depositors and others mature faster than obligations due to it. This occurs when there is a miss-match in the maturity profile of its assets and liabilities, that is when it borrows short-term and lends long.

Wrong financial policy “Killed” many of these banks. They financial long term project/ investments with short term funds. Consequently when short term funds are due for repayment they are unable.

Akin to this over lending. Because interest rate was high, banks continued to lend without recourse to the lending limits. According to Ebhodaghe (1996) distressed banks were overlent with an average loans to deposit ratio of 94 percent which compare unfavorably with the maximum prudential ratio of 70 percent overlending may result in liquidity.

Illiquid banks do not meet the prescribed minimum liquidity ratio of 30%. When liquidity persists, such banks buy in liquidity by taking funds at excessively high rates. A survey of distressed bank balance sheets will reveal negative solvency ratio.

2.5.6 Fraud And Forgeries

The ineffective internal control systems the middlesomeness of owners and insider knowledge to gain personal advantage led to fraud and forgeries of unimaginable magnitude. Akintunde (1994) in his words says that most of the problems ins the banks are self-inflicted over the years. Fraud in the financial sector has developed is not Frankenstein monster just as easy money became the vogue. Operators of the financial institutions in whom the public reposed so much confidence to manage their funds are now more concerned with “Mrlking” the system to death. Ibrahim coomasic the inspector general of police said more than N411.7million was lost to bank fraud in 1992 more shocking was the revelation that between May I and July 5, 1995 the police handled 76 cases of fraudulent malpractices in finance houses. In all N2.158 billion recovered. A survey shows that bank frauds were more common among the new generation bank and most often involving their top managers. They collaborate with insiders, including members of the board management and staff to defraud the bank or use the banks facilities to defraud.

Akintunde (opcit) continuing, said that two executive director of Alpha Merchant Bank whose managing director Jimmy Lawal reported jumped bail are being for allegedly attempting to transfer 15.1million to a foreign account. They have for company, three senior managers of Guaranty Trust bank whoa re answering questions on how N30 million disappeared from the vault. Nepotism and inefficiency have arisen through the engagement of unqualified people to sensitive places which ultimately cause the banks to incure heavy losses through frauds.

2.5.7 Unprofitability

The life or death of any business depends on its ability to generate enough profit to sustain itself. Anyanwu (1997) observed that one of the principal objectives of a business is to make profit. Profit indicates success. Infact the survival of a business depends on its ability to make profit. But making profit is not by accident, it requires some careful planning a lot of second management and control techniques

Before the liberalization of bank licensing and the introduction of prudential guidelines, banks were posting huge profits. This encouraged many entrepreneurs into the industry. However, with the liberalization of bank licensing the number of bank in the country grew rapidly. This development engendered stifling competition in the industry and banks especially the new ones started posting losses. The prudential guidelines ended the era of “paper profits”.

As losses accumulated capital continued to diminish. Others internal causes, are , auditors negligence and lack of objectivity, interference by shareholders.

2.6 The External Environment Macro-Economic Factor


The financial crises in banks could also to be attributed to the multifarious government monetary and regulatory policies. The use of external credits caused by these expansionist policies, the over-valuation of the Naira and instability in macro-economic policies contributed to the poor financial condition of many economic instability has become a disturbing, feature in the management of the economy. The instability has been created by lack of harmony between monetary and fiscal policies. While monetary policy has been contradictory, fiscal policy has been expansionary up to at least 1994. These macro-economic policies disserted relative prices and encouraged credit flow towards consumption, production for domestic market and real estate speculation. These also had devastating effects on the income flows and financial structure of economic agents, enterprises and financial institutions.


Politics in 1993 brought about by June 12 presidential election could also be ascribed as one of the courses of financial crisis in banks. As a consequence of the financial insecurity engendered by the crisis due to long closure of banks, depositors withdraw their funds from the banking system. In addition there was capital flight as this insecurity led to foreigners converting their Naira into foreign currencies which were transferred abroad. These banks withdrawals resulted in unaffected liquidity problems within the system as most of these funds were used to create assets that were yet to mature. The political environment is still full of uncertainties coupled with religious riots and rumours of coups.

Due to the distortions and downturn in the economic activities, the industries over the years have been operating below installed capacities. Thus, so many companies that had hitter to obtained loans from the banks based on seemingly sound project appraisal could no longer honour their obligation as and when due. The resultant effect has been huge hardcore bad debts loss provision and consequent financial distress of these banks.


Some regulatory measures such as the prudential guidelines for licened banks and money laundering of 1995 which were designed to make banks operate in a safe and sound manner impacted negatively on the banks and exposed the weaknesses of many banks.

The prudential guidelines according to Akindtunde (1994) visited losses on the bank. Merchant banks came up with 440 million of such bad debts, new Nigeria Bank had N500 million. Most of them including first bank posted huge losses, down from their olympian profits. Those that still made profit recorded declines.

Prior to this period banks were simply trendily loans abandoned for more than five years as assets and calculating interest on them. So the prudential guidelines which established standard for treating loans ins the account books of the banks had to stop the fictitious profits. The implementation of this decree marked the beginning of the era of losses in banks.

Also the instruction of autonomous foreign exchange market has ensured that foreign exchange dealings are now no more the primary “cash cows” of banks and non- banking institution. This has had the most volatile impact on the imparted negatively on banks was the transfer of government accounts from banks to the central bank. Many banks especially state owned banks dependent on government account for both liquidity and income. This policy threw many of such banks off balance especially as the central banks of Nigeria accepted only credit balances and rejected debit balances of overdrawn government accounts.

In-and-out of clearing house became the lot of many banks and their eventual collapse.


This is particularly true for state owned banks. infact most of the state owned banks were run like government parastatals. The appointment of the managing director and board members including top officers of the bank. Such appointments served as compensation to party members loyalists. Government imposed its decisions on the banks and took loans wantonly.

2.6 Who Is An Auditor

By section 19 of the institute of chartered accountants of Nigeria (ICAN) act cap 185, an accountant includes an audaitor. But the act does not specifically define who an auditor is. “Accounting practice” is defined to include the serve of auditing or verification of financial transaction books and records.

An auditor is also generally know to be the one who checks the accuracy, fairness and general acceptability of accounting accords and statement and then attests to them.

Under the unit trust scheme and in banking “auditor means a member of a body of accountants from time to time recognised by an actor decree (section 575 CAMD).

Sector 358 of CAMD 1990 states that the auditor of a company shall not be regarded as either an officer of servant of it.

Subsection,31 states that a person shall not, qualify for appointment as an auditor of a company if he is disqualified for appointment as auditor of any other body corporate which is that of company’s subsidiary or holding company or a subsidiary of that company’s holding company or would be so disqualified if the body corporate were stipulated that a firm is qualified for an appointment as auditor of it (i.e the company).

2.7 What Is Auditing

According to Aguolu (1997), auditing is the independent examination of the financial statements of an organization, the purpose being to be able to form an opinion as a basis for making an objective report. The extent of the examination to be carried out by the auditor will vary according to the circumstances. In some situations, the may need to carry out considerably examination while in others a limited examination will be sufficient for him to form a valid opinion.

These are certain basis of ideas which permeates all classes of auditing.

1. Investigation

2. Independence

3. Reporting


Under investigation, auditing involves carrying out an enquiry a study into an activity. For this reason auditing is sometimes said to involve the examination of records or evidence. This implies that auditing is largely or historical concept, even though the so called prepayment audit can be argued to be futuristic since if precedes the release of cash


This inquiry or examination is carried out by persons who are not in anyway connected with the subject matter of the investigation whether as 1) decision makers i.e those who took the decision resulting in the state of affairs 33 prepares of he statement i.e recorders, accountants etc or those who have some vested interest in the outcome of the investigation such as shareholders on tax authorities. The idea of independence is to limits the likelihood of bias and thereby promote integrity and fair play.


The auditors must form an opinion on their findings. This opinion is then reported as appropriate, usually to the commissioning authority. Most audits are routine exercises, i.e they are carried out in compliance with a law and according to certain guiding principles. Moreover, the reporting format is pre-determined and controlled by professional bodies. However, there are other audits that do not have standard reporting formats. Whether or not there are such standards audit reports are necessary to conclude the process.

2.8. The Role Of Auditors In Distressed And Failed Banks

There has been allegations of accountants and auditors involvement in the widespread distress in Nigeria financial sector. This opinion is held among well educated and informal person. It is alleged that auditors and accountants did not play effective role in these banks and hence should be held partly responsible for the distress and consequent failure of a number of financial institution.

For instance, some critics believe accountants have questions to answer if they audited and certified their failed institutions healthy when indeed the banks were almost dead. The then president of association of national accountants of Nigeria (ANAN) Sosanga (1996) reported a situation where people were agitating for the consequent crucifixion of auditors. Similarly Ekpo (1996) reported a public opinion were accountants were blamed for sweeping under the carpet malpractices they discovered. Even official circles acknowledged the weight of public opinion on the subject.

The allegations have wondered widely ranging from charges of negligence, non-exercise of due care and skill, aiding and abetting the various banks management in their malpractices to concealment.

However, the above allegations might have been made because the public views the auditors duties differently from that which the law imposed on him. Sit is the expectation of the public stat the auditors duty should cease to be seen as that of a watchdog who can bark but cannot bite. In the same vein, the public sees the auditors as expert in accountancy. They would ask if they (auditors) could not detect fraud and other malpractice, who can? Therefore the purpose of this section of the chapter is to examine the role of the auditors in financial aspects, how effectively he has discharged his duties/ functions, his professional liability constraints, as well as recommendation for improved performance.

However it is important at this juncture to understand who an auditor is and what auditing is all about.

2.9 The Role Of Auditing/function Of The External Auditor

Although modern auditing has several branches such as internal auditing, external statutory audit, management audit, operations audit etc, this work is on external auditing. This sector therefore discussed the role of external auditing/auditors.

1. To ascertain whether or not the company’s financial records and directors report are correct

2. To ascertain whether or not the company’s financial records and directors report are correct

3. To include in their report any material particular missing from the company’s own report

4. Must present their report t shareholders at the yearly general meeting of the bank to enable shareholders know the financial position of the bank and make informed decision at their meetings.

5. Make reports and recommendation to audit committees in the care of publicly subscribed banks on matters relating to planning and effectiveness of banks accounting system

6. Must report to the CBN immediately, any contravention of banking laws or of the CBN’s monetary policy guidelines and must report irregularities that negatively affect depositors of the bank

7. They must report to the NDIC, all situations, which is the auditors opinion amount to mismanagement of the bank fraudulent

8. In the case of bank going public or privatized auditors must give consent for use of their report in the prospectus.

All of the above functions must be performed with reasonable care, diligence and skill. To enhance skill, on auditor of a bank must be in practice, must be a member of ICAN or similar professional, accounting body and must be approved by the CBN.

However, in section 360 of CAMA decree, the auditor is expected to compute such investigations as would be necessary to enable him form an opinion. It follows that if the law does not specify the extent of the examination to be carried out by the auditor.

This is left to the auditors discretion. Thus sit will be therefore, necessary to determine where the auditor has indeed lived up to these standards of professional practice in the performance of his job.

2.10 The Duties Of The Accountant/Auditor

The duty of the auditor is analogous to that of a corporate policeman who can bark but cannot bite. The company and allied mothers decree of 1990 section 3650 (1) confirms this:

1. It shall be the duty of the company’s auditors in preparing their report to carry out such investigations as may enable them to form an opinion as to the following matters whether:

a. Proper accounting records have been kept by the company and proper return adequate for their audit have been received from branches out visited by them.

b. The company’s balance sheet (if not consolidates) and ists profit and loss account are in agreement with the accounting records and returns.

2. If the auditors are of the opinion that proper accounting records have not been received from the branches not visited by them, or if the balance sheet and the profit / loss account and returns, the auditor should state that fact in the audit report.

3. Every auditor of a company shall have a right or of access at all times to the company’s books, accounts and vouchers and require from the company such information and explanations for the smooth performance of the auditors duties.

4. If the requirement of part V and VI of schedule 3 and part 1-III of schedule 4 to this decree are not complied with in the accounts, it shall be the auditors duty to induce in their report so far as they are necessary able to do so, a statement giving the required particulars.

5. It shall be the auditors duty to consider whether the information given in the directors report for the year for which the account are prepared is consistent with those accounts and if they are of the open ion that it is not, they shall state that fact in their report.

Adewale (1994) was of the opinion that it is the auditors duty to perform the work required of him by statute and any additional work required by the client and accepted by the accountant as part of his assignment brief with the skull and care that a reasonable accountant would employ. However, what is reasonable account skill and care must depend on the circumstances of the case. Thus in order to establish the degree of care required auditor seem to have relied upon the principle established through various pronouncement by the courts for instances in the following cases: London Vs General Bank; Kingston Cottonmill Co; Thomas General and Sons Ltd, and tormentor Ltd Vs Selson Ltd.

In London Vs General Bank (1895), it was held that the auditor must be honest, that is, he must not certify what he does not believe to be true, and he must take reasonable care and skill before he believe what he certifies is true.

In Kingston Cottonmill Co (1896), it was deceived in his case that the auditor was entitled to rely on certificate to stock balance given him by a responsible official of the company. But this position has change as demonstrated b y the Thomas Gerrad and Sons limited (1967) case. The auditor is now expected to attend stock count and test stock records for reliability and authority.

In Thomas Gerrard and Sons Ltd (1967), it was held that it was the auditors duty to discover altered invoices by investigating further into the purchases of stocks at the end of each current accounting period and the attribution of price to the succeeding period of account.

However, one of the fundamental cases determining the duty of an auditor is the Australian case of pacific acceptance corporation Vs Forsyth and others (1970), where the auditors where found guilty of negligence and had to pay 800,000 (eight hundred thousand pounds) damages. The trial judge in this case-jmotiff stated “one in most situations to make an or absolute pronouncement as to what an auditor should do in an auditing situation stated generally. There is almost always some exception or in some cases an extreme that provides a reason for a different approach in some special cases. The auditor should perform his duty in good faith based on relevance, reliability and sufficiency.

In addition to the duties mentioned above, the court has laid down the following specific rules as to an auditor’s duties in the absence of express provisions in his contract with the company or in the company’s articles:

1. An auditor must check the company’s own cash records with its bank paying in books and cheque counterfoils and with a statement of its account obtained from it bank. He is not entitled to assume that the directors officers or employees of the company who have kept it’s cash records have done so correctly and so dispense with verifying them.

2. An auditor need not check that the company owns or possesses the stock in trade stated in its accounting or stock records, nor need to value its stock in trade, work in progress or finished products. However, he should obtain a certificate asto the amount and value of stock in trade, work in progress from the officers of the company charged with checking it and if this certificate agrees with the company’s accounting and stock records, the auditor need not investigate the matter further, unless the information in his possession should arouse his suspicion.

3. An auditor must ensure that the company possesses the certificates for all the investments which its accounting records show it as having purchased but, if the certificates have been deposited with a proper person, such as its bank or stock brokers, he may accept a written confirmation by that person that he still holds them. If the company has advanced money, with or without security, the auditor must not allow its balance sheet to show the loans worth the amounts owing by the borrowers without enquiring whether the security given by them (if any) is adequate to cover that amount and the costs realization, and whether the borrowers are able and are likely to repay.

4. An auditor must check the invoice received by the company to ensure that there are no trade debts owned by it for which provision has not been made in its accounting records and if persons with whom the company deals send invoice or statements of account to it at fairly regular intervals, an auditor should enquire of such persons whether there are any outstanding debts owing to then.

5. An auditor must check the invoice received by the company to ensure that there are no trade debts owned by it for which provision has not been made in its accounting records, and if persons with whom the company deals send invoices or statements of accounts to it at fairly regular intervals, an auditor should enquire of such persons whether there are any outstanding debt owing them.

6. An auditor is only concerned to report to the member of the company of the accuracy of its accounts. He is not guilty of a breach of duty if he fails to inform them that, although the directors have managed the company’s affair perfectly lawfully, they have done so incompetently, for example, by failing to maintain sufficient liquid assets to meet the company’s liabilities as they fall due or by recommending that large a part of its realized profits should be distributed as a dividend and insufficient profits retained for the company’s future needs. Nevertheless now that a company’s annual accounts must make proper provision for the depreciation of its fixed assets and the fall in the market or saleable value of its current assets and investment, the auditor must exercise reasonable care to ensure that this has been done.

2.11 Auditor’s Liability In Relation To Distressed Failed Banks

Auditors can be liable for negligent performance, negligent misstatement and failure to perform their duties. As Anaego and Usman (1996) stated, this liability arises in the following ways:


Bank auditors may be criminally prosecuted and on conviction sentenced to terms of imprisonment or fined. The various offences for which they may prosecuted include untrue statements, stipulated in sectwns 29 (a) BOFID, section 26 SEC Act Cap 405 and sections 563 and 564 CAMD, aiding, abetting connivance, covering up fraud, among others in section 643 (1) CAMD.

Failure to provide the NDIC with the required information on fraud, imminent collapse, mismanagement among others, is also an offence (section 28 (3) NDIC Act).

Failure to report to the CBN contradiction of banking laws, CBn guidelines or to report irregularities, negative deposit protection, etc is an office (section 29 (9) BOFID).


This liability is mainly in negligent, for failure to use reasonable care; still and diligence. In this regard, auditors are liable to three cases of persons:

Liability to banks in damages for negligence as found in sectin 386 (2) CAMD. In this respect, the restriction on shareholders to due on behalf or for the benefit of their companies contained in section 279.(9) and CAMD has been removed by section 368 (3) CAMB. The loss to the company may be for dividend paid out of non-existing or insufficient profit for instance as held in the case between leads Estate Building and Investment Co Vs shepherd (1887). It was held as follows

1. The duty of auditors is not confined to mere checking of the arithmetic accuracy of the balance sheets.

2. The auditor must ascertain the substantial accuracy by requiring that it contained the particulars specified in the Articles of Association.

3. The auditor must ascertain that the Balance sheet was properly drawn up as to reflect a true and correct representation of the state of the company’s affairs.

In that case the directors and auditors where held jointly liable in damages for the improper payment by the directors of dividends out of capital.

Banks may also due for negligence as regards bad and doubtful debts and for failure to detect or report fraud and irregularities.

Banks being privatized may generally due for loss incurred in the pricing of their primary issues based on their external auditors reports on valuation of assets and effectiveness of management.

Auditors will also be liable to banks if shareholder are unable to make well informed decisions at general meeting occasioned by misleading information in auditing.


A liability to third parties is generally towards investor in the bank who needs independent and reliable information to buy shares, debentures or even make deposits. The auditor would be liable to third parties in damage for negligence for misleading information. This was established in Hedley Byrne & Co.Ltd vs Hellers & partners Ltd. (1964)

The allegations pointed out earlier in the preamble included questions raised by many critics of the auditors in relation to their reports on the distressed and failed banks.

The impression created was that the auditor had not fulfilled his responsibility towards these banks and in extreme case, they have been accused of aiding and abetting the failure of these banks. Thus we shall consider to what extent to auditor has fulfilled his reporting responsibilities by considering:

1. The concept of the auditors report

2. The purpose of the auditors report

3. The role of the audit committee


The primary responsibility of the auditor is to make report on whether the financial statements upon which he is reporting shows a true and fair view of the state of affairs of the organization.

Beyond this primary responsibility, Aguolu (1997) observed that the accountancy profession has put in place, high standards for the auditor just to issue a report, but he must endeavor to report objectively.

It was held in an earlier case that the auditors report is not a certificate, but an opinion. However, this opinion, being that of an export and which was based on skillful and careful procedure, has the effect of certificate. Readers, therefore have every expectation that the report is true.

The auditors report is prone to certain risks of reporting. In the, performance of his work, this is constantly faced with the problem of not being able to obtain a correct understanding of the clients business and operational procedures. he may also have been deliberately misled by the management. Hence he is exposed to two types of risks – alpha and beta risk (Aguolu Op. Cit)

Alpha risks is the risk of reporting an error or fraud where none existed. Beta risk is the risk of omitting to report actual cases of fraud and errors. Both risks have grave consequences for the auditors and he takes all reasonable steps to avoid both. With respect to the failed and distressed bank, both alpha and beta risks expose the auditor to ridicule, but alpha risks may have more serious consequences for the auditor as the directors are likely to bring action against the auditor for damage following the wrong report but only in negligence and where it leads to financial loss on the part of the auditor.

Given the above situation, the auditor is more likely to avoid reporting an imminent failure where there is insufficient evidence to support that opinion. He therefore make effort to obtain relevant, reliable and sufficient evidence to support such adverse opinion. Wherever, he is unable to obtain such evidence, his inclination will to drop the opinion.


An audit report is intended to convey to shareholders and other readers, the opinion of the auditor in respect of the financial statement the subject matter of the audit. The audit report is not necessarily intended to educate the readers. Though the reader is not expected to be an accountant, but his assumed to be a standard reader. The standard reader according to Aguolu (1997) is someone with reasonable knowledge of accounting finance and business to the extent to be able to understand the report and the financial statement to which it relates. However, this is his personal opinion, A standard reader will vary with different persons.

While avoiding any ambiguity in his report, the auditor tries not create any sensation or to suppress any obvious facts. The underlying attribute of the auditors report is objectivity.

The auditors report is not future oriented b ut relates to the past. Hence, the auditor may not get involved in predicting future events but to present a true and fair picture of the past. It is therefore understandable that the auditor’s report will not satisfy the requirements of many depositors and investors in the distressed banks. This is on the basis that these people would have expected early warning in the auditors report.

One underlying concept of any published financial statement is the couldn’t be detected by the exercise of reasonable care on the part of the accountants. His lordship would not like to use strong language but that appeared to be bordering closely on nonsense.


As required by section 359 of the companies and Allied matters Decree, public limited companies have a number of functions for this committee which as may be expanded by the Articles of Association Include:

To review the auditors report and make recommendations to the members at the AGM.

To review, in conjunction with the external auditor the findings on management matters and the department responses there on.

To review the scope and planning of the requirement.

To ascertain whether the accounting and reporting policies of the company are in accordance with legal and agreed ethical practices.

To keep under review the effectiveness of the company’s system of accounting and internal control.

Efficiently, the presence of the Audit committee is expected to keep the auditor under surveillance, ensure that he performs in accordance with the requirement of the law and accounting standard and to prevent his collusion with the members of the board of directors. As was expected the committees going concern concept. This that entity to which the financial statement relate will continue to be in business is definitely or at least beyond the foreseeable future. This concept though futuristic, but the auditors considerations in this regard are based on past and present indicators. The going concern concept is a particularly sensitive matters in any audit report. Any adverse report relating to the going concern is likely to generate a chain reaction especially where it relates to a bank.. The most serious of such reactions is deposit flight which no financial institution has the strength to withstand. The auditor is careful not to put any bank in this situation based on any misguided opinion especially when he is aware of any mitigating factors.

2.12 Letter To The Management

Strictly, the auditor is expected to examine the financial statement and report thereon as required by the law. The auditing standards which has significantly extended this requirement of the law makes it part of the auditing process to carry out an evaluation of the system of internal control.

For organizations with numerous transactions as typified by banks, the evaluation of the system of internal control, is a serious and important aspect of the work of the auditor.

At the end of this evaluation, the auditor is in a position to identify those inherent strength in the system and the weakness therein.

The weakness as summarized in management letter is a lot more extensive than the auditor’s export and is addressed to the management. Though a management letter is not a substitute for the auditors report and required by law, but particularly it is a very powerful medium of reporting since the directors are the elected and trusted representative of the shareholders.

Rarely do the shareholders meet and when they do, they represent divergent opinions, which are not often cohesive (Aguolu 1997). The directors are not therefore in many circumstances, more powerful than the shareholder, control their votes and greatly influence their decisions. The directors are therefore de-facto shareholders.

It could then be said that a report to a well-meaning board of directors is as good a report as to the shareholders. Hence to determine whether the auditor has really performed his duties and made the appropriate report, one must go beyond the published report to the management letters written by the auditor of these failed banks.

However an audit report is regarded by law while, the management report letter is not but a comparison of the two reveals that the management letter is more detailed than the auditor report. One would ask why the variance, when they are prepared by the same person for the same purpose. Andenrian (1980) observed that when auditors.

At the end of this evaluation, the auditor is in a position to identify those inherent strength in the system and the weaknesses therein.

The weaknesses as summarized in management letter is a lot more extensive the auditors export and is addressed to the management. Through a management letter is not a substitute for the auditors reports and required by law, but particularly it is a very powerful medium of reporting since the directors are the elected and trusted representative often shareholders.

Rarely do the shareholders meet and when they do, they represent divergent opinions which are not often cohesive (Aguolu 1997). The directors are therefore in many circumstance, more powerful than the shareholders, control their votes and greatly influence their decision. The directors are therefore de-factor shareholders.

It could then be said that a report to a well meaning board of directors is as good a report as to the shareholders. Hence to determine whether the auditor has really performed his duties and made the appropriate report, one must go beyond the published report to the management letters written by the auditors of these failed banks.

However an audit report is required by law while the management report / letter is not. But a comparison of the two reveals that the management letter is more detailed than the auditor report. One would ask why the variance, when they are prepared by the same person for the same purpose. Adeniran (1998) observed that when auditors find something wrong in the books of accounts, they report to the board, they report to the management. That is the management report, setting out details of defects in their operations. But if the management now are covering up for the board and even if the board instigated that misdoing, it is difficult for punishment and reversal of situation to take place.

Thus one may presume that the auditors colluded with the management not to disclose same irregularities reported in the management reports to the shareholders report (ie. Auditors report), in order to protect the interest of the shareholders and depositors. Or that the auditors did not discover the defects in the banks which led to their distress and eventual failure.

Being professional experts can the auditor be said to have performed his duties with reasonable skill, care and diligence? If so why couldn’t he guard, discover disclose the unhealthy stated of the banks before their eventual failure. Just like the learned judge in the case armitagel Vs. Brewer and Knott (1932) could not understand how an expert could not detect systematic fraud for a prolonged period of time, given that auditors training for such detection he thus said: However much it might be wrapped up, the defendants case came to this, that systematic fraud for two and a half years by one person operated in the distressed and failed banks. There are no publicized cases of disagreement. The conclusion from such a cordial relationship therefore is that these committee were without exception satisfied with performance of the auditors of these failed banks and were in agreement their reports.


Truly in the course of their duties auditors have contributed to the growth and survival of many companies. They have prevented countless disasters over the last two decades, forced corrections to imprudent accounts, coerced directors into changing accounting policies, prodded boards into better disclosure, exposed going concern issues. But “we do all these necessarily in secret” (Michael Fowle 1992) so then what role did they (accountants /auditors) play in the entice distress phenomenon? Can they fully be exonerated from the allegations made against them?

In the court of public opinion and indeed of the reasonable man, there is a presumption of guilt for conspiracy, collusion, negligence and so on the part of the accountants auditors in every case of the distress. At best, this is a rebut table presumption. The ones is on the accountants/ auditors to prove their innocence. Every case of distress that comes to light depreciates the values of the profession before the public. Thus the burden of proof is however, very high.

Besides the external liabilities of auditors as noted earlier simply illustrates that he auditor may bear some responsibilities. Section 368 of CAMA which make the auditor liable for tortuous negligence is a tacit recognition that auditors can be guilty of not performing their duties with necessary care and diligence.

Therefore, it is difficult to admit that a negligent auditor shares no responsibility for the present distress and failure in the Nigerian banking sector (Nwoko, 1998).




From the above table it can be seen that 4 or 8% of the respondents said that auditors /accountants are also to balance for the failure of banks due to their lack of proper qualification; 5 or 10% said it is due to the inexperience of auditors and accountant 6 or 12% said it is due to the negligence or improper performance of jobs by the auditors and accountants, 7 or 14% said it is due to the collusion between auditor/ accountant and the management, 7 or 14 % are of the opinion that it is due to the aiding and abetting of management by accountants /auditors ,9 or 18% associated the blame with reluctance of the auditors to truly report findings in order to protect their jobs ,6 or 12% also blamed it on the carelessness of auditors / accountant by management and directors.

This shows that the auditors /accountants are truly and liable to some offence malpractice’s, and acts of omissions which were responsible for the blame apportioned to them. The extent to which their action contributed to the distress in the banking sector can be seen by the different percentages derived for each option.

Thus in concluding we see that distress in the banking sector can be attributed mainly to:

1. Auditors reluctance to truly report findings in order to protect their jobs.

2. Collusion between auditors /accountant and management

3. Aiding and abetting of management by accountant and auditors

4. Negligence or improper performance of jobs by

5. Carelessness

6. Gagging of auditors /accountants by management

7. Inexperience of auditor accountants



Question 2 in the questionnaire is relevant for this analysis

Reference to Table 2.

From table 2, it can be seen that 8% or 4 people out of a total of 50 respondents where of the opinion that lack of proper qualification is a factor responsible for apportioning blame to auditors over the failure of banks.

This percentage is small in relation to the total and is a minority opinion and thus is not a reasonable and responsible factor. The auditors/accountants where qualified both by training and experience to discover the real present health of the banks, but they did no do so.



The general and specific assessment, analysis and interpretation of the result of the 3 research objectives reveled inter alia

1. That the extent of he distress in Nigerian banks is attributable to the lack of independence of accountants/auditors in the performance of their duties. The auditors were found to gag up and collude with the management and directors in the course of their audit work. They aid and abet management in malpractice. This implies that their opinion were influenced by the management and directors and this adversely affected their ability to report truthfully and factually.

2. That the negligence and improper performance of jobs by auditors and accountants is responsible for the blame apportioned on them over the distress say. The auditors did not perform their duties with due care and skill which is expected of experienced, skilled and professional expect they regard themselves are. This finding explains the different liabilities to third parties the auditors wee accused of incurring. In order words the auditors are guilty of these misfeasance, liable to many loss incurred to third party and acts performed negligently.

3. That only a few percentage of them were inexperienced. Thus the majority were in a position to discover the real present health of the banks, given their training, calling and experience, yet their banks collapsed. This implies that the auditors failed to report their discoveries in their various client banks.

4. That auditors issue different reports to shareholders and the management. They issue a detailed domestic report highlighting weaknesses to management while on the other hand they issue a concise report without the observed weaknesses to shareholder. This further explains the finding which revealed that auditors are more loyal to management/ directors than the shareholders that employed their services. This adversely affects their performance management/directors, they dissatisfy the shareholders. They were expressing and reporting an unqualified opinion to the shareholders which was professionally unethical.

5. That the auditors report in the failed banks fulfilled only the letter of the law instead of both the intention and letter of he law. This show that the auditors judgment were not of standard. Finally that the auditors should be made criminally liable for negligent performance of duty in addition to their current civil liability in order to reduce further loss.


This project discussed distress in the Nigerian banking sector and examined the role accountants/auditors played in these banks before they eventually collapsed. The project used first bank of Nigeria Plc, Awka as a background to the study.

However, from the result revealed by the study it has come to a conclusion that auditors did not play an effective role in their respective client banks. The allegations made against them cannot completely be said to be false. The manifestation of lack of independence which is the underlying requirement for any audit engagement showed that they failed in their statutory duties both in approach, theory, practice and altitude to work. Besides were this was in doubt or impaired in the course of their work either by management or director, they should have resigned and given details of this in their representations to the members. Unfortunately, this was not the case. They went ahead expressing opinions that were not objective and unqualified which did not show a true and fair view of the financial statements of these distressed banks.

However found guilty of negligence in the performance of their duties, implying that they did not exercise due care and skill, how could they have discovered the real prese3nt health of the banks?

However, being specialist with high integrity, they still went ahead issuing qualified opinion to the bank management while issuing and unqualified opinion to the members. One wonders what happened to their professional ethics.

Honestly in the court of public opinion and the reasonable man, the accountant/ auditors are partly responsible for the distress and failure of banks in Nigeria.


The following recommendations are being made for accountants/ auditors in order to check further re-occurrence of distress in Nigerian banks and a repetition of the failed banks episode.

5.3.1 There should be a re-definition of the auditors role from that of a watching to a professional expert needs not be watchdogs. The auditors needs to act beyond his legal requirements: By his training, he should have an enquiry altitude not suspicious of anybody, but nonetheless suspecting that there may have been an error honest or fraudulent. An enquiry mind need not bloodhound like a detective dog. But does not just dog – watch. Coming in with an enquiring mind is worse than coming with a suspicious mind. The auditor needs to be thorough, unassuming and inquisitive.

5.3.2 Government should expand the roles of auditors an expansion in the role of auditors will also involve an increase in their remuneration. This will allow the auditors to go more and more into the activities of the institution being audited and it will allow them to bring more out.

Reputable firms should be hired to audit the accounts of the banks.

5.3.4 The institute of chartered accountants (ICAN) should promptly investigate all accountants auditors of collapsed banks in the recent saga and publicly disciple erring members.

5.3.5 The law must be tightened to make for both criminal and civi.l responsibility on the part of the accountant and auditor found guilty of “cooking” the books.

5.3.6 Any accountant/auditor found guilty of professional negligence or complicity in auditing of the accounts should be black listed in addition to other penalties.

5.3.7 Auditors of distressed banks should be brought to prosecution of failed banks tribune

5.3.8 Accountants/auditors should be strictly guided by the dictates/ethics of the profession, reporting facts as they are and refusing to be brought over by management.

5.3.9 Government should ensure that the jobs of accountants/auditors are protected no matter who is adversely affected, so long as they are honest.

5.3.10 To be truly independent, auditors appointment and numeration should be fixed by an audit committee made up of equal members of directors and shareholders and not by management acting on behalf of the shareholders.

5.3.11 Besides the management reports and the audit report to shareholders, auditors should be made to issue additional report to the CBN dealing specifically on observed indicators of a going concern problem. This will help correct a distress situation early before it happens.

5.3.12 Accountants/ auditors should exercise more diligence in the execution of their duties and try not to sacrifice credibility and ethical standards on the alter of wealth.

5.3.13The organizational structure should be such that accountants are protected from pressure from management in order to wield enough influence.

5.3.14 There should a comprehensive report on activiies of the banks to management/shareholders.

5.3.16 Strict and regular checks should be made by auditors to ensure that management are operating in accordance with laid down rules.

Also, auditors should be appointed and monitored by representatives of the shareholders to ensure proper conduct and authenticity of reports.

5.3.17 Insured bank auditors should be concerned with issues that affect the operating results of banks. The need to be more specific and detailed in their reports on internal audit function and effectiveness of internal controls, organizational structure, policies and procedures that would ensure a safe and sound banking industry.

5.3.18 Indiscriminate licensing of banks should be avoided by the authorities concerned

5.3.19 There should be an installation of a robust financial system independent of CBN

5.3.20 There should be an effective supervision of the banking industry.

Restructuring/recapitalizing the banks. Redesign of the banking sector.


Please mark X in the bank space provided as appropriate.

Section A – Biostatical data

1. Name of organization Firm?

2. Category of staff?

a. Management b. senior

c. Supervisor d. Junior

3. What is your profession?

4. What is / are your academic qualification?

5. What is/are your professional qualification?

6. Job experience?

7. Age?

a. Under 30 yrs b. 30-40 yrs

c. 41-50yrs e. 60 yrs and above

8. Sex?

a. Male b. Female

9. Marital status? A. Single b. Married

Section B-Research Question

1. Do your consider that accountants and auditors share with directors and management blame for failure of banks? (a) Yes

b. No

2. If your answer to the above question is yes, what do you consider responsible for this (please tick as many as you thick so ) ?

a. Lack of proper qualification

b. Inexperience of auditors and accountant

c. Negligence of improper performance of jobs by auditors and accountants

d. Collusion between auditors/accountant and the management

e. Aiding and abetting of management by accountants auditors

f. Reluctance to truly report findings in order to protect their jobs

g. Carelessness

h. Gagging of auditors/accountant by management and directors

3. Do you consider the practice of issuing a detailed domestic report highlighting weakness to management and a concise report which does not highlight the observes weakness to shareholders proper?

a. Yes b. No

4. Do you consider auditors to be truly independent of bank management and directors and the performance of their duties?

a. Yes b. No

5. If your answer to questions 4 above is no do you think that the situation adversely affected the ability of the auditors to report the truth

a. Yes b. No

6. Please rank the perceived loyalty of the auditors to management/directors and shareholders in an inversely related scale

5 100% 0 0%

4 80% 1 20%

3 60% 2 40%

2 40% 3 20%

1 20% 4 100%

0 0% 5 100%

7. To what extent do you consider that auditors report in the failed banks fulfilled the intention or the letter of the law

a. Fulfilled intention of the law only

b. Fulfilled both intention and letter of the law

c. Fulfilled letter of the law only

8. Do you think the law should be changed to make auditors a criminally for negligence performance of duty which reduce most loss or would you prefer that the current civil liability be retained?

a. Criminal liability

b. Civil liability only

c. Both criminal and civil liability

d. None of the above

9. Should the failed banks decree be amended to enable prosecution of auditors whose domestic reports to management differed from their statutory reports to shareholders of banks which eventually collapsed?

a. Yes b. No

10. What role would you recommend for auditors and accountants in order to avoid repetition of the situation


11. What other recommendations would you make for the avoidance of a repetition of the failed banks episode


Checking Distress In The Nigerian Banking Sector – The Of Accountants And Auditors (A Case Study Of First Bank Of Nigeria Plc., Awka)





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