Accounting Project Topics

Creative Accounting and Financial Performance of Deposit Money Banks in Nigeria

Creative Accounting and Financial Performance of Deposit Money Banks in Nigeria

Creative Accounting and Financial Performance of Deposit Money Banks in Nigeria


Objectives of the Study.

The broad objective of the study is to examine creative accounting and financial performance of deposit money banks in Nigeria while the specific objectives are to:

  1. Ascertain the contribution of creative accounting on non-financial performance of banks in Nigeria.
  2. Establish the contribution of creative accounting on financial performance of banks in Nigeria.
  3. To evaluate the correlation between creative accounting contribution on non-financial and financial performance of banks in Nigeria



Conceptual Review

Concept of Creative Accounting

The word creative accounting is seen as misleading accounting, it is often used to describe the accounting procedures that allow firms to declare erroneous financial outcomes of their company activities (Akenbor & Ibanichuka, 2012). (Akenbor & Ibanichuka, 2012). Creative accounting refers to the use of accounting knowledge to influence the reported figures, whereas remaining within the jurisdiction of accounting rules and laws, so that instead of showing the actual performance or position of the company, they reflect what the management wants to tell the stakeholders (Yadav, 2014). (Yadav, 2014). (Bankole, Ukolobi and McDubus (2018) also described Creative accounting as accounting methods that respects the text or regulations of regular accounting practices but surely vary from the spirit of those rules. Creative accounting procedures are different from fraudulent practices and hence are not illegal but immoral in terms of misguiding investors. Michael (2011) noted that the wider US meaning sees creative accounting as including fraud whereas the UK definition sees creative accounting as leveraging the flexibility within the accounting system, but excludes fraud. Conclusively, this thesis would therefore look at methods of applying creative accounting like increase income, decrease expenses, increased Assets, decreased liability, use of provisions accounting, inventory, increase in operating cash flow, and adjustments or being generous with bad debt to distort the information to be presented in the financial statements.

Different authors have expressed their views about what creative accounting means to them. According to Haruna & Emmanuel (2017), Creative accounting is also known as “Earning management” and could be referred to in accounting practices as the acts that follow the letter of rules of standard accounting practices but certainly deviate from the spirit of those rules. Creative accounting practices are different from fraudulent accounting practices and thus are not illegal but immoral in terms of misguiding investors. The practices, which are followed in manipulating the books, are duly authorized by the accounting system and thus cannot be considered as a violation of any rule or regulations. It is characterized by excessive compliance and the use of novel ways of characterizing income, assets, or liabilities and the intent to influence readers towards the interpretations of desired results.

Jaward & Xia (2015) defined creative accounting as “the process through which the accounting specialists use their knowledge in order to manipulate the figures included in the annual accounts.” In other words, Ijeoma & Aronu (2013) referred to it as the aggressive use of choices available under accounting rules, to present the most fattening view of a company possibly in its financial statement. According to them, it involves the pushing of accounting principles to the limits of their flexibility or even beyond so as to improve their annual statements. Also, it refers to accounting techniques in which financial information is distorted and manipulated in order to present a better financial picture by either increasing or decreasing the profit as the case may be, by giving a misleading appearance of the capital size or structure and by concealing relevant information from existing and potential investors (Idris, Kehinde, Ajemunigbohun & Gabriel, 2012).




Research design

Wright et al., (2016) described research design as “the overall strategy for conducting research that defines a concise and logical plan to address established research questions through the collection, interpretation, analysis, and discussion of data”. The study research design describes the type of research used, hypotheses, research problem, dependent and independent variable (Creswell, 2012). This study employed a survey research design method. The survey is used to systematically and accurately describe the characteristics of a study population (Diekmann, 2019). The descriptive research design was used because the study relied majorly on primary data collected from sampled respondents.

Population and Sampling of the study

The population of the study is the total number of individuals from whom the study data was gathered in the study area (Adèr et al. 2018). Judgmental random sampling technique was employed to select four banks out of 21 deposit money banks in Nigeria. The banks involved were two new generation and two old generation banks comprising: Zenith Bank PLC, Access Bank PLC, First Bank PLC and United bank for Africa (UBA) in Enugu, Enugu state. These banks were selected because Zenith bank PLC and Access Bank PLC are the leading new generation banks in Nigeria while First Bank PLC and UBA PLC are the leading old generation banks in Nigeria.



Test of Hypotheses.

Hypotheses one and two were analyzed using descriptive statistics while hypothesis three was analyzed using correlation technique.




From the findings, the research concludes that creative accounting negatively affects banks in Nigeria as decisions made based on the information so provided were misleading and deceptive hence the reports of corporate collapse as a result of such actions. Also, financial and non-financial performances are intricately related hence the high correlation (0.968) coefficient obtained in the study.

Managers may falsify turnover figures to upswing performance and outperform competitors to create a positive signal or outlook that the firm is better than other firms or a downward swing with negative outlook to present a worse image of the firm. This is essentially such that a worse image currently will result in higher bonuses in future when performance improves. It could also imply that a worse image and reported losses is to avoid tax. The big bet method can also be deployed to boost the financial report of firms. The result of this study suggests that companies such as deposit money banks are always in dilemma on sweetening the quality of their assets or simply showing the true nature to avoid sanction which supports the earlier study of Nwude et al. (2016).


The study therefore recommends as follows:

  1. Management of banks should ensure that financial information are devoid of creative accounting thereby improving the quality of decisions based on that thus improving nonfinancial performance.
  2. Accountants in the employ of organizations with intent to indulge in creative accounting practice should resist and/or persuade the management by explaining in details the implications of engaging in the act as it is unethical and give misleading financial performance indication.
  3. Professional bodies should at regular intervals organize workshops emphasizing dangers of unethical practices including creative accounting not only to the whole organization but also to the accounting profession. This because creative accounting practices distorts accounting information which invariably affects other non-financial performance because of intricate relationship between corporate governance and financial performance.

Contribution to Knowledge

The study contributed significantly to knowledge in that it is to the best of the researcher’s knowledge the first to examine the contribution of creative accounting practices on financial and non-financial performance of banks in Nigeria which went further and explored the correlation between the two variables to ascertain how significant it was.


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