Effect of Misrepresentation of Information in a Financial Statement

Effect of Misrepresentation of Information in a Financial Statement


Effect of Misrepresentation of Information in a Financial Statement


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Chapter One of Effect of Misrepresentation of Information in a Financial Statement



The concept of misrepresentation of information in the financial statement tends to examine those items that can alter the financial affairs of on the financial concern (or an entity), audited by an auditor based on the financial statement presented by the manager on the basis of true and fair view. The establishment or introduction of the joint stock company increased the supply of capital for commerce and industry. It was therefore, necessary for the owners of the company obviously known as shareholders to delegate some of their numbers to act as Board of Directors (BOD) to take care of daily activities of the business concern.
The joint stock company act of 1844 in Britain was the first legislation, which requires that all incorporated companies or business should have the result of their daily activities known as the financial statement to be examined by an auditor. Later developments required that the auditor must be independent of his client, and be professionally qualified to enable him (the auditor) express a qualified opinion on the financial statement without bias.
Auditing was meant to serve for many purposes. So, there should not be any form of fraud, error, or misrepresentation in audited accounts in order not to create conflict between the interest groups. The critical examinations of its effects are the basis for this works. The auditor over the years played the role of instilling confidence in the public at large by revealing facts about companies, which would otherwise be hidden to avoid misrepresentation and false information. England in 1900 made it legally compulsory for every company or any organization to appoint an auditor through acts of parliament.
Nigeria as a matter of fact, having accessed the effects of misrepresentation of accounts gave recognition to auditing through the companies and Allied matters acts 1990 and other earlier promulgations.


Misrepresentation of information in a financial statement is a situation where an external auditor who is appointed under S. 357 of Company and Allied Matters Act (CAMA), 1990 renders a false or unqualified opinion about the statement of affairs of a firm or business entity. This felony is a very big problem with adverse effect on the well-being of an organization; this is because it gives incorrect picture or image of the financial status of the organization thereby misleading the owners’ (Shareholders) interest in the business concern, the creditors, financial institution and the government. In accordance with;


 which is one of the professional ethics of accountants (auditors) it states that an auditor must at all time perform his work objectively and impartial free or no partially from influence by any consideration which might appear to be in conflict with this requirement. The essence of this theory is to ensure honestly and unbiased opinion by an auditor in other to run away from adverse effect of incompetent in financial report.
Government imposes relevant taxes on companies or business concerns based on their audited financial statement. Also the decision on lending habits by financial institutions is based on financial statement which means that false information will mislead both the government and the financial institution. On the other hand, the owners of the business are also being misled. Apart from financial statement, any false information either in academics, social and cultural life usually misled.
The effects of misrepresentation among others is that it can being an enterprise into liquidation, the interest parties in the financial report such as government, shareholders, creditors, investors, workers, other groups and statutory bodies are mislead and thereby creating confusion among them causes inefficiency in the managerial operation of an account is not encouraging because it works against management information and organization efficiency.

According to Sound Advice Tax Resources 102-1-knowing misrepresentations in the preparation of financial statements or records:
A member should be considered to have knowingly misrepresentation facts in violation of rule 102 when he or she knowingly-
a) Makes Or permits or directs another to make, materially false and misleading entries in an entity’s financial statement or records or,
b) Fails to correct an entity’s financial statements or records that are materially false and misleading when he or she has the authority to record an entry or
c) Signs or permits or directs another to sign a document containing materially false and misleading information.


The aim of the study is to examine the conditions in order to find the effects of misrepresentation of information in the financial statement of business entity. In other words, it is to know how accounts misrepresentation affects the smooth mining of a business concern (entity) and other interested parties in the financial statement. As a result of that the principle aims are;
(i) To determine the means through which the financial statement of an entity is altered or misrepresented.




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