The Effect of Creative Accounting on the Nigerian Banking Industry

Abstract: This study examined the effect of creative accounting on the Nigerian banking industry with the purpose of determining the motive behind the practice of creative accounting in the Nigerian banking industry, to ascertain whether creative accounting has contributed to banks ’ distress in Nigeria, and to examine measures that could curb the practice in the Nigerian banking industry. Primary source of data collection was employed in this study and statistical tools used to analyze the data were the Kruskal-Wallis test and the multiple bar chart analysis. The result of this study revealed that the major reason for creative accounting practices in the Nigerian banking industry was to inflate the operating costs to reduce exposure to taxes. It was further found that other key reasons for creative accounting practice in the Nigerian banking industry include: to help maintain or boost the share price by reducing the apparent levels of borrowing, making the company appear subject to less risk and of a good profit trend, to inflate the amount of operating costs in order to reduce exposure to taxes, to report a steady trend of growth in profit, rather than slow volatile profits with a series of dramatic rises and falls, and to effect changes in accounting policies in order to discourage findings faults in the company’s accounting system. It was observed that that creative accounting has significant impact on banks distress in Nigeria and it was further observed that effective measures can curb the practice of creative accounting in the Nigerian banking industry