Effect of Accounting Ethics on Quality of Financial Reporting among Listed Commercial Banks in Rwanda Stock Exchange

Authors

  • Wilson Nkuranga University of Kigali, Kigali, Rwanda
  • Dr. Thomas Tarus University of Kigali, Kigali, Rwanda

DOI:

https://doi.org/10.53819/81018102t2248

Abstract

Accounting ethics is an important element for enhancing the quality of financial reporting in financial institutions because it requires bank staffs to exercise integrity, objectivity and professional competence and due care. This research examined the effect of accounting ethics on quality of financial reporting among listed commercial banks in Rwanda stock exchange. The objectives of the study were to investigate the effect of accounting integrity on the quality of financial reporting among listed commercial banks in Rwanda, to determine the effect of accounting objectivity on the quality of financial reporting among listed commercial banks in Rwanda and to examine the effect of accountants’ professional competence and due care on the quality of financial reporting among listed commercial banks in Rwanda stock exchange .Theories underpinning the study are business entity theory, going concern theory and agency theories. The study used correlation design with a quantitative approach. The sample size was 363 respondents who included accounting, finance and auditing staff, heads of departments and members of the boards of directors of the four selected commercial banks. However, only 203 (56% response rate) completed the survey. Stratified simple random and purposive sampling techniques were used to select this sample. Data was analyzed through descriptive analysis. Findings for the first hypothesis (H01) show that accounting integrity has a statistically significant effect on the quality of financial reporting among selected commercial banks in Rwanda (β=.196; p<.05). This suggests that holding other factors constant, accounting integrity contributes up to 19.6% of the variation in the quality of financial reporting. For the second hypothesis (H02), it is observed that accounting objectivity has a statistically significant effect on the quality of financial reporting among selected commercial banks in Rwanda (β=.591; p<.05). Regarding the third hypothesis (H03), findings show that professional competence and due care have no statistically significant effect on the quality of financial reporting among selected commercial banks in Rwanda (β=.140; p>.05). The study recommends strengthening professional knowledge and training by investing in continuous training and development programs. Promotion of ethical practices, enhancement of staff and management collaboration and learning culture across the surveyed commercial banks are also recommended. It is hoped that the study will enable the listed commercial banks to improve ethical practices and competences among staffs so as to enhance quality of reporting. Other academicians may also find the study valuable in benchmarking their studies on the same subject.

Keywords: Accounting Ethics, Quality of Financial Reporting, Commercial Banks, Rwanda Stock Exchange

Author Biographies

Wilson Nkuranga, University of Kigali, Kigali, Rwanda

Master of Science in Finance, University of Kigali, Rwanda

Dr. Thomas Tarus, University of Kigali, Kigali, Rwanda

Senior Lecturer, University of Kigali, Rwanda

References

Enofe & E. L Inanga. (2015). The role of auditing in preventing corporate fraud. Journal of Finance and Accounting, 3(4), 103-110.

Abdullah, M. M., Razak, D. A., & Sulaiman. (2019). Accounting integrity and the quality of financial reporting in Malaysian commercial banks. Asian Journal of Accounting and Governance, 10, 25-35.

Abdullahi, S. A. (2021). IFRS adoption, financial reporting quality and corporate performance of Nigerian deposit money banks. Asian Journal of Accounting and Governance, 15, 51-63.

Adeyemi, S. B., Salawu, R. O., & Adewoye, J. O. (2019). The effect of audit quality on the quality of financial reporting of Nigerian banks. Journal of Financial Reporting and Accounting, 17, 417-431.

Ahmed, K., Nicholls, D., & Tukamuhabwa, B. R. . (2016). International financial reporting standards adoption and quality of financial reporting in Egypt. Journal of Applied Accounting Research, 17(2), 208-229.

AICPA. (2021). Definition of integrity. Retrieved from https://www.aicpa.org/content/dam/aicpa/research/standards/codeofconduct/downloadabledocuments/2021-01-01-Definitions-of-Terms-2021-01-01.pdf (Accessed April 26, 2023).

Akintoye, I. R., & Adegbie, F. F. (2018). Accounting integrity and financial reporting quality in Nigerian commercial banks. International Journal of Ethics and Systems, 34(3), 405-417.

Albrecht, W. s. (2018). Fraud Examination. Cengage, 1-675.

Albu, N., Albu, C. N., & Alexander, D. (2019). The impact of accountants’ professional competence on the quality of financial reporting in the banking sector: Evidence from Romania. Sustainability, 11(11), 3026.

Ali, M. S., Ullah, I., & Ullah, S. (2017). The effect of accounting objectivity on financial reporting quality: Empirical evidence from Pakistan. Journal of Accounting in Emerging Economies, 7(1), 2-20.

Al-Khadash, H. A., & Al-Malkawi, H. A. (2019). Accounting integrity and the quality of financial reporting in Jordanian commercial banks. Journal of Financial Crime, 26(1), 84-95.

Al-Khadash, H. A., Al-Malkawi, H. A., & Al-Sarayra. (2020). The impact of accounting integrity on the quality of financial reporting: Evidence from Jordanian commercial banks. International Journal of Managerial Finance, 16(5), 728-744.

Almilia, L. S., & Syafrudin, M. (2018). Professionalism and quality of financial reporting: Evidence from Indonesian banking industry. Journal of Applied Accounting Research, 19(2), 206-221.

Ames, D. R., Rose, P., & Anderson, C. P. . (2019). The Necessity and Challenges of Sample Size Planning in Organizational Research. Organizational Research Methods, 22(3), 473-500.

Amran, A., Abdul Rahman, R., & Ahmad, N. H. (2014). The impact of competency, internal audit role and audit methodology on audit quality: Evidence from Malaysian commercial banks. Procedia-Social and Behavioral Sciences, 164, 165-172.

Ball, R., & Shivakumar, L. (2005). Earnings quality in UK private firms: Comparative loss recognition timeliness. Journal of Accounting and Economics, 39(1), 83-128.

Barth Cram, M., & Nelson, ,. K. (2001). Accruals and the prediction of future cash flows. The Accounting Review, 76(1), 27-58.

Barykin, A., & Khramtsov, N. (2018). The effect of accounting objectivity on the quality of financial reporting: Evidence from Russia. Journal of Accounting, Finance and Auditing Studies, 4(1), 26-45.

Biddle, G.C., Hilary, G., & Verdi, R.S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics, 48, 112-131.

Biondi, Y. (2011). The pure logic of accounting: A critique of the fair value revolution. Accounting, Economics, and Law, 1(1), 1-46.

BNR report. (2022). List of commercial banks. Retrieved from https://www.bnr.rw/financial-stability/bank-supervision/licensed-banks/ (Accessed April 26, 2023).

Botosan, C.A., & Plumlee, M. (2002). A re-examination of disclosure level and the expected cost of equity capital. Journal of Accounting Research, 40(6), 21-40.

Brammer, S., & Millington, A. (2008). Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29(13), 1325-1343.

Bryman, A. (2016). Social research methods. Oxford University Press.

Buhari, M. (2015). Accounting ethics and financial reporting in the Nigerian banking sector. European Journal of Business and Management, 7(23), 119-126.

Bushman, R.M., & Smith, A.J. (2001). Financial accounting information and corporate governance. Journal of Accounting and Economics, 32(12), 237-333.

Chen, J. J., Cheng, C. S. A., & Song, H. J. (2012). Verifiability, conservatism, and earnings management. Review of Quantitative Finance and Accounting, 38(2), 139-160.

Chen, S., Chen, X., & Guo, W. (2018). Internal control, accounting objectivity, and financial reporting quality: Evidence from Chinese commercial banks. Journal of International Accounting Research, 17(1), 1-22.

Creswell, J. W. . (2014). Research design: Qualitative, quantitative, and mixed methods approaches. Sage publications.

Creswell, J. W., & Creswell, J. D. (2018). Research design: qualitative, quantitative and mixed methods approaches. Sage publications.

Dechow, P. M., Ge, W., Larson, C. R., & Sloan, R. (2010). Predicting material accounting misstatements. Contemporary Accounting Research, 27(1), 137-176.

Eginiwin, J.E., & Dike, J.W. (2014). Accounting Ethics and the Quality of Financial Reporting: A Survey of Some Selected Oil Exploration and Producing Companies in Nigeria. IOSR Journal of Business and Management, 16(7), 26-36.

Elsayed, A. E. A., & Ismail, N. A. (2019). The impact of accounting objectivity on the quality of financial reporting in commercial banks: Evidence from Egypt. Journal of Accounting and Taxation, 11(1), 1-14.

Financial Executives Research Foundation. (2012). The Financial Executive's Guide to Accounting Fraud: Strategies for Understanding and Avoiding Financial Statement Decept. John Wiley & Sons.

Freedman, J., & Stagliano, A. J. (2020). Ethics, Integrity, and Professional Responsibility in Accounting. Journal of Business Ethics, 163(4), 569-583.

Fremgen, J.M. . (1968). The Going Concern Assumption: A Critical Appraisal. The Accounting Review, 43 (4), 649-656.

Gan, J., Qi, B., & Xu, P. . (2018). Determinants of the financial reporting quality of Chinese commercial banks. Journal of Applied Accounting Research, 19(3), 360-378.

Gibson E. L., & Bottomley, S. (2021). Accounting Ethics: Trust and the Accounting Profession. Palgrave Macmillan.

Glen, S. . (2015). The basics of sociology. John Wiley & Sons.

Hameed, A., Fazal-e-Hasan, S., & Khan, T. M. (2017). Effects of human resource development on the financial performance of commercial banks in Pakistan. Business & Economic Review, 9(1), 21-40.

Hashim, ,. H., & Al-Matari, ,. E. (2015). Accounting ethics and financial reporting quality: Evidence from Jordan. International Journal of Business and Management, 10(1), 222-230.

Healy, , P., & Palepu, , K. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31, 405-440.

Healy, P., & Palepu, K. (2016). The fall of Enron. Journal of Economic Perspectives, 17(2), 3-26.

Hsu , C., & Yang, C. (2016). The impact of financial reporting quality on corporate social responsibility: Evidence from restatements. Journal of Business Ethics, 133(3), 485-504.

Huang, J., Lin, J., & Yan, H. (2020). The effect of accounting integrity on the quality of financial reporting: Evidence from Chinese commercial banks. Journal of Applied Accounting Research, 21(2), 212-230.

Hung, M., & Subra IESBA manyam, K. R. (2007). Financial statement effects of adopting principle‐based accounting standards. The Accounting Review, 82(4), 979-1004.

IASB, I. A. (2010). Conceptual Framework for Financial Reporting. Retrieved from https://www.ifrs.org/-/media/feature/about-us/conceptual-framework/conceptual-framework-for-financial-reporting.pdf (Accessed April 26, 2023).

IESBA ,. (2016). Handbook of the Code of Ethics for Professional Accountants. New York: International Federation of Accountants.

IESBA. (2016-2020). Handbook of the International Code of Ethics for Professional Accountants. New York: International Federation of Accountants.

IESBA. (2018). Handbook of the International Code of Ethics for Professional Accountants. New York: International Federation of Accountants.

IESBA). (2020). Handbook of the International Code of Ethics for Professional Accountants. New York: International Federation of Accountants.

IFAC. (2016). Handbook of the code of ethics for professional accountants. International Federation of Accountants.

Iskandar, D., & Setiyawati, H. (2015). The Effect of Internal Accountants’ Competence on the Quality of Financial Reporting and the Impact on the Financial Accountability. International Journal of Managerial Studies and Research, 3(5), 55-64.

Kieso, D. E., & Warfield, T. (2019). Intermediate accounting (16th ed.). John Wiley & Sons.

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (16th ed.). John Wiley & Sons.

Krishnan, J. &., & Krishnan, J. (2018). Did conservatism in financial reporting increase after the Sarbanes-Oxley Act? Initial evidence. Accounting Horizons, 22(1), 1-27.

Liao, L., Lu, T., & Zang, Y. (2020). Auditor tenure, audit quality and financial reporting quality: Evidence from China's banking industry. Journal of Applied Accounting Research, 21(3), 395-415.

Loeb, S. E. . (2019). Ethical issues in accounting. In Research handbook on corporate crime and financial misconduct. Edward Elgar Publishing.

Mabil, A.N. (2019). Investigating Effects of Accounting Ethics on Quality of Financial Reporting of an Organization: Case of Selected Commercial Banks in South Sudan. Mediterranean Journal of Social Sciences, 10(1), 117-191.

Masoud, B. &. (2013). Impact of Professional Ethics on Financial Reporting Quality. American - Eurasian Network for Scientific Information, 7(10), 2862-2866.

McDermott, K. (2011). Financial Reporting Quality and Investment in Corporate Social Responsibility. Journal of International Finance, 45(15), 78-109.

Mintz, S. M., & Morris, R. E. . (2018). Ethical obligations and decision making in accounting. Text and cases. McGraw-Hill Education.

Mitzkus, S. (2013). Theoretical Basis of Supply Management: Theoretical and Practical Contributions of Agency Theor. International Journal of Corporate Governance, 7(4), 67-82.

Nardi, P. M. . (2018). Doing survey research: A guide to quantitative methods. Routledge.

National bank of Rwanda. (2016). Annual Report 2015. BNR.

Nkurunziza, L. M. (2021). The development of the accountancy profession in Rwanda: A historical perspec. Journal of Accounting in Emerging Economies, 11(1), 120-139.

Ogbonna, G.N., & Ebimobowei, A. (2012). Effect of Ethical Accounting Standards on the Quality of Financial Reports of Banks in Nigeria. Current Research Journal of Social Sciences, 4(1), 69-78.

Omoteso, K., Hamzat, R. A., & Otusanya, O. J. (2016). Supervised of subordinates and financial reporting quality of Nigerian commercial banks. Banks and Bank Systems, 11(2), 96-105.

Prabowo, , R., & Angkoso, , K. (2006). Factors Influencing the Extent of Web-Based Disclosure: An Empirical Analysis of Indonesian Manufacturing Firms. . International Journal of Finance, 8 (2), 92-98.

Rai, A. (2003). Reconciliation of net income to cash flow from operations: an accounting equation approach. Journal of Accounting Education, 21(1), 17-24.

Rezazadeh, J., & Radfar, R. (2020). The relationship between audit quality and financial reporting quality in the Iranian banking industry. Journal of Applied Accounting Research, 21(4), 539-554.

Russo, C.J. & Harrison,, T.M. (2020). Accounting Ethics: An Overview. Journal of Business Ethics, 166(2), 175-186.

Saleh, M. A., Jizi, M. I., & Ismail, N. A. (2018). The impact of accounting integrity on financial reporting quality: Evidence from Jordanian commercial banks. Journal of Financial Reporting and Accounting, 16(4), 731-750.

Schaede, U. . (2019). The great recession and its impact on Asia. Asian Economic Policy Review, 7(2), 159-177.

Shaban, A. N., Al-Khadash, H. A., & Shukair, G. (2019). The effect of ethical behavior on the quality of financial reporting in Jordanian banks. Journal of Financial Reporting and Accounting, 17(1), 26-40.

Shafer, W.E. (2002). Ethical pressure, organizational-professional conflict, and related work outcomes among management accountants. Journal of Business Ethics, 38(3), 261-273.

Shao, Y., Li, L., & Qiu, W. . (2020). Does accounting integrity enhance the quality of financial reporting? Evidence from Chinese commercial banks. International Journal of Accounting, 55(2), 147-167.

Shukeri, S. N. S. A., & Zainuddin, Y. H. (2019). Accounting objectivity and financial reporting quality: Evidence from Malaysian commercial banks. International Journal of Accounting and Finance.

Smith, S., & Smith, K. (2014). The Journey from Historical Cost Accounting to Fair Value Accounting: The Case of Acquisition Costs. Journal of Business & Accounting, 7(1), 3-10.

Stewart, J., & Subramaniam, N. (2010). Internal audit independence and objectivity: emerging research opportunities. Managerial Auditing Journal, 25(4), 328-36.

Struwig, F. W., & Stead, G. B. (2001). Planning, designing and reporting research. Pearson Education South Africa.

Tahir, I. M., Ahmad, N., & Shahzad, F. (2019). Accounting integrity and the quality of financial reporting: Evidence from Pakistani commercial banks. Journal of Accounting in Emerging Economies, 9(1), 90-102.

Unegbu A.O. . (2014). Theories of Accounting: Evolution & Developments, Income Determination and Diversities in U. Research Journal of Finance and Accounting, 5(19), 1-15.

Winston, K. (2012). Educating for moral competence (for Philip Selznick). Issues in Legal Scholarship, 10(1), 153-160.

World bank . (2017). Rwanda: Report on the Observance of Standards and Codes of Accounting and Auditing. Report No: ACS17317 [Online]. Available at: http://documents1.worldbank.org/curated/en/536851468194984892/pdf/ACS17317-ROSC-P154529-PUBLIC-Rwanda-ROSC-A-A-2015.pdf (Accessed April 27, 2023).

Downloads

Published

2023-11-04

How to Cite

Nkuranga, W., & Tarus, T. (2023). Effect of Accounting Ethics on Quality of Financial Reporting among Listed Commercial Banks in Rwanda Stock Exchange . Journal of Finance and Accounting, 7(9), 45–68. https://doi.org/10.53819/81018102t2248

Issue

Section

Articles