Forensic accounting and fraud: A review of literature and policy implications

&lt;p&gt;This review present some evidence on fraud, forensic accounting, the skills and education of the forensic investigator. Also, some explanation for the diverging views among academics and regulators in relation to detecting fraud are provided. To regulators, I address the question on why academic research in forensic accounting have little significance to inform policy. Further, I present some rich set of questions and identify a number of important directions for future research in forensic accounting. This paper is intended to stimulate debates and future research of the issues identified.&lt;/p&gt;</jats:p

Earnings Quality and IFRS Research in Africa: Recent Evidence, Issues and Future Direction

This paper review the recent empirical research on IFRS and earnings quality among African studies and show mixed conclusions regarding the impact of IFRS on earnings quality and financial reporting quality in the region. Also, some discussions on factors that led to the growth in the earnings quality African literature over the last decade as well as some challenges in the recent literature, are provided. Also, the study makes several observations regarding IFRS and earnings quality research in Africa and suggests potential directions for future research. The need to (i) understand the recent direction of earnings quality research in Africa, (ii) understand the interaction between policy and earnings quality research, if any, in the African region, and (iii) the need to maintain high-level rigour in earnings quality research while ensuring greater interaction between policy and research, makes this study important. Given the paucity of research on earnings quality in developing countries, this study contributes to the broader earnings quality literature by providing a review of the African earnings quality literature; hence, conclusions based on empirical studies in this review are not intended to be generalised to developed countries but only to developing countries. Finally, while insights in this paper may be informative to the reader, the intended objective is to stimulate debates that would improve the outputs of earnings quality research and the overall quality of accounting disclosure among firms in Africa

How Bank Managers Anticipate Non-Performing Loans Evidence from Europe, US, Asia and Africa

This study extends the literature on the determinants of NPL. I investigate whether banks anticipate non-performing loans by making balance sheet adjustments. This study draws insight into the actions taken by credit risk management teams and bank managers to minimize the size of non-performing loans. After examining 82 banks from US, Europe, Asia and Africa, the result indicate that banks adjust the level of loan loss reserves and loan growth to minimize the size of NPLs. Our results do not show evidence that loan diversification minimizes NPLs. Further, I find that banks in developing countries reduce loan growth when they expect high NPL while banks in developed countries do not anticipate the level of NPL by adjusting loan growth. Further, I find that post-crisis Basel regulation did not lead to a decrease in the size of NPLs among banks in developed countries but appear to minimize NPLs in some developing countries. Overall, the significance and predictive power of each bank-specific factor (excluding loan diversification), regulatory variable and macroeconomic indicator in explaining NPLs depends on regional factors (less significantly) and country-specific factors (more significantly).</jats:p

Paying Bank Risk Professionals to Lie About Bank Loan Loss Provisioning Process

This paper analyses the effects associated with using the magnitude of realised loan losses as a basis for performance measurement and compensation to credit risk team in banks. Paying and rewarding credit risk professionals on the basis of reporting fewer provisions or lower loan losses motivate credit risk teams to game the system that work to determine loan loss provisions estimate of banks. While bank credit risk teams are sometimes mesmerised by the short-term benefits of provisions games, they do not care if their behaviour destroys bank value and the informativeness of loan loss provisioning estimates. While it is not difficult for bank managers and analysts to understand that the provisioning process is subject to gaming, few of them understand the costs it pose on banks and how to lower this costs. This paper explains how this happens and how provisions games can be stopped or reduced. Using the magnitude of loan losses as a basis to determine the compensation to risk professionals or credit risk teams encourages provisions games. The solution is not to reduce or eliminate provisioning discretion of credit risk teams but rather to de-link credit risk teams’ bonuses from the magnitude of loan loss

Non-performing loans and Financial Development: New Evidence

This paper examine the relationship between non-performing loans (NPLs) and financial (sector) development. The study is motivated by the scant knowledge on how financial development structures impact non-performing loans across banking sectors around the world. In the pooled full country empirical analysis, we find that private credit to GDP ratio is positively associated with non-performing loans. Also, NPLs are inversely associated with bank efficiency, loan loss coverage, banking competition and banking system stability, and is positively associated with foreign bank presence, banking crises and bank concentration. We also find that efficient and stable banking sectors experience higher non-performing loans. In the regional empirical analysis, NPLs are negatively associated with regulatory capital ratio and bank liquidity while the graphical analysis show that NPLs are inversely related to financial development and profitability in several regions

Fraud Detection, Conservatism and Political Economy of Whistle Blowing

This paper presents a discussion on whistle-blowing and take the view that whistle-blowing is an important fraud detection technique. A discussion of some factors that influence the whistle-blowers’ incentive to blow the whistle or to remain silent in the face of persuasive fraud red flags, is also presented. The paper suggests that the tradeoff between the cost and benefit of whistle-blowing may compel the whistle-blower to apply some degree of conservatism in their whistle-blowing activities. Also, some discussion on how whistle-blowing might be influenced by firm-level politics, country-level political economy, firm ownership and other institutional factors is presented. Finally, although the provision of incentives can increase the appeal to encourage whistle-blowing, the appeal to blow the whistle may be weakened when the whistle-blower takes into account the larger context that influence the decision to blow the whistle or to remain silent

Determinants of Bank Profitability and Basel Capital Regulation: Empirical Evidence from Nigeria

This study, empirically, investigates the determinants of bank profitability. The debate on whether Basel capital regulation affects bank profitability continues to attract research interest among academics and policy makers, globally. I contribute to this debate by providing a country-specific study. Overall, I find that Basel capital regime had no significant effect on bank profitability. The result is significant because it lends support to the view that Basel capital regulation in different countries is modified to meet other prudential objectives relative to its intended objective - to reduce excessive risk-taking in banks. Second, after employing NIM and ROA profitability metrics, I find that the determinants of bank profitability, and its significance, depends on the profitability metric employed. Third, I find that loan quality significantly influences bank interest margin while bank size and cost efficiency significantly influences return on asset (ROA). Finally, bank capital adequacy ratio is observed to be a significant determinant of bank profitability

Bank Profitability and Capital Regulation: Evidence from Listed and non-Listed Banks in Africa

This study investigates the determinants of African bank profitability while controlling for bank capital regulation. Using static and dynamic panel estimation techniques, the findings indicate that bank size, total regulatory capital, and loan loss provisions are significant determinants of the return on assets of listed banks compared to non-listed banks. Also, regulatory capital has a more significant (and positive) impact on the return on assets of listed banks than non-listed banks particularly when listed banks have sufficient regulatory capital ratio. We also find that higher regulatory thresholds have a negative impact on the return on asset of non-listed banks

COVID-19 in Africa: socioeconomic impact, policy response and opportunities

The COVID-19 or coronavirus pandemic which has affected the global economy has also affected the African economy through spillovers to African countries. Many African countries have taken bold quarantine and lockdown measures to control the spread of COVID-19 although this has come at a cost such as the collapse of health systems and a painful economic crisis or recession. A coordinated and bold response by African authorities is needed. First, public funds should be provided to improve the capacity of health systems in African countries. Second, financial support should be provided to individuals, entrepreneurs and corporations to help them cope with the adverse effect of the coronavirus crisis. Third, employers should be granted incentives to preserve employment during the crisis to avoid mass layoff of workers. Finally, the Central bank in African countries should provide liquidity and credit support as well as asset purchase programs to prevent credit and liquidity crunch in domestic financial markets

Impact of IAS 39 reclassification on Income Smoothing by European Banks

We examine the impact of the reclassification of IAS 39 on income smoothing using loan loss provisions among European banks. We predict that the strict recognition and re-classification requirements of IAS 139 reduced banks' ability to smooth income using bank securities and derivatives, motivating them to rely more on loan loss provisions to smooth income. Our findings do not support the prediction for income smoothing through loan loss provisions. Also, there is no evidence for income smoothing in the pre- and post-IAS 39 reclassification period. The implication of the findings is that: (i) European banks did not use loan loss provisions to smooth income during the period examined, and rather rely on other accounting numbers to smooth income; (ii) the IASB’s strict disclosure regulation improved the reliability and informativeness of loan loss provision estimates among European banks during the period of analysis