SOURCE:

Faculty: Management Sciences
Department: Accountancy

CONTRIBUTORS:

Okoro, G. E.
Ekwueme, C. M.

ABSTRACT:

A major thread in accounting literature is how accounting alchemy can be measured or modeled. However, this present study builds on existing accrual models so as to advance a model of accounting alchemy and test its effect on reported financial performance among quoted companies in sub-Saharan Africa countries. Ex-post facto research design was employed and the theoretical framework was anchored on theories of utilitarianism and accounting discretion. Secondary data of return on equity, return on asset, earnings per share, book value per share, Tobin’s Q, earnings before extraordinary items, cash flow from operations, net profit after tax, revenue and total assets were obtained and computed for the sampled quoted companies in sub-Saharan Africa countries during the period 2012-2016. Three (3) countries in sub-Saharan Africa namely Nigeria (West Africa), South Africa (Southern Africa) and Kenya (East Africa) were selected. The selection of a country was based on viability and robustness of capital market. In this regards, a sample of sixty-four (64) companies were selected out of one hundred and forty-one (141) companies in the consumer and industrial goods subsector in Nigeria, South Africa and Kenya. The obtained data were analysedusing both descriptive and inferential statistics. Given the outcome of Ordinary Least Square and Wald Ch2-statistics, it was found that reported financial performance variants of return on assets, equity, earnings, book value and Tobin’s Q are significantly affected by accounting alchemy. It was concluded that rather than focusing on accounting estimates, accounting researchers should focus on economic reality in reporting accounting numbers which can help to mediate the effects of accounting alchemy on reported financial performance. On this note, it was recommended among others that the regulatory framework of accounting should consider revising the information reported in financial statements. The revised information should disclose incomes, expenses and assets information coupled with supporting documents verifying their existence. As a matter of fact, this will help abet accounting alchemy.More importantly, accounting researchers and regulatory framework of accounting must strive towards resolving the controversy about choice of accounting alternatives.