Income Smoothening in Financial Reporting and Theory of Financial Accountability in Nigeria

Abstract

This paper focused on the theory of financial accountability and how it has helped resolved income smoothening in financial reporting. Financial reporting is the medium through which managers give stewardship on the resources entrusted in their custody. Users of financial information depend heavily on this report to make informed economic decisions. Theory of accountability, agency theory, and stewardship theory and information asymmetry was considered. The exploratory research method was adopted by reviewing existing literatures and case study thereby drawing a conclusion. The study discovered that organizations employed income smoothening for various reasons to avoid earnings fluctuations and enhance organizations performance. This is however carried out with the involvement of managers. He either agrees to manipulate account for the shareholders or manipulate it against them. The study concluded that income smoothing is not illegal or unethical but must be carried out with care to avoid fraudulent practices that may harm the organization in the nearest future. Policies to improve the quality of financial information should be adopted in all organizations. The reward should not be based on the result but other factors should be critically considered. Strong internal control and monitoring should be in place to prevent actions that will be detrimental to the organizations in the nearest future.

Keywords: Financial accountability, income smoothing, financial reporting, Case study.