1.1. BACKGROUND OF THE STUDY
Fraud and corruption have affected the living condition of citizens of third world countries negatively and Nigeria is not an exception. It is alarming and indeed devastating. Globally, fraud and financial irregularity are severe problems of concern. It is a major concern to developing nations especially in Africa. Individuals perpetuate fraud and corrupt practices according to the capacity and opportunities open to them in their organization. The proliferation of e-commerce has led to an increasing e-fraud in recent times, which in turn has meant an increasing demand for forensic accountant except where there is no regulation, individuals or organizations affected by the fraudulent or corrupt practices will want to seek redress using institutions like the police and the law court. In more recent times, the accountancy and legal professions work very closely, with forensic Accountants acting as expert financial witness in court cases. So, far from being a new practice forensic accounting except for Nigeria has long being part of accounting profession. While it took the back seat in the early 20th century with general accounting taking a greater role, it is now merely returning to its traditions. Today, forensic accountants are involved in a wide range of cases from more mundane family law and commercial matters through wide range criminal investigations. In Nigeria, there are growing financial fraud cases, bank failures, recent stock market scans, allegation of wide- wipe out of the finances of the Nigerian stock exchange, failure of non-banking financial companies and failure of regulatory mechanism. To curb it requires extra investment in forensic accounting skills. Other studies have examined the link between regulatory structures and incentive to corruption. Several sources of corruption arise when pervasive regulations exist and government officials have an excessive degree of discretion in applying them. Private parties may be willing to pay bribes to government officials in order to obtain pure rents that the regulations may generate. Tanzi  argues that the problem become worse when regulations lack simplicity and transparency. Prior to the latest economic downturn the accounting profession had already undergone radical changes as a result of the Enron and Worldcom debacles as well as other accounting scandals. With the spotlight on the accounting profession, a new market with a breed of accountants – forensic accountants has emerged. This has led to an increase in demand for forensic accounting services as the public deals with financial collapses. There is also increase in white collar crime and growing occurrences of occupational fraud. The Association of Certified Fraud Examiners, (2008) ACFE estimates that occupational fraud losses cost organizations nine hundred and ninety-four billion dollars ($9946) annually. The various organized and sophisticated frauds witnessed recently in the corporate world, posed a major threat in the trust and confidence shareholders, investors and the general public had in the published financial statements. The normal auditing processes appear not to be adequate hence forensic accounting is becoming a fashionable area of study. Financial misappropriation and irregularities has been a very big problem of concern all over the world. It is so common both in private and public sector organizations that almost every individual cannot wash his/her hand clean of it. This form of fraud is widely committed ranging from the presidency through the state government to the lowest that is local government. In private company it ranges from the managing directors of a company, through middle management cadre and as low as messengers. Individual perpetrates fraud and corrupt practices according to the capacity of the office. Accounting fraud is an act of knowingly falsifying accounting records, such as sales or cost records, in order to boost the net income or sales figure. The magnitude of public office fraud, together with the extent to which citizens are affected is a call for alarm. Accounting fraud is illegal and subjects the company and the executive involved to civil lawsuit, company officials may resort to accounting fraud to reverse loss or to ensure that they meet expectation from shareholders or the public. David (2005) states that fraud can be better prevented if decisions are made by a group and not an individual. Presently in Nigeria the attempt by the government to fight fraud is being frustrated by fraud fighting back through judicial system. The only way to solve this issue is that the public should be enlightened or educated on the use of and functions of forensic accounting to reduce or detect fraud occurrences. There is need to overhaul the accounting profession in order to equip them with the new skills that will help restore the lost confidence of shareholders and investors over financial statements. In order to sanitize the accounting profession there should be need for skilled professionals that can identify, expose and prevent weaknesses in the areas of poor corporate governance, poor internal control and fraudulent financial reports. In a bid to overcome weaknesses above, a new breed of accountants called Forensic Accountants has come up. It is expected that the forensic accountants will help to solve the problem of fraud in the corporate world and to bring to bear versed knowledge of accounting, law, finance investigation and skills necessary to sanitize the corporate world.
1.2 THE STATEMENT OF THE PROBLEM
In recent time financial fraud has been so common in federal, state and local government establishments, detecting accounting fraud has always been an important but complex tax for the statutory auditors. The detection of accounting fraud using statutory audits procedure is a difficult and sometimes impossible tax. Fanning and Srivastava (2011) although the latest revision of auditing standards is enlarging auditors fraud detection responsibility effective detecting accounting fraud has always been a problem for accounting profession Wang (2010). It is pertinent to say that the independence of the internal auditor is not guaranteed or it is somehow impaired because he works as an employee of the government or organization. Thus, giving rise to the conception of external auditors, yet frauds are still being committed on a daily basis. The financial fraud in Nigeria public sector organization continues to grow despite current anti-fraud legislation the specific problem with Nigeria public sector fraud is the negative effect on citizens and loss of public confidence. It now become pertinent that forensic accounting practices be introduced since the external auditor do not or may have the required training to able tackle modern frauds, like white collar crimes such as security fraud, embezzlement, bankruptcies, contract disputes and possibly criminal financial transaction; including money laundering by organized criminal. Also the forensic accountant provides litigation support and investigative accounting.
1.3 AIMS OF THE STUDY
The major purpose of this study is to examine forensic accounting and the Nigerian capital market dealings. Other general objectives of the study are:
1. To examine the nature of forensic accounting.
2. To examine the most prevalent type of fraud among corporate institutions.
3. To examine the impact of forensic accounting services on Nigerian capital market dealings.
4. To examine major areas of application of forensic accounting functions in the Nigerian capital market.
5. To examine the relationship between forensic accounting and Nigerian capital market dealings.
6. To examine the effect of forensic accounting in improving internal control system of Nigerian capital market.
1.4 RESEARCH QUESTIONS
1. How is the nature of forensic accounting?
2. What is the most prevalent type of fraud among corporate institutions?
3. What are the impacts of forensic accounting services on Nigerian capital market dealings?
4. What are the major areas of application of forensic accounting functions in the Nigerian capital market?
5. What is the relationship between forensic accounting and Nigerian capital market dealings?
6. What are the effects of forensic accounting in improving internal control system of Nigerian capital market?
1.5 RESEARCH HYPOTHESES
1.6 SIGNIFICANCE OF THE STUDY
The role of forensic accounting provoke many areas in which research can be carried out, but this study focused on understanding forensic accounting and Nigerian capital market dealings. The study was expected to be of help to various groups as follows:
The government: through the central bank of Nigeria in formulating of guidelines towards increasing effectiveness of forensic accounting services to reduce the extent of financial frauds happening in Nigerian capital market.
Researchers and Academicians: the study forms the basis for future researchers and academicians who may be conducting research on roles and effectiveness of forensic accountants in service delivery since accounting as a profession has changed over the years thus contributing to theory by indicating whether the forensic accounting services are fully applicable in the Nigerian capital market. It will add to the existing body of knowledge and provide a source of reference to further empirical studies into the little known ways of fraudulent practices in corporate institutions.
Investors: The potential and current investors will benefit from the research. The study seeks to inform the investors about the importance of forensic accountants and their services and further advice on the risks related to their exclusion in the Nigerian public sector. Potential investors will pursue investment in companies that have reduced fraudulent activities due to proper policies like incorporation of forensic accounting services.
Financial Institutions: This study will seek to inform financial institutions in developing policies and giving timely relevant advice to their clients against the effect of business operations without the assistance of forensic accountants. They would be able to advice their clients on which officials to invest in and which ones to avoid.
1.7 SCOPE OF THE STUDY
The study is based on forensic accounting and Nigerian capital market dealings, a case study of Nigerian stock exchange, Lagos state.
1.8 LIMITATION OF STUDY
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.9 DEFINITION OF TERMS
Forensic Accounting: The application of financial skills, and an investigative mentality to unresolved issues, conducted within the context of rules of evidence.
Capital market: This is a network of specialized financial institutions that in various ways bring together supplies and users of fund in a long term purpose.
Stock Exchange: Organization, which provides facilities for trading in securities by its member and also sets rules for the admission and trading of exiting securities as well as to guide the business conduct of members.
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