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The Impact of Accounting Ethics on the Quality of Financial Reports

Abstract 

This study investigates the effects of financial reporting and ethical accounting practices of the highlighted manufacturing companies. Primary data was acquired through a self-administered questionnaire. The study explores the impact of moral responsibility on financial report disclosure, examines the influence of moral responsibility on financial report objectivity, and ascertains the impact of moral responsibility on financial report integrity. Honesty in accountancy has positive results concerning the quality of the financial report of the highlighted manufacturing firms. The study concluded that ethical accounting practices directly affect the quality of financial information of the highlighted manufacturing firms. The study recommended that more strategies be designed by professional accountancy to encourage its members to continue abiding by the ethical standards and the professional system be devoid of the threats familiar to the ethical standards. Further, the study provides room for future research on other factors that influence the quality of financial reporting.

The Impact of Accounting Ethics on the Quality of Financial Reports

Ethics are the moral obligations exhibited by people, institutions, and organizations as stipulated by the code of conduct. According to the International Federation of Accountants (2005, p.1120), responsibility acceptance distinguishes professional accounting. Professional accounting is emulated from the code of ethics, including judgment, competency, objectivity, integrity, and independence. Equally, qualities including diligence, skills, courtesy, truthfulness, fair-dealing, and honesty are outlined as key ethical considerations in accounting (Enofe et al., 2015, p.123).

Despite numerous regulatory bodies that govern the accounting profession, financial reporting and its results still lack reliability and external reliability; in addition, the widespread financial scandals in cooperatives have been issued that concern the stakeholders of the cooperations. This has been attributed mainly to dishonesty in accounting practices all over the globe for the last decade. Against this drop, we examined the effect of honest accounting practices on the quality of financial reporting (Ahinful et al., 2017). The data used was primary in the investigation. The data was provided from the questionnaires to practicing and non-participants of accountancy in a tertiary institution located in Edo. Analysis of the data was conducted eliciting statistical estimations were used appropriately to infer the population studied. The data analysis revealed that accounting honesty had a significant relationship with the quality of financial reporting (Ahinful et al., 2017). The recommendations from the data, that high ethical standards should be upheld while accounting and that more work should be done on accountancy.

With increasing submergence into corruption, organizations have failed in every part of ethical accounting, failing to adhere to professional conduct codes strictly. Consequently, most financial reports are incomprehensive, challenging to understand, inaccurate, irrelevant, unreliable, and time-consuming (IASB, 2008, p. 53). Organizations, institutions, and people have many times encountered moral dilemmas where they have been left in a position to choose between doing the right thing at a higher cost and choosing the wrong path at a lesser price. Most often, unethical professionals have made bad choices by going for a lesser charge. The accounting sector is no exception. For many years, the world has experienced a fair share of economic and non-economic corporate scandals surrounding its economic spheres (Ding, Jeanjean, and Stolowy, 2015). However, applying ethics in accounting may significantly improve the quality of financial information. This paper provides a brief proposal of how the integration of ethics can enhance quality reporting, including justification, aims, hypotheses, literature review, methodology description, and timing.

Financial Reporting Quality

            The financial reporting quality is reviewed to determine characteristics of qualitative fundamentals, which entails faithful and relevant representation. The enhancement of qualitative characteristics includes comparability, understandability, timeliness, and verifiability. It is aligned to the improved framework for financial reporting of the IASB and the FASB. Relevance is defined as the ability to make a variance in the decisions made by the subjects in their capital providers’ capacity (Bakhtiari & Azimifar,  2013).

           Faithful representation: faithful representation is to represent the economic phenomenon faithfully that information tends to be defined, reports that need to be represented annually must be complete, free, and neutral from the error of material (Bakhtiari & Azimifar,  2013) Phenomena of economic representation in the report given annually are obligations and economic resources and transition and various events and factors that can alter with them (Ding, Jeanjean & Stolowy, 2015). Faithful representation is weighed while pointing to their neutrality, freeness from material error, completeness, and verifiability.

           Understandability. understandability increase when the information given is characterized, classified, and clearly and concisely presented. It is rather defined as to when information given enables its users to state their meanings (Easterby-Smith, Thorpe & Lowe, 2014). Understandability is weighed by strict items in the emphasis on clearness and the transparency of the information given in the annual reports. Comparability: this is the standard of information that gives its users the ability to identify the similarities and differences on sets of the phenomena of economic data. Ding, Jeanjean and Stolowy, (2015) claim that the same situations need to be presented when narrowing on consistency.

           Timeliness is defined as possessing precious information in deciding its capacity to impact decision making is lost (Easterby-Smith, Thorpe & Lowe, 2014). It is also referred to as the time taken to disclose information and its relationship to the general use of decision-making. When investigating the information quality in annual reports, timeliness is weighed by using a natural logarithm of the number of days between the end of the year, and the auditor’s signatures report at the end of the year is calculated.

Financial Performance

           Aweigh on how an organization utilizes its assets to produce revenue. The performance of financials also weighs on the overall financial situation of an organization over a provided period that can be of significance in the comparisons with similar organizations (IFA, 2005). It is a starting point on the measurement of the standard of financial reporting improvements in the performance of the firms. Further, it relies on transparency, low cost, making decisions on investments efficiently, lowering the cost of capital, enabling comparisons, lowering the urgency of supplementary information, increasing the disclosure of financial statements, and improving recognition, measurement, reliability, and understandability and relevance of the information.

The performance of finance is measured by revisiting financial statements and the ratios being computed. There is the existence of numerous commonly used ratios of accounting that gives significant measures of financial performance. The measures include liquidized ratios, the ability to accomplish short-term financial goals, and efficiency ratios (IFA, 2005). This elaborates on the wellness of the business’s assets brought into use financial gearing or leverage ratios. This shows how the sustainability exploration to the long-term debts of the firm is.

Reporting Quality and Financial Performance

           An exploration of the impact of the standard of financial reporting in respect to financial performance in upcoming economies was done in Hongkong and china by Kim et al. (2007) in the investigation, and financial reporting quality was evaluated over ten years using the approach of income management metric. The study showed a wide range of relations on the quality of financial reporting, which suggested that there are possibilities of variance between relying on regions where an organization was listed. This raises the urgency for investigation on the quality of financial reporting on financial performance in the upcoming businesses.

           An investigation on the quality of financial reporting and financial information has been carried out in the past by economists. According to Kim et al. (2007), the measures to approach the quality of financial reporting used were the management of earnings and reporting of losses on time and valuation. A study on financial institutions in six years showed an urgent need for the marginal impact of the quality of financial reporting to the relevance of value, which ultimately lowered the capital market fraud possibilities.

           Mahdavikhou and Khotanlou (2011) reviewed the sequence in financial reporting and the standard of financial reporting. On the analysis of Meta, the outcome of the study showed that the quality of financial reporting not only brings about performance but also lowers the information asymmetry levels. Although there is significant importance on the quality of financial reporting, its relevance is limited. Although it addresses the issues related to institutions, it slightly fails to address both economic and real rationally related issues usually resolved through accounting principles. A study was conducted in Australia to investigate the effect of the quality of financial reporting on financial performance. Even though the study uses the analysis of non-linearity, the outcome suggested that the quality of financial reporting had a beneficial impact on financial performance, although there were minimal measurement errors.

           Lev (2018) investigated issues and challenges facing the quality of financial reporting in various organizations. They stated that the competence and skill levels influenced their assumption in the upcoming economies and the developing countries’ perception that they are politically migrated or European. The quality of financial reporting can be estimated as far as its elements, like significance, trustworthiness portrayal, understandability, equivalence, and idealness of the financial report (Mahdavikhou & Khotanlou, 2011). Past studies have demonstrated that these characteristics are found in financial articulations when preparers of financial statements maintain high moral principles according to their obligations. Ethical accounting rehearses administered by a few moral norms given by bookkeeping bodies and organizations worldwide and locally. Universally, the International Federation of Accountants (IFAC) set out the code of morals for professional accountants, incorporating respectability, objectivity, professional ability, and due care, classification, and professional conduct. These codes of morals can be applied to both professional bookkeepers in the open practices and professional bookkeepers in business (Lev, 2018). Further, different bodies and organizations control the tasks of bookkeepers just as their moral dealings and practices.

Research Objectives

Broadly, the study will investigate the impact of financial ethics on economic statement quality globally. Narrowed study objectives will be to;

• Investigate the impact of moral responsibility on financial report disclosure
• Examine the impact of moral responsibility on financial report objectivity
• To ascertain the impact of moral responsibility on financial report integrity

Research Hypothesis

1.  Professional perspective has no Significant effect on financial reporting quality

2. Objectivity does not influence financial reporting quality

3. Integrity has no essential effect on financial reporting quality

4. Confidentiality has no vital impact on financial reporting quality

5. Professional competence, due care has minimal effect on economic reporting quality.

Literature review

This analysis was based on three theories: accountancy theory, the right philosophy, agency theory, and legitimacy theory. Stolowy and Paugam (2018) point out that accounting theories are based on a logical mentality, consisting of defined and wide-ranging ideologies that provide a global frame of reference where financial practices are usually evaluated and offer control for new development logistics and methods. Further, accountants require to develop expertise to solve accounting problems in a practical aspect which is usually supported by academic understanding. Moreover, Stolowy and Paugam (2018) assert that the recognized accounting principles, conventions, traditions, processes, hypotheses, and policies have accounting models. The said theories are relevant in this research since it explores how the accountant’s accounting abilities and expertise influence the quality of financial reports.

Oluwagbemiga (2021) depicts that the accounting theory has been established via observations, evaluations, scans, and daily accounting explanations. Daily accounting procedures were carried out using widely recognized and established ideas and concepts successfully. Due to the changes in the socio-economic structure of any nation, accounting trends and practices may also alter. In any change in accounting patterns, the relevant theories need to be modified and modulated. An accountant cannot imagine practice without the theoretical aspects adequately prepared. Nevertheless, accountancy theory may also assist accountants in solving the real-world problems they face in their professions. Economic expertise, accounting integrity, and accountable independence are essential in determining the quality of financial accounting reports.

Al-Dmour, Abbod, and Al-Balqa (2018) developed a rights theory that portrays human beings’ inherent and intrinsic value that should be honored. This means that effective decision-making should respect the rights of other individuals. Equally, a choice will be incorrect considering its impacts on the rights of others. Subsequently, the rights highlighted are alienated into the contractual and legal rights, which form a social agreement or natural rights, which exist irrespective of any legal framework. Natural rights are frequently called constitutional rights or human rights; Tambingon, Yadiati, and Kewo (2018), within natural rights, the right to honesty is essential for the operation of the accounts. All individuals who utilize financial statements should be required to have access to correct and genuine financial information, which plays a crucial role during investments strategies and the decision-making process. Notably, right empowers financial accountants and reporting expertise with a moral responsibility to provide impartial and true fiscal statements.

Tambingon, Yadiati, and Kewo (2018) deduce that legal and contractual rights or privileges are crucial for an accountant and customer rapport. For instance, employers contractual ties, and customers have predetermined rights and freedoms to request financial reporting services from competent and professional accountants. Accountants are thus legally obligated to do their responsibilities best according to their skills and professional limitations. Therefore, the accountant should guarantee that the required independence, competence, and integrity are available to fulfill his responsibilities and provide stakeholders with excellent financial reports (Kalyani, Mathur, and Gupta, 2019). This idea was thus used in the research to give insight into the quality of financial reports by the accountant’s competence, independence, and integrity.

An important workgroup in this area was focused on the context of the connection between the agent principle. The agency theory acknowledges the relationship of the Agency when one party assigns certain duties to another party called the agent. Meckling and Jensen developed the idea of the Agency in 1976. Both suggested that agency costs arise when controls and management are separated. Agency preview that the selection of an accountant is usually reflected on the requirements of managers and third parties. Alzeban (2019) claims that connections concerning an agency have demerits subjected to self-interest. However, there are some incidences where agents become opportunists and fail to act in the best interests of the principle set. The agent mismanagements the authority for economic benefits. Sometimes they may refuse to consider taking necessary risks based on the interests of the principal set. Although this may occur, it cannot be blamed on the untimely perception of risks involved, even if the principal is subjected to a particular risk. Moreover, information asymmetry might be another issue, which means that the parties involved have access to various information levels.

Oluwagbemiga (2021) financial organizations such as banks and corporates regulate issues; the corporate governance concept oversees commercial governance, which is an essential controlling instrument to reduce the problems that might emerge from the connection with the related to the mother agency. The costs of surveillance and discipline of individuals who seek to avoid misuse and abuse of authority are the agency costs. Concerning financial organizations, several action theories aim to divide control and ownership, as stated by (Alzeban 2019). The managers are stakeholders and managers in this scenario. The integrity of the accountant, competence, and independence are essential to quality and efficient financial reporting. Kewo and Afiah (2017) claim that both streams need to grasp the institutional structures and incentives to comprehend the Agency completely. In agency terms, the advantage of sound governance is comprehended as a need to merge managerial objectives with stakeholders’ interests in an organization to reduce cost but increase the quality of financial reports. Regarding the research, Agency theory helps to explain the relationship between competence, independence, quality or financial reporting and accountants’ integrity.

The concept of institutional theory explores the structures and administration procedures formulated through external and internal regulatory constraints changes, which comprise legislation and rules (Alzeban, 2019). Previous financial reporting research conforms to institutional philosophies to describe their results on corporate quality financial reporting drivers. Kewo and Afiah (2017) consider institutional theory a vital paradigm used to evaluate the efficacy and influence variables of financial reporting in corporations. This essential idea explains the link between accountability, independence, objectivity, and the outcome of quality financial reports in a specific corporate.

Further, institutional theory, each organization should fulfill societal demands; its functioning is constantly publicly accessible. For this reason, complicated internal organizational activities which are difficult to detect may concentrate via competency on the problem of external legitimacy. Most companies function using internal systems that are not frequently apparent to other entities, while structures created for external entities do not substantially increase yield. Docimo et al. (2021) state that the external auditor analysis can be prevented provided companies adopts appropriate structures. The loose technical mix makes it possible for the institutions to obtain results in external measurements while enabling flexibility in operational processes. Financial organizations must bear the high costs of implementing different innovations in the accounting department in order to guarantee that the employees are properly educated to enhance the quality of their financial reports. This idea was based on accountants’ competence, independence, and impartiality.

The quality of economic reporting is either indirectly or directly evaluated. The direct assessment embraces the accruals model, and the relevant value model, operational quality attributes, and particular components in yearly reports (Al‐Shaer, 2020). On the other hand, the indirect perception is assessed based on time, financial stability, and earning management (Docimo et al., 2021). Recent studies attribute that the accrual projects on the quality of organizational earnings, with managers using discretionary income to control profits (Al‐Shaer, 2020). The supervision of income is usually projected to effect detrimental influence regarding the quality of fiscal reporting. This is made possible through the reduction of their effects in the decision-making process. The sole advantage of this method is accruals to assess income management based on data in the financial declaration (Irwandi & Pamungkas, 2020). Nevertheless, various derivatives provide difficulty in differentiating between non-discretionary and discretionary accruals (Docimo et al., 2021). In addition, disadvantages are based on the age of environmental and human accounting counts. This model is excluded from not providing a truthful or fair picture of the financial statements.

The VAT model measures financial report quality, focusing on the associations between accounting records and stock market responses (Irwandi & Pamungkas, 2020). The inventory values are believed to epitomize the company’s market value, while accounting facts reflect the company’s value built on the accounting process (Chu, Dai & Zhang, 2018). The archetypal is very helpful; nevertheless, it has certain disadvantages in determining the precision of stock values and a company’s market worth.

The International Accounting Standard Board (IASB) qualitative model may also be known as the technique of operationalizing the qualitative features of financial reporting. (Chu, Dai & Zhang, 2018) found that qualitative features are separated into basic features and enhancing features. The main features, relevance, and true representation are essential for evaluating the eminence of financial reports. Consequently, the available features are improved by the addition of worth properties that comprise compliance, comparability, time, compliance, and comprehensibility to create a desired quality financial assessment. The financial declarations are considered essential when the financial report information help users assess, correct, and confirm past and present occurrences and also influence economic choices (Safkaur et al., 2019). The characteristics of relevance imply that the financial report may affect consumers’ choices. Moreover, the information in the financial report must have the dependability characteristic that has been deemed to be helpful for the administrative process. Further, information is considered to be trustworthy if it is devoid of significant mistakes and prejudice and is neutral, verifiable, and reflects a loyal entity representation. Subsequently, the true illustration depicts that the economic representation should represent as well as reflects specific economic aspects as reported through quality financial report. For instance, it is prudent to establish a verifiable level of balance and objectivity. Moreover, a true representation should affirm that financial information should explicitly demonstrate the true reflection of the economic state without any form of biases or manipulation.

According to Safkaur et al. (2019) research, the comparability demands that identical accounting facts and figures reflect equal or identical situations in two events. Equivalence is, therefore, the concept that permits users to relate and assess financial statements in a given time frame and make a comparison between performances of other entities. Ashok (2019) timeliness is essential in improving the financial reporting value through the timely report of the assessment to the organization head; hence, the relevant decision is made before the damage affects the economic aspect of the organization.

According to Ashok, (2019) report, the discrepancy concerning annual assessment plays a crucial role in establishing auditors’ reports. In regard, the income reports are also required to be comprehensible. To be comprehensible, a financial report must be able to convey efficient information. As the quality of the information, it has increased the higher, the better comprehension of the data of the user. Additionally, verification quality is essential since consumers must rely on third parties to verify financial data. The present research utilizes the IASB quality concept to evaluate the quality of financial reporting.

Ethical financial Practices

With the establishment of the International Accountants Federation (IFAC), the organization developed a 12-point (12) program to manage members’ activities. All members should embrace and implement the accepted code of ethics, and this was a mandatory requirement upon registration. This ethical principle applies to corporate and public-sector accountants, who may also be employed in almost the hybrid economic sector (Aifuwa, Embele & Saidu, 2018). Ethics involve honesty, objectivity, confidentiality, and professional behavior. Professional qualifications and decent care.

Professional and financial behavior on Quality reporting

The concept of professionalism regarding Aifuwa, Embele, and Saidu (2018) demands responsibility on the appropriate legal systems of professional accountants and to prevent any activity that may convey professional discrepancies. Such measures comprise initial transactions, creative accounts practices, and manipulation of the stock market. Further, the measures entail individual benefits for leadership at the cost of customer accounting worth. Khlif and Achek (2017) notified accountants that financial quality reports should have positive attitudes. It was clear that the degree of pressure management might affect their professional conduct principle in order to provide the exact and fair image of the income statement.

Objectivity and Financial Reporting Quality

The notion of objectivity enacts responsibility on specific professionals accountable to avoid jeopardizing professional principles or corporate choices because of conflict, undue influence on a particular group, and biases. Proficient accountants should avoid relationships that breed bias or impair their ability to make sound judgments. Khlif and Achek (2017) assert that this notion necessitates the establishment of basic standards for credibility, professionalism, service quality, and trust. A highly objective accountant provides more accurate financial statements than those who undermine the profession’s objectivity Aifuwa, Embele, and Saidu (2018). In other words, since objectivity is inextricably linked to the quality of financial reporting, adherence to objectivity is a critical component of ensuring that businesses produce good financial reporting.

Integrity and Financial Reporting Quality

A member must adhere to the fundamental values that comprise commercial, professional besides financial dealings. Honesty is not synonymous with straightforward integrity, however, with justice and candor. Aifuwa, Embele, and Saidu (2018) perceive integrity as the highest value of an ethical code that may be judged by good and just. All professional accountants must adhere to the notion of integrity, which demands them to be honest and open in their professional and commercial dealings. Integrity also refers to fairness and honesty. Aifuwa, Embele, and Saidu (2018) think that a positive correlation between quality financial reporting and integrity and the outcomes exists. Their transformation is based on their evaluation techniques (parametric tests) and e-views use. To provide improved clarity and generality regarding a non-parametric test that is usually provided with IMB SPSS.

Confidentiality and Financial Reporting Quality

A qualified financial adviser should maintain the confidentiality of information. Due to professional and commercial relationships, and in the absence of proper and explicit permission, no such information should be given to other parties unless there is a legal, professional, or contractual duty to do so. Personal data is obtained based on commercial and professional contacts shall not be utilized to merit professional accountants and parties. Even when a professional auditor’s relationship with a customer or employer has ended, the obligation to adhere to the notion of confidentiality continues.

Recent studies discovered that there is no correlation between secrecy and the quality of financial reporting in banks throughout their study. In a similar study, Ishaque (2021), disclosures as proxies significantly impacted the affiliation between secrecy and financial reporting quality. The findings attribute to the scholars the reasons economic quality and secrecy understanding is vital, and this may be a result of the study’s small sample size.

Professional aptitude, due care and Financial Reporting Quality

The continuous duty of an expert agent is to acquire and maintained professionalism in terms of skills and knowledge. The concept is to ensure the customers and employers uphold competency through legislation, current developments, and skills in the financial environment. When providing expert services, an accountant must exercise caution and adhere to professional standards as well as all applicable technical practices. Professional competence entails using sound judgment in the use of professional knowledge and abilities. Acquiring and maintaining professional aptitude may be divided into two different stages.

Professional ability necessitates continuous exposure to and contextualization of essential commercial, technical and professional advances.  Ajzen (2020) progressive professional development changes and preserves the abilities required of a professional auditor to operate successfully in professional contexts. Pucheta-Martinez et al. (2018) discovered that professional competence and due diligence improved the quality of financial reporting.

As a consequence, developing and maintaining professional competence unquestionably enhances the quality of financial declarations.

Empirical Literature

Stolowy and Paugam (2018), financial reporting ethics are gaining prominence in the business sector, owing to a growing awareness of Corporate Social Responsibility (CSR). For example, CSR promotes openness and decreases the proclivity toward profits management possibilities. Between 2011 and 2015, archival information from a panel model of the 100 most renowned Spanish companies revealed a detrimental effect of CSR activities on earnings management. The function of regulatory bodies in economic reporting and ethical amenability is to assess and examined (Venturelli et al., 2019). The examination comprises of the effect of ethics and the quality of financial presentation.

Accounting ethics, the research discovered, have an essential outcome on the quality of financial reporting on a global scale. Most research concluded that professional accountants should adopt ethical awareness and training and accounting scholars enrolled in higher institutions to improve the global financial reporting quality.

Venturelli et al. (2019) show that socially responsible businesses prioritize long–term connections with stakeholders above short–term profit maximization. In this sense, making a living is inextricably linked to CSR operations, particularly both seek to satisfy stakeholders’ requirements. Our results have significant inferences for shareholders, analysts, and investors who perceive CSR as a manifestation of ‘ethical’ investment and a potential barometer of financial reporting quality (Venturelli et al., 2019). These organizations should exercise extreme caution when depending on CSR data to analyze Spanish firms since CSR has been shown to affect earnings management substantially.

Internal audit is a critical component of the corporate governance system (Pistoni, Songini & Bavagnoli, 2018). It has been considered a critical function that pioneers the governance process (Khlif & Achek, 2017). Its mission is to offer control and to consult services that assist businesses in accomplishing their goals (Elshandidyet al., 2018). Further, internal audit function effectiveness is seen as a desirable characteristic of contemporary governance system advancements because it plays a critical role in evaluating the added value of the control system as a whole (Pistoni, Songini & Bavagnoli, 2018). Corporate governance changes in several countries have placed a greater focus on the efficacy of internal audit functions to increase the relevance and accuracy of financial reporting (La Torre et al., 2018).

The internal audit position in enlightening the financial reporting function can be linked to the hypothesis that improvements in the infrastructure of the accounting and legal systems are crucial factors, in particular, to improve financial reporting reliability and governance processes (Matuszak & Różańska, 2017). In the case of Jordan, corporate governance measures, including internal audit processes, have been implemented in recent years to enhance the performance of the capital market (Pistoni, Songini & Bavagnoli, 2018). Although the Internal Auditors seek to increase the efficiency of the function by executing duties independently and objectively following professional standards, the effects of the personality of Internal Auditors exist and affect their judgments. It is generally recognized that judgment output is influenced by the personality and cognition of the information processor (Amiram et al., 2018). The focus on the personality characteristics of internal auditors is therefore not unexpected in the present research.

The study currently uses the generally accepted five-factor model to classify personality to assess the effect on the efficacy of the internal audit role and, therefore, on the quality of financial reporting of internal auditing personality characteristics in the literature. There are many details why the efficacy of the internal audit occupation is an ongoing subject. First, the internal audit function of the business is a cornerstone of corporate governance that enhances financial reporting transparency and increases the expectations of the internal audit by making a major contribution. Second, the efficacy of the internal audit function is a newer issue in internal audit research in developing markets (Amiram et al., 2018). Thirdly, most of the studies investigating the efficiency of the internal audit function globally have recommended additional studies, especially in developing nations (Ozili, 2021). Fourthly, there is still no agreement among academics on factors that impact the efficiency or optimum framework of efficient internal audit functions, which result in high-quality financial reporting (Roychowdhury, Shroff & Verdi, 2019).

Review of Theories

Theories concerning the ethical behaviors and practices of professionals in various business entities have been developed. The following hypotheses are explored

The Theory of Planned Behavior

The planned behavior theory is a psychological discipline that combines ideas and behavior. Ajzen introduced the idea in 1980, stating that the introduction of perceived behavioral control improved the prediction effectiveness of the rationalized action theory.

Ajzen (2020) alludes that it is a psychologically difficult job to describe human behavior in all its complexity. It may be addressed at several levels, from physiological systems to society. Personal and social psychologists would instead concentrate on a fully working, intermediate person whose data processing modifies the impact of biological and environmental behavior variables. The idea of planned behavior shapes individuals via behavioral intents and behavioral behavior, subjective standards, and perceived behavioral control.

Utilitarian hypothesis

According to this philosophical concept, the optimal course of action increases satisfaction (Crone & Laham, 2017). This theory of ethics was established by Jeremy Bentham and defines satisfaction as the total of all the pleasures obtained via an activity, except for all the pains or sorrow experienced by the participants. This is consistent with the idea that agents in a business should follow regulations to promote enjoyment in the workplace. This idea may be used in a variety of areas, including government, politics, economics, and social protection (Aiello, Reverberi & Brasili, 2019). This theory, however, has a fundamental fault in ignoring the moral status of individuals and in not taking account of qualitative variations of pleasure.

Theory of Agency

This theoretical concept was established in 1976 and has since been extensively utilized in management and social skills (Panda & Leepsa, 2017). This term relates to the ownership and management divide inside a company and the connection between them. According to the idea, an actor is more likely to act in his own self-interest if information asymmetry occurs, which may damage the owners of the organization (Bundy, Vogel & Zachary, 2018). The basic philosophical assumption of this theory, Mitnick (2019), is that participants in an agreement with an agency would be acting for themselves while at the same time having the freedom and the rights to engage in additional arrangements. Further, the theory of agency is essential to the research since it explores and guarantees that every agent, whether a member or a Board of Directors, acts in accordance with the regulations and principles while performing ethical tasks. This idea may also be used in other areas, such as engineering, policy, and governance. Numerous researches based on the idea of agencies have been performed, which demonstrate their broad acceptability and use. This idea has nevertheless been launched to concentrate solely on the main agent connection and ignore the stakeholders of the firm, including creditors, suppliers, and the premises in which the association works.

Theory of Stakeholders

In 1984, in the context of the Agency theory, Edward Freeman created Stakeholder Theory. This concept was introduced by Plichta (2019) to describe the tripartite connection between managers and agents workers, main owners and stakeholders inside a company creditors, suppliers government, and customers. The stakeholder paradigm also covers business management moral and value aspects. This theory is important to our present research since it allows us to expand our perspective on the notion of “stakeholders” in an organization. This idea also covers other areas, such as ethics, legislation and organizational management.

Stakeholder theory has sought to resolve the deficiencies of agency theory, however, the word stakeholders are ambiguous and poorly defined (Plichta, 2019). Even if a company tries to define its stakeholders, they are thus equally interested in the organization and make the term “social contract” outdated (Bundy, Vogel & Zachary, 2018)

Methodology

These refer to the theoretical methods that can be used to assess the quality of accounting, and the quality of financial reporting needs a wide range of using models to measure qualitative characteristics, proxies, and various elements of financial reports.The research methodology is based on primary research as outlined in the research methodology section. Three different of the quality of financial reporting are frequently in use in which they include: accounting conservations, accrual-based models, and earning managements. A variety of approaches have been put in place to assess and measure the financial report quality, new measures to approach are being generated. In this report, some of the approaches highlighted are used, for example, measure and assessment of the quality of financial reporting: accrual-based models, standardized score, beneish models m-score, method of the degree of accounting and internal control. According to prior studies and the literature, the main reason why indirect measures are over-relied on, for example, proxies for the quality of financial reports or the prices of stock, is that some of the qualities of financial reporting are unobservable (Saunders, Lewis & Thornhill, 2016).

Using Standardized Scores

 Assessing the financial report quality needs scores that are computed standardized enhancing the listed characteristics previously and using the fundamentals. By equally comparing the characteristics of qualitative fundamentals are always calculated using the formulae of adding scores that are standardized of faithful and relevant representation and then dividing by two. The same formulae are also used in bringing about the qualitative characteristics.  The produced results will appear in scores beginning from one up to five showing an excellent and a poor score respectively for qualitative characteristics. Thus, the report of financial quality is weighed by blending the scores acquired in the fundamentals and enhancement of characteristics qualitatively. This way of approach has a different way of weighing the financial report quality. It is an essential tool to evaluate the financial report quality, the non-financial information, and the reports that are gathered annually comprehensively. This method considers various possible features of decisions usefulness as explained in the exposure draft (ED) produced by FASB. According to Kalyani, Mathur, and Gupta (2019), neither of the measurements techniques gives a complete assessment of the quality of financial report incorporating the defined qualitative characteristics explained in the subject draft to exposure. In another way, assess the financial report quality, all the indirect weighing tools majors on specific paramotors that are likely to influence financial report quality, and the details revealed in financial assertations. To major on the argument, earning management is significant to list the standard of earning instead of emphasizing the financial report standard as the main goal (Saunders, Lewis & Thornhill, 2016).

 The quality of earnings is defined as the level at which the company’s financial performance and the economic reality are reflected; however, the financial report quality has a broad range. The financial information is not restricted, but also refers to other non-financial assertations and exposure which are of significance to making conclusions users; hence, this method refers directly to the qualitative characteristics as they all lead to achieving the usefulness decision to the information of financial statements. As explained in the literature, qualitative characteristics of annual financial statements and the elements are determined by the value relevance (Saunders, Lewis & Thornhill, 2016).

Accrual Quality or Accrual-Based Models

            Accrual Quality is a useful model which has been in use in weighing the financial report standards (Du Jardin, Veganzones & Séverin, 2019). It is acknowledged under the accrual basis that revenues are separately highlighted from the collection of cash in accounting, and cash payments are also being recognized differently from the expenses. In all, and around the operating cycle after or before accrual, the flow of cash entity should be the same with its expenses and its accrued income. Moreover, the actual similarities between have some difference in functions among overtime and entities. Thus, accrued prediction of produced cost or derived revenue can be more of than the collected cash from the cash paid for revenue or costs. Investigation on accrual standards has led to the approval and acceptance of this approach (Du Jardin, Veganzones & Séverin, 2019). This has led to useful improvising in weighing the financial report quality. Accrual standard of approach majors on the uncertainty levels of a flow of cash to the correspondence of accruals. Theoretically, more variables amongst the cash flow and accruals in an entry of the cycle of operation, the entity’s accrual standard will be low; therefore, the quality of entity accounting will be low (Du Jardin, Veganzones & Séverin, 2019). It is viewed as an indirect approach method and majorly relying on observations.

In addition to that, it was used to weighing discretionary accruals (Enomoto, Kimura & Yamaguchi, 2015). It also shows the relationships between earnings quality to accruals. In addition, weighing errors in accruals impact the standard of accrual—this generation of this error by estimates and assumptions the core of accrual that should be corrected. One of the significant roles of accrual basis accounting tool being the urge to produce the prediction of a better way to flow the cash in the future as the income being received at the time being informative about the cash flows performance in the future, the quality of the financial report is highly dimmed (Enomoto, Kimura & Yamaguchi, 2015). In other literature, assess studies asserts that the financial report quality when the two accrual models have been taken into place.

Beneish Model or M-Score

This kind of approach is taken as a direct measure of the financial information standers. The m score is mainly based on the variables which are mainly centred on metrics of accounting quantitatively including the number of sales in receivable financial accounts.  The m score further reveals the levels of an entries earing and the possible method to be altered by the management (Mihalcea, 2020).

Indexes (or scores) method of internal control

            This kind of method is widely used by financial researchers to weigh the items that are present in the internal system of control. It is considered a critical tool of measurement (Chen et al., 2017). The measuring method entails elements selected and described the representatives of the system of research that is to be weighed. The score-1 of the item to be measured is viewed to be relevant, and score-0 is viewed as being not relevant. After the scores being assigned, they are comparable to each other. This process creates room for testing and grouping variables by the scores received. Thus, for this information to be compared in disclosure, various factors should be considered, such as representativeness, reliability, accessibility, and reliability, have been weighed by this method. Therefore, this method allows measurement of the standard of financial disclosure and assessing system when using samples of highlighted companies. As a result, when the reporting quality is better, the standard of financial reporting must be better (Chen et al., 2017).

Persistence of Accruals

            The measure of the standard of financial reporting is the persistence of accruals. The advantages of tests that it controls the flow of cash prices persistence, not just depending on measures that can’t be observed (Assadi et al., 2018)

Degree of Earnings Management

The degree of earning management is mostly weighed by discretion management on faithful representation, and accruals are weighed by the negative earning by accrual management (Wijayana & Greys, 2019). In summary of the literature, other studies imply that using more than one approach of measurement, based on the factors or the nature of variables that are to be weighed. In some situations, it requires the use of more than one measuring method because of the large scale of the variable to be measured, and some tools may not involve all factors associated with the standard of financial assertations. Moreover, the application of many methods leads to the generalization of results (Wijayana & Greys, 2019). In addition, using other preferred measures decreases the chances that the demonstration may not be recognized. To elaborate this point, some researchers are required to adopt ways to show the various dimensions of the quality of financial reporting at the same time, in instances like using accruals persistence, the flow of cash predictability, and the standard of accruals.

In the research, it was discovered that in some situations where the information given is insufficient and the existence of voids in the given literature. For instance, some samples under investigation may have sizes that are not big enough for reasonable conclusions to be drawn from them. Furthermore, the financial information quality with the broad sizes shows their connection in the governance of corporates as a manipulating factor (Chen, Chou & Wei, 2020). This shows there is a need for further investigations to be conducted on corporate governance to major on how it impacts the financial reporting standard amongst other industries (Chen, Chou & Wei, 2020). Further, another limitation shown in the study is the fact that some data are inaccessible and the data in relation to accounting and editing in the markets that are emerging. Also, the ability of accounting is restricted for other likely indications that can be of help in asserting the quality of financial information, such as considering predictions and significant ratios to the firms. The presence of data, although annually, would also uphold the need for consistency in evaluating the standard of financial reporting in various periods. Also, there’s a necessity for verification of results by including financial banks, companies and make diversification of samples, not to highlight the significance of adding other measures and variables (Mihret & Woldeyohanes, 2011). In a variety of the studies highlighted in this paper, leavening out the significance of adding non highlighted companies might not give a full representation of financial report entries in economics all over the globe. It evaluates the quality of financial reports by including medium and small enterprises in the examined samples to investigate the effects that they lead to variations in statistical results to be visible. So, that this will bring about the upholding of the results, it covers the difference in the level of business. In a variety of related studies, the lack of essential and control-related variables associated with other factors is noticeable and clear. Several studies show the quality of financial reporting not being determined by only accounting standers.

Theoretical framework and Model Specification

The research conforms to the principles of the utilitarian concept. By definition, the concept of utilitarian hypothesis established a connection between the quality of financial reports and ethical accounting practices. Further, the correlation can be associated with the consequences and actions of accounting. In regard, the proposition of the utilitarian hypothesis transcends individual interest and upholds others’ interests intending to achieve satisfaction. McAllister, Ellen III, and Ferris (2018) assert that the perspective of the theory is appropriate and acceptable in the world of financial quality reporting. Moreover, the theory promotes another individual state of satisfaction and utility. In addition, the concept belief that any given action is deemed right only if the action taken inculcates the happiness needed. Also, action will be unacceptable if it brings about anxiety and worries, opposite of intended happiness for a singly perform action. The utilitarian theory has and is still receiving immense attention in the behavioral literature, especially in the epitome of ethical accounting principles, which is the core objective of the research. This also applies to the tertiary objectives of exploring the concept applicability in perceiving the general effect of the quality required for financial reporting. Further, the ethical codes for the IFAC are usually intended to improve and promote quality in financial reporting as well as promoting worldwide harmonization of accounting standards and practices. Following the trend of existing findings and analysis of recent studies, ethical codes in the financial aspect have played a vital role in enhancing the quality of financial reporting in association with nurturing professional development for accounting specialists. Haghani and Ghodousi (2019) depict that integrity significantly influences the quality of financial reporting. In regard, the relationship emanating between financial reporting quality and integrity is represented in such manner;

Financial reporting quality (FRQ)= financial integrity (F{INT}……………………………………. (1) 

Furthermore, there is a necessity that all accountants should adhere to the laid down protocol and the principle of objectivity and table evidence that show actual transactions happen transparently. Haghani and Ghodousi (2019) claim that this concept can maximize financial reporting quality, which has been also seconded by extant literature. The expression to as perceived through the analogy conforms to;

Financial reporting quality (FRQ) = financial and objectivity (F{OBJ})…………………………..(2)

Muttakin et al. (2020) research requires that all professional accountants, those that adhere to the accountant regulation and principles, have been bestowed a life-long duty to promote professional skills and knowledge at all levels. The concept is to ensure customers and institution owners receive competent accounting services under the current advances in practices, techniques and legislations. Thus, the concept will promote quality financial reporting if is observed strictly. However, the relationship by correlation conforms to;

Financial reporting quality (FRQ) = F(PCD)……………………………………. (3)

            Confidential data receive through business and professional relationships according to Muttakin et al. (2020) should be unavailable for individual advantage to third parties of any accountant professional. Recent studies, however, have established that researcher believes that such ethical practices do not, in any extend, influence the quality of financial reporting (Dobija et al., 2021). The relationship comprises of;

Financial reporting quality (FRQ) = ƒ(COF)……………………..……………………………(4)

Dobija et al. (2021) assert that most of the accountants’ behavior plays a significant role in the value of financial reports. Some of the vital behaviors comprise complying with the established regulations and laws and avoidance of discrediting actions that may interfere with the profession. It is comparative to note that professional accountants should always thrive to embracing behaviors that promote restoration of trust and confidence to the public. Thus, the correlation adheres to the following format;

Financial reporting quality (FRQ) = ƒ(PRB)……………………..……………………………………….(5)

Prototypical specification                                                          Illustrative variables

 

Dependable variable

 

Plan Representation of variable quantity in the study based on the theoretical framework as well as fast literature collected equations that rises up to five in development of functional relationship as a model.

 The model attributes the following equation.

(Ethical accounting practices) (financial)= quality financial reporting————————-(6)

Financial reporting quality (FRQ) is equivalent to – ƒ (Integrity, Professional Competence, Objectivity and Due Care, Professional Behaviour, confidentiality) —————————-(7)

FRQ = β2OBJ +β0 + β1ING + β3PCD+β5PRB + β4COF + ε—————————-(8)

FRQ – Financial Reporting Quality, COF – Confidentiality, OBJ – Objectivity, ING – Integrity, PCD – Professional Competence and Due Care, PRB- Professional Behaviour.

β0 – Slope β1, β2, β3, β4, β5- Coefficients ε – Error term β1, β2, β3, β5≥ 0, β4,<= 0 (a priori Expectation)

Research Methodology

The research paper will use primary research in which questionnaires were developed and filled in by respondents to address the research questions. The choice on primary research is influenced by the fact that there are tools such as IBMs SPSS which could be used to make meaningful inferences from the research data collected from the respondents.

Limitations of the Research

The response rate was low but this was addressed by increasing the sample size of the respondents to enable the drawing of meaningful response rate and research data.

Research Design

The research embraces a single procedure, quantitative research design with a survey approach, in regard to influential research philosophy and deductive study methods. Further, a review of the research procedure elected for the research enables scholars to elicit data regarding the main concept being explored and research from the selected group. The group selected for the study comprises non-practical and practical accountants as respondents. Moreover, the projected audience for the research topic includes potential and practicing accountants. In this study, the Taro Yamane formula was used that amounts to 100,43. For the success of this research, the size of the respondent was picked randomly to avoid biases in the selection of respondents.

Research Instruments

The research embraces its primary information based on ElKelish’s (2021) work through the utilization of a survey that has been projected to the study analysis needs. The project constructed a questionnaire to enact and receive genuine and consistent responses from the targeted group. Further, the study group agrees on the division of questionnaires into subsections. The first section comprises well-orchestrated questions that examine sociodemographic information of respondents. The second section includes five aspects of information. Consequently, the section conforms to Likert’s scale statement that has been established to enumerate vital research variables.

Techniques for Data Analysis

The research utilizes descriptive and inferential statistics. The consistency of the scale used to reach the answers embraced the perspective of Cronbach alpha statistics. For instance, the created questionnaires are used to the determined internal consistency of scaled items. Also, the study embraced variable normality, which was easily established by the Wilk test tool. Notably, the procedure allows the research team to create a path for parametric and non-parametric concepts testing. Thus, the rank correlation method, in regard to the spearman model, was incorporated to analyze and test the theories. Further, the perception that the research group decided to consider inferential statistics is that the available information is not systematic. The data has proven to be randomly and irrelevantly distributed. Cleary, the study analysis was subjected to IBM SPSS statistic tool.

Data analysis, interpretation and discussion of the findings

The study was carried out to established the correlation between financial reporting quality in the various organization around the globe based on the results from primary research. Corresponding and objective theories were derived for the research.

OLS regression method would be used to analyze data in the research including the relationship between moral responsibility and objectivity quality of financial reporting, the relationship between moral responsibility and integrity quality of economic statements, and the relationship between moral obligations and faithful disclosure quality of financial reporting (Saunders, Lewis & Thornhill, 2016).

Timing

Gantt Chart

Research activity	Projected Dates
2021
JAN	FEB	MARCH	AUGUST	AUGUST	AUGUST	SEPTEMBER
Topic Development
Researching the sources
Writing the Proposal
Conducting the research
Analysis and data presentation
Writing the research
Corrections and Amendments
Report presentation

Ethical considerations of the study

Instances of ethical dilemmas have increased with the increasing loss of control over corrupt ways. Accountancy is no exception; unethical accounting practitioners have always found ways to compromising these codes for self-gain at the expense of others.  While doing that, they harm the interest of stakeholders (Easterby-Smith, Thorpe and Lowe, 2014). The responsibility of maintaining ethics belongs to the organization committee of ethics, yet that has not prevented fraudulent activities from prospering.  There is a need to uphold ethics in accountancy if there need for quality economic statements.

Statistical assumptions tests

The study embraced statistical methods including regression, correlations, assessment and T-test analysis of variance based on assumptions that depict that normal distribution of data exists from the primary research data. The errors identified because of statistics in the analysis were put on check through diagnostic test performance. Further, the group utilized the Q_Q plot, homogeneity, multicollinearity, and pre-regression analysis to test errors brought about by statistics performed. The concept was to be established if the collected information set was well demonstrated.

Statistical assumptions tests

Normal financial theories predict attributes that contribute to moral values among workers (ElKelish, 2021). Prior research seems reliable with this idea showing that supervisors utilize the adaptability in bookkeeping decisions to deliberately impact the result of monetary reports to acquire individual advantages when budget summary clients’ capacity to recognize profit the executive’s exercises is low. For instance, Dewi, Azam, and Yusoff (2019) analyze the relationship between the straightforwardness of exposures identified with movement in the terrible obligation recompense, stock stipend, and conceded charge resources remittance records and accumulations-based profit the executives. They find that organizations decide to lessen the degree of income the board exercises when they give direct revelations about action in these records—utilizing a test approach. Dewi, Azam, and Yusoff (2019) give proof that remarkably showed exhaustive pay parts empowered to hire monetary investigators.

Kraft, Vashishtha, and Venkatachalam (2018) concentrate on far-reaching pay detailing choices of property-obligation guarantors annually. The creators find that guarantors with a more noteworthy inclination to oversee profit are bound to report complete pay in an assertion of changes in investors’ value than in a performance articulation, suggesting that directors know about more prominent straightforwardness in performance revealing.

Furthermore, the discoveries give observational proof that directors accept they get individual advantages from restricting financial backers’ capacity to recognize income the board by utilizing adaptability in bookkeeping decisions and that such advantages decline with more prominent straightforwardness as the probability of location by market members increments. These ramifications are predictable with Kraft, Vashishtha and Venkatachalam (2018) who contend that chiefs intentionally use inborn market flaws reflecting budget summary clients’ failure or reluctance to unravel the impacts of income the executives exercise to misdirect investors about basic organization performance to acquire some close to home advantages. Closing, directors appear to gauge expected results to decide if to settle on self-serving choices or not under expanded checking. Accordingly, more noteworthy straightforwardness in monetary detailing can assist with relieving forceful monetary revealing conduct.

Earlier writing shows that, other than diminished data imbalances, one expected advantage of expanded straightforwardness remembers an expansion for people’s responsibility for dynamics. Kraft, Vashishtha and Venkatachalam (2018) look at the impacts of stock possession on chiefs’ freedom and objectivity. They track down that stock-possessing chief serving on review panels are less inclined to concur with administrative forceful announcing when boarding conversation straightforwardness increments. This is because chiefs who own stock are worried that supporting the administration’s endeavors to oversee profit may be seen as settling on more self-serving choices by outside parties when board conversation straightforwardness is high, harming chiefs’ standing. These discoveries propose that expanded responsibility through more noteworthy straightforwardness is especially viable when people have motivations to act to their greatest advantage.

Normality test

 The procedures of statistical nature needed supposition of normality to be tested. The result indicates that it will be in graphical tests, which are to be established through data normality connection, which included testing Kurtosis coefficients and skewness. Further, the study shows if normal data dissemination is monitored. Consequently, if the data normality cannot be proven, regression analysis is employed. This is because the findings may be biased due to various variables. Mishra et al. (2019) if a specific sample data is proportionally normal, the distribution of the sample data is considered to be normal.

In the parametric investigation, the common populace is normal. For this situation, we are checking if the populace is ordinary. Normality tests are utilized in various areas. One utilization of normality tests is a direct relapse model as part of residuals. In case the model is irregularly disseminated, the balances ought not to be utilized in Z tests or other tests emanated from the ordinary distribution; for example, it comprises F tests, t-tests, and chi-squared tests. Assuming the balances are not ordinarily conveyed, the reliant variable or possibly illustrative variable might contain some unacceptable utilitarian structure, or significant factors might be absent, and so on Amending at least one of these methodical mistakes might create residuals that are regularly disseminated.

When testing normality in case information is not ordinary, apply the Box-Cox change technique to change non-normality information to typical. The principle point is to examine whether the integrity of attack of a factual archetypal depicts how it fits given perceptions. Proportions of decency of fit regularly sum up the disparity between noticed and anticipated qualities under the model (Mishra et al. 2019). There is the utilization of size remedied technique in the assurance of force. The principle point is to propose another algorithm for testing multivariate normality. An irregular variable generator is a computational or actual gadget intended to create a succession of figures or images.

The presentations of univariate normality testing strategies for power correlation utilizes the algorithm and distinctive univariate. In addition, multivariate tests are examined, and further, audit effective algorithm for computing the size amended force of the test which can be utilized to think about the productivity of the test. Further, to test the irregularity of produced arbitrary numbers. Diverse datasets are created from uniform distribution and tested by utilizing various tests for haphazardness. Moreover, information was likewise produced from multivariate ordinary distribution to analyze the exhibition of the force of univariate tests by utilizing diverse new algorithms.

Therefore, the use of the Wilk Test in the study proves to be effective.  D’Agostino (2017) consider Shapiro-Wilk test approach to be appropriate and effective in normality test. Further, the approach is a more efficient test for the development of kurtosis and skewness values of normality. It is usually considered a normal distribution to deviate to abnormal distribution meaningfully is goes beyond 0.05.

The test of normality- Shapiro Wilk test

Variables	Shapiro-Wilk test
	Statistic	df	sig
Understandability	0.99	1.36	.000
Relevance	0.99	1.35	.000
Comparability	0.97	1.24	.000
Honest reporting	0.87	1.28	.000
Timely	0.99	1.22	.000

The findings based on Wilk Test as presented above attributes that understandability, relevance, comparability, honest reporting and timely as well as the dependent variable in different organizations established that the performances are distributed normally. The results, all record 0.000, therefore, the checking indicates that data is distributed normally. Further, there is a need to consider the aspect of the normal Q-Q plot for the normality decision to be detailed. Notably, the information points usually resemble diagonal line data normality is absorbed. However, if data are strayed away in a manner that is not easily understood, non-linear.

 

Expected

Normal

                      Observed value 

The figure indicates that the points close to the diagonal line implying that the data emanates from a specific normal distribution. The Q-Q plot is considered a normal distribution. But the slight twist on the line is insignificant and does not make a major change to the information being categorize as a normal distribution.

Multicollinearity test

Multicollinearity test is defined as an unpredicted situation in which the correlation between independent variables from the primary research. What the test does is increases factors associate with study errors through the application of collinearity, thus getting the tolerance and variance inflation factor. Daoud (2017) asserts that the amount of variance regarding independent variables does stand alone, is not dependent on other variables, and is considered tolerance. The variance inflation factor measures the regression coefficient is overstated through multicollinearity, which deceptively escalates standard errors. McClelland et al. (2017) point out that the minimum value for tolerance should be at 0.10. but the value usually reduces when multicollinearity tolerance experiences no challenges. 

Multicollinearity is the event of high connections among autonomous factors in various relapse models. When this condition is available, it can bring about temperamental and problematic relapse coefficient gauges if the strategy for ordinary least squares is utilized. One of the proposed answers for multicollinearity is the idea of edge relapse as spearheaded by McClelland et al. (2017). They found that there is a nonzero worth of k (edge or shrinkage boundary) for which mean square error (MSE) for the edge relapse assessor is more modest than the fluctuation of the ordinary least squares (OLS) assessor.

According to Shrestha (2020) collinearity which projects to the supposition that independent variable correlated or uncorrelated. The aspect of correlation based on the analysis is brought about to develop the relationship between major variables. In regard to the PPM model, the study should consider understanding the correlation surrounding the variables and coefficients. For instance, Pearson values become a critical aspect to consider since it points out the relationship between independent variables and the methods or procedures use to arrive at the results (Shrestha, 2020).

It is notable that, to make surmising about an obscure populace boundary, one might think about both certainty stretch and speculation testing strategies. Nonetheless, the writing on the test insights for testing the relapse coefficients under the edge relapse model is extremely restricted. Daoud (2017) proposed non-definite t-tests for the relapse coefficients under edge relapse assessment and thought about observational sizes and powers of just two tests dependent on the assessor of k. Their outcomes proved that, for models with huge standard errors, the edge-based t-tests have the right sizes with significant addition in controls over those of the least-squares t-test. For models with little standard errors, tests are observed to somewhat surpass the ostensible level in a couple of cases. Shrestha (2020) assessed the performance of the t-tests dependent on 22 unique assessors of the edge boundary k gathered from the distributed writing. Shrestha (2020) the performance of the t-tests is dependent on 16 well-known assessors of the edge boundary.

Since a few specialists consider various edge relapse assessors and under various re-enactment strategies and conditions, testing relapse coefficients dependent on size and force properties under the edge relapse model are not similar overall. Accordingly, the significant commitment of this paper is to make a more far-reaching examination of a lot bigger outfit of accessible t-test insights for testing relapse coefficients. We consider in our investigation the majority of the ones broke down just as other test measurements dependent on other edge assessors excluded from the previously mentioned learn simultaneously. Altogether, our paper analyzes forty distinct t-tests insights. The test measurements were thought about dependent on the experimental kind I error and the force properties following the itemized testing methodology (Daoud, 2017). These outcomes are of interest for measurable experts utilizing edge relapse in various fields of use as a manual that tests insights to utilize when testing the meaning of factors in their edge relapse models.

The VIF in the study considered a functional as to the multicollinearity. It is essential to note that the multicollinearity value of VIF should always be less than 10, and the tolerance minimum should be 0.10. further, the satisfactory VIF should start at a value of 10. But in case two variables with similar values correlate, the VIF value shall be 1. VIF for a single variable should be equal to or more than 5, which imply the existence of a collinearity relationship.

Model	non-standardize coefficient	standard coefficient	collinearity statistic
Relevance constant	1.76	1.01	1.26
Honest reporting	-0.69	0.514	1.01
Comparability	0.171	0.186	1.023
Understandability	-0.65
Timely	0.142	0.123	0.012

Independence tests

Based on the Durbin-Watson test, the study measured the independence of error. The study found out that through the test check, no particular correlation was made from the available residual models. The concept is because it is part of regression analysis to fundamental theories. The score range of 1.5 and 2.5 attributes to independent observations.

The Durbin Watson test

variables	Durbin-Watson Test
Honest reporting	2.06
Comparability	2.73
Relevance	1.79
Understandability	2.24
Timely	2.33

Based on this test, the study determine that the variable were independent because the aspect of autocorrelation was not considered.

At this point, the study carried out a preliminary analysis on the collected data, make some analysis, interpretation with the help of tabular form. The study ensure that each questionnaire provided to the respondents were retrieved and counted for.

Reliability statistics

Number of items	Cronbach Alpha
40	884

The research study employed the approach of Cronbach Alpha computations to establish the consistency of internal scale utilized in the provided questionnaires. Specifically, the Cronbach alpha stood at 884. Hopkins (2017) projects such rules of thumb; that anything equals to or more than 9 is considered excellent, above or equal to 8 is branded as good, more or equal to 7 is acceptable while above or 6 is questionable. However, at 5 it is considered poor and below 5 the results are unacceptable. In regard, the results are rate good which attributes to the high level of internal reliability for the study scale. 

Honest representation

Based o a sample study, the research considers and table various organization representation on an annual basis for three years consecutive.

Honest representation	2018	2019	2020
The annual report explores the projected estimates	4.43	3.21	3.43
The choice of annual accounting values chosen	2.43	3.21	4.33
Negative and confident reports are included in the annual report	4.32	3.44	2.31
Annual disclosures made in the yearly report	2.54	3.21	3.54

Understandability

Understandability is the insight that financial information should be presented so a researcher can handle it without a very remarkable stretch. This thought acknowledges reasonable data on business by the researcher but doesn’t require advanced business data to obtain an irrefutable level of discernment. Adherence to a solid level of understandability would keep a relationship from deliberately muddling financial information to mislead customers of its financial declarations.

For example, the message acquainted should not be feeling the deficiency of any key information. For example, a table of future lease portions should fuse all future periods for which lease portions will be made, with the objective that a specialist can understand the entire degree of future responsibilities. Conservative; do whatever it takes not to cover the customers of financial information with a drastic action of detail (Zhang, De Zoysa & Jagoda, 2021). This suggests presenting a satisfactory proportion of information that is adequately sifted for highlights. Moreover, don’t copy revelations all through the financial statements; in light of everything, set forward information in a solitary spot, and a while later insert references to it elsewhere in the financial declarations, contingent upon the circumstance.

Succinct; uses a shown procedure that is basic for the researcher to channel. This regularly infers that diagrams and tables supplant messages or are the supported kind of show. Additionally, Coordination is foremost; the specialist should have the choice to successfully discover cross-alluded information inside the financial statements (Sarvi, 2019). This infers that all supporting schedules should be identified with a reference number or letter, with this identifier recorded in the true financial attestations.

The earlier ideas that suggest otherwise astounding information should be kept away from the financial statements (Gardi, 2021). For example, the thoughts related to annuities and auxiliaries are hard to understand. In these conditions, apply the understandability thought whatever amount as could be anticipated, but simultaneously present the essential information.

The study presented the outcomes of understandability for the past three years as indicated in the table.

Understandability	2018	2019	2020
The annual report is well organized	4.13	3.51	3.23
Income statement and balance sheet	2.57	3.86	4.23
Data explain through graphs	2.34	3.54	2.67
The practical and easy-to-understand language used in annual reports	3.23	3.41	4.54

Comparability

The comparability idea of accounting states that the users of monetary reports of a business should have the option to contrast these reports and earlier years’ reports just as with reports of different elements managing in a similar industry (Zhang, 2018). The comparability idea recommends that the monetary reports or proclamations should be ready under the same accounting standards and strategies every year. If any exchanges require subjectivity, such exchanges should be managed same predictable way consistently (Zhang, 2018). The comparability is accomplished when the element adheres to the same accounting guidelines which are trailed by each business in the business or potentially as coordinated by the law of wards. Global Accounting Standards and International Financial Reporting Standards are the accounting norms that are all around acknowledged with changes as indicated by the particular guidelines of various nations. A few nations execute these norms as they are with little to nil adjustments. This guarantees that the organizations throughout the planet set up their yearly reports as indicated by the same accounting rules and standards which makes it feasible for the users.

The study group presented the following results

Comparability	2018	2019	2020
The annual report on policies variations	3.43	3.21	3.43
Annual accounting figures	3.43	3.31	3.33
Negative and confident reports are included in the annual report in regard to policy effect	3.32	3.44	3.31
Annual accounts on monetary and ratios on index numbers	3.54	3.41	3.24

The study took into accounts the aspect of timeliness

Timeliness	2018	2019	2020
The annual report reach after the auditing process was conducted on financial statement	3.43	2.21	3.43

The test regarding normality

Item	Kolmogorov-Smirnov	Wilk test-Shapiro
statistics	Df	Sig	stats	df	Sig
FRQ	0.185	143	0.000	0.946	143	0.000
INT	0.173	143	0.000	0.949	143	0.000
OBJ	0.176	143	0.000	0.936	143	0.000
PDC	0.223	143	0.000	0.901	143	0.000
COF	0.160	143	0.000	0.942	143	0.000
PRB	0.128	143	0.000	0.966	143	0.002

Based on the above table the research samples do not originate from a normally distributed populace. Both the Shapiro-Wilk test and Kolmogorov Smirnov assume that the p-value is always insignificant. The perception is that for a significant value to be considered, the p-values must be greater than the minimum threshold of 0.05 to be a table as a normal distribution. Further, the four variables were abnormally distributed hence, the option of using parametric statistics such as product-moment correlation, the study embrace a non-parametric statistic such as spearman’s rank correlation which has been established to be appropriate. On the other hand, the information presented in Likert’s scale has been established to interrupt the normality assumption due to the discrete nature as well as they are known to be non-continuous.

Hypothesis testing

As depicted by the spearman’s rank correlation, there exist several relationships between independent variables and the dependent variables. Further, the analysis was considered statistically significant even at one per cent except for confidentiality which has recorded the eco-efficiency of 1.000 equivalent to p=0.881. concerning the quality of financial reporting, professional behavior stood to be one of the elements that recorded positive association as far as ethical accounting practices is concerned. Moreover, the study found that objectivity reflects 0.57 with a significance of 0.01, integrity at 0.59 with a significance of 0.01. Competency yields at 0.50 with a significant level of 0.01 and professional care stood at 0.43 with a significance of 0.01. all the variables had a level value of p=0.001. However, the research has some shortcomings since it does not accept the null hypotheses on integrity, professional behavior, competency, due care and objectivity. The study, on the other hand, accepts the null hypothesis in regard to confidentiality in financial reporting quality.

Correlations
	FRQ	PRB	OBJ	INT	PDC	COF
Spearman r/sh	FRQ	Coefficient	1.00	0.59	0.43	0.57	0.50	0.525
sig	0.000	0.00	0.00	0.00	0.00	0.88
N	143	143	143	143	143	143

Interpretation of findings

The outcomes of the study attribute that the yearly reports of several financial institutions that preview a global perception. Regarding organizations, utilizes value as degree fundamental score a mean of a proximate, 4.25. the research projects that annual report offers feedback data on how several market events and essential communication that influence financial entities.

The annual report of the business entity concerning the research explaining the estimate and prospect established to be about a mean of 2.15. Further, the annual report explains the highest peak of accounting ideologies that provide the fundamental aspect of vital decisions from higher management. The study founds that financial reports of the business entities negative and optimistic events in a balanced way when reflecting annual outcomes.

The financial annually report attributes efficiency with an estimated mean of 3.14. moreover, the study reveals that organizations change in financial accounting methods explains the implication of the change.  Further, the perceptions of accounting judgements and estimates elaborate on the implications of the revision. Therefore, the study findings outcomes present accounting periods that are correlated to the preceding results.

Discussion on findings

One of the study objectives was to establish the influence of ethical accounting practices and their quality on financial reporting. The study group for this research previews survey reports done previously in various institutions on both practical and non-practical accountants in cities, higher institutions, and other organizations with financial departments. Throughout the study period, the research embraced IFAC norms and regulations on accountants. IFAC was utilized in the study as part of an ethical accounting proxy. In addition, IASB qualitative features were considered a proxy to financial reporting quality (Alzeban, 2019). Notably, the study projections were seen through the research final results, indicating that the model expectations resemble the actual results. Further, the findings were corresponding with the projection of the utilitarian hypothesis. 

Audit quality is a help that is hard to quantify unbiasedly and is a perplexing and troublesome idea to see so that there might be mistakes in deciding its inclination and quality. In an audit assessment, the auditor should much of the time communicate or interface with the board, this is done to get the proof needed in the audit assessment (Alzeban, 2019). The demeanor of the auditor is to perceive the requirement for a target appraisal and the conditions being scrutinized and the proof got during the audit. This is finished by the auditor so that the audited organization’s budget reports can be depended on. Likewise, the executives will get certainty and trust from outside parties that the administration has completed its obligations appropriately.

The review infer that guaranteeing initiative of senior administration, both as a visual demonstration and in conduct is a significant part of the execution of hierarchical measures for moral conduct. Suppose a particularly moral way in the conduct of the organization’s administration is accomplished. In that case, it is a significant good commitment to the association of the executives’ moral conduct: representatives trust and feel positive about administration choices. Pragmatic ramifications. Accomplishing the objectives of overseeing moral conduct of senior administration can be perceived by the accompanying models: senior administration is perceived by associates to act as an illustration of elevated requirements of conduct, the eagerness of senior administration to be pioneers in these issues and make a move on unfortunate behavior, getting individual and aggregate liability regarding consistency with high moral guidelines (Kalyani, Mathur & Gupta, 2019). The execution of targets and authoritative measures will accomplish the characterized models by checking the conduct of auditors on consistency with moral guidelines. Considering the experience of audit organizations, uncovered during the review, the creators propose to observe moral conduct as an open, genuine and straightforward cycle.

The conditions for its foundation are familiar with all representatives and guaranteeing trust in its decisions and results. Futher, the previously mentioned is accomplished through the accessibility of yearly reports, customary appraisal of the qualities and shortcomings of audit conduct, dispersal of data on the case of senior administration in moral conduct, staff attention to the benefit of observing moral conduct and their interest in yearly overviews. The creators propose models for observing and self-appraisal: motivating forces for all representatives for appropriate conduct, use of motivators and approvals to execute improper demonstrations, educating workers, adequacy of impetuses considering the points of interest of high moral culture of the audit organization (Kalyani, Mathur & Gupta, 2019). The proposed measures will fortify the components of the inner quality control framework and can be utilized in the outside assessment of the nature of the audit organization’s exercises. Executing recommendations can prompt the association of audit work on an excellent, capable premise, which can expand clients’ trust in the aftereffects of audit movement.

For instance, professional behavior essentially and positively influences the quality of financial reports. Tambingon, Yadiati and Kewo (2018) depict that professional behavior promotes positive attitudes among the accountants hence the result is quality financial reporting. Moreover, the justification of this perception is seen with constant pressure from management to the junior accountants about ethical behavior and quality financial reporting. The significance of objectivity was found to positively influence the quality of financial reporting. According to Tambingon, Yadiati and Kewo (2018), objectivity plays a major role in accounting practices. For instance, objectivity enables accountants to produce quality services as far as financial reporting is concerned. Consequently, accountants with minimal or a lack of objectivity, tend to have impaired objectivity hence, poor financial reporting.  While on integrity, the study found that it plays a vital role which it influences financial reporting on a positive note. Mitnick  (2016) confirms this finding integrity is essential since it creates a positive correlation on financial reporting quality.

Ogbonna & Appah, (2012) assert that confidentiality in regard to financial accounting play a key role in financial reporting quality. However, the confidentiality has limited significance to the quality in finances. This preview conforms with the study findings which established that, although confidentiality in financial aspect is vital, there is no define correlation between the confidentiality and the quality of financial reporting. But the findings could be because of small population, hence there is need for more research on the matter on a bigger scale sample.

Furthermore, professional care and competency influence the quality of financial reporting. Recent studies indicate that professionals from various fields have mandates to maintain and act n accordance with their professional skills and knowledge. The concept of such an approach is to ensure clients receive quality services as well as employers in regard to job descriptions practices and legislations

The study indicates that honest reporting, relevance, timeliness, comparability, and understandability in reporting financial performances in regard to returns are higher in companies with higher financial reporting quality than those with lower investments. Notably, financial reports are organized statements of income statements and financial position. thus, it is prudent for organizations to embrace simple and easily understood by the audience. Furthermore, they purport to authenticate and sign yearly statements timely especially after editing is prepared and discussed upon.

Furthermore, the financial reports from business entities include data that shows various amendments that influence accounting policies from one point to another. Consequently, the current and previous events are discussed and presented in understandable graphs and drawings in regard to comparative analysis. But, the reports from specific companies have varying accounting amendments and procedures that are followed. It indicates that negative and positive financial aspects do exist as well as free disclosure of institutions governance problems.

Conclusion and recommendation

The study attributes that ethical practices in accounting influence the quality of financial reporting. The outcomes of the study indicate that excellence in ethical conduct plays a critical role in realizing desired outcomes, objective, transparent and reliable financial reporting. The quality of financial reporting has a comprehensive relationship between moral and financial performances. Thus, to ensure the corporates attain projected financial outcomes, it is essential for the organization, especially professional accountants, to uphold moral aspect when dealing with clients and employers.

The following comprises of recommendation the study arrived at after its findings. 

1. It is vital for accountants to uphold desirable attitudes to enhance quality in financial reporting.
2. Integrity should be a norm to all professional accountants to promote transparency in financial reporting.
3. As a professional, accountants should ensure that they always avoid bias relationships that can influence the judgement of professional accountants.
4. It is a requirement that every professional accountant act according to technical skills, diligence and professional standards while at work.
5. Professional accountants should understand that business relationships or professional relationships do not permit individual accountants to take advantage of confidential information to their advantage or avail the information to the third party for personal mileage.

In summary, academics and researchers with similar urges must understand accounting and its quality in reporting to research other factors that may influence the quality of financial reporting. For instance, religion, samples size among other factors to have well-detailed results on the quality of financial reporting which can help in future generalization of accounting.

Limitation of the study

The study group for the research faces various challenges which comprise problems accessing the financial record of various organizations even through their websites.  Most of the companies have categorized their client financial data as private and confidential as well as financial reports.

Also, time becomes a limiting factor for the study. For instance, the study group uses a lot of time collecting data and analyzing the report hence, it used a lot of resources to complete the project.

Areas that require further research

There is a need for further studies to established factors such as religion and other factors including personal interest and financial reporting quality.  In addition, research should be carried to determine correlations between quality of financial reporting and accountants’ performances on organizations governance, non-financial, and employee’s standpoint. Further, the study should converge to measure financial performance including gearing ratio, and liquidity ratios.

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