Does the Ghanaian Banking Crisis Signal the End of Accounting?

1.0 Introduction
The 2007-8 global financial crisis occurred on the blind side of financial reporting standards. There are researchers who attributed the value irrelevance of financial information to the financial crisis (Arnold, 2009; Pinnuck, 2012). The global crunch did not directly affect the Ghanaian financial sector or the banking industry to be precise. Ghana’s recent banking crisis started in 2017 and since then, there have been major regulatory and supervisory changes in the industry. This is evident by the collapse of some banks and the merger, acquisition or consolidation of others. Various analysts, researchers and experts attributed Ghana’s banking crisis to weak corporate governance systems, ineffective risk management mechanisms, high nonperforming loans, poor management and regulatory lapses. All these factors are accounting-related, suggesting the significant impact of accounting on the recent banking crisis. Accounting exists to provide trust to the users (investors, lenders, etc) of financial information by providing them with relevant and reliable information which is vital for decision-making purposes (Barth & Landsman, 2010). This article aims to provide an insight into the impact of accounting on the recent banking crisis in Ghana, as well as, provide the suggestions of what is expected of the key players in the financial sector.

2.0 Corporate Reporting and the Multiplex Role of Accounting

Ghana joined the league of countries in 2007 to adopt the International Financial Reporting Standards (IFRS) as a replacement for the Ghana National Accounting Standards (GNAS). Thus, banks follow the various requirements of the international standard to prepare financial statements, audit the financial statements and as a guide in interpreting the statements. There are various arguments globally about the inability of current accounting standards to reflect the current ecosystem of corporate activities (Lev & Gu, 2016). For instance, the current accounting system falls short of the ability to provide a comprehensive measure of intangible assets such as patents, brands, technology, natural resources, operating licenses, customers, business platforms available for add-ons, and unique enterprise relationships. Interestingly, there is evidence to suggest that while a typical 1970s company may have 20% of its assets as intangibles, companies in the current business ecosystem have more than 80% of assets as intangibles (Duho & Onumah, in press; Sullivan Jr & Sullivan Sr, 2000). These magnificent changes warrant the various actors such as regulators (standard-setters), practitioners, and researchers to decipher the various ways they could modify these standards to ensure value relevance.

To wit, financial statements are used by investors, lenders, financial analysts, economists, investment analysts and auditors in making various decisions. The Bank of Ghana and the SEC make use of financial information in decision making. This is why the value relevance of the information provided to these actors is key to the whole financial market in ensuring that resources are not invested in failing businesses. This points to the possible impact of reliable and relevant accounting information in determining the value of the firm as the risk level could be assessed by the information disclosed. What measures should be put in place for ensuring that the financials really reflect the state of affairs of the various companies? It is these dynamics that caused the influx of more than 100 standards on Environmental, Social and Governance (ESG) related issues; a shift towards non-financial reporting to support the mainstream financial reports. Do Ghanaian banks follow best practices when it comes to the reporting of the non-financial information? Are there actions to foster such voluntary requirements? Does the investment community demand relevant and reliable information? How does the research community contribute in shaping the policy and practice of accounting in general and its application to the banking industry?

3.0 Multi-Standard Application and Overarching Role of Accounting

In the extant literature, fair value accounting, asset securitization, derivatives and loan loss provisioning have been pointed to have effects on financial crisis although some studies found otherwise. There is a level of consensus about the adverse impact of the lack of transparency of information on the crisis since investors were left with insufficient information to make decisions (Barth & Landsman, 2010). Similarly, transparency issues are the root cause of the banking crisis in Ghana. For instance, IAS 24: Related Party Transactions, has been one of the standards that has not been followed as most transactions between related parties which needed to be reported on were not disclosed. Similarly, there has been a disregard for best practice corporate governance principles from the board level through to the issues of internal control practices. Tied to these, risk management has not been effective in the failed banks. The nature of the issues at stake makes some individuals blame the regulators such as the Bank of Ghana, the Institute of Chartered Accountants (ICAG) and the SEC for not performing their regulatory and supervisory roles which led to the crisis.

Apart from the mainstream accounting standards, there are some industry-specific best practices. The speciality nature of the banking industry led to Ghana’s step to join the league of nations to adopt the Basel Accord (Duho, Onumah, & Owodo, 2019). The aim of this is to ensure prudent risk management. Risk disclosures are very essential for the banking industry of Ghana as the generic business of banking is risk management. The reporting and auditing of the disclosures relating to the Basel Accord still fall within the remit of financial accounting. The extent of risk disclosure among banks differs. The heterogeneity could be driven by the lack of proper guidance on reporting on the various types of risks faced by the banks.

The ICAG has shown by the sanctioning of the four audit firms that the auditing process has a role to play in ensuring that the assertions of the management of the banks about the financial statement are rigorously assessed to comply with accounting standards, auditing standards and other regulations. For instance, all the banks have their accounts prepared based on the going concern postulate and profits were declared for some banks. Also, the audit processes could not lead to the disclosure of relevant information which, based on accounting standards are supposed to be done. It is some of these indicators that led some to view the whole auditing process as a box-ticking task although it is not supposed to be so. More essentially, auditors have roles to play in making recommendations in terms of internal controls and corporate governance. The financial statements of some of the banks do not reflect the real picture of their state of affairs. There is a real need for ensuring that financial information is value relevant. This can be done by first ensuring that the requirements of the standards are met and also providing extra disclosure in the report to reflect other things that are not captured in the standard-based statement. These disclosures should include both “good news” and “bad news”. Studies suggest that disclosures tend to be on “good news” at the expense of “bad news”; an action that undermines the information relevance of reports (Bao, Kim, Mian, & Su, 2018; Kothari, Shu, & Wysocki, 2009).

4.0 Shared Responsibility
Who bears the blame for the banking crisis? It is a shared role of the regulators, the practitioners, the corporate leaders, the analysts, the researchers and the educators. There is a need for stakeholder engagement on how the banking industry can enhance information usefulness of financial reports. The crisis should have by now fueled further discussions on the choice of the type of additional reporting to add so as to provide the investing community and other stakeholders with relevant information. Currently, some banks are providing integrated reports, sustainability reports, and CSR reports, while some have been reporting on value addition before the directive from the bank of Ghana for all banks to report a value-added statement. These reports in spite of their good intentions are associated with non-uniformity and disparity with some scholars positing that they are mere tools for gaining legitimacy. There should be generic guidance on what needs to be done in reporting on the key issues found as essential to be disclosed; with a focus on the materiality and pervasiveness.

5.0 Recommendations and the Way Forward
The ICAG has shown its prowess in the recent indictment of four audit firms with a total fine of GHS 2.2 million. Yet, there is a need to be more proactive now. Having that the auditors are fined for the collapse of some universal banks, will the investigation also be done on the auditors of the other financial entities – insurance, rural banks, and savings and loans companies? There is the need for the ICAG to up its game in stimulating discussions on current issues in the financial industry. It will be encouraging to see the research wing of the institute conduct research which will shape the accountancy practice in the country. The same must be said about the Chartered Institute of Bankers (Ghana). There should also be more tailored Continuous Professional Development (CPD) activities for the members of the two institutes. Not all analysts are of the view that the universal banking sector clean-up is over. If it is left with a minimum capital requirement, Ghana is not at par with Nigeria or South Africa. There is the need for the Bank of Ghana to be up and doing in executing the Basel Accord instead of the current cherry-picking approach we are using. Are we now on Basel I or Basel II or Basel III or Basel IV? The SEC should be able to set the tone for adherence to best practice corporate governance principles, the stock exchange should be the market to look for best practices when it comes to regulations and guiding principles. When we move in the current trajectory, the market may continue to have low participation.

The new directive on corporate governance should be utilized by banks and there should be a quick action towards improving governance to address any further weaknesses identified. The Institute of Directors (Ghana) should be making some essential contribution to Ghana’s corporate governance space – there is much expected of them. In South Africa, the Institute of Directors in Southern Africa (IoDSA) owns the copyright of the King Report on Corporate Governance which is the corporate governance code for listed companies to follow. Shareholders should be more concerned, and proactive. Similarly, the auditors must be more vigilant in ensuring that they really provide an independent and objective opinion when issuing their audit reports. Relatively new corporate reporting standards like IFRS 13: Fair Value Measurement, IFRS 9: Financial Instruments, IFRS 16: Leases, IFRS 15: Revenue from Contracts with Customers provide some levels of judgement and we need to be critical in making judgements to meet their requirements. The same must be said about the additional requirements on risk management as stipulated in the Basel Accord.

The educational institutions are the producers of human capital and their role is key. First, accountancy education should be the current reflection of what the students will be required to do in the job market. Lev Baruch, a Professor of Accounting and Finance at New York University in the United States, indicates that he gets worried to be teaching his MBA class the things that are not the true reflection of the current accounting system. The Ghanaian business schools should modify the curriculum to reflect what will enhance the employability of their accountancy students. The ACCA, CIMA and CPA-US have all been carrying out research which guides the changes they make to their syllabus. This needs to be done also to make the education here in Ghana very competitive. There is a sort of shift in accountancy research in Ghana from standard-based research to voluntary disclosure-based research. While this is not completely wrong, it suggests that there will be limited contribution in the area of financial reporting in shaping policies, practice and future research. Overall, we all need to be proactive as a society with regard to financial reporting.

6.0 Conclusions
Financial accounting is just a branch of accounting. As far as investors, lenders and other users of financial reports require financial information that they trust, financial accounting will continue to be relevant. Yet, this can only be possible if the information maintain its relevance and reliability. Going forward, let us enhance the value relevance and information usefulness thereof of accounting. There is a call therefore for the improvement of the mandatory and voluntary reporting practices in areas that are useful for accounting information users in the Ghanaian context.

Author
The author is a transdisciplinary accounting researcher. He is a member of Chartered Institute of Management Accountants (CIMA-UK), as well as, a finalist with the Association of Chartered Certified Accountants (ACCA-UK). He has presented research papers at international conferences in Europe and Africa. He does policy and practice-based research consultancy. Some of his research papers have appeared in the International Journal of Banking, Accounting and Finance, International Journal of Managerial Finance, Asian Journal of Accounting Research, Athens Journal of Business and Economics and Modern Economy.

References
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Sullivan Jr, P. H., & Sullivan Sr, P. H. (2000). Valuing intangibles companies–An intellectual capital approach. Journal of Intellectual Capital, 1(4), 328-340.