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EFFECTS OF CREATIVE ACCOUNTING PRACTICES ON INVESTOR CONFIDENCE: A CASE STUDY OF THE 2023 OANDO PLC FINANCIAL RESTATEMENT

Abstract

This study examines the impact of creative accounting practices on investor confidence through an analysis of Oando PLC’s 2023 financial statements. The research employs a mixed-methods approach, combining qualitative content analysis of annual reports, directors’ reports, and regulatory filings with quantitative assessment of stock price movements and financial indicators. The study focuses on Oando PLC’s financial disclosures and stock market performance from 2019 to 2025, particularly on the Nigerian Exchange Limited (NGX). Primary data sources include the 2022 and 2023 audited financial statements, quarterly reports for 2023, and daily stock price records spanning January 2023 to December 2025 (approximately 750 trading days). Analytical methods encompass thematic content evaluation of accounting policy modifications alongside descriptive and regression statistics examining relationships between financial performance measures and market volatility. Key findings demonstrate a dramatic reversal from an N81.2 billion group loss in 2022 to an N60.3 billion profit in 2023, primarily driven by trading activities. However, this apparent recovery concealed an N216.2 billion company-level deficit and was accompanied by significant reporting delays. These factors contributed to eroding investor trust, evidenced by stock price declines of 10-20% following earnings announcements and a 50% depreciation by mid-2025. The study proposes enhanced regulatory measures including stricter filing deadlines, compulsory independent verification of extraordinary financial turnarounds, and improved transparency regarding intercompany transactions. The conclusion emphasizes how Oando’s 2023 accounting practices diminished market confidence, increased volatility, and underscored the necessity for stronger corporate governance mechanisms in Nigeria’s energy sector.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Creative accounting practices, often euphemistically referred to as “earnings management,” represent a collection of techniques employed by corporations to adjust financial statements while remaining within legal accounting frameworks. These techniques may involve aggressive revenue recognition, strategic timing of expense accruals, reclassification of items, or utilizing off-balance-sheet financing to present a more favorable financial position than reality justifies (Rahman et al., 2023). In emerging economies such as Nigeria, where the oil and gas sector dominates economic activity, these practices intensify due to volatile commodity prices, inconsistent regulations, and political interference, resulting in misleading financial disclosures that deceive stakeholders (Okoughenu et al., 2019). The Nigerian oil industry, responsible for more than 90% of foreign exchange earnings, has long struggled with governance deficiencies, with creative accounting serving as a mechanism for firms to manage economic instability and retain capital market access (Elaigwu, 2020).

Oando PLC, a leading indigenous integrated energy company in Nigeria, has frequently been associated with such practices. Originally established in 1956 as ESSO West Africa and rebranded in 2003, Oando operates across upstream, midstream, and downstream sectors, engaging in exploration, production, trading, and retail operations. Its 2023 financial reporting marked a significant shift, transitioning from a net loss of N81.2 billion in 2022 to a reported profit after tax of N60.3 billion in 2023, driven largely by a 43% revenue increase to N2.8 trillion due to heightened crude oil trading amid global demand surges (Oando PLC, 2024). However, skepticism arose as the parent company’s losses deepened to N216.2 billion, attributed to impairments, foreign exchange losses, and intra-group adjustments, suggesting possible creative accounting tactics to consolidate gains while isolating losses (Oando PLC, 2024). Auditors identified discrepancies, noting a group comprehensive loss of N70.0 billion for 2023 contrary to the reported profit which may indicate earnings smoothing strategies (Oando PLC, 2024).

The 2023 reporting period was further complicated by repeated delays in submitting audited statements. Initially due by March 2024, filings were postponed multiple times, first to October 23, then to October 30, before finally being released in November 2024, with cited reasons including audit complexities and regulatory hurdles (Oando PLC, 2024). These delays coincided with Oando’s strategic acquisition of a 100% stake in Eni’s Nigerian Agip Oil Company (NAOC) assets in August 2024, prompting speculation that accounting adjustments were made to strengthen financial statements for investor confidence and financing purposes. Historical scrutiny reinforces these concerns; in 2017, Nigeria’s Securities and Exchange Commission (SEC) investigated Oando for false disclosures, market abuses, and financial misstatements, leading to trading suspensions and forensic audits that exposed governance violations (SEC Nigeria, 2019). This recurring pattern illustrates how creative accounting undermines long-term investor trust, evidenced by share price instability and shareholder activism (Shahid, 2016).

Empirical research on Nigeria’s oil sector reveals that creative accounting frequently occurs through intra-group transactions, asset revaluations, and provision manipulations, particularly in politically linked firms where oversight is weak (Adeyemo et al., 2024). For example, during economic crises such as the 2020 oil price collapse worsened by COVID-19, companies deferred impairments to maintain the appearance of profitability (Omokhudu & Ibadin, 2020). Oando’s 2023 financial disclosures align with broader International Financial Reporting Standards (IFRS) flexibilities, including IFRS 9 for financial instruments and IFRS 15 for revenue recognition, which permit managerial discretion in estimating fair values and income a potential avenue for earnings manipulation (Rahman et al., 2023). As global investors increasingly demand transparency in light of energy transitions, understanding the consequences of these practices is vital for fostering sustainable market growth.

1.2 Statement of the Problem

The persistence of creative accounting in Nigeria’s corporate landscape, despite frameworks like the International Financial Reporting Standards (IFRS) and oversight by the Financial Reporting Council of Nigeria (FRCN), poses significant risks to financial integrity. In Oando PLC’s 2023 financials, the juxtaposition of group profits (N60.3 billion) against parent losses (N216.2 billion) and a comprehensive group loss (N70.0 billion) suggests possible intra-group shifting and selective disclosures, which distort true economic performance and mislead investors. Filing delays, extending over seven months, not only violated NGX listing rules but also amplified uncertainties, leading to a 10-20% stock price drop post-release in February 2025 and a cumulative halving by October 2025, as investors grappled with perceived opacity (BusinessDay, 2025).

Scholarly evidence indicates that such practices impair decision-making, foster agency conflicts, and contribute to corporate failures, particularly in the oil sector where asset volatility invites manipulation (Elaigwu, 2020). Oando’s history of regulatory probes, including the 2017 SEC investigation for misstatements that resulted in board changes and fines, exemplifies how repeated incidents erode confidence, deterring foreign direct investment and inflating capital costs (SEC Nigeria, 2019). Minority shareholders, in 2024, demanded clarity on delisting plans amid SEC concerns, highlighting governance gaps that perpetuate distrust (Proshare, 2024). In Nigeria, creative accounting has fueled scandals like the 2006 Cadbury Nigeria overstatement and the 2018 banking crises, reducing market capitalization by billions and undermining economic stability (Okoughenu et al., 2019). Without targeted empirical analysis of Oando’s 2023 case, including the role of auditors in flagging risks, stakeholders remain vulnerable to misinformation, necessitating this study to bridge knowledge gaps and inform reforms (Adeyemo et al., 2024).

1.3 Objectives of the Study

The primary aim is to investigate the effects of creative accounting practices on investor confidence through Oando PLC’s 2023 financial reporting. Specific objectives are:

1. To examine the nature and extent of creative accounting practices evident in Oando PLC’s 2023 financial statements, including revenue recognition, impairment adjustments, and intra-group transactions.
2. To assess the impact of these practices on investor confidence, sentiment, and decision-making processes.
3. To analyze the consequences on stock performance, market volatility, and broader implications for corporate governance, while proposing recommendations for enhanced transparency and regulatory enforcement.

1.4 Research Questions

1. What specific creative accounting practices were employed in Oando PLC’s 2023 financial statements, and to what extent did they influence reported figures?
2. How have these practices affected investor confidence and behavioral responses in the Nigerian capital market?
3. What are the observable impacts on Oando’s stock price, overall market stability, and potential strategies to mitigate such effects?

1.5 Significance of the Study

This research provides multifaceted contributions. For regulators including the SEC and FRCN, it supplies empirical evidence to enhance monitoring frameworks, implement stricter reporting deadlines, and require forensic audits for high-risk industries. Investors gain valuable insights into warning signs such as profit volatility and reporting delays, which facilitates more informed risk evaluation and investment choices. The study advances academic literature on creative accounting practices within emerging markets, particularly Nigeria’s petroleum industry, by presenting a timely case analysis during global energy shifts. Corporations such as Oando can utilize these findings to strengthen governance structures through measures like independent director oversight and clearer financial disclosures, thereby restoring stakeholder confidence and improving sustainable value creation. Collectively, these outcomes support Nigeria’s financial system stability by fostering greater transparency and accountability.

1.6 Scope and Limitations of the Study

The study focuses specifically on Oando PLC’s 2023 financial reporting and its subsequent effects from 2023 to 2025, relying exclusively on secondary data sources including audited financial statements, NGX stock market data, and official regulatory filings. It deliberately omits any comparative assessment with industry competitors or primary data collection from internal company stakeholders. Several inherent limitations must be acknowledged, such as possible biases in corporate self-reported information, the inability to access confidential audit documentation, and uncontrollable external factors including fluctuations in global crude oil prices or macroeconomic policy changes impacting stock performance. Furthermore, potential shifts in Nigeria’s regulatory framework after 2023 could necessitate reevaluation of how historical financial events are interpreted.

1.7 Definition of Terms

• Creative Accounting: The exploitation of accounting standards’ flexibility to manipulate financial outcomes, such as through timing or classification, without overt violation.
• Investor Confidence: The level of trust and optimism investors hold regarding a company’s financial reliability, governance, and future prospects.
• Financial Restatement: Amendments to prior financial statements due to errors, policy changes, or reclassifications; here, it pertains to the 2023 audited reports featuring significant revisions from unaudited figures.
• Oando PLC: A Nigerian-listed energy conglomerate engaged in oil exploration, production, trading, and distribution.

References

Adeyemo, K. A., Oyebamiji, T. A., & Afolabi, H. O. (2024). Creative accounting and corporate failures on Nigeria listed firms. European Journal of Accounting, Auditing and Finance Research, 12(8), 1-15. https://eajournals.org/ejaafr/vol12-issue-8-2024/creative-accounting-and-corporate-failures-on-nigeria-listed-firms/

BusinessDay. (2025). Oando dips 10% as investors react to earnings report. Retrieved from https://businessday.ng/companies/article/oando-dips-10-as-investors-react-to-earnings-report/

Elaigwu, M. (2020). Creative accounting and corporate failure in the Nigerian financial reporting. ResearchGate. https://www.researchgate.net/profile/Moses-Elaigwu-2/publication/346583821_Creative_Accounting_and_Corporate_Failure_in_the_Nigerian_Financial_Reporting/links/5fc8ad8e299bf188d4eda6d3/Creative-Accounting-and-Corporate-Failure-in-the-Nigerian-Financial-Reporting.pdf

Oando PLC. (2024). Oando PLC announces audited fye 2023 results. Retrieved from https://www.oandoplc.com/press-release/oando-plc-announces-audited-fye-2023-results-posts-43-turnover-increase-and-n60-3-billion-profit-after-tax

Okoughenu, S. A., Evbota, C. I., & Amughoro, O. A. (2019). Creative accounting practices and international financial reporting standards adoption in Nigeria: Listed non-financial services companies in perspective. International Journal of Governance and Development.

Omokhudu, O. K., & Ibadin, P. O. (2020). Creative accounting practices & financial performance: Nigeria. Core. https://core.ac.uk/download/pdf/603899577.pdf

Proshare. (2024). Oando share price drops 20% off the back of SEC investor. Retrieved from https://proshare.co/articles/oandos-minority-shareholders-seek-clarity-and-proper-governance-on-outstanding-delisting-plans?menu=Market&classification=Read&category=Stock%2520%2526%2520Analyst%2520Updates

Rahman, M. S., Hasan, M. J., Khan, M. S. H., & Jahan, I. (2023). Antecedents and effect of creative accounting practices on organizational outcomes: Evidence from Bangladesh. Heliyon. https://doi.org/10.1016/j.heliyon.2023.e13759

SEC Nigeria. (2019). Press Release on Investigation of Oando Plc. Retrieved from https://sec.gov.ng/for-investors/keep-track-of-circulars/press-release-on-investigation-of-oando-plc/

Shahid, M. (2016). Influence of creative accounting on reliability and objectivity of financial reporting (factors responsible for adoption of creative accounting practices in Pakistan). Journal of Accounting and Finance in Emerging Economies.