Table of contents
CHAPTER ONE
1.1 INTRODUCTION
1.2 HISTORICAL
BACKGROUND OF THE CASE STUDY
1.3 STATEMENT
OF THE PROBLEMS
1.4 OBJECTIVES
OF THE STUDY
1.5 RESEARCH
QUESTIONS
1.6 RESEARCH
HYPOTHESIS
1.7 SIGNIFICANCE
OF THE STUDY
1.8 SCOPE
OF THE STUDY
1.9 LIMITATIONS
OF THE STUDY
1.10 DEFINITION
OF TERMS
CHAPTER TWO
2.1 LITERATURE
REVIEW
2.2 TYPES
OF AUDIT
2.3
OBJECTIVES
OF AUDIT
2.4
QUALITIES OF AN AUDITOR
2.5
RESPONSIBILITIES OF AN AUDITOR:
2.6
INDEPENDENCE OF AN AUDITOR
2.7
QUALIFICATION OF AN AUDITOR
2.8
THE AUDIT COMMITTEE
2.9
RULES GUIDING APPOINTMENT AND REMOVAL
OF AN EXTERNAL AUDITOR
2.9.1
APPOINTMENT OF AN AUDITORS
2.9.2
REMOVAL OF THE EXTERNAL AUDITOR
2.10
RESIGNATION OF AN AUDITOR
2.11
EFFECTS OF THE REMOVAL OF THE
EXTERNAL AUDITORS
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 INTRODUCTION
3.1 RESEARCH
DESIGN
3.2 POPULATION
OF THE STUDY
3.3 SAMPLES/SIMPLE
TECHNIQUES
3.4 RESEARCH
INSTRUMENT
3.5 METHODS
OF DATA COLLECTION
3.6 DATA
ANALYSIS TECHNIQUES
CHAPTER FOUR
4.0 RESULTS
PRESENTATIONS, ANALYSIS AND DISCUSSIONS
4.2
SOCIO-ECONOMIC CHARACTERISTIC OF THE
RESPONDENTS
4.3
TESTING OF HYPOTHESIS
CHAPTER FIVE
5.0 SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1 SUMMARY
OF FINDINGS
5.2
CONCLUSION
5.3 RECOMMENDATION
REFERENCES
APPENDIX : RESEARCH QUESTIONNAIRE
CHAPTER ONE
1.1 INTRODUCTION
The need for the auditing of account
for a business venture cannot be overemphasized, Even in the early 19th
century, kings insisted that their steward read their account of stewardship to
them orally which the kings listened to and acknowledge as having received.
This was called “stewardship account”.
With the large amount of business
transaction that companies these days go into, which involves a huge chunk of
their resources. There is need for the accounts of such companies to be
properly audited so that monies and resources may not be fraudulently
mismanaged and such mismanagement swept under the carpet. This gave rise to the
need for the appointment of external persons outside the companies staffs and
management to look into the final account and vouchers such companies, such
person must be trained accountants called Auditors.
The functions includes
·
To
carryout detached review of financial statements
·
To
perform compliance test on the internal control Opinions and test accounting
records
·
To
compare companies financial statement with existing accounting records to see
that they agree.
·
To
report on the financial statements and in compliance with any relevant
statutory obligation.
According to Cook and Winle (1976),
the traditional audits were meticulous, and they involved defiled review of
records designed to determine whether each transaction was properly recorded in
the correct account and in the amount with main objective of detecting fraud
and testing the trust of persons in fiduciary positions. But modern auditing
pays more attention to the efficient working off the internal control system to
reduce and prevent to a large extent errors and frauds rather than detailed and
massive checking (vouching) of transactions and discovering of errors.
Hence the change by the English
companies Act 1948 from the true and correct view” as was formerly practiced to
true and fair view” in the opinion of the auditors. This makes the auditors
opinion very essential for intending investors and regulatory authorities, so
the procedure for the appointment and removal of the auditors by companies
should be accorded a great deal of care so not to deviate from laid down laws
and also respect the intensions of the shareholders who have a stake in the
decisions of the company.
Hence the change by the English
companies Act 1948 from the true and correct view” as was formerly practiced to
true and correct view” as was formerly practiced to true and fair view” in the
opinion of the auditors. This makes the auditors opinion very essential for
intending investors and regulatory authorities, so the procedure for the
appointment and removal of the auditors by companies should be accorded a great
deal of care so not to deviate from laid down laws and also respect the
intensions of the shareholders who have a stake in the decisions of the
company.
1.2 HISTORICAL BACKGROUND OF THE
CASE STUDY
After working for the family Owned
chemist shop, eastern industrial chemist, for 13 years, Sir Tony Eze Nna
decided to establish his own pharmaceutical company, with the leadership and
managerial skills acquired on the Job.
The company, orange Drugs limited,
was registered and incorporated on July 206th 1988 with No Re
115913. Its first office was in Ikenegbu, Owerri, Imo state in 1989 and in
order to be among the leading pharmaceutical companies in Nigeria and compete with other companies in
different parts of the world, the company later moved its base to Lagos.
The first corporate office was at 4B
Okupe Estate Mende Mary Land, Lagos and in 2001,
the company relocated to its present head office at 66168 town planning way, Lipeju,
lagos with
Braches in different parts of the country.
Orange Drugs limited is a reliability
company with an authorized fully paid share capital of N5million Naira involved
in the marketing and distribution of well tested drugs, manufactured in Indonesia, Italy,
India, company and the United States of America
with the Nigerian Consumer in mind.
Subsequently, orange Drugs limited
founded the beauty care industries through the importation of saps, creams and
other beauty products. By 2006, the company commended the local production of
different brands of their soap in Lagos and this
was aimed at boosting the Nigeria
manufacturing sectors and also creating jobs for the populace.
In other to meet up with the
challenges in the global economy, Orange Drugs limited subsequently diversified
its line of business by the establishment of Orange Kalbe Ltd and orange west
Africa landed leading to the formation of orange groups
1.3 STATEMENT OF THE PROBLEMS
Owing to the importance of a company
maintaining proper internal control systems in the administration of its
affairs, the auditors has to be properly briefed on the workings of virtually
every sector of its dealings and on its tangible and intangible assets based.
So as to have a proper knowledge of the companies finances./ but over the
years, the rate of collapse and distress of many companies has made people to
ask such questions as
1. Why do companies publish inaccurate
financial records?
2. Why should auditors and organization
deceive the public through wrong information on their finances
3. the impact of such wrong and
unreliable business info ration to national economy and investment in general
The consequences of inaccurate business information to the public
These have head to widespread
speculation among financial information users that auditors are part of the
causes of such collapse as they are believed to have proper knowledge of the
finances of companies and report credibly about then but still such companies
collapse to the disbelieve or the public.
This has even caused the Nigerian
shareholders solidarity association to mobilize its members and the public to
take closer looks at the role of the auditors in business failure over the last
couple of years and their means of appointment.
1.4 OBJECTIVES OF THE STUDY
Auditing has been defined by the
American committee of Basic Auditing concepts as “A systematic process of
objectively obtaining and evaluating evidence regarding the assertions about
economic action to ascertain the degree of correspondence between those
assertions and established criteria and communicating the result to interested
user”
This definition brings out the major
beneficiaries of the Auditors opinion, which are the management of the company.
The investing public and regulatory bodies rely on the opinion of the external
auditors in basing their own assertions of the financial strengths of the
company. This shows the level of importance attached to the auditor’s final
report.
This study aims to critically
examines the procedure adopted by public companies in the appointed and removal
of their external auditor with a view to
·
Establishing,
if auditors have a good knowledge of their removal before hand.
·
Determine
the reasons for the removal of an external auditor.
·
Determine
it laid down law governing removal and appointment of auditors are competent,
and if they are followed by public companies.
·
Determine
it directors have under influence over the removal and appointment of external
Auditors.
·
If
shareholders are given the chance to vote during public companies AGM for or
against the removal of the existing company auditors.
For knowledge of these would help in
ensuring that auditors of companies are credible and accepted by all
shareholders in the company hence ensuring proficiency of the final report.
1.5 RESEARCH
QUESTIONS
The objective of this research work
is to examine the procedures adopted by public companies in the appointment and
removal of their external auditors using orange Drugs Nigeria limited in Imo State
as a case study. This prompted reasonable question to be asked from the
management staff and shareholders through company secretary so that answers
given could be used as a basis of judgment on the efficiency of the procedure
used in appointing and terminating the appointment of auditors of public
limited companies.
·
Does
the company with the company and allied matters decree, 1990 in the appointment
and removal of the external Auditors.
·
If
shareholders are aware of their duty in the appointment and removal of the
auditors.
·
It
company directors use their power to intimidate the external auditor
·
Do
shareholders fulfill their role in the appointment and removal of all the
external auditors accordingly
·
If
auditors were present at the annual general meeting, that removed and appointed
the respectively.
·
What
role do the audit committee plays in the appointment and remuneration fixing of
the new auditors as required by 5.351 a CAMA 90
1.6 RESEARCH
HYPOTHESIS
Based on the objectives of these
studies, the following hypothesis are stated to guide the study
H0: An examination of the
procedure does not lead to appointment and removal of external auditor in
public limited liability company,
H1: An examination of the
procedure lead to appointment and removal external auditor in public limited
liability company.
H0: The procedure for
appointment and removal of External auditors has a negative impact to public
limited liability Company
H1: The procedure for
appointment and removal of external auditors has a positive impact to public
limited liability company.
1.7 SIGNIFICANCE
OF THE STUDY
Auditors as the nature of their job
and terms of employment are supposed to be persons who exhibit due care, skill,
and diligence in the performance of their final reports attracts a large
generality of stakeholders and improper reports has the possibility of rocking
the life boat that helps the company keep a float and stay in business.
The research into the procedure for
their appointment and removal is very significant because it reduces the risk
of the company collapsing due to fraudulent practices likely to be perpetuated
by top management if proper auditing of the accounts of the firm is not done to
ensure compliance with company rules and regulations.
Also, the research aims to help the
company plan the process for the removal of auditors in accordance with laid
down provisions of CAMA 90
It aims to reduce the risk of
management of public companies having undue influence over the affair of the
external auditors.
This study also aims to ensure that
the general public is familiar with the procedure for appointment and removal
of external auditors so they have knowledge on the credibility and reliability
of external auditors appointed by the form and hence can accept or reject the auditor’s
attestation.
1.8 SCOPE OF THE STUDY
The study is intended to cover all auditors’
processes of appointment and removal but due to the researchers inability to
reach all possible companies and auditors a case study of orange Drugs Nigeria
limited Imo State was used to form a generalization
of the intended recipients of the study.
1.9 LIMITATIONS OF THE STUDY
Due to the confidentiality of answer
to be received from respondent i.e. top management to questions asked, the
researcher was unable to gather all answer to questions asked but this ahs not
served as detriment to the quality of conclusions and recommendations proposed
at the end of the study.
Also, the research work was limited
because of obvious reasons such as lack of financial resources to X-ray all
possible areas little time required for the completion of the research and
inadequate information data base as affects all other projects of its kind in
our present economic situation.
1.10 DEFINITION OF TERMS
A. Audit – An
audit is an independent examination of and expression of opinion on the
financial statements of an enterprise by an appointed auditor in pursuance of
the appointment and compliance with any relevant statutory obligation
B. Auditor: An
auditor is a person employed by a company to audit its financial statement and
investigate its internal control system.
C. Auditor Attestation:- it is a communicated statement of opinion based upon convincing
evidence b an auditor concerning the degree of correspondence and efficiency of
the final accounts presented to him
D. Compliance test:
- These are test carried out by auditors that seek to ensure him that all
internal controls as prescribed by management are being applied.
E. Final Accounts:
- these are the accounts of companies that reflect the financial transactions
carried out by the company at the end of the financial year.
F. Trust and fair view: - this is the view expressed by the auditor in his attestation that
tells if all financial transactions were carried out accurately and were state
without biases.
G. Vouching: This
is the examination of transactions of the company by the auditory and also
documentary evidence to ensure that they are properly entered in the accounting
records
H. Substantive test: - these are tests carried out by the auditor on mostly companies’
transactions and balances to test for their accuracy and validity.
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