Abstract
The study is aimed at examining the challenges
facing auditors’ independence in private sector organizations in Nigeria. The
ultimate aim of this research work is to evaluate the impact of
auditors’ independence on audited report and increase credibility on the
financial statement to the user. The researcher employs primary data
(questionnaire and personal interview) in its data collection. It was discovered
that closeness in terms of giving management decisions can impair an auditor’s
independence and that auditor’s independence has a direct impact on the audit
report. Finally, it was recommended that seminars and lectures should be
conducted for auditors to enable them appreciate their profession the more to
maintain their personal integrity despite the advise situation in the country,
knowing fully well that a good name is better that riches.
TABLE OF CONTENTS
Title
Page i
Certification
ii
Dedication
iii
Acknowledgements
iv
Abstract
v
Table
of Contents vi
Chapter One:
Introduction 1
1.1
Background to the Study 1
1.2
Statement of Problems 4
1.3
Research Questions 4
1.4
Objectives of the Study 5
1.5
Statement of Hypothesis ` 6
1.6
Significance of the Study 8
1.7
Scope of the Study 8
1.8
Limitation of the Study 9
1.9
Definition of Terms 9
Chapter
Two: Review of Related
Literature 11
2.1
Introduction 11
2.2 Meaning
of Auditing 13
2.3 Reasons
for Auditing 17
2.4 Audit
Risk 21
2.5 Limitation
of Auditing 23
2.6 Auditors
Qualification 27
2.7 Meaning and Definition of Auditor’s Independence 41
2.8 Audit
Independence 45
2.9 Perceive
Independence 45
2.10 Independence: Cornerstone of the Profession 45
2.11 Objectivity and Independence 52
2.12 Independent
and Management Advisory Services 55
2.13 Challenges
facing Auditor’s Independence 63
Chapter
Three: Research Method and Design 68
3.1
Introduction 68
3.2
Research Design 68
3.3
Description of Population of the Study 69
3.4
Sample Size 69
3.5
Sampling Techniques 69
3.6
Sources of Data Collection 69
3.7
Method of Data Presentation 71
3.8
Method of Data Analysis 72
Chapter
Four: Data Presentation, Analysis and
Interpretation
73
4.1 Introduction 73
4.2 Data Presentation 73
4.3 Data Analysis 73
4.4 Hypothesis Testing 74
Chapter
Five: Summary of Findings, Conclusion
and
Recommendations 83
5.1
Introduction 83
5.2 Summary of Findings 83
5.3
Conclusion 84
5.4
Recommendations 86
References 88
Appendix
I 92
Appendix
II 93
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
Over the past
three decades, Nigeria has witnessed a huge growth in its private sector with
the development of free enterprise, and influx of foreign corporations (Zhao &
Murinde; 2011, Ezeoha, 2007; Ningi & Dutse, 2008). Also, the level of
private sector investments increased the need for fairly stated financial
statements became more important.
This surge in
the private sector came along with many positive and negative aspects. The
economy witnessed a rapid growth in the level of corruption, and fraud
perpetuated by businesses. This pointed to the need for further governmental
efforts to regulate business reporting in the country (Ayoola-Akinjobi, 2010).
Auditing is
not yet well developed in Nigeria. Currently, there are two accounting bodies,
Institute of Chartered Accountants of Nigeria (ICAN) and Association of
National Accountants of Nigeria (ANAN), recognized in the country to regulate
the practice of accounting, however, ICAN is the oldest and most dominant
accounting body in Nigeria. The house and senate approved a bill to set up a
third accounting body (Certified Public Accountants of Nigeria, 1998), but the
bill was not signed by President Obasanjo before he left office, and his
predecessors are yet to sign the bill into law. While both bodies have
witnessed great improvements in their regulation of the practice of accounting
in the country, they have not done much in the area of auditing.
Recent
reports of questionable accounting practices employed by some companies in
Nigeria have brought the issue of auditor independence to the forefront, and put
the auditing profession in a serious credibility crisis (Otusanya & Lauwo,
2010). In response to this, the public has called for auditors to be
independent of their clients.
Audit
independence refers to the ability of the external auditor to act with
integrity and impartiality during his/her auditing functions. Two types of
auditor independence were developed by Mautz and Sharaf (1961) namely
practitioner-independence (or independence in fact), and profession
independence (or independence in appearance). Communication of accurate
financial statements is vital to the operation of the economy since users of
financial statements depend on this information to make financial decisions. To
increase the confidence in their financial statements, companies utilize the
services of external independent auditors to audit their books. Independent
auditors audit the financial statements and express an opinion on the fairness
of the statements. The confidence placed on these statements depends ultimately
on the perceptions held by the users of these statements regarding the independence
of the external auditors. While the external auditors may in fact be
independent of the management of the company being audited, if they are
perceived not to be independent, then the value of their opinions to the users
of the statements is diminished.
1.2
Statement of Problem
The
concept of independence is a cornerstone of the accounting profession. The main
aim of employing the services of an auditor in an organization is to audit the financial
statement in order to produce a report that will add credibility to financial report
in practical terms if independence of the auditor is in place. This research is
to ascertain the challenges facing auditor’s independence on management
decision making process and to proffer solutions on the ways forward to enhance
auditor’s independence in Nigeria.
1.3 Research
Questions
Below
are research questions meant to direct the study.
i. Does the effectiveness of auditor’s
independence have an impact on the report given?
ii. Does the increase in credibility on the
financial statement have an impact on user?
iii.
To what extent do auditors know and
appreciate relevance of independence?
iv.
To what extent can one appraise the
areas of weakness and strength with a view to making recommendation on possible
improvements where necessary?
v.
Of what relevant is the provision by
statutory bodies and standard on auditor’s independence?
1.4
Objectives of the Study
The
level of reliance on the audited financial statement by the users is not that
encouraging due to the ineffectiveness, of auditor’s independence. The aim of
this project is to achieve the following objective;
i.
To evaluate the impact of auditors
independence on audited report.
ii. To increase credibility on the financial
statement to the user.
iii.
To ensure that auditors know and
appreciate relevance of independence
iv.
To appraise the areas of weakness and
strength with a view to making recommendation on possible improvements where
necessary.
v.
To assess relevant provision by
statutory bodies and standard on auditor’s independence and as certain how
credible it has been. If not to evaluate and give necessary suggestions that
will help appraise the system.
1.5
Statement of Hypotheses
In
order to achieve the objective of this study, the following hypotheses are
raised.
Hypothesis
One
Ho: Auditors’ independence does not have a direct
impact on the auditor’s report.
HI:
Auditors independence have a direct
impact on the auditor’s report.
Hypothesis Two
Ho: There
is no significant relationship between the provision of statutory bodies and
auditors independence.
Hi: There
is significant relationship between the provision of statutory bodies and
auditors independence.
Hypothesis Three
Ho: There
is no significant relationship between auditors and appreciating relevance of
audit independence of auditors in private sector organization in Nigeria.
Hi: There
is a significant relationship between auditors and appreciating relevance of
audit independence of auditors in private sector organization in Nigeria.
Hypothesis Four
Ho: There
is no significant relationship between weakness and strength with improvement
on audit dependence to private sector organization in Nigeria.
Hi: There
is a significant relationship between weakness and strength with improvement on
audit dependence to private sector organization in Nigeria.
Hypothesis Five
Ho: There
is no significant relationship between the provision of statutory bodies and
auditor’s independence to private sector organization in Nigeria.
Hi: There
is a significant relationship between the provision of statutory bodies and
auditor’s independence to private sector organization in Nigeria.
1.6
Significance of the Study
This
study aims at evaluating the impact of auditor’s independence on audited report
and gives insight into the effect to the users of such reports. It is also to
assess relevant provision by statutory bodies and standard on auditor’s
independence and ascertain how credible it has been.
1.7
Scope of the Study
This
research focuses on the independence of auditors and its impact on audit report
in accounting and its scope is centered on selected audit firms in the country
using some audit firms in Benin City, Edo state as case study. The study covers the range between
2008 -2013 and the sample size of 30 is used for the population.
1.8
Limitations of the Study
The
limitation of this study was the difficulty in getting relevant journals that is
related to the area of study.
1.9
Definition of Terms
Audit:
it
is a process carried out by suitably qualified auditor where the accounts of
business entities, including limited companies, charities trusts and
professional firms are subjected to scrutiny in such details as will enable the
auditor.
Auditing:
It
is defined as the process by which a competent qualified independent person
accumulates and evaluates evidence about quantifiable information relating to a
specific economic entity for the purpose of ascertaining the compliance with
any relevant statutory obligation.
Auditor:
Is
an auditor as an expert accountant who makes an examination of accounting data
in order to form his opinion as to the reliability of those data.
Independence: This is the independence of the auditors mind in order to
form an objective opinion of the financial statement examined by him without
any direct interference from his client.
True
and fair view: This means accounts prepare in
accordance to the generally accepted accounting principles.
Audit
Report: This is the opinion of the auditor after due
examination of the financial statements. Audit report is a written summary of
the findings of the auditors during their audit work along with their opinion
on such findings. The report may either be the domestic report also called
letter of weakness addresses to owners of the organization (in case of
company’s shareholders).
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