ABSTRACT
The study was carried out to ascertain the effect of auditors on the performance of commercial banks in Nigeria. The specific objectives were to examine the effect of audit report on return on asset of banks in Nigeria and determine the effect of audit report on return on equity. The study adopted ex post facto and survey research design because the data for the study involved secondary data while sampling techniques adopted for this study was based on judgmental sampling technique. Multiple regression technique and relevant parameters students’ t-test was used to test and analyze the hypothesis. Findings of the study reviewed that audit report has a significant effect on return on assets of banks in Nigeria; audit report has a significant effect on return on assets of banks in Nigeria. Also there was a very high relationship between audit report and the various dependent variables that is Return on Asset (ROA) and Return on Equity (ROE). The study concluded that investors are influenced by the contents of the audited financial statement in their investment decisions; therefore it can be deduced that in order to make appropriate investment decision the interested parties in financial statement must have an in-depth understanding of the financial performance of the banks. The study recommended that banks should have more control measures to prevent fraud, management should provide training and staff development programs and staff should be adequately motivated for performance
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Content vii
List of Tables x
Abstract ix
CHAPTER
ONE
INTRODUCTION
1.1
Background of the Study 1
1.2 Statement
of the problem 3
1.3 Objectives
of the study 4
1.4 Research Questions 4
1.5 Research
hypotheses 4
1.6 Scope of
the Study 5
1.7 Significance of the Study 5
1.8 Definition
of Terms 5
CHAPTER TWO
LITERATURE REVIEW
2.1 Conceptual Framework 7
2.1.1 Auditing and Auditors 7
2.1.1.1 Definition of an Auditor 7
2.1.1.2 Objective of an audit 7
2.1.1.3 The role of
auditing/auditors in an organization 9
2.1.1.4 Auditing
functions on corporate performance of banking activities 10
2.1.2 Organisational and firm
performance 11
2.1.3 Relationship between Auditing Activities and
Performance 14
2.1.3.1 Return on Capital 15
2.1.3.2 Return on Assets (ROA) 16
2.1.3.3 Return on equity (ROE) 17
2.1.3.4 Net Profit Margin 18
2.2 Theoretical Framework 19
2.2.1 The agency theory (Jensen and
Meckling, 1976) 19
2.2.2 Signaling Theory (Jensen,
1986) 20
2.3 Empirical
Framework 21
2.4 Gap in Literatures 26
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.1 Research
Design 27
3.2 Area
of the Study 27
3.3 Population
of Study 27
3.4 Sampling
Techniques and Size 29
3.4 Method of Data
collection 29
3.6 Method
of Data Analysis 29
3.7 Model
Specification 29
CHAPTER FOUR
DATA PRESENTATION,
ANALYSIS AND DISCUSSION OF FINDINGS
4.1 Data
presentation 31
4.2 Data analysis 34
4.3 Test of hypotheses 35
4.4 Discussion of findings 35
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 37
5.2 Conclusion 37
5.3 Recommendations 37
REFERENCES
LIST OF TABLES
Table 1: List of Registered Banks in Nigeria 28
Table 4.1: Major variables for the year 2014 to 2018 31
Table 4.2: Regression
results between audit report and return on asset 32
Table 4.3: Regression
results between audit report and return on equity 33
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Auditing functions are
seen as powerful tool that could aid corporate performance in any given firm.
It is evident that corporate accountability is dependent on audit control and
management. Auditing as an independent, objective assurance and consulting
activity is designed and to add value and improve operations and performance at
large, which directly helps the bank to accomplish its unique objectives by
bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes (IIA, 2017).
Therefore, Nigerian banks form the chief cornerstone of the country’s financial
system, and indeed of the economy of a nation, therefore regular auditing
functions should be carried out to ascertain achieved goals and missing ones. In
fact, the relevance of auditing cannot be under-estimated, this is because
auditing function is at the heart of banking; any organization and this is
evident by the fact that all other departments in any given financial
institution are linked with the internal audit department or internal control
depending on the nomenclature.
However, auditing plays an
important role in maintaining an efficient working environment, and independent
quality audit underpins confidence in the credibility and integrity of
organizational performance which is essential for well-functioning organizations
and enhance organizational performance (Musa & Shehu, 2014). In societies
marked by divisions of expert labour, auditing is promoted as a trust
engendering technology with the capacity to promote a certain kind of social
order (Power, 2009). Accountants, as auditors, have cemented their status and
privileges on the basis of claims that their expertise enables them to mediate
uncertainty and construct independent, objective, true and fair view on accounts
of corporate affairs (Sikka, 2016).
However, the effects of
auditors in promoting banking operations cannot be over-emphasized, this is
because auditors are generally seen as essential for the proper functioning of
financial and capital markets, provision of opinions on accounting information,
which contributes to the creation of business environments that are characterized
by greater trust and credibility (Newman, Patterson, & Smith, 2015; Ojo,
2018). The societal role of auditors should be a key contribution to
organizational performance, in terms of reducing the risks of significant
misstatements and by ensuring that the financial statements are elaborated
according to preset rules and regulations (Heil, 2012). Auditors also act as
intermediaries for financial information between the company and users of
accounting information. In addition to helping economic agents in these
markets, auditors also contributes to the actions of oversight bodies, particularly
in more regulated sectors such as banking, the work of auditors complements the
actions of supervisors, thereby helping to build the perception of the
financial system’s reliability and soundness. According to Lav (2014); Okafor and Ibadin (2016), auditors
provide recommendations for improvement in those areas where opportunities or
deficiencies are identified and they play a pivotal role in enhancing corporate
performance in organizations (Lav, 2014; Okafor and Ibadin, 2016).
Nevertheless, financial performance of organizations like
bank may be calculated from return on investment perspective, and measured by
several indicators which include return on asset (ROA), return on equity (ROE),
and return on investment (ROI) (Mohd, 2013; Omar, 2013; Sim Chia Hua, 2016).
In the words of Olaoye and
Dada (2017), auditors are charged with various tasks such as prevention, risk
assessment and detection of misstatements
arising from fraud or error which are material to the financial statements.
Babtunde (2016) cited that auditors report fraud detected to those saddled with
entity governance on time; charged with the governance of the entity any other
matter related to fraud (Awe, 2015; Oladipupo, 2015 and Babatunde, 2012): to
detect/expose errors and fraud; to prevent errors and fraud; and to help the
client to improve upon accounting and internal control systems. According to
Ion-Bogdan (2004), financial audit addresses questions regarding accounting and
the propriety of financial transactions; compliance audit determines the level
of adherence to legal constraints, policies and procedures. Therefore, it
becomes pertinent to ascertain the various effect of auditors and auditing
activities on the performance of commercial banks in Nigeria. It is on this
basis that this study is embarked upon to ascertain the various effects of
auditors on performance of commercial banks.
1.2 Statement
of the problem
The spate of audit failures in the world has brought a
great deal of disappointment to investors and other corporate financial
reporting stakeholders. Longevity of audit firm tenure has also been linked
with fraudulent financial reporting. Neverthless, the bank credit scam in
Nigeria despite the introduction of audit committees brought to the fore the
inherent weakness of audit committees and the motivation for a clearer
understanding of audit committee’s efficacy. The scam also provided at least
evidence to support concerns about the adequacies of monitoring provided by
audit committees and provided the concerns that have been expressed on whether
audit committees are functioning to maximize shareholders‟ value or increase
corporate performance. Furthermore, banks default and distress have hampered
their performance significantly and diminished investors‟ confidence in the
banks, thereby casting doubt as to the efficacy of the audit committee
functions.
There are divergent views on the relationship between
Audit Committees and performance. Some of the arguments support the link
between Corporate Governance and performance while others see no link between
Corporate Governance and performance. There is a skew in approach and method on
study relating to Audit Committees and the studies are mostly concentrated on
studies conducted in advanced countries with more matured financial systems
compared to the developing countries like Nigeria. Even though there are some
studies related to developing countries, little or no evidence exist to the
best of the researcher’s knowledge on the extent of the relationship of Audit
Committees as a corporate governance framework and corporate performance. The
research results on Audit Committees produced a mixed grill and inconclusive
findings thereby providing a ground to evaluate the link between audit
committee and Deposit Money Banks performance in Nigeria. Therefore, this
research study is poised to ascertain the effect of auditors on the performance
of commercial banks in Nigeria.
1.3 Objectives
of the study
The general objective of this study is to ascertain the effect
of auditors on the performance of commercial banks in Nigeria. The specific
objectives include to:
i)
To examine
the effect of audit report on return on asset of banks in Nigeria
ii)
To
determine the effect of audit report on return on equity.
1.4 Research Questions
The
following research questions will guide the findings of the study
i)
To what
extent does audit report affects the return on asset of banks in Nigeria,
ii)
To what
extent does audit report affects the return on equity of banks in Nigeria.
1.5
Research hypotheses
The research hypotheses for the study stated in null form are:
i)
Audit
report has no significant effect on return on asset of banks in Nigeria,
ii)
Audit
report has no significant effect on return on equity of banks in Nigeria.
1.6 Scope
of the Study
In the process of carrying out this research,
the researcher will be restricted to First Bank Nigeria Plc.
1.7 Significance of the Study
The findings of this work titled “The Effect
of Auditors on the Performance of Commercial Banks in Nigeria” will assist the
banking sector in minimizing loss, misappropriation of fund and mismanagement
of resources towards boosting the economic growth of this great country. This
may provide critical information to the various stakeholders in the corporate
world.
To the management; this study will help
management to appreciate the role played by internal auditing function in their
organizations and understand the challenges they face in carrying out their
roles and help solve them. It may enable them to know whether their investment
in strong Internal Audit Division (IAD) is worthwhile.
To the internal auditors;
the internal auditors may understand their role in organisations and the
challenges they will face as they carry out these roles.
To the academics; the
study contributes significantly to the internal auditing debate.
To the investors; the
study will help investors to understand the importance of having an internal
audit function in an organization in general before investing in it.
1.8 Definition
of Terms
The following terms are defined in the
contexts which are used in this research work:
a) Auditing: Auditing is a branch of accounting concerned with the
efficient use of resources to achieve a previously determined objective or set
of objectives contained in a plan.
b) Auditor: According to Awe (2015), Oladipupo (2015) and Babatunde
(2012), an auditor is an independent person appointed by the shareholders to
examine the records and financial statements of an organization for the purpose
of forming an opinion on the accuracy and correctness of the financial
statements. When planning and performing audit procedures and in evaluating and
reporting the results thereof, the auditors should consider the risk of
material misstatements in the financial statements, including those resulting
from fraud or error.
c) Banks: A bank is a financial institution licensed to receive deposits and make
loans. Banks may also provide financial services, such as wealth management,
currency exchange, and safe deposit boxes. There are two types of banks:
commercial/retail banks and investment banks. In most countries, banks are
regulated by the national government or central bank.
d) Banking: Banking is the business activity of accepting and safeguarding money
owned by other individuals and entities, and then lending out this money in order to
earn a profit.
e)
Performance: Performance as to do with the competence of
carrying out a task.
f) Organizational Performance: Organisational
performance comprises the actual output or results of an organisation as
measured against its intended outputs (or goals and objectives).
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