ABSTRACT
In recent times there is an existence auditor expectation gap which has triggered attentions on knowing the actual role cum functions of an auditor. This quest leads to this research which is aimed at ascertaining the impact of legal audit requirements on the auditors performance in Nigeria using Guinness Nigeria PLC. The research formulated the following three specific objectives; determine the impact of audit requirements on the performance of Auditors in Nigeria. Ascertain the influence of unqualified audit report by internal control mechanisms of Firms in Nigeria and ascertain the effect of legal audit requirements on the auditor’s performance. Thus, research questions and research hypotheses were structured in accordance with the specific objectives. In a bid to achieve a meaningful research study work, this research will review related literatures on the impact legal audit requirement on the performance of auditors. Which were sub-divided into three subheadings such conceptual framework, theoretical framework and empirical review. However, in the quest to perfect this research; survey research design was adopted were data was sourced primarily through questionnaire instrument. The questionnaire instrument was used to 92 staff of Guinness NigeriaPLC, Aba, Abia branch of which 65 were completely filled and returned. Thus, the data gathered were analyzed using simple regression. The analysis however made the following findings; That there is a significant relationship between audit requirement and auditor performance in Nigeria, that there is an affirmative effect of unqualified audit report on auditor’s performance in Nigeria and that legal audit requirements has a momentous influence on auditor’s performance in Nigeria. Sequel to the findings and conclusion, the research made the following recommendations that the State legislative arm should ensure that the independence of the internal auditor is guaranteed by a statute, such that he will discharge his duties without fear of any form of molestation or duress, that the present fight ageist corruption in Nigerian should include an assessment of the performance of internal auditors and that This study also points to the fact that auditors are financial performance role models and their inability to satisfy this role expectation will lead to role incompatibility and goal incongruence in a role set.
TABLE OF CONTENTS
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of contents vi
List of table vii
Abstract ix
CHAPTER ONE
INTRODUCTION
1.1
Background to the
Study 1
1.2
Statement to the Problem 3
1.3
Objectives to the Study 3
1.4
Research Questions 4
1.5
Research Hypotheses 4
1.6
Significance to the Study 4
1.7
Scope to the Study 6
1.8
Limitation to the Study 7
1.9
Definition of terms 7
CHAPTER TWO
LITERATURE REVIEW
2.1
Conceptual Framework 9
2.1.1
Concept and Nature of Auditing 10
2.1.2
Classification of Auditing 11
2.1.3
Methods OF Approach to Audit 12
2.1.4
Other Dimension of Auditing12
2.1.5
The legal audit requirements and auditors standards. 14
2.1.6
Auditing standard 15
2.2
Theoretical Framework 17
2.2.1
The theory and practice of auditing filing the creditability gap attest
function and the
auditors report 17
2.2.2
Auditing Standard and Ethics 20
2.2.3
Audit planning and stages in auditing: 22
2.2.4
Appointment, Qualification, Resignation and Removal of Auditors 24
2.3
Empirical Review 30
2.3.1
Auditors Liability to Clients 30
2.3.2
Auditors Liability to His Parties 31
CHAPTER THREE
METHODOLOGY
3.1 Research Design 33
3.2 Area of the Study 33
3.3 Population of the Study 33
3.4 Sample and Sampling Technique 34
3.4.1 Sample Size Determination 34
3.5 Sources of Data Collections 35
3.5 Reliability of
Instrument 35
3.6 Validity of the
Instrument 35
3.7 Method of Data
Analysis 36
3.8 Model Specification 36
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND DISCUSSION
4.1
Data Presentation 37
4.2
Analysis (Test) of Hypotheses 45
4.3 Discussion of
Findings 51
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of
findings 53
5.2
Conclusion 53
5.3
Recommendations 54
REFERENCES
LIST OF TABLE
Table 4.1.1 Distribution and collection Questionnaire 37
TABLE 4.1.2: Characteristics Of The
Respondents 38
TABLE 4.1.3: Determine the impact of audit requirements on the
performance of
Auditors in Nigeria 40
Table
4.1.4: Ascertain the influence of unqualified audit report by internal control
mechanisms
of Firms on auditor’s performance 41
TABLE
4.1.5: Ascertain the effect of legal audit requirements on the auditor’s
performance42
TABLE 4.1.5: Ascertain the effect of
auditor’s performance 44
Table 4.2.1 45
Table
4.2.2 46
Table 4.2.3 46
TABLE
4.2.4 47
TABLE 4.2.5 48
TABLE 4.2.6 48
TABLE
4.2.7 49
TABLE 4.2.8 50
TABLE 4.2.9 50
CHAPTER ONE
INTRODUCTION
1.1 Background to the
Study
Most
businesses are established by the shareholders for profit making and they would
want to know if they are making profit or loss. Since human beings are prone to
errors that could adversely affect the profit. Therefore, there is need to find
a way of checking these errors in the financial statements of organizations
this calls for auditing. Audit plays an important role in developing and
enhancing the global economy and business firms. Auditors express an opinion on
the fairness of financial statements. This is important for the users of
financial statements to gain assurance that the data are being reported, properly
measured, and fairly presented. Auditors must raise their skills in order to
increase the probability to rely more on the auditor’s report and audited
financial statements which are more relevant, unbiased and accurate for the
decision makers.
Auditing
is the independent examination of an expression of opinion on the financial
statements of an enterprise by an appointed auditor in pursuance of that
appointment and in compliance with any relevant statutory obligation. Auditing
is usually carried out by qualified personnel known as auditors who may be
external or internal. These Auditors are the informants that attest to the
effective use of financial resources of companies. Consequently, the auditor’s
opinion directly influences users of financial statement. This may include
internal users e.g. shareholders, but also external users e.g. banks,
suppliers, consumers etc.
According
to Emile Wolf (1997), Business without auditing stifles confidence and auditing
without law is force. Therefore, it is the legal prescriptions and their
consequences on auditing that will form the framework of this research. The
legal Framework presently used in auditing in Nigeria is known as CAMA 1990,
which will be applied and used judiciously. All the regulatory codes of the auditing
profession in Nigeria will be consulted to elucidate the findings of this work.
Therefore, this research implores ways of using audit laws to investigate the
legal unbars and it’s implication on auditing of businesses and finally suggest
ways of improving the practice of auditing in the federal republic of Nigeria.
Auditing
is a safeguard measure since ancient times Loeb and Shamoo (1989) Audits
provide third party assurance to various stakeholders that the subject matter
is free from material misstatement. As a result of an audit, stakeholders may
evaluate and improve the effectiveness of risk management and control etc.
Legal
audit is an appraisal of an organization’s operations to determine its
compliance with the laws and regulations that apply to it. Audit guides the
evaluation process by checking the company’s performance against legal
standards and identifying areas where adherence needs to be stricter. The legal
framework represents all enabling laws (Acts of parliaments and Judicial Pronouncements)
which guide and have an impact on the audit, the auditor and the audit
engagement. The contravention of these laws is actionable in the court of law.
Thus, examples of these laws among others include:Companies and Allied Matters
Act (CAMA) CAPC20LFN2004, Institute of Chartered Accountants of Nigeria Act,
1965, Securities and Exchange regulations, Insurance Act, Independent Corrupt
Practices Commission (ICPC) Act, Economic and Financial Crimes Commission
(EFCC) Act, Financial Regulations (as amended), Civil Service reform Act (as
amended) and Audit Act (as amended)
There
is no superiority in the provisions of these laws; the CAMA being the principal
legal document is the focus of this chapter. It is the law that regulates the
incorporation of companies in Nigeria. These laws and regulations have an
effect on financial statements which varies considerably. These laws and
regulations to which an entity is subject to constitute the legal and
regulatory framework. The provisions of some laws or regulations have a direct
effect on the financial statements in that they determine the reported amounts
and disclosures in an entity’s financial statements. Other laws or regulations
are to be complied with by management or set the provisions under which these
entity is allowed to conduct its business but do not have a direct effect on an
entity’s financial statements. It is responsibility of management, with the
oversight of those charged with governance, to ensure that the entity’s
operations are conducted in accordance with the provisions of the laws and
regulations including compliance with the provisions of laws and regulations
that determine the reported amount and disclosures in an entity’s financial
statements.
Generally,
organizations and the businesses they carry on are governed by law. Failure to
comply with the specific laws of governing a particular organization can
attract penalties or legal liabilities in the form of litigation.
However,
the nature of law is such that it might be difficult for an in-house counsel to
identify all the existing loopholes in the entire departments of an
organization. Moreover, the major
function of an in-house counsel is to proffer solution to legal liabilities
incurred by the organization.
The
function of the in-house counsel more often does not cover the following; the
examination or analysis of the intricacies of the law: the interpretation of
complicated sections of the law with hidden legal implications, the continuous
development of the law in dynamic sectors; the systematic compliance with
provisions of the law and the numerous legal restrictions of the law which can
be used as a tool to hold an organization legally responsible for an action or
omission. Such risks cannot be easily prevented by equipping an organization
with the best in-house counsel or by conducting a financial audit on an
organization. Legal audit on the other hand is quite different from financial
audit but encompasses financial audit by ensuring that financial audits have
been conducted in addition to ensuring that a company has observed the laws and
policies which are applicable to that company.
Therefore,
the above analysis boils down to this question: Is legal audit necessary for
organizations carrying out businesses In Nigeria? This research work examines
the concept of legal audit by tracing the history of audit, it thereafter
examines the meaning of legal audit and how it applies to organizations
carrying on business in Nigeria.
It
also analyses the benefits attached to conducting a legal audit as well as
provides a description of the various types of legal audit.
It
concludes by suggesting legal audit as a means of putting an end to endless
court cases, financial liabilities and available legal liabilities in
organizations.
1.2 Statement to the
Problem
In
this system, we shall examine the situation which exists in the Nigeria
Auditing Scene as the basis for the problem which has been chosen for
investigation. A good number of studies have been carried out on the impact of
legal audit requirement on auditor’s performance in Nigeria. For instance
Obiaks (2018), conducted a study on the impact of legal audit requirement on
the performance of auditors in Nigeria. The need to evaluate the impact of
legal audit requirement on auditors performance in Nigeria had long be
recognized in view of the enormous resources of money and materials utilized by
various sectors of the economy. Specifically, the National Root Crops Research
Institute, Umudike. These resources when judiciously used with respect to the
economy, efficiency, and effectiveness in executing project and services, their
audited financial statements will be reliable. A large number of business
failures in the past were attributed to the inability of financial managers to
properly plan and control its materials and resources which really hindered the
performance of auditors in Nigeria coupled with the increasing cost of running
and carrying an audit exercise. Furthermore, the recent global financial crisis
today has created some loopholes in the application of financial reporting
standard. This is so because a lot of audited reports today do not reflect the
true and fair view of their principal. Audited firms (Auditors) are appointed
today based on personal relationship rather than merit and it is this, that
this study seeks to bridge the gap in the literature review.
1.3 Objectives to the
Study
The
main objective of this study is aimed at assessing the influence of audit
requirements on the auditor’s performance in Nigeria.
Specifically,
the research intend to:
i.
Determine the impact of audit
requirements on the performance of Auditors in Nigeria.
ii.
Ascertain the influence of
unqualified audit report by internal control mechanisms of Firms in Nigeria.
iii.
Ascertain theeffect of legal
audit requirements on the auditor’s performance.
1.4 Research Questions
The
following questions are raised to guide this study:
i.
What is the impact of audit
requirements on the performance of Auditors in Nigeria?
ii.
What is the influence of
unqualified audit report by internal control mechanisms of Firms in Nigeria?
iii.
What is theeffect of legal
audit requirements on the auditor’s performance?
1.5 Research Hypotheses
HO1:
There is no significance impact of audit requirements on the performance of
auditors in Nigeria.
HO2:
Influence of unqualified audit report is not significant on the performance of
auditors in Nigeria.
HO3:
The legal audit requirements in Nigeria have no effect on the auditor’s
performance.
1.7 Significance to the Study
The
Nigeria auditing practice is filled with risk and problems. There are
increasing cases of fraud and misappropriations on the part of directors and
staff of companies, cases of supporting and abetting crimes as well as
professional negligence arising from pressures on auditors to issue unqualified
report. The significance of this study form the needs to avert this worsening
situation especially as there are many parties interested in the report of
auditors.
Shareholders
and third parties who rely on the advice of the auditors will benefit from the
research findings in the following ways;
·
An auditor provides assurance
to shareholders if they are not directors closely involved in the business,
that the figures in the accounts being audited shows a true and fair view.
·
An audit facilitates the
provision of advice that can have real financial benefits for a business,
including how the business is running, what margins can be expected and how
these can be achieved.
·
An audit will enhance the
credibility and reliability of the figures being submitted to prospective
purchasers.
·
An audit assures directors not
involved in the accounting functions on a day-to-day basis that the business is
running in accordance with the information they are receiving and helps to
reduce the scope for fraud.
·
An audit helps to identify
weaknesses in the accounting systems and enable us to suggest improvements.
This
research work tends to find ways of protecting themselves from the large wave
of current litigations arising from numerous liabilities placed on them by the
shareholders or third parties measures will be prescribed to guide against
these problems.
Shareholders
and the investing public are in some occasion disgruntled with the auditor’s
certification as emotions and sentiments Interferes with objectivity and sound
judgments to the truth and fairness of the financial statements which the
auditors are appointed to examine. Shareholders and third parties who rely on
the advice of the auditions will benefit from the findings of this study.
Government agencies that have interest in the audited accounts of various
companies for various reasons including taxation and lawmakers whose interest
is in the area of legal audit prescription will also have relevance to this
research project.
1.7 Scope to the Study
This research focuses on the the
influence of audit requirements on the auditor’s performance in Nigeria. Thus, anything outside audit requirements and audit performance
will not form the content of this work. However, the scope of this work is
restricted to Guinness Nigeria PLClocated in Aba,
Abia State.
1.8 Limitation to the
Study
In
this research study we are going to look at the constraints involved in this
work. They include:
Time: Time
management when used right acts as a bridge towards more refined and better
research findings on this study. The duration of time given for this work was
short and relatively not enough to carry out this research work properly.
Cost: This
research would have extended the survey to other areas, but there are
limitations encountered which include cost of transportation to source for
materials, relevant documents and vital information which would aid in carrying
out this research without much stress.
Lack of materials: Materials
needed such as Journals, Magazines, Textbooks are insufficient. Not just that
but online materials been sourced for most times through the internet doesn’t
have the exact information we are looking for. Most of them are filled with
errors which must be corrected.
Lack of adequate
concentration:The researcher being a student don’t
have enough time to carry this research smoothly because the student involved
has other courses to read for, as well as attend to lectures within the same
period. Therefore, the student lacks adequate concentration and this may lead
to poor performance when carrying out the research.
1.9 Definition of terms
This
provides the contracting meaning of certain terms used in the study.
Legal:
This means in accordance with or authorities by law.
Audit:
Independent examination and expression of opinion on the validity and deepened
ability of financial statements prepared by managements.
Legal audit requirements:
The provision of the law that guide the conduct of audit.
Auditors:
The accountant who performs the audit work/ professional accountant.
Shareholders: The
investing public who own shares in a company.
client:
A customer to the auditor the business entity which employed the service of the
auditors.
Third party:
A person or an institution who has financial interest in and out no contractual
relationship with the business.
Contract:
An agreement between two or more person which has legal backing and
connotation.
Financial Statement and
Account: All the financial accounting records used
by a business entity.
Limited Company:
A body establishment by law in public companies composed of non-executive
directors and auditors for the purpose of reviewing the financial statements
and audit findings recommendation of auditors and appointment and remuneration
of auditors and performing other possible related functions.
Negligence:
A commission or omission in the performance of an act arising out of
carelessness which a reasonable and prudent man in the circumstance would have
avoided.
Compliance Test:
Those that which seek to provide audit evidence that the internal control
procedure are being applied as prescribed.
Substantive Test:
Those tests of transactions and balance and other procedure such an analytical
review which seeks to provide audit evidence as to the completeness, accuracy
and validity of the information contained in the accounting records or in the
financial statement.
Audit Risk:
This is the chance of causing damage to an audit firm as a result of giving a
wrong opinion under a circumstance.
Tort:
An act which causes harm to a determinate person. It is a breach of duty
arising out of a person relation or contact and which is either contrary to the
law or an omission of a specific legal duty or violation of an absolute right.
Internal Check:
The allocation of authority and work in such a manner as to afford checks on
the routine transaction of today work by means of the work of one person’s
being prove independently by another of the work of a person being
complementary to that of another.
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