ABSTRACT
This research work is aimed at
identifying the importance of statutory audit to management control.
Statutory audits made mandatory by
legislations for business organisation.
These legislations include the CAMA 1990 (Company and Allied Matters
Act) BOFID 1991 (Bank and Other Financial Institutions Decree).
Chapter one contains an introduction of
the topic in relation to manufacturing companies, which goes through process to
the products of their organisation. It
further stretches across various research heating of chapter one. Such as objective of the study, delimitation,
research questions, hypothesis and definition of terms.
Chapter two basically in details
discussed literature review; a check into other materials written by experts
concerning the selected topic.
The third chapter examines the methods
used in acquiring and collecting data which were used in the overall writing of
the project.
Chapter four contains the presentation
and analysis of data collected from the various manufacturing companies used
for the research work.
The last chapter contains various
recommendations and conclusions.
TABLE OF CONTENTS
Pages
Title
Page i
Certification ii
Dedication iii
Acknowledgement
iv
Abstract
vi
Table
of Content
CHAPTER ONE
1.1
Introduction 1
1.2
Definition 4
1.3
Objective of Statutory Auditor 5
1.4
Users and Uses of Statutory Audit 7
1.5
Concepts and Conventions 9
1.6
Research Questions 12
1.7
Objective of study 13
1.8
Methodology 14
1.9
Definition of terms 14
CHAPTER TWO
LITERATURE
REVIEW
2.1
Audit Classification 16
2.1.1Classification
According to nature of work done 16
2.1.2Classification
by method of approach. 18
2.2
The Accountant VS Auditor 20
2.3 Statutory Auditors Independence 21
2.3.1 Provision
of Company And Allied Matters Act Ensuring Auditors independence 23
2.3.2 Rules
of professional conduct fostering auditor Independence 24
2.4 Legal Framework of statutory Audit 25
2.4.1 Auditor’s
Qualification 25
2.4.2 Appointment
of Auditors 26
2.4.3 Auditor’s
Duties 27
2.4.4 Rights
of Auditors 28
2.4.5 Auditor’s
Remuneration 29
2.4.6 Removal
of Auditors 29
2.4.7 Resignation
of Auditors 30
2.4.8 Liabilities
of Auditors 31
2.5 Audit Reports 34
2.5.1 Types
of Audit Opinion 34
2.6 Audit in a computer Environment 37
CHAPTER THREE
3.1
Research Methodology 38
3.2
Research Designs 38
3.3
Data Collection Method 38
3.3.1Data (Primary
& Secondary) 39
3.4
Research Instrument 40
3.5
Questionnaire Assumption, Design,
Administration 42
3.6
Definition and size of the population 43
3.7
Sample Size 43
3.8
Data treatment And Presentation 43
CHAPTER FOUR
4.1
Introduction 45
4.2
Tabulation of Questionnaire 45
4.3
Hypothesis Testing 53
4.4
Solution To Research Questions 55
CHAPTER FIVE
SUMMARY,
CONCLUSION AND RECOMMENDATION
5.1 Summary Of Findings, Recommendation
And Conclusions 58
5.2 Summary of Findings 58
5.3 Conclusions 59
5.4 Recommendations 59
BIBLIOGRAPHY 61
QUESTIONNAIRES 63
CHAPTER ONE
1.1 INTRODUCTION
Nobody
knows why the jinx has subsisted for so long? Sole and adequate management of
capital has been impracticable for the owners of capital resources. For very obvious reasons capital owners
require others to help in the management of such capital resources and this
gives rise to the polarization of business.
These brings about the ownership management relationship such as:
-
Master and servant
-
Master and Apprentice
-
Landlord and peasant/tenant
-
Entrepreneur and management
-
Some others
In
early days when businesses were handled solely by the owners who took all the
risks and consequently the reward. There
was no apparent need to involve third party to scrutinize the financial
operation of such enterprises.
Modern
day development in business has necessitated separation of ownership from
management and the use of borrowed funds for business. These has led to the appointment of unbiased,
skillful and professional examiner who scrutinize the account of organisations. It is a legal requirement that account of
limited liability companies be subjected to an audit of at least once a year.
This
form of business relationship naturally give rise to the need for stewardship
accounting. The master often suspicious
of the servant and as a result of the communication gap that exist require the
servant to render its account of stewardship and when required to do so.
The
joint stock company Act 1844 united kingdom
was the first enactment to require all incorporated companies to have their
annual financial statement audited. The
appointed auditors was required by this account to examine and report on the
financial statement presented by the company to its shareholders. The act did not require that the auditors
should be independent of companies management nor that he had to be
professional accountant.
In
most cases, it appears to have been a non accountant elected by the
shareholders from their own body, for in those days professional accountant
were few and far within reach.
The
1888 Act is considered the most crucial of all acts relating to auditing and
the decisions are not far fetched. The
Act define the attributing qualification of the auditor. This set the stage for philosophy of auditing
requiring the auditor to be independent, to act with integrity, to put himself
away from position of conflicts by not auditing the account. It allows not being a member of the
management nor the shareholders, act impracticably between the two etc.
The
1888 Act however, did not require the auditors to be professionally qualified ,it
was the United Kingdom
act of 1948 that first stipulated professional qualification for the auditor
and went further to mentioning the Accounting bodies whose member could
practice as auditor in UK.
THE NIGERIAN SCENE
The
Nigerian scene is governed by the Nigerian company Act 1968 and stipulated that
only members of the Institute of Chartered Accountant of Nigeria (ICAN) could
act as auditors in Nigeria. The company and Allied Mater Decree (CAMD
1990) upheld this, Added a clause that member of any other accounting body
recognize federal military government afforded recognition to association of
National Accountants of Nigeria (ANAN) which by invitation of this clause can
also licence it’s members to act as auditors.
1.2 DEFINITION
An
audit may therefore be defined as an independent examination of and the
expression of an opinion on the financial statement of an enterprise by an
appointed auditor in accordance with its terms of engagement and compliance of
with the statutory provision and provisional requirement. This led to the definition of statutory audit
which is defined as the audit carried out into a business affair compulsorily as
required under the provision of the act.
Laws requiring the fulfillment of an audit includes CAMD 1990, Insurance
Decree 1991, BOFID 91 (BANKS AND OTHER FINANCIAL INSTITUTION DECREE) and
Central Bank of Nigeria’s
Decree 91.
1.3 OBJECTIVES OF AUDITORS (STATUTORY
AUDIT)
From
preceeding obvious facts, it is clear that the objectives of auditing is to
carry out an impartial, objective examination, testing, review and reporting on
the validity and reliability of an entity’s financial statements to the
shareholders.
In
performance of this task, the auditor will be expected to exert all the skills
and case at his disposal as he will be fully responsible to the shareholders
for any lapses ordering on professional negligence. The auditor responsibilities also extends to
the third party who he foresaw on ought to have foreseen that would rely on his
audit report. Yet, this is not to imply
that the auditors should be held to ransom for irregularities not detected by
him. The auditors responsibility begins
and ends with the expression of opinion on the truthfulness and fairness of the
account presented to him. If there are
errors in the accounts and which did not come to his notice he will not be held
responsible as long as be acted with a reasonable level of care and autumn
supportable verifiable by sufficient audit evidence compiled by him. The auditor is therefore neither a witch nor
a blood bound. This is not to say that
the auditor should go to sleep complacently on this decision, for although the
directors are entirely responsible for the setting up of adequate internal
controls in the system, yet it is the auditors duty to examine the adequacy and
otherwise and report his finding thereon to the directors in his report. Otherwise, his failure to ascertain the level
of the internal control on the system may hold him negligent.
This
frightening situation where the auditor can be held responsible for certain
irregularities which he did not detect has become a strange bed fellow which
auditor had been trying to get rid of.
With cognizance to the series of the development in the late sixties
which shook the root of the auditing and accounting profession. The objective of the statutory auditor
contain the primary and secondary or subsidiary objective.
The
secondary objective is borne by the primary.
The primary objective is to present a report which make explicit the
opinion on both the truthfulness and fairness of the financial statement. This is to serve as guide to all those who utilize
and would utilize such report.
The
subsidiary objective has to do with the detection of errors and fraud by the
deterrent and moral effect of the audit.
Also auditor give more assistant on the accounting system, taxation and
other areas.
1.4 USERS AND USES OF THE STATUTORY AUDIT
Shareholders as owners of the business are
interested in the audited financial statement.
This is to ascertain facts on the level of profitability as a relation
with management policies. And the
relationship between dividend paid, bonus shares issued and the actual profit
earned.
Management
as the operator of business require financial statement for the purpose of
performance with cognizance to deducing efficiency level through the auditor’s
opinion.
Employees
will be eager to obtain a copy of the audited financial statement to determine organisation’s
ability to pay benefits. Employees of
manufacturing companies could deduce the amount devoted to insurance as against
accident encounterable during operations in the manufacturing process.
Potential
investors require the audited financial statement for ascertaining
profitability and liability of the business in question.
Creditors
(both corporate and individuals) require the financial statement of an
organisation to check ability to meet debt obligations.
Government
utilize the audited financial statement for the purpose of assessing a company
to tax. The process of denoting amount payable
as tax is based on the audited financial statement.
Finally
everyone in the corporate world can be said to be users of the financial
statement. Financial advisers investment
analyst, financial journalist, labour bodies, trade unions, international
organisations and the entire business environ use the financial statement for the
satisfaction of various personal and corporate requirements.
1.5 CONCEPTS
AND CONVENTIONS
There
are basic assumption which form the basis for the preparation of the audited
financial statement. They can be
regarded as the rules and regulations governing the way audit, analysis and
interpretation of audit statement is done.
These
includes:
The cost concept:- This
implies that assets are normally shown at cost price and that this is basis for
assessing the future usage.
The money measurement:- This
principle connote that accounting is strictly concern with that parts of the
business whose monetary value can be ascertained for instance, the dedication
or lack of co-operation of workers in a manufacturing organisation has no
monetary value, hence it cannot be covered by accounting on has no accounting
recognition.
Stable Monetary Concept:- Auditing
does not consider the effect of inflation in order words it assumes perpetual
stability of monetary value.
The going concern concept:- Auditing
assumes that once a business has been established, it will continue to operate
indefinitely. But, it will be necessary
to show how much an asset is going to fetch, if the business is to be sold.
Business Entity Concept:- This
concept states the fact that auditing records are limited to the firm on the
business organisation and do not extend to the personal resources of the
proprietors. This implies that the
business is a separate entity while the owners of the business are separate
entities.
Realisation concept:- This
concept explain the fact that once goods and / or services has been passed to
the customer and he incure liability for them, then profit is regarded to been
earned. Simply put, accounting should be
considered valid as soon as hygiene incure liability for goods.
The Dual Aspect Concept:- This
state that there are two are two aspects of accounting. One represented by assets and claims against
them. The concept states that the two
aspect the two aspect one always equal to each other.
Amongst
the concept used in statutory audit are the accrual concept, periodicity
etc. Concerning the conventions, these
are mediators used to resolve conflict that arise in the application of a
recording concept or simply put, auditing and accounting convention are general
approach to the application of accounting and auditing principles. The convention include:
Materiality:- The
concept of materiality states that any disclosure, omission in the audit will
distort of the audited financial statement.
The concept of materiality include:
-
Description and questions of analysis
-
Statute used
-
The presentation
Fairness:- This
states that auditor should bear in mind that there are various users of audited
statements hence they should not be prepared in favour of some users in
detriment to the other users. The
convention by far is the most supreme of all the conventions.
Conservation of Prudency:- This
convention means auditors should not anticipate profit but losses should be
recognize and divided against awareness.
Substance Overflow:- Although
financial participation are recorded in accordance with legality. But a situation in which this does not
reflect the truth and fair position of an enterprise. Auditing should allow financial reality to prevail
over legality.
1.6 RESEARCH QUESTIONS
In
order for the study’s objective to be achieved, certain questions need to be
answered. These answers will provide the
much needed information for the research and will also assist in making
recommendations and drawing conclusions.
Such
research question include the following:
1.
How efficient is the organisation’s
system of statutory audit?
2.
What is the firm’s policy in relation to
the type of audit adopted?
3.
What is the organisation’s approach to
the measurement of actual activity levels.
4.
How competent and qualified are the
staff and internal auditors saddled with the task of auditing the financial
statement?
5.
In what way has the audited statement
been beneficial to the organisation.
1.7 OBJECTIVES OF THE STUDY
This
project work has been embarked upon to find out the following.
i.
The study of the ways and manner of how
statutory audit is applied.
ii.
The extent to which statutory audit is
applied in the manufacturing sector in solving and Improving the operation and
other related problems like survival, growth and profitability.
iii.
The effect of statutory audit on the
employees, employer and changes brought about by these types and suggestions
and/or recommendation for future improvement.
1.8 METHODOLOGY
This
is concern with the research approach used in the work. It shows the research design, instrument, the
method of investigation and how the work was carried out. It also shows the treatment of data. The use of questionnaire is preferable.
1.9 DEFINITION OF TERMS
i.
Blood
hound- A perfect detector of mysteries.
ii.
Enactment:-
The
process of law becoming officially useful.
iii.
Irregularities:-
Events
that are abnormal occurrence.
iv.
Philosophy:-
System
of beliefs.
v.
Scrutunise:-
To
look critical into an item.
vi.
Stewardship:-
The
act of managing an organisation
vii.
Perpetual:
Continuous
action.
viii.
Recommendation:-
An
official suggestion about the best action to take.
ix.
Investigation:-
An
official examination about fact about a situation.
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