ABSTRACT
The primary
objective of carrying out this research was to have an overview of “The Effect
of Auditing in the development of Nigeria Economy”.
Fifty subjects
were used as the population for the research. This research work has been
logically divided into five chapters.
The first
chapter entails the aims and objective of the study, scope of the study,
statement of research problem, statement of hypothesis and research questions
and definition of terms.
Chapter two
emphasizes on literature review. Under this, opinion of different writers in
journals, magazines and texts in relation to the issues at hand are considered.
Chapter three
will focus on Data Research Methodology which includes Research Design, Data
Collection method, Research problems, Reliability and Validity.
Chapter four is
on Data Analysis and interpretation of data. This covers how the researcher
collected the data recorded and analyzed to put right the issue at hand.
Chapter five
highlights the summary of the researchers, conclusion and recommendation.
TABLE OF CONTENT
Page
Title
Certification i
Dedication ii
Acknowledgement iii
Abstract v
Table of Contents v
CHAPTER ONE
1.0
Introduction 1
1.1
Aims and Objective of the Study 5
1.2
Scope of the Study 6
1.3
Statement of Research Problems 6
1.4
Statement of Hypothesis and Research Question 7
1.5
Definition of Terms 8
CHAPTER TWO
2.1
Review of Relevant Literature 15
2.2
Auditing Defined 17
2.3
The Concept of Independence 19
2.4
Nature of Auditing 22
2.5
The Extent and Objective of Auditing 24
2.5.1 The objectives of Auditing 24
2.6
Qualities and Qualification of Auditing 28
2.6.2 Qualities
Required of an Audit 30
2.7
Legal Responsibility of an Audit 31
2.8
Professional/Ethical Responsibility 34
2.9
Behavioural Aspect 35
2.10
Functional Aspects 36
2.11
Reporting Aspect 36
2.12
Moral Responsibility 37
CHAPTER THREE
3.0 Data
Research Methodology 38
3.1 Research
Design 39
3.2 Data
Collection Method 39
3.3 Population
Plan 39
3.4 Determination
of Sample size 40
3.5 Questionnaire
Design and Assumption 40
3.6 Data
Analysis Method 40
3.7 Research
Problems 41
3.8 Reliability
and Validity 41
CHAPTER FOUR
4.0
Data Analysis and Interpretation 43
4.1
Interpretation of Audit firm Questionnaire 43
4.2
Test of Hypothesis 45
4.3
Interpretation 52
4.4
Decision Rule
52
CHAPTER FIVE
5.1
Summary and Conclusion 53
5.2
Recommendation 55
5.3
Application of Findings 56
References 57
CHAPTER ONE
1.0 INTRODUCTION
Auditing is
derived from a Latin word “Audire” which means “To Hear”. In the olden days,
owners of business used to hear the report of how their business progresses
from the manager of the business. But due to the fact that the primitive ways
of keeping financial records which include making signs on board, keeping
figures off hand without documentation and lack of mechanical aids for
calculation had a lot of problems associated with it.
Also, the
manager may deliberately decide to hide vital information for the owner of the
business or even make fraud. Then the need to employ another worker to act as a
watch dog to the manager arises. The new employee is known as “THE AUDITOR”.
The process by
which the auditor gives the report of the position of the financial statement
of a business in a true and fair manner to the owner of the business is known
as “AUDITING”.
The development
of auditing could be traced to the importance of scrutinizing the financial
statement of an organisation. To that effect, auditing is regarded as one of
the most recently established profession born out of complexity of modern
business world.
However, it can
be traced to an ancient time. Indeed, since men have entered into contractual
relationship with one another, thereby establishing a master-servant
relationship, the quest to ensure the accuracy and reliability of the resulting
information has always existed.
The emergence of
auditing from a historical perspective was necessitated to protect, the
shareholder’s capital investment from dubious promoters. Auditing has been
revolutionary and ethical in nature right from the beginning.
In the Nigerian
perspective, the entire society is so worried about rising waves of theft,
robbery, smuggling, corruption abuse of office, nepotism and deculturisation
which hinder the country’s economic development.
This breakdown
in our society discipline which can be said to have accelerated in the last
decade has now assumed an alarming dimension; in fact, so alarming that the
future destiny of this country is bleak. And if nothing is done to check this ugly
and stupendous shameful trend, then the end product of it will better be
ignored than experienced. The issue of some act of individuals having some idle
funds and some others not being financially buoyant, but have the
technicalities to manage business entities led to the operation of limited
liability company which are owned by their shareholders and managed by
directors appointed by the shareholders.
Similarly,
public corporation and parastatals are owned and managed by the government. In
Nigeria, individuals of course are appointed to occupy various positions and
consequently constitutes the management. But one problem which has always
existed in this master –servant relationship is, the shareholders or owner of
the business being suspicious of the credibility of the reports, tend to have
the feeling of the reports containing some errors which may have occurred
either unintentionally or fraudulently so the apparent solution to this
credibility in both the private and public sectors is to appoint an unbiased
and independent person(s) called “AUDITOR” to investigate the financial report
prevented by the management and express a professional opinion of the
truthfulness of the report to the shareholders or those that appointed him.
Auditing the
public corporation follows the same procedures are auditing any other form of
business. Though public corporation are not profit –oriented organisation,
still there is need to audit their books of account to enable the government to
know how its subvention are being used and how the income generated from some
of the corporation are acted for.
However,
irrespective of the vital position maintained by auditors, some illiterate
members of the society do to see anything good, or the usefulness of auditing.
Therefore, this
project will highlight on the importance, need and effectiveness of auditing
and also enlighten on whosever comes across it about the importance and
objectives of auditing in order to form the reliability and credibility of
financial statement. Thus bringing about a more economically developed Nigeria.
so this project is a token contribution to the work of auditing profession as a
vanguard of ethical revolution in Nigeria.
It sees
financial corruption as a focal point of almost all our ethical problems and as
springboard for all other forms of corruption. Therefore, if a determent can be
found for financial corruption in our society, then the solution to other
problems will follow naturally. The bone of contention on in this write up
therefore is that as an ethical function and with its code of conduct, the
auditing profession is the natural leader in the current national crusade to
reawaken people’s social conscience and to completely eliminate corrupt
tendencies for the development of Nigerian economy.
AIMS AND OBJECTIVES OF THE STUDY
Having a clearly
defined aims and objectives plays a significant role in any research work.
Owing to that, the following are the aims and objectives of this project.
(a)
To assess the effects of auditors in the
development of Nigerian economy;
(b)
To assess the auditors efficiency despite the
legal restriction here and there;
(c)
Functions or roles of auditors – the societal
view point, since it is now obvious that auditors play a very significant role
in the development of the country economy as regards the effective management
of available resources.
(d)
To highlight the significance and
indispensability of auditing and auditors to any economically progressive
aspirant nation;
(e)
To kick against the misconception that auditor
collude with fraudsters to defraud. And that company’s spending on auditors is
a necessary evil thereby wasteful.
1.2 SCOPE
OF THE STUDY
Considering the
vastness of the subject matter of this project, and the limited time and
resources available to carry out this necessary research therefore, this
project will not only focus itself on the objective role of auditors but also
on their effectiveness; and consequently the impact or effect of auditing in
the country’s development.
Also, the role
of an auditor in the investigation when the need arises and representing their
clients in various aspect, and their legal responsibilities in performing their
duties. And finally, what the Nigeria economy need for its development.
1.3 STATEMENT
OF RESEARCH PROBLEM
The importance
of examining the financial statement of an organisation gave rise to early
development of auditing. Meanwhile auditing is regarded as one of the most
recently established profession, which was necessitated by the nature of modern
business world.
Since the
contractual relationship exists between the management and the shareholders,
there has always been the desire to ensure the accuracy and reliability of the
resulting information. And how far the auditors have gone in placing confidence
on the audited financial statement of an organisation is what I intend to
determine in this study.
It has also been
rumoured that a host of auditors collude with the bad eggs of the management
crew to defraud the organisation, which they found themselves. If left for me
to decide, I strongly believe there is no atom of truth in that, but since my
personal opinion is not enough to determine the genuiness of such critical
issue, the determination of he basic answer to such allegation will form a
major part of this study.
1.4
STATEMENT
OF HYPOTHESIS AND RESEARCH QUESTIONS
In this study,
there are certain questions, which a comprehensive answers is required, viz;
Who is an
auditor?
What
necessitated Auditing?
What are the
basic qualifications of an auditor?
What impact has
auditing in an organisation’s financial statement.
Has auditor
played a significant role in checking fraud?
Do auditors
collude with fraudsters?
Are these rules
governing the conduct of auditing?
What are the
effects of auditing in the development of Nigeria economy?
1.5 DEFINITIONS
OF TERMS
The following
are definition of terms relevant in this study.
(1)
AUDITOR
DEFINED
It is a legal requirement that a suitable qualified professional
accountant subject accounts of limited liability comparies to an audit at least
once in a year called be used auditor.
So an audit may be defined as “the independent examination and
investigation of books, accounts and vouchers of a business with a view to
enabling the auditor to report whether the balance sheet and profit and loss
account are property drawn up so as to show a true and fair view of the state
of affairs and the profit and loss of the business according to the best of the
information and explanation obtained by “the auditor”.
It can also be defined as an independent examination of and the expression
of an opinion on the financial statement of an organisation by an appointed
auditor in accordance with its terms of engagement and the observance of
statutory regulations and professional requirement.
(2)
INTERNAL
CONTROL
This refers to a whole system of control, be it financial or otherwise
established by the management in order to carry on the business of an
organisation in an orderly manner; safeguard its assets and secure as far as
possible the accuracy and reliability of its records. It is also established to
ensure the judicious application of the organizational resources.
(3)
INDEPENDENCE
DEFINED
The concept of auditors independence has generated a lot of argument, and
different interpretations have been given to it. As regards this study, the
concept relates to the ‘INDEPENDENCE OF MIND” of the auditor to independently
perform his duties without fear or favour of anybody.
(4)
INTERNAL
AUDITING
This can be defined as an independent appraisal of activity within an
organisation for the review of operation as a service to management. It is a
managerial control which functions by measuring and evaluating the
effectiveness of other controls.
(5)
EXTERNAL
AUDITING
External Auditing could also be referred to as independent auditing. It
is the examination and review of accounts, financial statements and bound of
organisation by an interdependent (external) auditor who will after the review
express a professional opinion on the truth and fairness of the statement
presented to him; and the state of affairs of the organisation. The auditor,
who is an employee of an organisation, is normally appointed for a period of
one year.
(6)
QUALIFICATION
In this context, qualification refers to certain position, which a person
must attain before he could be granted the right to act as an auditor.
As provided by ICAN act of 1965 to be applied in respect any auditing
carried out under the decree this implies that an auditor must be a member of
the INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA (ICAN) with practising
certificate. Consequently, during the period, Nigeria was a colonial state
under the British colony, the promulgated decree was also applicable to Nigeria
which was then their colonial state. However, hardly could one find the work of
auditing carried out by a Nigerian for the company operating in Nigeria. At
that time, almost all the work of auditing were carried out by the colonialist
serving as agent in Nigeria to their superior who were the owners of those
business in Nigeria.
In 1960, when Nigeria got her independence, there was the need and a move
toward an indigenous auditing which was known as “Nigerian Auditing” however
with Nigeria having little knowledge of auditing and accounting practise, the
so-called Nigerian auditing was still under the control of the whites. The
auditing profession, still dominated by the foreigner could not allow Nigerians
to know the profession better. This was in no time notable due to the foreign
auditors repatriating profit from Nigeria to their own country which was the
practise right before a independence in 1960.
Then Nigerian government was called upon to ensure that Nigeria personnel
or auditors were placed on the auditing work by the first civilian government
institution in Nigeria from the years 1960 to 1964. There was no strong body
responsible for the auditing aspect, there was no professional body to work as
a team to protect the needed auditing services until 1965, a move was made by
the Nigeria professional accountants to form an association named “Institute of
Chartered Accountant of Nigeria” (ICAN). This body was however regarded by some
Nigerians as a replicant of institute of Chartered Accountants of England and
Wales (ICAEW).
Finally, the bodies were able to give the qualification of auditors. The
qualification can be of social or professional aspect.
Professionally, before one can be an auditor, you must have passed the
qualified exam as stipulated by ICAN also, you must have had nothing less than
30 months experience as an apprentice under a practicing chartered accountant.
This 30 month, experience includes experience acquired before you qualified and
after the qualification i.e (pre-qualification and post qualification) as a
chartered accountant. Finally you must have been issued with a licence to
practice as an auditor by ICAN.
The social aspects are as follows:
(i) You must be a minor
(ii) You must not be a bankrupt
(iii) An insane person cannot be
an auditor
(7)
TERMS OF
APPOINTMENT: The party appointing an auditor may fix its terms of
appointment. For a statutory audit, the implied terms of appointment is the
expression of audit opinion. The auditor is free to do whatever work he
considers necessary for the formation of opinion. The law in this regard fixes
his duty as the client who appoints him cannot restrict it.
(8)
FINANCIAL
STATEMENT: This contains summarized information of the firm’s financial
affairs. They are the means of presenting the firm’s financial position to
owners, creditors and the general public.
(9)
OPINION: The
auditor opinion usually geared towards saying whether the account shows a “true
and fair view” is one picked out of legislation.
(10)
INTERNAL
AUDIT
(11)
MANAGEMENT
AUDIT: This is an audit approach which involves examination of management
activities in order to ascertain whether the rules and regulations established
by management are being properly followed. This type of audit cannot be easily
carried out by internal auditor. External auditor must be diplomatic, where
this type of audit approach is adopted.
(12)
SYSTEM
AUDIT: This is an audit approach which involves valuation of internal
control system established within the enterprise. The objective of this type of
audit is to enable the auditor to ascertain effectiveness or otherwise of the
internal control system and also to determine whether information generated or
obtained under the system can be relied upon. In practise, system audit are
normally being carried out within the accounting period of a business
enterprise after which a management letter shall be issued stating the weakness
in the system as well as the effect on the enterprise and how the weakness can
be improved upon.
(13)
TRANSACTION
AUDIT: This is also referred to as vouching. It is an audit approach which
involves examination of various transactions carried out by the enterprise
within the period. The objectives of transaction audit is as follows:
(a)
To ascertain the authorization and approval of
the transaction
(b)
To enable the auditor to determine the cost of
the transaction.
(c)
To identify whether the transactions are
complete, accurate and valid.
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