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Product Category: Projects

Product Code: 00004506

No of Pages: 88

No of Chapters: 5

File Format: Microsoft Word

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The auditor’s independence is a corner stone of the auditing profession, a crucial element in the statutory corporate process and a key prerequisite for the adding of values to audited financial statements. Corporate performance is an important concept that relates to the way and manner in which financial resources available to an organization are judiciously used to achieve the overall corporate objective of an organization. The main objective of this study is to examine the impact of auditor’s independence and corporate performance. Also, the study determines the relationship between audit tenure and non audit services, and how corporate performance is measured. The primary source of data which comprise of questionnaire and personal interview were used in the study and it was found that the provision of non audit service has a significant impact on auditor’s independence in Nigeria. The study concludes that auditors independence may be threatened when an auditor provide non audit services to their clients. Based on the findings, it was recommended that legislative policies should aim at disclosing valuable information such as audit and non audit services fees.






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 Problem                                                               4

1.3             Research Questions                                                                             5

1.4             Objective of the Study                                                              6

1.5             Statement of Hypothesis(es)                                                      7

1.6             Significance of the Study                                                                    7

1.7             Scope of the Study                                                                    8

1.8             Limitations of the Study                                                           8

1.9             Definition of Terms                                                                            9


Chapter Two: Review of Related Literature        

2.1     Introduction                                                                                       12

2.2     Expectation Gap                                                                       18

2.3     Independence in fact and Appearance                                        19

2.4     Factors affection Independence of the Auditor                           22

2.5     Non-audit services (NAS)                                                          23

2.6     Management Advisory System (MAS)                                                 28

2.7             Empirical Evidence of Reaction to Non Audit Services               30

2.8     Impact of Culture on Performance                                             36

2.9     Corporate Performance                                                              37

2.10   What is Performance?                                                               40

2.11   Rationality Behind Balances Scorecard                                                40

2.12 Internal Mechanisms for Good Governance                                  43

2.12.1 External Mechanisms for Good Governance                              44

2.13   Professional Ethics                                                                              46

2.14   Ethical Consideration of Auditor Independence                         47


Chapter Three: Research Method and Design                         49

3.1             Introduction                                                                             49

3.2             Research Design                                                                       49

3.3             Description of Population of the Study                                                50

3.4             Sample Size                                                                              50

3.5             Sampling Techniques                                                                50

3.6             Sources of Data Collection                                                        50

3.7             Method of Data Presentation                                                     52

3.8             Method of Data Analysis                                                                     52


Chapter Four: Data Presentation, Analysis and Interpretation 54

4.1     Introduction                                                                                       54

4.2     Presentation of Data                                                                 54

4.3     Data Analysis                                                                           54

4.4     Hypothesis Testing                                                                             66


Chapter Five: Summary of Findings, Conclusion and Recommendations                                                  

5.1     Introduction                                                                             72

5.2     Summary of Findings                                                                72

5.3     Conclusion                                                                               72

5.4     Recommendations                                                                              73

References                                                                               75

Appendix I                                                                               80

Appendix II                                                                              81



1.1     Background of the study

The auditor’ independence is a cornerstone of the auditing profession. A crucial element in the statutory corporate reporting process and a key prerequisite for the adding of value to an audited financial statement (Mautz & Sharaf, 2009). In a general sense, auditor’s independence has borne a relationship to the prevailing commercial environment in different time periods. Independence is a state of mind characterized by objectivity, and integrity in the part of the auditors. It implies the performance of auditors work without being and avoiding undue influence.

Corporate performance is the final result of all activities. In evaluating performance, the emphasis is no assessing the current behavior of the organization in respect of its efficiency and effectiveness. Corporate performance is an important concept that relates to the way and manner in which financial resources available to an organization are judiciously used to achieve the over all corporate objectives of an organization, it keep the organization in business and creates a greater prospect for future opportunities.

According to Ojo (2009), the provision of non audit services by audit firm does not necessarily influence the independence of auditors as other writers have said. However, where the fees generated from such non audit service are considerably high (in proportion to the audit fees earned by such accounting firms) and insufficient safeguards operates to protect the auditors independence, this create a situation whereby the auditors independence is likely to be compromised since the auditors may be denied incentive contracts (in the from of fees generated from NAS) where he decides to give a give a qualified opinion on the financial being audited.

There are number of performance measurement tools. Which could be clubbed into two broad groups like (a) Traditional measures (b) Nontraditional measures. Traditional measure which indicate the financial strength, weakness, opportunities and threats are Return on investment (ROI), Residual income (RI) etc but it is found that some users of financial statement are interested on non financial performance of the corporate bodies besides financial performance. In some cases some nontraditional measurement tools are to be used like Economic Value Added, Balanced Scorecard etc.

To measure over all corporate performance, goals are set for each of these perspectives and then specific measures for achieving such goals are determined, each of these perspectives is critical and must be considered simultaneously to achieve overall efficiency and effectiveness and to succeed in the long run. If any area is either overemphasized or underemphasized, performance evaluation by the auditors will become unbalanced, in this way, the aim of the concept is to establish a set of measure – both financial and non financial through which a company can control its activities and balance various measures to effectively track performance.

Traditionally, performance measurement system measures the tangible and financial assets but an organization has to measure and respond to intangible assets of value to the substantial effect on the bottom line.

The provision of CAMA (2004) which are appointment provision, disqualification provision, removal provision etc and the rules of professional either like auditors not having financial involvement in the affairs of their client, normal procedures to be followed before accepting any new audit assignment. Auditors should not put his/herself in a situation that will lead to conflict of interest etc are laid to ensure auditors independence. The familiarity developed from lengthy auditors’ tenure, personal relationships built through alumni employees have been alleged to contribute to this erosion of auditors’ independence and corporate performance (Freeka & Solomon, 2008). The consulting nature of non audit service also puts auditors in managerial roles, potentially threatening the objectivity about the transaction and account balance that they audit (Defond, Raghunandan & Subramanian, 2002). In recant time, a great deal of attention has been given to the importance of organization culture. This is because the importance of culture to any group of people. Society, country and business organization cannot be over emphasized. Organization culture comprises the attitudes. Experience, beliefs and values of an organization.

Black (2003) defined organization culture as a specific collection of values and norms that shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organization. Organization values are beliefs and ideas about what kind of goals members of an organization should pursue and ideas about the appropriate kind or standards of behavior organizational members should use to achieve these goals.

1.2     Statement of Problem

Auditors’ independence is one of the most important issues in accounting practice today. Independence increases the effectiveness of the audit by providing assurance that the auditor will plan and execute the audit objectively. Because of the importance of auditors’ independence to audit quality performance in an organization, the security and exchange commission (SEC) has engaged in substantial rule making in this area without a conceptual framework. In the wake of the recent corporate performance around the globe. Attention has been drawn to the issues of auditors having market based institutional incentives to act independently in protecting their reputation and independent (Watts & Zimmerman, 2003). The question of whether auditors’ independence, organizational culture and mechanism on governance have an impact on corporate performance has been the subject of much debate and research. Auditors’ independence is an essential feature of an efficient capital market. Managers have incentives to reduce agency costs in the firm by hiring independent auditors (Jenson & Meckling, 2009). Typically, the accusation made, that auditors have allowed inappropriate accounting treatment which therefore affects their independence by the non audit fees payable to them. The problems inherent in these study are those auditors who may become too close to the company they are auditing or because their objectivity may be challenged due to reliance on income from a single source.

1.3     Research Questions

In the light of the foregoing the following research questions are raised.

1.       Does corporate governance positively affects corporate performance?

2.       Does organizational culture has any significant impact on corporate performance?

3.       What is the relationship between Audit Firm Tenure and The Provision of non Audit Service?

4.       Does provision of non audit services have a significant impact on auditors’ independence?

5.       Is Balance scorecard a tool for measuring corporate performance?

1.4     Objective of the Study

The aim of this study is to empirically examine the auditors’ independence and corporate performance in Nigeria. The study attempted to achieve the following objectives.

1.       To find out if corporate governance positively affects corporate performance.

2.       To determine if there’s a significant relationship between organizational culture and corporate performance.

3.       To determine the relationship between Audit. Firm Tenure and the provision of non audit services.

4.       To find out if the provision of non audit services have significant impact on auditors’ independence.

5.       To how balance scorecard a tool for measuring corporate performance.


1.5     Statement of Hypothesis

The following hypothesis was stated.

Hypothesis One

HO:    Organizational culture does not have any significant impact on corporate performance.

HI:    Organizational culture has a positive significant impact on corporate performance.

Hypothesis Two

HO:    There is no positive relationship between audit firm tenure and the provision of non audit services in Nigeria.

HI:    There is a positive relationship between audit firm tenure and the provision of non audit services in Nigeria.

Hypothesis Three

HO:    Provision of non audit service has no significant impact on auditor’s independence.

HI:    Provision of non audit services has a positive significant on auditors’ independence.

1.6     Significance of the Study

This study is very significant, in that the result of the investigation would contribute to the current debate on the appropriateness or otherwise of audit firms providing non audit services to audit clients. Different users of financial statement would equally be aware of the inherent risk attributable to auditors providing non audit service. The study is significant in the following areas;

i.        Accountants: Professional accountants in the country will also benefit from the findings of the study because it will reveal the state and quality of the accounting and audit services they render to audit firms in Nigeria.

ii.       Government: The study is of significance to the Nigerian government and institutionalized financial regulators in the country because it will show where legislations needs to be made or modified to provide for more effective regulation of the business activities in the country.

iii.      Statutory Bodies: 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

The focus of the subject matter in this research is the auditors’ Independence and corporate performance in the private sector. The geographical area used in the study includes Banks in Edo and Delta States.



1.8     Limitations of the Study

This study would have gone beyond its current bounds, if not for the following limitations. The time frame within which we are expected to conclude this study is significantly limited and as such would greatly limit the scope of the study. It is only perceptions of auditors and practicing accountants in Edo, Delta, Lagos, Ondo State and banks in Port Harcourt were used. This has again limited the scope of the study. The selection process of respondent for the study was not completely random; although efforts were made to administer the questionnaire to randomly selected respondents. It was observed that some of the respondents were reluctant in giving the invitation required. It is the therefore not possible to ascertain the extent to which this attitude would have influenced the reliability of the information provide.

1.9     Definition of Terms

Audit: The independent examination of/and expression of an opinion on the financial statement/ performance of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation.

Audit fees: Fees paid to a company’s auditors which are approved by the shareholders at an AGM.

Auditors Qualification: A form of words in a report from the auditors of a company’s account. Stating that in their opinion the accounts are not a true reflection of the company’s finance position.

Auditors Report: A report written by a company’s auditors after they have examined the accounts of the company.

Finance Statement: A document that shows the financial statement of a company.

Integrity: A state of honesty but with a wide range of qualities such as fairness, candour, courage, intellectual honesty and confidentiality.

Objectivity: A state of mind which excludes bias, prejudice and compromise and which gives fair and impartial consideration to all matter that are relevant to the present task, disregarding those that are not.

Non-audit services: All services provided by an auditor that are not considered as an audit.

Balance scorecard: Balance Scorecard is an organizational framework for implementing and managing strategy at all levels of an enterprise by linking objectives, initiatives and measures to an organization’s strategy.

Independence: Function of character with characteristics of integrity and trustworthiness being essential or the absence of interest that creates an unacceptable risk of bias.

Corporate performance: Is the outcome of the frame won effort during a specified period. An accomplishment of an organization. The past that can realistically be expected rather than what is desired.

Organizational culture: Is a specific collection of values and norms that are shared by people and groups in an organization and that control the ways they interact with each other and with stakeholders outside the organization.

Corporate Governance: Corporate governance involves a system by which governing institutions and all other organization relate to their communities and stakeholders to improve their quality of life. it is therefore important that good corporate governance ensures transparency, accountability and fairness reporting. 

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