THE IMPACT OF AUDIT REPORT ON INVESTMENT IN FINANCIAL INSTITUTION

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND  OF THE  STUDY

Most business established nowadays, are not managed by the owners (shareholders), but by the others appointed by the owners. This practice is known as “stewardship”. Also, the owners who appoint the Directors to look after their property will be concerned to know what has happened to their property. Therefore, the Directors have the report and account for the responsibilities entrusted to them, by the shareholders. This process of reporting and accounting is done by means of financial statement (Al Thuneibat,2009).

The financial statements are produced annually, and take the form of an “Annual Reports and Account” which includes; profit and loss account, and Balance sheet, and also other statements (which are Director’s report and Auditor reports). The problem which has risen on Director Report to shareholders, means can the shareholders believe the report? The report may have errors, fraud and false information’s.

The solution to the above problem that the owners may have with the Director, lies in appointing on independent person called an “Auditor” to investigate the reports and report his finding to members of the firm. So, at the end of Audit process, he will present a statement to the members of the company stating his opinion whether it show a true and fair view or not. This statement represented by the Auditor is the “Audit report”.

The audit report is the end product of the Audit and it is very essential because it explains what the auditor did and views his opinion. Furthermore, it is the belief of all the accountants that the process of accountability is not complete without an audit, and for an audit to be meaningful, the one perfuming it must be independent. Base on this, the shareholders will have to rely on the audit report in making their investment decision for them to do this correctly; they have to analyze the financial statement of the firm in which they wish to invest. And since some of these investors do not have the knowledge of accounting and how to analyze financial statement, they need expect to do these for them (Mark & Jieying, 2014). Therefore, they will rely on the report produced by the auditor in making their investment.

1.2 STATEMENT OF THE PROBLEM

An Audit report adds credibility and increase confidence on financial statement of an organization. The primary aim of the audit is for the to state in his/her own view of opinion that the financial statement examined by him/her do show a true and fair view of the reporting company.

In most cases, today the intended effect of the auditor’s report is not clean and the effect it produced are not well-know. Also audit reports are widely ignored and often misunderstand by investors (Porter 1990). Apart from these problems, there are misconception views about auditors. Some see auditors as toothless watch-days and fraudsters and therefore do not believe in the report produced by them.

 Also there is ignorance of the importance of carrying out an audit process on financial statement which might contain errors and fail to disclose fraud (Karkacıer, & Fatih CoskunErtas,  2017). Thus, it is as a result of these problems that the researcher took up this research topic in order to emphasis on the need and importance of carrying out audit process as to educate the enlighten share holders and potential investors.

1.3 OBJECTIVE OF THE STUDY

The main objective of this research is to explore the importance of the auditors on investment in financial institution.

1.      To examine the role of the auditors on financial statement of financial institution especially in access bank.

2.      To provide the investors with significance of the auditor’s report on financial institution because it is an independent examination of the financial record by independent auditor.

3.      To examine among other things the aims and objective of an audit process and also the need an importance of considering audit report of a particular firm before making investment decision .

    By so doing, it is hope that this study will be of great benefit to shareholders and potential investors especially those who want to invest in Access Bank Plc.

1.4 RESEARCH QUESTION

It is essential to state the problems associated with this research as it is of good great importance in understanding the target work itself. Although, the existence of auditor for various financial institutions the main aim of giving confidence to the owners of these institution and potential investors. But the questions that arise are to what extent are the issuing of audit report to their investors and the confidence the investors have upon the audit report rendered e the auditor. Hence the questions relating to the research work are:

1.      What are the roles of auditors on financial statement of financial institution?

2.      What is the importance’s of auditor’s report in financial institution?

3.      What are the aims and objective of carrying out auditing process in financial institution?  

4.        How does audit report become important in making investment decision?                                                                                                                                                                 

1.5 HYPOTHESIS OF THE RESEARCH

Hypothesis One:

Hi:     There is significant relationship between audit reports and investment.

Ho: There is no significant relationship between audit report and investment decision.

Hypothesis Two:

Hi: The addition of a standard audit report to set of financial statement will significantly have impact on investor’s behavior.

Ho: The addition of a standard audit report to a set of financial statement will not significantly have impact on the investor’s behavior.

1.6 SIGNIFICANT OF THE STUDY

Significance of this study is that it will be of immense benefit to shareholders and potential investors who are involved in making investment decision. There are frequent collapses of investment decision in Nigeria. One of the factors that contributed to this failure is lack of good audit report. Therefore, this study will be useful to shareholders and potential investor who has interest to invest, so that they will find audit report as an important tool for their investment. Also, this study will also serve as guild for researcher who may like to know more on report writing. It is hope that the conclusion and recommendations drawn from this study will serve as an important reference for individual, firm and general who wish to invest.

1.7 LIMITATION OF THE STUDY

This research project like any other projects was subjects to some limitations. One of the limitations is unwillingness to provide vital information needed for the project by the staff of the company being studied. There is also the limitation of time constraint. This project is directed at a particular target, which is to meet my graduation requirements. This project has to e accomplished within the particular target date otherwise it will lose its potency.

1.8 SCOPE OF THE STUDY

This project is concerned with the basis requirement for issuing audit reports and impact of audit reports on investment in a financial institution, Access Bank Nigeria Plc as particular references. The scope of this study will include the content of audit report, the preparation of audit report and its importance to the shareholders and the institution. T6he study also cover the type and impact of audit reports on financial institutions.

1.9 DEFINITION OF TERMS

Audit: An audit is the independent examination of an expression of opinion on the financial statement of an enterprise by an appointed auditor in pursuance of that appointment and incompliance with the relevant laws and regulations.

Auditor: An auditor is an independent person usually a chartered or certificate accountant who is appointed by an enterprise to carry out an audit process and expressed his opinion on financial statement of that enterprise.

Audit Report:      An audit report is a statement issued by the auditor to the members of an enterprise expressing his opinion on the financial statement of that enterprise.

Financial Statement:    These are statements which are viewed as framework for capturing and organizing financial information and usually include the profit and loss account, balance sheet and cash flow statements.

Audi tee: This is the firm or organization whose financial statements are being audited.

Stewardship Accounting: This is the process whereby the manager of a business account or report to the owners of the business.

Investment Decision: This is the allocation of capital or funds to long-term assets, which would yield benefit in the future.

Audit Evidence:  This is the amount of document and other forms of information needed to support an auditor’s professional opinion on a set of financial statement of that enterprise.

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