Auditor’s Legal Responsibility and Its Effect on Accounting Profession
Chapter One
Research Objectives
The purpose of this study is to assess the auditor’s legal responsibility and its impact on the accounting profession. Specifically, the objectives of this study will be;
- Ascertain whether the auditor’s expression of opinion on financial statement affects the accounting profession.
- Determine whether the auditor’s independence affects the accounting profession.
- Determine whether the auditor’s detection of error and fraud affects the accounting profession.
- Determine whether auditor’s prevention of errors and fraud affects accounting profession.
CHAPTER TWO
REVIEW OF LITERATURE
INTRODUCTION
Our focus in this chapter is to critically examine relevant literature that would assist in explaining the research problem and furthermore recognize the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.
Precisely, the chapter will be considered in two sub-headings:
- Conceptual Framework
- Theoretical Framework
- Empirical Framework
CONCEPTUAL FRAMEWORK
Concept of Auditing
Auditing is a systematic and independent examination of books, accounts, statutory records, documents and vouchers of an organization to ascertain how far the financial statements as well as non-financial disclosures present a true and fair view of the concern. It also attempts to ensure that the books of accounts are properly maintained by the concern as required by law. Auditing has become an ubiquitous phenomenon in the corporate and the public sectors. Auditors perceive and recognize the propositions before them for examination, obtain evidence, evaluate the same and formulate an opinion on the basis of their judgment which is communicated through their audit report. Any subject matter may be audited. According to Arens, Elder, Beasley, Best, Shailer and Fielder(2011), auditing is the accumulation and evaluation of evidence concerning the information needed for determining and reporting on the degree of correspondence between the information and established criteria. Similar definition was made by Messier (2008) that considers auditing as a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. Auditing has been a safeguard measure since ancient times. Audits provide third party assurance to various stakeholders that the subject matter is free from material misstatement. The term is most frequently applied to audits of the financial information relating to a legal person. Other areas which are commonly audited include secretarial and compliance audit, internal controls, quality management, project management, water management, and energy conservation. As a result of an audit, stakeholders may effectively evaluate and improve the effectiveness of risk management control and the governance process over the subject- matter.
The word audit is derived from a Latin word ‘audire’ which means ‘to hear’. During the medieval times when manual book-keeping was prevalent, auditors in Britain used to hear the accounts read out for them and check that the organization’s personnel were not negligent or fraudulent.In the medieval times, the detection of fraud was identified as the most important duty of the auditor. Chatfield documented that early United States auditing was viewed mainly as verification of bookkeeping detail.
Genesis Of Auditing
In the early days, an auditor used to listen to the accounts read over by an accountant in order to check them. Auditing is as old as accounting. It was in use in the ancient countries such as Mesopotamia, Greece, Egypt, Rome, United Kingdom and India. The original objective of auditing was to detect and prevent errors and frauds. Auditing evolved and grew rapidly after the industrial revolution in the 18th century. With the growth of joint stock companies, the ownership and management became separate. The shareholders who were the owners needed a report from an independent expert on the accounts of the company managed by the board of directors who were their employees. In the later years,the objective of audit shifted and an auditor was expected to ascertain whether the accounts were true and fair rather detect errors and frauds. In India the Companies Act 1913 made the audit of company accounts compulsory. With the increase in the size of companies and the volume of transactions, the main objective of audit shifted to ascertaining whether the accounts were ‘true and fair’ rather than ‘true and correct’. Hence the emphasis was no longer on the arithmetical accuracy but on a fair representation of the financial efforts. The Companies Act.1913 also prescribed for the first time the qualification of auditors. The International Accounting Standards Committee and the Accounting Standard board of the Institute of Chartered Accountants of India have developed standard accounting and auditing practices to guide the accountants and auditors in the day to day work.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
Research Design
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
Population Of The Study
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitute of individuals or elements that are homogeneous in description.
This study was carried out to assess auditor’s legal responsibility and its impact on accounting profession using some of the selected manufacturing firm in Rivers State as a case study. Hence, auditors of the some selected manufacturing firm in Rivers State form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of sixty five (65) questionnaires were administered to respondents of which fifty (50) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 50 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Introduction
This chapter summarizes the findings to examine auditor’s legal responsibility and its impact on accounting profession using some of the selected manufacturing firm in Rivers State as a case study. The chapter consists of summary of the study, conclusions, and recommendations.
Summary of the Study
In this study, our focus was to examine auditor’s legal responsibility and its impact on accounting profession using some of the selected manufacturing firm in Rivers State as a case study. The study was specifically focus to ascertain whether auditor’s expression of opinion on financial statement affect accounting profession, determine whether auditor’s independence affects accounting profession,whether auditor’s detection of error and fraud affects accounting profession and whether auditor’s prevention of errors and fraud affects accounting profession.The study adopted the survey research design and randomly enrolled participants in the study. A total of 50 responses were validated from the enrolled participants where all respondent are auditors of the some of the selected manufacturing firm in Rivers State.
Conclusions
The examination of the impact of auditors on the accounting profession reveals several crucial findings. Firstly, the accounting profession is greatly influenced by the opinions expressed by auditors regarding financial statements. Their views give financial statements legitimacy, which influences stakeholders’ faith in financial reporting. Secondly, the accounting profession is significantly shaped by the independence of auditors. In order to preserve professional standards and the integrity of financial audits, independent auditors guarantee objectivity and impartiality. Thirdly, the accounting profession is greatly impacted by auditors’ detection of fraud and errors. Their capacity to spot fraud and mistakes improves the dependability and quality of financial data, protecting the reputation of the industry. Last but not least, the accounting profession benefits greatly from the proactive error and fraud prevention efforts of auditors.Auditors reduce the possibility of financial misstatements by putting strong internal controls and risk management procedures in place, upholding the dependability and integrity of the profession.
Recommendation
Based on the findings the researcher recommends that;
- Continuous professional development programs should be established to enhance auditors’ knowledge and skills in expressing opinions on financial statements. This would ensure that auditors are equipped to meet evolving industry standards and regulatory requirements effectively.
- Accounting firms and organizations should invest in advanced fraud detection technologies and tools to empower auditors in detecting errors and fraudulent activities more efficiently. Training on the use of these technologies should also be provided to auditors to enhance their effectiveness in fraud detection.
- Audit firms and companies should enforce the mandatory auditor‟s rotation scheme. This would help to reduce or eliminate familiarity threat, hence, ensuring shareholders‟ reliability on the financial statements.
- To foster the independence of auditors, audit firms should regulate the number and length of non-audit services rendered to companies they serve as external auditor to. With this, self-review threat would be eliminated and the statutory auditors can perform his work without due pressure.
- Auditors should collaborate with organizations to implement proactive fraud prevention measures, including robust internal controls, regular risk assessments, and employee training programs.
REFERENCES
- Abdullah, R., & Masodi, M. S. (2012). Creating quality precision instrument: VFMA_35 for the conduct of value for money audit using the Rasch Model Malaysian Accounting Review, 11(1), 1-16.
- Abdullah, R., A Rashid, R., & Masodi, M. S. (2008). Establishment of a corporate governance effectiveness performance index using Rasch measurement: Internal audit experience in Malaysian institutions of higher learning. Paper presented at the IIUM International Accounting Conference IV (INTAC IV), Putrajaya, Malaysia.
- Adeniji, B.A. (2004). Auditing and investigation, Yaba College of technology, Lagos. Value Analysis Consult Publishers.
- Aguolu, A.O (2002) fundamental of Auditing, Enugu: meridian publishers.
- Ahmad, Z., & Taylor, D. (2009). Commitment to independence by internal auditors: the effects of role ambiguity and role conflict. Managerial Auditing Journal, 24(9), 899-925.
- Audit Executive Center. (2010). Attributes of highly effective quality assurance and improvement programs. Knowledge Report: The Institute of Internal Auditors.
- Auditing Standards Board (ASB)(2002).Statement on Auditing Standards No. 59: The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern. New York: American Institute of Certified Public Accountants
- Bahram, S. (2007) Auditing_ An International Approach -Trans-Atlantic Publications, Inc
- Baker, R. (2005).The Varying Concept of Auditor Independence: Shifting with the Prevailing Environment. The Certified Public Accountant Journal Online.
