Impact of Internal Audit on the Quality of Financial Reporting in Private Firms in Nigeria
Chapter One
Objectives Of The Study
The main aim of this study is to examine the Effect of internal audit on financial reporting Quality of private firm in Nigeria. Other aims of this study are:
- Examine the effect of Internal Audit Standards on audit effectiveness of financial reporting quality.
- Examine the effect of internal audit independence on audit effectiveness of financial reporting quality
- Examine the impact of Professional Competence on financial reporting quality in private firm.
- Examine the effect of top management support on audit effectiveness in financial reporting quality.
- Find out the factors affecting internal audit effectiveness in the private firm.
CHAPTER TWO
REVIEWED OF RELATED LITERRATURE
Audit
According to Eze (2005) one of the simplest ways of economizing efforts in an inquiring is to review one build upon the work already done by other. Santoki (1974) stated that an audit may be define or describe as an examination and evaluation of the authenticity, and therefore the reliability of the firm‟s business documents and records, and it also involves in making inquires to ascertain that the financial statements on which the auditor is reporting and which have been prepared from 9 their records display a true and fair view of the financial results for the year under review and true and fair view of the affairs at the end. Taylor (1982) stated that an audit is an investigation by an auditor into the evidence from which the final revenue accounts and balance sheet, or other statements of an organizations have been prepared, in order to ascertain that they present a little and fair view of the summarized transactions for the period under review and of the financial statement of the organizations at the end date so to enable the auditor to report thereon. Okolo (1987), expressed that an auditor could be a conscientious and objective examination of an inquiry into, any statement of account relatively to money or money worth, the underlying documents and the physical assets where possible, as will enable the auditor to form an opinion as to know whether or not the statement of account present shows a true and fair view of whatever it purport to presents, and to report accordingly. Nwabueze (1997) stated that audit is an exercise which is carried out in order to lend credence to statements prepared by directors of the company (who are not the owners) for the use by the owners of 10 business shareholders, creditors, the employees, the government etc) whereby the auditors express his opinion as to the true and fair nature of the transactions he examined while carrying out the audit. The institution of internal Auditors (IIA) defines an audit as an independent of examination by a statutory appointed person called the auditor to investigate an organization, its records and the financial statements prepared for them and thereby form an opinion on the accuracy and correctness of the financial statement.
Types of Auditing
It will be recalled that the following types of auditing exist
1 Internal Audit: This is an audit carried out by specially assigned staff of an enterprise known as internal audit and appointed by the management.
2 External Audit: This is an audit carried out by an independent person who is not an employee of the enterprise.
3 Statutory Audit: Audit which are compulsorily required by the law and mandatory for those enterprises(companies and Allied Matters Act CAMA(1990)
4 Private Audit: Audit carried out the request of the owner of the business and not required by law.
5 Management Audit: This is an audit that involves a review of management policies and procedure in order to evaluate their effectiveness and efficiency.
Audit and Internal control in the Organization
Every organization has the need to establish internal audit for the purpose of internal control. Internal control is the whole system, finance or otherwise established by the organization in an orderly manner, ensure adherence to the existing role, and safeguard the assets of the organization in order to accomplish a task.
PRINCIPLES OF AUDITING
Auditing is a practical course. It is something that people do. Attempts have been made at various ties to develop theories of auditing with, however, little range of underlying principles. 14 The Auditing practice Board (APB) in the Audit Agenda identified eight principles of auditing. 1 Integrity: An auditor is expected to be a person of proven integrity. This is in view of the expectation that if he fails to behave with integrity i.e. honesty, adherence to moral principles and is seen to behave the way round then the auditing report will tend to be biased any may be ignored by the public and hitherto the entire audit process would have no value. Independence: if auditors are not independent of the entity being audited, their reports will not be believed. It is necessary that auditors must be objective, give their opinions without fear or favor and be unaffected by conflict of interest or presume from any source. 2 Accountability: Auditors should act in the best interest of shareholders of the organization and have regard to the public interest. 3 Competence: If auditors are not competent, then the entire audit process makes no meaning. 4 Judgment: There is need for auditors to apply sound ethical, professional and unbiased judgment in specific area where judgment is required. 5 Communication: Auditors should disclose all matters necessary to make their opinion understandable as well as making disclosure to the appropriate authorities of the matters they should disclose in the public interest. 6 Rigor:
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 constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine effect of internal audit on financial reporting quality of private firm in Nigeria. Dangote cement, Lagos 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 eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain effect of internal audit on financial reporting quality of private firm in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing effect of internal audit on financial reporting quality of private firm in Nigeria
Summary
This study was on effect of internal audit on financial reporting quality of private firm in Nigeria. Three objectives were raised which included: Examine the effect of Internal Audit Standards on audit effectiveness of financial reporting quality, examine the effect of internal audit independence on audit effectiveness of financial reporting quality, examine the impact of Professional Competence on financial reporting quality in private firm, examine the effect of top management support on audit effectiveness in financial reporting quality and Find out the factors affecting internal audit effectiveness in the private firm. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from Dangote cement, Lagos state. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
Based on the findings of the study, it can be concluded that the identified internal quality attributes such as internal audit staff remuneration benefit, Technical Proficiency of internal auditors and Firm Size were significant related to internal audit practice and positively influence the financial reporting quality and performance of Dangote cement
Recommendation
Internal Audit Units of foods and beverages firms should recognize that technical proficiency of a professional includes a continual awareness of developments taking place in operational activities, this gives opportunity to professional to study, understand, and apply new development on auditing procedures and dissemination of relevant financial information which will enhance reporting quality
Centered on the outcome of this study, attention to the entire key attributes of internal audit practices will serve as quality assurance toward auditing practice and investigation.
- The study will contribute to the existing knowledge in the area auditing practice and financial reporting quality literature.
- It will also form the basis for further research in the area of audit quality assurance, quality of the financial report, and users’ confidence in published financial information of corporate entity.
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