The Problems Encountered by External Auditors in Auditing Nigerian Companies
Chapter One
PURPOSE OF THE STUDY
The aims of embarking on this study are:-
- To ascertain the nature of the problems the external auditors encounter in auditing Nigerian companies.
- To identify the causes of these problems
- To ascertain the effects of these problems on the work of auditors.
- To recommend measures that could enable external auditors to overcome the problems identified.
- To recommend measures to be adopted by Nigeria to enhance the auditing of their business organizations.
CHAPTER TWO
LITERATURE REVIEW
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.
CONCEPTUAL FRAMEWORK
Concept of Audit
An audit 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 such a ubiquitous phenomenon in the corporate and the public sector that academics started identifying an “Audit Society” (Power 1999).
Nature of Auditing According to milichamp (1981) the term audit was derived from the latin word „Audire‟ which means to hear. The origin of audit is dated back to the middle age where great land owners would not manager their own land but would appoint person to manage the land for them. Similarly, today literate companies which are owned by their shareholders would not be managed by them but by director appointed by the shareholders. So also this public own central government resources, including the nationalized industries are managed by the government and persons appointed by the government. All these gave birth to STEWARDSHIP ACCOUNTING. According to MILLICHAMP (1993), he explains this as the process whereby the managers of a business report or account to the owners of the business. This report and accounting is usually done by the means of financial statement. The owners of the business who have provided funds, delegate some of their members to act as board of directors, whose responsibility is to manage the affairs of the business and periodically prepare final account to owners of the business so that they can be aware of the state of affairs of the business. It is very necessary that the owners of the business are presented with financial statements by the directors which all provide objective views of the state of affairs of the business and to enable the evidence regarding assertions about economic action and established criteria and communicating the results to interested persons. Another good definition and which is most accepted is that of (AICPA) Association of International certified public Accountant which states “Auditing is the process by which a competent independent person accumulates and evaluate audit evidence about quantifiable information related to specific economic entity for the purpose of determining and reporting on the degree of correspondence between the quantifiable information and established criteria. This auditor report is embodied in an audit report which is addressed to the people who own the business such as employee‟s shareholders and the government at large which have commissioned the audit to the auditor to carry out their duties under the law
Objectives of an Audit
From the definition of audit, its primary objective does not include the preparation of financial statements. This is indicated in 334 of the companies and Allied matters Acts of 1990. Thus, auditing does not include detection of errors or fraud. According to Aguolu, (1998), the primary objective of an auditor is to examine the financial statements prepared by the officers of the company and to report to intended party or shareholders as to: Whether the financial statements show a true and fair view and comply with relevant status and if proper records have been kept, whether the financial statements agree with the records of the Companies and Allied Matters Act of 1990 regards the above as the primary objective of an audit while all others may be regarded as secondary objective of the audit. The foregoing indicates that the detection of errors and frauds do not form part of the primary objects of an audit even though their detection where they exist in financial statement being audited is of major benefit. In this regard, an audit therefore provides a great moral check on the management and staff of an organization against the commission of fraud and errors.
The Concept of Audit Risk
Audit risk as: “the risk that auditors may give an inappropriate opinion on financial statements” (Porter, Simon, & Hatherly, 2003). They identified two forms, they are: the risk that the auditor may express a qualified opinion (say something is amiss) on financial statements that are not materially misstated; and the risk that the auditor may express an unqualified (‘clean’) opinion on financial statements that are materially misstated”. The International Auditing and Assurance Standards Board (IAASB) Glossary of Terms defines audit risk as ‘the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. IAASB further states that Audit risk is a function of material misstatement and detection risk’. Also, (Zhou & Liu, 2006) in the Study of American Audit Failure defined Audit risk is the risk that the auditor may unknowingly fail to appropriate his or her opinion on financial statements that are materiality misstated.
Audit risk arises when auditors have legal liability due to an issue of a “clean” audit report on financial statements which are materially misstated; therefore users of the financial statements are misled and suffer great loss as a consequence. Zhao & Liu, (2006) suggest that it is impossible to get absolute assurance of accuracy of the financial statements, because auditors cannot guarantee the complete absence of material errors and irregularities. They only need to express an opinion on financial statements rather than certifying the truth and fairness on them.
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.
The main focus of this study is to assess problems encountered by external auditor in auditing Nigeria companies with particular reference to akintola Williams and company chattered accountant Enugu. Thus accountant and auditors in the firm forms 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 thirty-six (36) questionnaires were administered to respondents of which only thirty (30) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 30 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
SUMMARY OF THE FINDINGS
This research is on the problems encountered by external auditor in auditing Nigeria companies with particular reference to akintola Williams and company chattered accountant Enugu, the main aim of this research work is to ascertain the nature of the problem the external auditors encounters in auditing Nigerian companies and also to identify the causes of these problems. The sources from which the from which the necessary data were collected for the purpose of this research work are from primary and secondary source of data collection. The primary data were gotten through the use of questionnaire and oral interview. The secondary data were gotten through news papers, magazines Government Journals and also text books. Then data collected were analyzed using simple percentage analysis. Hypothesis were formulated and tested using chi-squire (X2) method.
Conclusions
With the upsurge in fraudulent activities in financial accounting in the global economy, external auditing has become an emerging discipline of great importance for academia and real sector; hence, the increasing need for external auditor and investigative accounting in most sector results from the complexities of modern day with large volume of complex data. This makes it difficult to monitor transactions by applying manual audit processes. This in turn makes the control utility of auditing ineffective. It is upheld that occurrence of fraud and misappropriation of funds in recent time pose a threat to traditional auditing as a branch of accounting profession because of its recurrent nature and this has resulted to the question as to whether the statutory auditing actually play a significant role towards the attainment of accountability and prevention of fraud especially that which was recently witnessed in most of big corporate organizations in Nigeria. Internal audit appears to have shown a lack of concern and reflective attitude towards fraud fighting, thereby failing to offer the public desirable assurance to handle corruption and fraud. Hence, internal auditors are the employees of a company who are appointed by the management to carry out audit of the day-to-day affair of the company as part of the internal control system.
Further, the external auditor is highly regarded in the corporate governance framework because unlike the internal auditor, is appointed by the shareholders. The external auditor is an independent person or firm of auditors appointed according to statutory requirement to investigate the financial statements of an entity and express his opinion in form of report on the true and fair view of such financial statements; they are auditors of an organization which are not under the control of the organization and may not report to objectives set by the organization.
From the data collected and analysed some of the major findings of this research work includes auditors in Nigeria, even the more successful once find it very difficult to audit Nigerian companies as a result of business activities, illiteracy moral laxity, lack of adequate technical skill and training. Effect of problems of exter auditing can lead to Prevalent Fraud /embezzlement of funds, Unaccountable losses and at the upmost heigh business failure
RECOMMENDATION
The following recommendations are made based on the findings of this research work.
- Since the external audit is not effective in revealing fraud, the governing statutes should be amended to inculcate interim audit, and forensic audit. Although, this may increase cost on banks, but it will reduce the incidence of fraud drastically, especially, those perpetrated by the management. And the forensic auditors should check for the professional negligence of external auditors.
- There should be regular external audit to check compliance or deviation. Thus, the laid down policies should be adhered to and staff concerned should be monitored. Lying off such staff after investigation is highly recommendable.
- That auditor should maintain a high degree of independent to guarantee quality assurance that could provide the much needed protection of depositors’ funds and other shareholders interest in the bank.
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