The Role of External Auditors in Corporate Governance
CHAPTER ONE
Objectives of the Study
The basic objective of this stud among others is to evaluate audit committees and financial reporting in Nigeria. The objectives of this study are divided into two, general and specific objectives. The general objective is the evaluation of the impact of audit committee on the quality of financial reporting in Nigeria. However, the specific objectives are:
- To examine if the financial literacy of audit committee members enhance financial reporting in Nigeria.
- To ascertain if the frequency of meetings of audit committee enhance financial reporting in Nigeria.
- To determine the effect of multiple directorships on financial reporting in Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Corporate Governance and the Auditors
Corporate governance is a system by which firms are directed and controlled (Cadbury, 1992). Larcker et al. (2007) describe it as set of mechanisms that influence management’s decisions when corporate ownership is separated from control. Corporate governance mechanisms are economic and legal institutions, which provide assurance to the investors about the safety of their investment and of getting back returns on the investment (Shleifer and Vishny, 1999). One of the mechanisms for providing assurance to the investors and other stakeholders is corporate auditing. The principal characteristics of ensuring effective corporate governance such as transparency, accountability and integrity are enhanced with conduct of audit into the affairs of a corporation. Generally, internal and external auditors may conduct audit into the operation of a company. The 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. 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. OCED (2007) describes external auditors as “auditors of an organisation which are not under the control of the organisation and may not report to objectives set by the organisation” (p 283).
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.
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 the role of external auditors in corporate governance. 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 the challenges of role of external auditors in corporate governance
Summary
This study was on the role of external auditors in corporate governance. Three objectives were raised which included: To examine if the financial literacy of audit committee members enhance financial reporting in Nigeria.
to ascertain if the frequency of meetings of audit committee enhance financial reporting in Nigeria and to determine the effect of multiple directorships on financial reporting in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from Dangote cement plc. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
There is no doubt that the role of the external auditor has brought about improvement in accountability and transparency in corporate governance thereby reducing agency problems. The faith of the shareholders and other stakeholders in the financial statements has been enhanced by the role of the auditor. However, the striking findings emanating from this study is that some auditors are compromising their professional integrity, objectivity and independence for economic gains. Such behaviour has affected public confidence in the credibility of auditor’s report.
Recommendation
In Dangote cement plc, to over the problem of auditor’s independence, FRC should be empowered by law to be involved in the appointment of external auditors of large corporations.
- The accountancy bodies in Dangote cement plc should review their professional ethical code to emphasize more on action that is right that is morality.
- Since there is great change in public expectation of auditor’s role, auditor would have to adjust to the expectation of the public by paying more attentions on material misstatement in financial statements. Furthermore, auditors should not indulge in nefarious acts that may tarnish their image before the public.
References
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