CHALLENGES OF AUDITING IN SMALL AND MEDIUM SCALE BUSINESS ENTERPRISE IN NIGERIA

ABSTRACT

This study mainly focuses on challenges of Auditing in Small and Medium Scale Business Enterprise in Nigeria. It is to spotlight the challenges of auditing in SMEs. The SMEs are prime mover of the economic growth and creation of employment opportunities. The research deals with the problems auditors encounter during the audit of these business enterprises to enable them ascertain that their statement of affairs show a true and fair view. In an attempt to highlight the challenges of auditing in SMEs, questionnaire and personal oral interview were employed to collect the necessary data. The information collected through the research tools were tallied and analyzed according to problems of the study.

 TABLE OF CONTENTS

                                                                                                                                    PAGE

Title Page

Certification 

Dedication 

Acknowledgements

Abstract

Table of Contents

CHAPTER ONE: INTRODUCTION

1.1 Background to the Study

1.2 Statement of the Problem

1.3 Objectives of the Study

1.4 Statement of Research Hypothesis

1.5 Significance of the Study

1.6 Scope of the Study

1.7 Limitations of the Study

1.8 Definition of Terms

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

2.2 Types of Audit

2.3 Objectives of Auditing

2.4 Audit Approach

2.5 Audit Evidence 

2.6 Role of An Auditor

2.7 Small & Medium scale Business in Nigeria

2.8 Types of Small & Medium Scale Business Enterprise

2.9 Application of Auditing Standard to SMEs

2.10 Problem with the Audit of SMEs

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

3.2 The Research Design

3.3 Sources of Data Collection

3.4 Instrument of Data Collection

3.5 Population of the Study

3.6 Sample & Sampling Techniques

3.7 Method of Data Analysis

CHAPTER FOUR: PRESENTATION OF DATA ANALYSIS & INTERPRETATION

4.1 Introduction

4.2 Analysis of Respondents and Interpretation

4.3 Test of Hypothesis

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION

And Recommendations

5.1 Summary of Findings

5.2 Conclusion

5.3 Recommendations

References

Appendices

CHAPTER ONE

INTRODUCTION

1.1           BACKGROUND TO THE STUDY

The American accounting association(AAA) committee on basic auditing concept (1973) and was later reviewed in 2009,  defined auditing as follows: auditing is a systematic process of objectively obtaining an 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. 

However, auditing as it exists today was established as a result of the separation of ownership from the control of the business. The owners entrusted their business to managers and the owners are then presented with a stewardship accounting. This stewardship accounting is usually done by means of financial statement. The financial statement is in form of profit and loss account and balance sheet of the business.

In these circumstances, the need arose for some means by which the owner of the business might not be satisfied that the accounts presented to them by their managers can be relied upon for containing errors, is inadvertently misleading, has failed to disclose relevant information.

It was for the reason therefore that the practice developed appointing auditors whose duty it was to verify on behalf of the owners of the accounts of the managers and to report thereon to the owners of the business. Obviously, it is impracticable and impossible for the owner of the business to examine the books and records of a business. The owners appoint auditors to act for them; the question one may ask is what is auditing?

Many professional bodies on auditing and accountancy have attempted to define and explain what auditing actually means. Auditing is an examination by an independent expert, the auditor of a set of financial statements and of the underlying books and records which results in the auditor providing an opinion on the financial statements.

Auditors concerned themselves primarily with the proof of accuracy of client’s records, utilizing internal evidence within the confines of the business. The subsequent growth of the demand for reliable financial information by third parties supplying credit or capital to expanding enterprises, auditors turned to the examination of financial statements. Here the external evidence to corroborate company figures increased in importance is still important. Auditors recognized that the accounting system that produces the financial and operating information to be reported is a key factor in the accuracy and reliability of the end results.

Since it is not mandatory that all forms of business most prepare and submit annual statements of accounts, this write up is to assess the challenges of auditing encountered by the auditor if accounts are audited annually.

1.2    STATEMENT OF THE PROBLEM

            The purpose of this study is to provide solution to the following problems faced in auditing small and medium scale business.

i.        Are proper books of accounts been kept in small and medium scale enterprises in Nigeria?

ii.     Are the financial statement of small and medium scale enterprises prepared in accordance with laid down principle of the companies and Allied Matters Act  1990?

iii.   Are auditors furnished with enough information as regards their audit work by management of small and medium scale enterprises in Nigeria?

iv.   Is the internal control system of the business strong and reliable for the auditor to form an opinion?

v.     Has small and medium scale complied with the relevant accounting standards and other statutes?

1.3      OBJECTIVES OF THE STUDY

The objectives of this study is to evaluate the challenges of auditing in small and medium scale business enterprises in Nigeria and how the challenges can be tackled to ensure that the audit work will be efficient and present a true and fair view of the true state of affairs of the business and to ensure that the auditor carry on his work with independence and with fair judgement.

            The study also hopes to achieve the following objectives:

              i.      To assess the problems faced by auditors in auditing small and medium scale enterprises in Nigeria.

           ii.      To assess the problems small scale business encounter in having their accounts audited in Nigeria.

         iii.      To identify the areas by which the economy of the country can be improved through the auditing small and medium scale business in Nigeria.

         iv.      To provide recommendation for solving problems highlighted and prospects for the business.

           v.      To ascertain the challenges faced by auditors in obtaining relevant documents as regards the internal control of small and medium scale enterprises in Nigeria.  

1.4      STATEMENT OF RESEARCH HYPOTHESIS

  This research work seeks to obtain relevant information that will enable us accept or reject the hypothesis that:

(i) Ho the credibility of SME’s financial statements determines their chances of obtaining credit facilities by small and medium scale enterprises in Nigeria.

Hi the credibility of SME’s financial statements does not determine their chances of obtaining credit facilities by small and medium scale enterprises in Nigeria.  

            Ho internal control is very necessary for auditing the small and     medium scale business in Nigeria.

            Hi internal control is not necessary for auditing the small and         medium scale business in Nigeria.

Ho business enterprises ( i.e small and medium scale enterprises   in Nigeria) that present their books of account for audit are more successful.

Hi business enterprises that do not present their books of account for audit are not successful.

1.5      SIGNIFICANCE OF THE STUDY

This study x- rays challenges faced by Small and medium scale business enterprises and significant recommendations are made to assist in limiting the challenges auditors are confronted with in the course of carrying out their audit functions.

However, small and medium scale business enterprise will see the need to prepare their financial statements in accordance with the generally accepted accounting standards as doing these will enable them to obtain loans when need be.   

Also auditors who are faced with challenges with assertions and other financial records kept by these SME’s that they are auditing will also benefit from this study.

All business students and managers of SME’s who are keen of being kept abreast of the challenges and significance of an audit to SME’s will no doubt find relief from this study.

1.6      SCOPE OF THE STUDY

Due to lack of time and the dynamic nature of auditing in SME’s these days especially in Nigeria, the researcher has restricted the study to the challenges of auditing in small and medium scale business enterprises to identify essential problems encountered by auditors when auditing the accounts of SMEs. (taking into cognisance block industries.)

1.7      LIMITATION OF THE STUDY

            Auditing is very complex in scope and nature. In the course of this study the researcher encountered the following limitations:

(i) The lukewarm attitude of managers of business enterprises in giving out reliable information to students carrying out  studies of this nature.

(ii) The integrity of respondents

(iii) The reliability of information supplied coupled with very low responses to questionnaires distributed.

1.8      DEFINITION OF TERMS

Auditing: This is the independent examination of the expression of the opinion on the financial statements of an enterprise by an appointed auditor in pursuance of that appointment in compliance with any relevant statutory obligation. (UK audit practice committee).

Internal Control: This is seen as the whole of controls financial or others, established by management in order to carry on the business of the enterprises in on orderly manner, APC guidelines.

Auditor: An auditor is a competent accountant who examines accounting books and records with a view to expressing opinion thereon.

Errors: They are unintentional mistakes in the financial statements.

Fraud: They are intentional misstatement in or omission of amount i n the accounting records of financial statements.

Financial Statement: Are the profit and loss accounts and the balance sheet of the business.

Working Papers: These are documents the auditor used to record his work during the process of auditing the clients’ accounting records.