ABSTRACT
This
study examines the objectives of auditor’s independence and audit tenureship on
financial reporting with respect to some audits firms. In the course of
achieving the above objectives, data was collected from some auditing firm in
Edo State based on the questionnaire administered. The information collected
were analyzed using simple analysis and chi-square finding include that
auditor’s independence and tenureship affect, the financial report of corporate
organization, rotational audit will help improve the integrity and reliability
of financial statements and auditor’s long term relationship is responsible for
increase in the spate of corporate failure finally, we recommended that further
research should be carried out on auditor’s independence and tenureship.
TABLE OF CONTENTS
i.
Title
page
ii.
Certification
iii.
Dedication
iv.
Acknowledgement
v.
Abstract
vi.
Tables
of Contents
CHAPTER ONE:
Introduction
1.1 Background to the study
1.2 Statement of the problem
1.3 Research Questions
1.4 Objectives of the study
1.5 Scope of the study
1.6 Hypothesis
1.7 Significance of the study
1.8 Limitations of the study
1.9 Definition of Terms
CHAPTER TWO
Literature Review
2.1 Meaning of Audit
2.2 Classification of Audit
2.3 Auditor’s Independence and CAMA (1990)
2.4 Factors Affecting Auditors Independence
2.5 Audit Tenureship
2.6 Engagement Partners Rotation
2.7 Factors Affecting Tenureship
2.8 Auditor Independence and Ethical
Guidelines
2.9 ICAN Rules to Guarantee Independence of
Auditors
2.10 The Auditor’s Independence: Social
Implication
2.11 Meaning of Financial Report
2.12 Contents of Financial Report
2.13 The Role of Auditors in financial Reporting
2.14 The Impact of Auditor Independence in
Financial Reporting
CHAPTER THREE
3.0 Methodology
3.1 Research methodology
3.2 Research Design
3.3 Population of Study
3.4 Sample and Sampling Techniques
3.5 Sources of Data
3.6 Instrument of Data Collection
3.7 Method of Data Analysis
3.8 Method of Data Presentation
3.9 Actual Field Work
CHAPTER FOUR
4.0 Presentation and Analysis of Data
4.1 Discussion of Data Presentation
4.2 Data Analysis
4.3 Hypothesis Testing
4.4 Discussion of Finding
CHAPTER FIVE
5.0 Summary of Findings, Conclusion and
Recommendations
5.1 Summary
of Findings
5.2 Conclusions
5.3 Recommendations
Appendix I: Questionnaire
Appendix II: References
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
The international organization of securities commission’s
objectives and principle of securities regulation recognizes that issuers
should make full accurate and timely disclosure of financial results and other
information that is material to investors decisions. The principle also
recognizes that accounting and auditing standard of a high and internationally
acceptable quality contributes to promoting useful financial information useful
to a wide range of users for effective decision making purpose. Specifically,
the principle noted that among other things, regulations should be intended to
ensure:
An independent verification of financial statement and
compliance with accounting principles through professional external auditing.
Any audit is conducted in pursuit to well defined and
internationally accepted standards and rules designed to ensure the
independence of auditors.
A mechanism for enforcing compliance with accounting and
auditing standards.
Principles of auditor independence therefore, the sectional
auditor plays a critical role in lending independence creditbility to published
financial statements used by investors, creditors and other stakeholders as a
basis for making capital allocation decisions. Indeed, the public perception of
the credibility of financial reporting by listed entities is influenced
significantly by the perceived effectiveness of external auditors involve a
wide variety of issues, which are fundamental to public confidence in
reliability of financial statements that external auditors operate and are seen
to operate in an environment that supports objectives decision making on key
issues having a material effect on financial statements. In other words, the
Institute of Chartered Accountant of Nigeria (ICAN) code of ethics required
that the fact and appearance.
But, in the light of the recent corporate scandals, auditor’s
independence and tenureship has become the focus of much debate. The question
now is that, should’s form be forced to replace its auditors on a regular basis
or should the auditors be allowed to build a long-term relationship with the
client?
Proponents of enforced tenureship of auditors argue that a
long-run relationship may result in increasing empathy between parties. This
may lead to a reduction in the auditor’s due diligence, as he may become core
prepared to turn a blind eye to inappropriate managerial actions.
The opposing view is that a long-run relationship is
beneficial as auditors may need time to gain expertise in the business that
they audit, as regular auditor replacement reduces the auditors ability to
detect irregularities.
It is on this basis that research work title Auditors
Independence and Audit Tenursehip: Its Implication of Financial Reporting in
Nigeria is being carried out.
1.2 STATEMENT
OF THE PROBLEM
The companies and Allied Maters Act (CAMA) of 1990 provides
extensively for the appointment, duties and responsibilities as well as the
removal of the auditors of companies without providing for the tenureship of
the auditors. Even though the Companies Acts and professional pronouncement
provided for independence of the auditors, the unlimited nature of auditor’s
tenure has underlined their independence as the integrity of the financial
statements emanating from the auditors work is in doubt, given the spate of
corporate failure that traits corporate organization shortly after the auditors
issues a clean bill of health (unqualified report). In view of the above, this
project work is carried out to ascertain the aspect to which auditor’s
independence and tenureship has impacted on the financial reports of corporate
organizations in Nigeria.
1.3 RESEARCH
QUESTIONS
The
research questions will be based on finding answers to the following questions.
1.
Is
the auditor’s independence adversely affected by its long-term relationship
with its client?
2.
Will
the regular replacement of companies auditors help to improve the integrity and
reliability of financial statement?
3.
Is
the auditor long-term relationship lead to increase in the spate of corporate
failure?
4.
Will
the provision of an act on the audit tenureship help enhance the integrity of
financial statement?
1.4 OBJECTIVES
OF THE STUDY
The objective of this study will include:
1.
To
determine the extent to which the auditor’s independence and tenureship has
affected the financial reporting of corporate organization.
2.
To
ascertain whether rotational audit will help to improve the integrity and
reliability of financial statements.
3.
To
determine whether auditor long-term relationship with its client is responsible
for increase in the spate of corporate failure.
4.
To
determine if the provision of an act on the audit tenureship will enhance
integrity of financial statements.
5.
To
enhance the degree of reliability to be on audited financial reports of
corporate organization by users of financial statements.
1.5 SCOPE
OF THE STUDY
This project work is restricted to the research study on the
auditor’s independence and auditors tenureship: Implication on financial
reporting, with respect to some selected auditing firm like Ozi Odion & Co,
Rechard Ogumah & Co, Wilson Okoro & Co, and Sulima Bello & Co, all
in Edo State. Inspite of this research may be applied to other auditors but the
researcher restricted the study of these few firms since studying the whole
accounting firms would entails sampling data from every nook and cranny of the
country and the outside world. The researcher believes that any data collected
from the chosen firms would form a good representation of the general
practicing (external) auditors.
1.6 HYPOTHESIS
Ho: There is no significant relationship between
auditor’s independence and the quality of financial report.
Ho: There is no significance relationship between the
provision of an Act on auditor’s tenureship and integrity of financial
statement.
1.7 SIGNIFICANCE
OF THE STUDY
The significance of the study on auditor’s independence and
audit tenureship with concern to its implication on financial reporting are as
follows;
·
It
will provide a basis for the enforcement of regular replacement of companies.
·
It
will enhance the reliability to be placed on prepared financial statements of
corporate organizations.
·
It
will provide basis for establishment of audit tenureship Act by the government.
·
It
will serve as a reference material for future researchers.
1.8 LIMITATION
OF THE STUDY
The study investigates the auditor’s independence and
tenureship on the quality of the financial reports. It is imperative to note
that Edo State represents 2.8% of the total states in Nigeria. This severely
limits the extent of generalization one can make especially with the Nigeria
situation.
The unavailability of data relating to firms quality of
financial report resulting from the independence and tenureship of the
auditors. The problem researcher’s encounter when explaining independence and
tenureship is that managers have an information advantage over researchers.
1.9 DEFINITION
OF TERMS
ACCOUNTS: A system used to document financial
statement of a company by. It serves as a guide in decision making.
AUDITING: This is the independence examination
of the financial statement of an organization with a view of expressing an
opinion as to whether the statement shows the true and fair view and comply
with the relevant statements. This opinion is expressed in the form of a
report.
AUDITOR: An auditor is a professional
qualified accountant who is required to given an expert and independent opinion
on the credibility of the financial information in the financial statement
prepared by the directors of the company.
COMPANIES AND ALLIED MATTER ACT
(CAMA) 1990: This
decree is an improvement of the former companies Act of 1968. This decree
spells out states that by the operating a company in Nigeria.
FINANCIAL STATEMENT: These are the accounting record that
explains the transactions of the company such as the disclosure of reasonable
and accurate performance measurement of the financial position of the company.
INTERIM AUDIT: These are audits usually carried out
during and before the end of the financial year of an enterprise.
STAKEHOLDERS: This term is a collective name for
all parties interested in the affairs of a company e.g. shareholders,
creditors, government ect.
AUDIT TENURE: This term is used in describing the
length of time an auditor of a company is normally expected to hold office or
is legally permitted to occupy office as a company’s auditor.
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