The Effect of Auditing in the Development of Nigerian Economy
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Abstract on The Effect of Auditing in the Development of Nigerian Economy
The primary objective of carrying out this research was to have an overview of “The Effect of Auditing in the development of Nigeria Economy”.
Fifty subjects were used as the population for the research. This research work has been logically divided into five chapters.
The first chapter entails the aims and objective of the study, scope of the study, statement of research problem, statement of hypothesis and research questions and definition of terms.
Chapter two emphasizes on literature review. Under this, opinion of different writers in journals, magazines and texts in relation to the issues at hand are considered.
Chapter three will focus on Data Research Methodology which includes Research Design, Data Collection method, Research problems, Reliability and Validity.
Chapter four is on Data Analysis and interpretation of data. This covers how the researcher collected the data recorded and analyzed to put right the issue at hand.
Chapter five highlights the summary of the researchers, conclusion and recommendation.
Chapter One of The Effect of Auditing in the Development of Nigerian Economy
Auditing is derived from a Latin word “Audire” which means “To Hear”. In the olden days, owners of business used to hear the report of how their business progresses from the manager of the business. But due to the fact that the primitive ways of keeping financial records which include making signs on board, keeping figures off hand without documentation and lack of mechanical aids for calculation had a lot of problems associated with it.
Also, the manager may deliberately decide to hide vital information for the owner of the business or even make fraud. Then the need to employ another worker to act as a watch dog to the manager arises. The new employee is known as “THE AUDITOR”.
The process by which the auditor gives the report of the position of the financial statement of a business in a true and fair manner to the owner of the business is known as “AUDITING”.
The development of auditing could be traced to the importance of scrutinizing the financial statement of an organisation. To that effect, auditing is regarded as one of the most recently established profession born out of complexity of modern business world.
However, it can be traced to an ancient time. Indeed, since men have entered into contractual relationship with one another, thereby establishing a master-servant relationship, the quest to ensure the accuracy and reliability of the resulting information has always existed.
The emergence of auditing from a historical perspective was necessitated to protect, the shareholder’s capital investment from dubious promoters. Auditing has been revolutionary and ethical in nature right from the beginning.
In the Nigerian perspective, the entire society is so worried about rising waves of theft, robbery, smuggling, corruption abuse of office, nepotism and deculturisation which hinder the country’s economic development.
This breakdown in our society discipline which can be said to have accelerated in the last decade has now assumed an alarming dimension; in fact, so alarming that the future destiny of this country is bleak. And if nothing is done to check this ugly and stupendous shameful trend, then the end product of it will better be ignored than experienced. The issue of some act of individuals having some idle funds and some others not being financially buoyant, but have the technicalities to manage business entities led to the operation of limited liability company which are owned by their shareholders and managed by directors appointed by the shareholders.
Similarly, public corporation and parastatals are owned and managed by the government. In Nigeria, individuals of course are appointed to occupy various positions and consequently constitutes the management. But one problem which has always existed in this master –servant relationship is, the shareholders or owner of the business being suspicious of the credibility of the reports, tend to have the feeling of the reports containing some errors which may have occurred either unintentionally or fraudulently so the apparent solution to this credibility in both the private and public sectors is to appoint an unbiased and independent person(s) called “AUDITOR” to investigate the financial report prevented by the management and express a professional opinion of the truthfulness of the report to the shareholders or those that appointed him.
Auditing the public corporation follows the same procedures are auditing any other form of business. Though public corporation are not profit –oriented organisation, still there is need to audit their books of account to enable the government to know how its subvention are being used and how the income generated from some of the corporation are acted for.
However, irrespective of the vital position maintained by auditors, some illiterate members of the society do to see anything good, or the usefulness of auditing.
Therefore, this project will highlight on the importance, need and effectiveness of auditing and also enlighten on whosever comes across it about the importance and objectives of auditing in order to form the reliability and credibility of financial statement. Thus bringing about a more economically developed Nigeria. so this project is a token contribution to the work of auditing profession as a vanguard of ethical revolution in Nigeria.
It sees financial corruption as a focal point of almost all our ethical problems and as springboard for all other forms of corruption. Therefore, if a determent can be found for financial corruption in our society, then the solution to other problems will follow naturally. The bone of contention on in this write up therefore is that as an ethical function and with its code of conduct, the auditing profession is the natural leader in the current national crusade to reawaken people’s social conscience and to completely eliminate corrupt tendencies for the development of Nigerian economy.
AIMS AND OBJECTIVES OF THE STUDY
Having a clearly defined aims and objectives plays a significant role in any research work. Owing to that, the following are the aims and objectives of this project.
(a) To assess the effects of auditors in the development of Nigerian economy;
(b) To assess the auditors efficiency despite the legal restriction here and there;
(c) Functions or roles of auditors – the societal view point, since it is now obvious that auditors play a very significant role in the development of the country economy as regards the effective management of available resources.
(d) To highlight the significance and indispensability of auditing and auditors to any economically progressive aspirant nation;
(e) To kick against the misconception that auditor collude with fraudsters to defraud. And that company’s spending on auditors is a necessary evil thereby wasteful.
SCOPE OF THE STUDY
Considering the vastness of the subject matter of this project, and the limited time and resources available to carry out this necessary research therefore, this project will not only focus itself on the objective role of auditors but also on their effectiveness; and consequently the impact or effect of auditing in the country’s development.
Also, the role of an auditor in the investigation when the need arises and representing their clients in various aspect, and their legal responsibilities in performing their duties. And finally, what the Nigeria economy need for its development.
STATEMENT OF RESEARCH PROBLEM
The importance of examining the financial statement of an organisation gave rise to early development of auditing. Meanwhile auditing is regarded as one of the most recently established profession, which was necessitated by the nature of modern business world.
Since the contractual relationship exists between the management and the shareholders, there has always been the desire to ensure the accuracy and reliability of the resulting information. And how far the auditors have gone in placing confidence on the audited financial statement of an organisation is what I intend to determine in this study.
It has also been rumoured that a host of auditors collude with the bad eggs of the management crew to defraud the organisation, which they found themselves. If left for me to decide, I strongly believe there is no atom of truth in that, but since my personal opinion is not enough to determine the genuiness of such critical issue, the determination of he basic answer to such allegation will form a major part of this study.
STATEMENT OF HYPOTHESIS AND RESEARCH QUESTIONS
In this study, there are certain questions, which a comprehensive answers is required, viz;
Who is an auditor?
What necessitated Auditing?
What are the basic qualifications of an auditor?
What impact has auditing in an organisation’s financial statement.
Has auditor played a significant role in checking fraud?
Do auditors collude with fraudsters?
Are these rules governing the conduct of auditing?
What are the effects of auditing in the development of Nigeria economy?
DEFINITIONS OF TERMS
The following are definition of terms relevant in this study.
(1) AUDITOR DEFINED
It is a legal requirement that a suitable qualified professional accountant subject accounts of limited liability comparies to an audit at least once in a year called be used auditor.
So an audit may be defined as “the independent examination and investigation of books, accounts and vouchers of a business with a view to enabling the auditor to report whether the balance sheet and profit and loss account are property drawn up so as to show a true and fair view of the state of affairs and the profit and loss of the business according to the best of the information and explanation obtained by “the auditor”.
It can also be defined as an independent examination of and the expression of an opinion on the financial statement of an organisation by an appointed auditor in accordance with its terms of engagement and the observance of statutory regulations and professional requirement.
(2) INTERNAL CONTROL
This refers to a whole system of control, be it financial or otherwise established by the management in order to carry on the business of an organisation in an orderly manner; safeguard its assets and secure as far as possible the accuracy and reliability of its records. It is also established to ensure the judicious application of the organizational resources.
(3) INDEPENDENCE DEFINED
The concept of auditors independence has generated a lot of argument, and different interpretations have been given to it. As regards this study, the concept relates to the ‘INDEPENDENCE OF MIND” of the auditor to independently perform his duties without fear or favour of anybody.
(4) INTERNAL AUDITING
This can be defined as an independent appraisal of activity within an organisation for the review of operation as a service to management. It is a managerial control which functions by measuring and evaluating the effectiveness of other controls.
(5) EXTERNAL AUDITING
External Auditing could also be referred to as independent auditing. It is the examination and review of accounts, financial statements and bound of organisation by an interdependent (external) auditor who will after the review express a professional opinion on the truth and fairness of the statement presented to him; and the state of affairs of the organisation. The auditor, who is an employee of an organisation, is normally appointed for a period of one year.
In this context, qualification refers to certain position, which a person must attain before he could be granted the right to act as an auditor.
As provided by ICAN act of 1965 to be applied in respect any auditing carried out under the decree this implies that an auditor must be a member of the INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA (ICAN) with practising certificate. Consequently, during the period, Nigeria was a colonial state under the British colony, the promulgated decree was also applicable to Nigeria which was then their colonial state. However, hardly could one find the work of auditing carried out by a Nigerian for the company operating in Nigeria. At that time, almost all the work of auditing were carried out by the colonialist serving as agent in Nigeria to their superior who were the owners of those business in Nigeria.
In 1960, when Nigeria got her independence, there was the need and a move toward an indigenous auditing which was known as “Nigerian Auditing” however with Nigeria having little knowledge of auditing and accounting practise, the so-called Nigerian auditing was still under the control of the whites. The auditing profession, still dominated by the foreigner could not allow Nigerians to know the profession better. This was in no time notable due to the foreign auditors repatriating profit from Nigeria to their own country which was the practise right before a independence in 1960.
Then Nigerian government was called upon to ensure that Nigeria personnel or auditors were placed on the auditing work by the first civilian government institution in Nigeria from the years 1960 to 1964. There was no strong body responsible for the auditing aspect, there was no professional body to work as a team to protect the needed auditing services until 1965, a move was made by the Nigeria professional accountants to form an association named “Institute of Chartered Accountant of Nigeria” (ICAN). This body was however regarded by some Nigerians as a replicant of institute of Chartered Accountants of England and Wales (ICAEW).
Finally, the bodies were able to give the qualification of auditors. The qualification can be of social or professional aspect.
Professionally, before one can be an auditor, you must have passed the qualified exam as stipulated by ICAN also, you must have had nothing less than 30 months experience as an apprentice under a practicing chartered accountant. This 30 month, experience includes experience acquired before you qualified and after the qualification i.e (pre-qualification and post qualification) as a chartered accountant. Finally you must have been issued with a licence to practice as an auditor by ICAN.
The social aspects are as follows:
(i) You must be a minor (ii) You must not be a bankrupt
(iii) An insane person cannot be an auditor
(7) TERMS OF APPOINTMENT: The party appointing an auditor may fix its terms of appointment. For a statutory audit, the implied terms of appointment is the expression of audit opinion. The auditor is free to do whatever work he considers necessary for the formation of opinion. The law in this regard fixes his duty as the client who appoints him cannot restrict it.
(8) FINANCIAL STATEMENT: This contains summarized information of the firm’s financial affairs. They are the means of presenting the firm’s financial position to owners, creditors and the general public.
(9) OPINION: The auditor opinion usually geared towards saying whether the account shows a “true and fair view” is one picked out of legislation.
(10) INTERNAL AUDIT
(11) MANAGEMENT AUDIT: This is an audit approach which involves examination of management activities in order to ascertain whether the rules and regulations established by management are being properly followed. This type of audit cannot be easily carried out by internal auditor. External auditor must be diplomatic, where this type of audit approach is adopted.
(12) SYSTEM AUDIT: This is an audit approach which involves valuation of internal control system established within the enterprise. The objective of this type of audit is to enable the auditor to ascertain effectiveness or otherwise of the internal control system and also to determine whether information generated or obtained under the system can be relied upon. In practise, system audit are normally being carried out within the accounting period of a business enterprise after which a management letter shall be issued stating the weakness in the system as well as the effect on the enterprise and how the weakness can be improved upon.
(13) TRANSACTION AUDIT: This is also referred to as vouching. It is an audit approach which involves examination of various transactions carried out by the enterprise within the period. The objectives of transaction audit is as follows:
(a) To ascertain the authorization and approval of the transaction
(b) To enable the auditor to determine the cost of the transaction.
(c) To identify whether the transactions are complete, accurate and valid.
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