ABSTRACT
Auditing is a systematic examination of books, accounts, documents and vouchers of an organization to ascertain how far the financial statements present a true and fair view of the concern. It also ensures that the books of accounts are properly maintained by the concern as required by law. Auditing is defined as a systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an enterprise for a stated purpose. In any auditing the auditor perceives and recognizes the propositions before him/her for examination, collects evidence, evaluates the same and on this basis formulates his/her judgment which is communicated through his/her audit report [www.wikipedia.org]. Auditors’ auditing of a financial record provides third party assurance to various stakeholders that the subject matter is free from material misstatement. The term is most frequently applied to audits of the financial information relating to a legal person. Other areas which are commonly audited include: internal controls, quality management, project management, water management, and energy conservation. As a result of an audit, stakeholders may effectively evaluate and improve the effectiveness of risk management, control, and the governance process over the subject manner. That an auditor has the responsibility for the prevention, detection and reporting of fraud, other illegal acts and errors is one of the most controversial issues in auditing, and has been one of the most frequently debated areas amongst auditors, politicians, media, regulators and the public (Gay et al, 2013). This debate has been especially highlighted by the collapse of both small and big corporations across the globe. The auditing profession in Nigeria has caught the media’s attention following financial scandals in some of the Nigerian banks such as Intercontinental Bank, Oceanic Bank, Afribank, and Bank PHB among others.
ABSTRACT
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
STATEMENT OF RESEARCH PROBLEM
OBJECTIVES OF THE STUDY
RESEARCH QUESTIONS
RESEARCH HYPOTHESES
SCOPE OF THE STUDY
SIGNIFICANCE OF THE STUDY
LIMITATION OF THE STUDY
OPERATIONAL DEFINITION OF TERMS
CHAPTER TWO
LITERATURE REVIEW
REGULATORY FRAMEWORK OF AUDITING
AUDITING STANDARDS AND GUIDELINES
AUDIT REPORT
GOING CONCERN AS AN ACCOUNTING CONCEPT
ACCOUNTING IMPLICATION OF NOT APPLYING
THE GOING CONCERN ASSUMPTION
CHAPTER THREE
RESEARCH METHODOLOGY
RESEARCH DESIGN
SOURCES OF DATA COLLECTION
SAMPLE SIZE
METHODS OF DATA ANALYSIS AND STATISTICAL TOOL
3.5. METHOD OF DATA ANALYSIS
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
DATA PRESENTION
ANALYSIS OF DATA
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
SUMMARY OF FINDINGS
CONCLUSION
5.3. Recommendations
REFERENCES
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
The historical development of auditing can be traced back to the 8th century industrial revolution, when our present day business organization were just evolving hence it is as business itself, Wolf (1979). Business have grown into a main complex and complicated network of contracts and activities than what used to be the case in the past. Directors now run organizations on behalf of the owners (shareholders); this has brought about stewardship accounting. Stewardship accounting is the process whereby managers of a business, account or report to the owners on the state of affairs of the business.
Aguolu (2008:1) defines auditing simply as “the independent examination of the financial statements of an organization with a view to expressing an opinion as to whether these statements give a true and fair view and comply with the relevant statutes and the international financial Reporting Standards”. The person who carries out such an examination and expresses the opinion is called an auditor.
Going concern is one of the accounting concepts; it means that the business unit will operate in perpetuity, i.e. the business is not expected to be liquidated in the foreseeable future. A business is considered a going concern if it is capable of earning a reasonable net income and there is no intention or threat from any source. The directors are mandated by the banks and allied matter act 1990 (CAMA 1990) to prepare periodic financial statements that give a summary of the business transaction for the financial period under question.
According to Millchamp (1996) “Independence is a means that the auditor meets on to play role in safeguarding the going concept to ensure that the business continues to exist in the foreseeable future.
The shareholders want reassurance that the financial transactions the board of directors prepared and represented in the financial statements/final accounts present a true and fair view of the bank/organization. It is for this reason that the shareholders/investors appoint auditors to give an attestation to the effect that the account gives a true and fair view of the state of the affairs of the business transaction for the period under review.
The financial statements prepared by the directors include;
Balance sheet
The profit and loss account
The five years financial summary
The cash flow statement etc.
When a bank is formed and is operating, it is mandatory especially for a limited liability bank to prepare a financial statement on a yearly basis. The responsibility of preparing the financial statement is being rested on the bank‟s director by CAMA 1990. The information derived from the statement s not only beneficial to the management of the bank but also to other interested parties which include the owners of the bank or in a public bank shareholder.
The management who is entrusted with the shareholders fund and resources is required as a matter of accountability to prepare a financial statement, which will show how they have managed the resources of the bank and for proper accountability, there is th need for the management to keep proper accounting records of all the activities of the bank for the given period.
If management is seen to have carried out this function objectively, then there would appear to be little or no reason for having an external auditor to verify and report on its credibility gap existing between owners and management.
As earlier stated, it is required of all limited liability banks to have their financial statements audited annually by a firm of auditors so appointed (CAMA, sect 357(i)). The law compels as above for the auditors‟ to express an opinion on such financial statements and for the opinion to be authoritative; the auditor must be seen to be independent.
Section 334 of CAMA as amended to date places the burden of preparing the financial statement of the bank on the directors while the auditor is required to report on these financial statements. The auditor comes into considerable contact with the directors in the course of his work. Legally, the auditor is responsible for the shareholders and not for the directors.
The important convention is on the level of confidence being placed or misplaced on the audit report and the ability of the report to safeguard the going concern of business especially with the series of ever increasing cases of litigation like, In the case of Enron and its auditor Arthur Anderson, Cadbury Nigeria plc and its auditor Akintola Williams. Thus, the manner in which auditors constructed audit in their interest that some of the major banks were a going concern, yet the banks were on the vague of collapse is open to conjecture. On January 28th 2008, Lehman brother received an unqualified audit opinion on its financial statements, accompanied by a green light on the health of its quarterly accounts on July 10th, 2008, Nonetheless, in the dawn of August 2008 the bank was in severe financial problems and was forced to file bankruptcy on September 14th 2008.
The reviewed ethical standards requires auditors to carefully analyze threats to their independence (this include the provision of non audit services) and to take measures that are necessary for safeguarding compromise of their independence. This implies that in some cases, the auditor is required to refuse to provide some non-audit services or even turn down the appointment, in order to comply with the ethical standards.
STATEMENT OF RESEARCH PROBLEM
Financial scandals around the world and the recent collapse of major corporate institutions in the USA, South East, Europe and Nigeria such as Adelphia, Enron, World Com, Commerce Bank and recently XL Holidays, Polly beck, Xerox, Cadbury, BCCI communication. Most public Nigerian corporations, such as NITEL, NNSL, and NRC have shaken investors‟ faith in the capital markets and on the efficacy of financial reporting and credibility of audited annual reports of banks. This has brought renewed attention on the going concern of banks in Nigeria and International economic environments.
It is noted that a considerable number of financial enterprises such as Lehman Brothers and non-financial firms such as Enron have filled for bankruptcy, shortly after receiving unqualified audit opinion. In addition, auditors have collected large amounts of money in audit and non-audit fees, which jeopardize auditor independence and objectivity. These events (inter alia) raise questions about the credibility of external audits, auditors‟ independence, relevance and quality of audit work, and the use of economic incentives for good audits.
The collapse of Enron represents a pivotal point in U.S. business history. While many deficiencies in the Nigeria business model have been highlighted, perhaps the key failure that has become salient is the failure of our auditing system to create true independence. The independence of auditors have become questionable as they have failed to exercise the public watchdog function as evidenced in the collapses of major corporations in Nigeria, and as a result to safeguard the going concern concept.
It has been observed and acknowledged that nearly 99% of the fortune 1000 public banks have no public accounting rotation policy. Non- compliance with rotation of audit firms/auditors has resulted in inferior audit performance, lack of attention to detail due to staleness and redundancy as well as unnecessary eagerness to please and maintain closeness to client. As a result auditor have failed to do a proper audit planning ahead for his audit work, planning for an audit, like in every human endeavour, is essential for the smooth performance of the audit work and its successful completion.
Every organization come into existence with the aim of continuing in the foreseeable future, even with these many businesses go into liquidation, just
few years after establishment. These uneven responses necessitated this research work. Thus, recent attention has been brought to the fore Auditors‟ vital role in safeguarding the going concern concept in our National and International economies.
OBJECTIVES OF THE STUDY
The main purpose of this study among other things is to investigate the relationship that exists between Audit and the going concern of banks. More specifically, this study is designed to:
To investigate the relationship that exists between the role of an auditor(s) and the going concern of the bank.
To assess the effect of Auditors beneficial shareholdings on the credibility of audit report.
To examine the impact of non-compliance with audit rotation policy on auditors‟ performance
To examine the effect of proper audit planning on the sustainability of Nigeria banks.
RESEARCH QUESTIONS
The study attempts to find answers to the following specific questions,
What is the relationship between the role of an auditor(s) and the going concern of the bank?
To what extent does Auditors beneficial shareholding affect the credibility of audit report?
Do Auditors‟ engagements in non-audit services affect the credibility of external audits?
Does non-compliance with audit rotation policy boost or impede auditors‟ performance?
Does effective audit planning boost or impede sustainability of Nigerian banks?
RESEARCH HYPOTHESES
H0: There is no positive relationship that exists between the role of an Auditor(s) and the going concern of the bank.
H0: There is a negative relationship between Auditors beneficial shareholdings in that firm and the credibility of audit work
H0: There is no strong correlation between Auditors‟ non-audit engagement services and external audit credibility.
H0: There is no significant impact of non-compliance with audit rotation policy on Auditors‟ performance
H0: There is a negative relationship between adequate audit planning and bank‟s going concern.
SCOPE OF THE STUDY
The research covers some banks in nigeria, as a result of the wide nature, we were able to constrain this research work to oceanic, (Office of Auditor general, Enugu, Abax-OOSA Professional, Achike Udenwa & Co, Odili Okechukwu & co). and the researcher goes further to explain variable such as; the role of an auditor, going concern concept, Auditors beneficial shareholding, Auditors‟ non-audit engagement services, non-compliance with audit rotation policy and Audit planning.
SIGNIFICANCE OF THE STUDY
Audits can improve a bank’s efficiency and profitability by helping the management better understand their own working and financial systems. The management, as well as shareholders, suppliers and financer, are also assured of risks in their organization are studied, and effective system are put in place to handle them.
It also helps to uncover inaccuracies and discrepancies within an organization‟s records which may be indications of weak financial organization or even internal fraud, although fraud detection is not the main purpose of an audit.
Other researchers, who will also want to work on the same or similar topic, might need a base from which to start their work.
LIMITATION OF THE STUDY
In carrying out a research of this nature, it is not uncommon to encounter a number of constraints in the course of completion of this study. Some of the limitations of the study include;
Financial constraint: The huge cost involved in carrying out a complete study is too much and cannot be affordable by the student.
Time constraint: The time required for this research work was not enough. This is because the research was done at the same time a serious academic work was going on in school.
Attitude of respondents: Some of the respondents refuse to answer the questions asked to them while some refuse out rightly to grant interview. This poses limitation to the completion of the work.
Data gathering restriction: The difficulty of gathering data was compounded by the reluctance on the part of the respondents to divulge relevant and important information relating to the study, just like information which were available on the internet were mostly restricted to registered members.
OPERATIONAL DEFINITION OF TERMS
Auditing: “the independent examination of the financial examination of the financial statements of an organization with a view to expressing an opinion as to whether these statements give a true and fair view and comply with the relevant statutes and the international financial Reporting Standards”.
Auditor: This is a person appointed to examine the accuracy of the accounts and records of a business organization and to report on the financial aspect at a particular time.
Audit report: This is a statement issued by the auditor of an enterprise at the end of an audit assignment, in which the auditor expresses his opinion on the financial statement prepared by the directors of an enterprise.
Bankruptcy: This is a situation where an unincorporated business i.e. sole proprietorship and partnership has been legally declared as not being able to meet its short term obligation as at when due.
Financial report: This is a statement that shows the summarized business transactions and the financial position of an organization for the period under consideration.
GAAP: General accepted accounting principle.
Stewardship accounting: Stewardship accounting is the process whereby managers of a business, account or report to the owners on the state of affairs of the business.