EXTRACTED FROM LITERATURE REVIEW
2.1 Definition of Audit
Audit has been defined
in various ways but with little variations. According to Benin (2001)
in his dictionary of management, Vol. 2 defined audit as a critical
examination and analysis of an activity by an independent person
performed to check the efficiency of the activity and often to check
security. This definition is however narrow.
encyclopedia of social sciences defined auditing as concerned with the
independent verification of the statement of financial position and the
results of operations of an entity.
In Penguin Dictionary of Commerce
it was defined as “inspection of a set of books and or accounts by a
person other than the one who prepared them (with the object of
ascertaining whether or not the books are properly kept and or the
accounts shows a true and fair view of the state of affairs of the
organization at the data stated) followed by a report to the persons by
whom the auditors were appointed.” (Greener, 2000)
However, the up to
date definition being accepted by many professional bodies is the one
defined by the consultative council of Accountancy bodies (CCAB).
to the definition, an audit is the independent examination of and
expression of opinion on the financial statements, of an enterprise by
an appointed auditor in pursuance of that appointment and in compliance
with any relevant statutory obligation. The statement adds that the
responsibility for the preparation of the financial statements and the
presentation of the information included there in rest with the
management of the enterprise. The Auditor’s responsibility is to report
on the financial statement as presented by management. Jim Ade notes
that the main purpose of an audit is to show whether financial statement
reflect true view of organization position.
The preparation of the
accounts of local government is a very complex operation with differing
orientations, legal systems and accounts and control systems. The
examination of such account by independent expert trained in the
assessment of financial information is of benefits to those who control
and operate such local government as well as to the nation.
clear in all the definitions state above that what is important in this
case is the independability, checking the verification and efficiency of
the system, ascertaining whether the proper books of accounts are
maintained not so as to show a true and fair view of the state of affair
of the organization on which the auditing is built.
Though there is
variation in language and choice of words used by the different authors,
it is crystal clear that they are all saying the same thing.
- A Synopsis of Local Government Audit
In a series lecture by Jim Ade of the Esan West Local Government
Council, he noted that the study of local government audit is as
important as auditing in every other sector including the financial
sector of the economy. This is because local government being the
closest government institution to the people at the grassroots demand
adequate financial resources, which of properly controlled would benefit
the rural communities
Jim reports that in local government, there is
a department referred to as finance and treasury department. This
department is charge with the responsibility of ensuring that local
government or public fund is well administered. This, it achieved by
receiving fund, expending fund and properly accounting for it.
at a particular point in time an independent person known as an
internal auditor checks to ensure that these functions (receiving funds,
expending funds and accounting for them) are adequately performed
government audit therefore, is an examination of financial statement or
records of the local government in order to established if they show a
true and fair view.
- Qualities of an Auditor
- Independence: An auditor is expected to
be an independent person to be able to function effectively.
Independence enables an auditors to have an independent or unbiased
opinion about the state of affair of local government
- Technical Competence: This is an ability to
express an opinion in a logical manner. He should be able to analyze any
financial situation. No matter how complex it is.
- Computer Literacy: An auditor is expected to be
computer literate. He is expected to be aware of all the going on in the
computer technology environment.
- Analytical Knowledge: As an auditor, you, are
expected to have a strong analytical skill. This involved explaining and
analyzing a situation in numerical terms. Source: (Jim Ade, 2012: EWLG
- The Objective of Local Government Audit
The objective of an audit is to detect irregularities or fraud. As
stated by the consultative council of accountancy bodies (CCAB) the
responsibility for the prevention and detection of irregularities and
fraud rests with the management who may obtain reasonable assurance that
this responsibility will be discharge by instituting an adequate system
of internal control.
The auditor’s duties do not requires him
specifically to search for fraud unless required statute or the specific
terms of the agreement. However, the auditor should recognized the
possibility of material irregularities or fraud which could unless
adequately disclose, distort the results or state of affairs shown by
the financial statement therefore the conducting of an audit is itself
can often discourage any attempt to institute, irregularities or fraud.
the detecting of fraud and errors and prevention of errors and fraud in
the accounting system is what is considered the secondary objective of
The now almost notorious expression of Lopas, L.J. in the
case of Kingston Cotton Mill Company Limited (1896) that the auditor “is
a watch dog not a blood hound” is very obvious
When a statement of
account is presented to government auditor, he will need to scrutinize
the underlying documents such as receipts, payment vouchers, various
ledgers, bank tellers, bank statements etc. He will also ask for
explanation and information from the officers of the organization whose
accounts he is auditing.
Besides, the auditor will need to examine
the physical assets and the organization such as buildings, plants and
machinery, motor vehicles, stores, the auditor in trying to satisfy
himself as to the correctness or otherwise of the statement of the
account he is examining.
His final report will be based on the opinion he has formed on this examination
the radical changes in Nigeria today where most Nigerians, including
high placed government functionaries and officials do not see any need
for judicious spending of public funds thus erroneously believing that
they are gold mine from which to help themselves, move emphasis is now
been placed on the treatment of the discovery of fraud as a primary
Okolo (1997) had added more colour to this fact by saying
“it is my submission that the auditing which stipulates that the
discovery of errors and fraud is not a primary objective of an audit is
not applicable to the audit of public funds in Nigeria.
has to be stated therefore that the auditor general (A.G) of the
federation and the directors of audit of the various states of the
federation are not only interested in the correctness of the financial
statement, there are also very much interested in the prudence with
which public funds are managed hence is of expenditure and sometimes
queries as “unreasonable expenditure”.
The financial Memoranda has
given credence to this by stating in chapter 40.2 that one of the
objectives of the external auditor is to assisting in protecting the
assets and interests of the local government by carrying out a
continuous examination of activities in order to detect fraud,
misappropriation, irregular expenditure and losses due waste,
extravagance and maladministration.
Section 117 of the constitution of the federal republic of Nigeria provides the following
- There shall be a director of audit for each who shall be
appointed in accordance with the provision of sec. 118 of this
- The public accounts of a state and all office courts and
authorities of the state, including persons and bodies established by
law entrusted with the collection and administration of public moneys
and assets shall be audited and reported on by the director of audit,
and for that purpose, the director of audit or any person authorized by
him in that behalf shall have access to all books, records, returns and
other documents relating to these accounts.
- The director of audit shall submit his reports to the house of
assembly of the state and the house shall cause the reports to be
considered by a committee of the house responsible for public accounts.
- in the exercise of his functions under this constitution, the
director of audit shall not be subjected to the direction or control of
any other authority or person. (FRN, 1999).
- Types of Audit and its Application in Local Government
The range and dept of audit work undertaken in any given situation
will depend upon the auditor’s owe assessment of the system which
produces in the first place the records which he is required to audit.
Since both the complexity and dependability of systems are almost
infinitely variables, the length of time taken to conduction audit and
the number of level of audit personnel to require to do so, are equally
variable. It is possible to draw up the following broad classification
given by Howard (2001)
- Complete or final audit
- Continuous audit
- Procedural audit
- Management audit
- Balance sheet audit
The clans of audit applicable to the local government accounts is a
combination of final, complete audit and continuous audit. The former
applied at the close of the financial year. Financial statements for
that year one sent to Edo state director of audit through the principal
auditor of the various local government areas. The relevant records such
as the following will obtained from the council.
- Payment vouches
- Departmental vote expenditure account (DVE)
- Departmental vote revenue account (DVRA)
- Expenditure abstract
- Investment abstract
- Investment ledger
- Investment ledger
- Advances ledger
- Deposit ledger
- Bank statement tellers and cheques stamps
- Annual financial statement
- Contract register