ABSTRACT
A
significant contribution to the development and survival of business
organization is the role that auditors play. This research work, The Role of
Auditors in Small business organizations, give a broad understanding of what
the auditors role entails.
In the course of this research, data was
collected by means of questionnaire. The collected data were analyzed with the
aid of percentages. Further analysis was done on relevant information. The
statement of research hypothesis was tested using chi-square distribution.
The use of internal control
questionnaire and evaluation forms by auditors, to ascertain and evaluate the
strengths and weaknesses of internal control systems of business organization,
with a view to determining the degree of reliance to be placed on the internal
control system, is a major finding of this research.
The recommendation made in respect of
the above finding, is that internal control questionnaire and evaluation forms
which auditors use in ascertaining and evaluating internal control system
should be constantly reviewed and revised in light of current changes made in
clients internal control systems.
TABLE OF CONTENT
Title page…………………………………………………………..ii
Certification………………………………………………………iii
Dedication………………………………………………………..iv
Acknowledgement………………………………………………v
Abstract…………………………………………………………..vii
Table of contents………………………………………………..ix
CHAPTER
ONE: Introduction
1.1
Background
of the study……………………………….1
1.2 Statement of
the problem………………………………4
1.3 Objectives of
the study………………………………….6
1.4 Scope of the
study………………………………………..7
1.5 Statement of
research hypothesis…………………….8
1.6 Significance
of the study………………………………..9
1.7 Limitations of
the study……………………………….10
1.8 Method of data
analysis……………………………….10
1.9 Definition of
terms……………………………………...11
References……………………………………………………….15
CHAPTER
TWO: Literature Review
2.1
Introduction…………………………………………….16
2.2
Business
organisation- an over view……………..16
2.3
Nature
of auditing…………………………………….17
2.4
Purpose
of auditing…………………………………..19
2.5
Objectives
of auditing………………………………..20
2.6
Types
of audit………………………………………….22
2.7
Qualities
of an auditor……………………………….23
2.8
Responsibilities
of auditors…………………………24
2.9
Appointment
of auditors…………………………….25
2.10 Removal of auditors………………………………….28
2.11 Qualification of an auditor………………………….29
2.12 Rights of an auditor………………………………….30
2.13
Remuneration of auditors…………………………..32
2.14
Duties of an auditor………………………………….32
2.15
Resignation of appointment………………………..34
2.16
Auditors report………………………………………..35
2.17
Professional considerations………………………..36
2.18
Role of auditors in business organisation………41
2.19
Qualities of financial accounts……………………48
2.20
Internal auditing in business organisation…….49
2.21 What internal auditors do…………………………..50
2.22
Audit approach………………………………………..51
References……………………………………………………….53
CHAPTER
THREE: Research Methodology
3.1 Introduction…………………………………….………..55
3.2 Research
design………………………………………...55
3.2.1 Sources of
data collection…………………………….55
3.2.2 Instrument for
data collection……………………….56
3.2.3 Data
presentation and analysis……………………..57
3.2.4 Chi-Square (x2)…………………………………………..58
3.2.5 Decision
rule……………………………………………..60
References……………………………………..………………..61
CHAPTER
FOUR: Data Presentation and Analysis
4.1 Introduction……………………………………………...62
4.2 Analysis and
interpretation of data…………………63
4.3 Test of
hypothesis………………………………………90
4.4 Accounting
services…………………………………..103
4.5 Verification
of financial statement………………..103
References……………………………………………………..105
CHAPTER
FIVE: Summary of Findings, Recommendation and Conclusion
5.1 Introduction…………………………………………….106
5.2 Summary of
findings…………………………………106
5.3 Recommendations…………………………………….109
5.4 Conclusion……………………………………………...113
References……………………………………………………..116 Bibliography…………………………………………………..117
Appendix……………………………………………………….121
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
According
to the third national development plan (vol. 1 page 353) “manufacturing
establishment employing less than 10 people or whose investment in machinery
and equipment do not exceed N600, 000
are referred to as small scale industries.
In the credit guidelines of the Central
Bank of Nigeria (C.B.N) small scale enterprise are classified as those business
with an annual turnover of less than half a million naira. Currently, as given
by the government, small scale industry refers to those industries with a
capital investment not exceeding N150,
000 in machinery and equipment alone.
Today, every business organization
intends to continue as a going concern, i.e. continue to acquire assets,
increase sales, improve profit margin, to remain in operational existence into
the foreseeable future and not having any intention to curtail or significantly
reduce its scale of operation.
To acquire this aim, the organization
will have to institute sound internal control and accounting system, appoint
directors and managers to direct the affairs of the business and to ensure that
the funds intended to achieve this aim are well applied.
Business organization who successfully
put these structures in place may yet fail to develop and survive in isolation
of the auditor. It is evidenced by the fact that the directors and managers who
are expected to manage the funds and direct the affairs of the business may
begin to perform their activities with non-challant attitude knowing fully well
that their work will be checked by an independent person (the auditor), as a
result, funds may be misapplied, diverted, embezzlement may be on the increase,
loss of confidence by shareholders on directors. e.t.c. with all these, the
organization may no longer be able to continue as a going concern, and this
will eventually result to the liquidation of the business.
No doubt, the role of an auditor in the
development of small business organization is inevitable. With the role of
auditor in force, the directors and managers are more careful in performing
their duties as they may want to protect and maintain their integrity. As a
result, mis-management, diversion, mis-application and embezzlement of funds
will be greatly checked. The auditors’ role in achieving these may include:
reviewing the controls of the organization in the traditional areas of
accounting and finance to ensure compliance and contemporary areas of
personnel, marketing, sales, and production, to ensure efficiency of the
economy. e.t.c.
During
the audit, frequent correspondences are made between the auditor and the client
such as internal control letter, management letter, letter of representation,
all aimed at ensuring the survival of the business. At the end of the audit, a
final audit report is made to the shareholders to boost their credibility on
the directors.
This
project brings out in details what auditors do in practice that is, their roles
in the development and survival of small scale business organization.
A
substantial aspect of this project shall focus on external auditing with
particular reference to small business organizations in Akoko-Edo.
1.2 STATEMENT OF THE PROBLEM
Though
in most cases, small business organizations are usually operated by their
proprietors, yet there is still many of those small business organizations
whose management is rested on people other than the proprietors hence the need
for audit arises.
However,
in the course of this research, the following problems are to be examined.
1)
Do auditors in small-scale business,
comply with the provisions of the companies and Allied matters Act 1990 (CAMA)
in the execution of his audit assignment?
2)
How efficient is their internal
control mechanism?
3)
Do audited accounts present a “true
and fair view?
4)
What are the auditors’
responsibilities in the accounts of the business organizations?
5)
Has cases of fraud and error been
prevented in the business?
6)
Is the principle of independence and
honesty, competency observed in small scale industry?
7)
Do the auditors get all necessary
information and right access to the business books of accounts and financial
statement?
1.3 OBJECTIVES OF THE STUDY
The
main objective of this research work is to appraise the auditor himself in
respect of the role he plays in the firm such as:
1.
To ascertain whether auditing is aimed
at checking the internal control system adopted in business organizations.
2.
Ensuring that Auditors in small
business organizations comply with the companies and Allied matters Act 1990
provisions in the execution of his audit.
3.
To ascertain the auditors
responsibilities in the accounts of the business organization.
4.
To ensure that the audited work
represent a true and fair view of the records.
5.
The auditor should check fraud and
error.
6.
Ensuring that the principles of
independence, honesty and competency are observed in the business.
7.
The Auditor should have access to all
the necessary information and assess to the business books to help the
proprietor have a sound accounting techniques.
1.4 THE SCOPE OF THE STUDY
This
research work looks at the role of the auditors in small scale business
organizations with reference to small scale business organizations in
Akoko-Edo. It takes a critical look and reveals the various activities of the
auditors in order to ascertain the performance of the internal control of small
business organizations.
An insight as to the correctness and
accuracy of the records kept by small business organization will be looked into
and the auditors areas of concentration will be emphasized.
1.5 STATEMENT OF RESEARCH HYPOTHESIS
The under listed hypothesis are
formulated for testing in this research study. Scientific test of these
hypothesis are employed to arrive at reasonable conclusions. The formulated
hypothesis for considerations includes
a)
Ho: The auditor does not help to check the internal control system in small business organizations.
Hi: The auditor helps in
checking the internal control system in small business organization.
b)
Ho: The auditors do not play a significant role in the development and survival
of small business organization.
Hi: The auditors play a
significant role in the development and survival of small business
organization.
1.6 SIGNIFICANCE OF THE STUDY
The research work is an investigation
into the role of the auditor in small business organizations with reference to
small business organizations in Akoko-Edo.
Its purpose is to show the importance of
an auditor to users of accounting information such as:
a.
Government
b.
The public
c.
Management/managers
d.
Creditors
e.
Private individuals
f.
Tax analyst e.t.c.
Its
also based on correcting the wrong interpretation of the role of auditors in
small business organization.
1.7 LIMITATIONS OF THE STUDY
A lot of limitations was encountered in
collecting information in carrying out this research study. The problems of the
executive officers willing to give information or have a direct interview with
the researcher.
Financial constraint is inevitable
considering the present economic situations. Due to lack of finance at the
researchers disposal it was not possible to capture many small scale
businesses.
In developing countries like Nigeria,
there is the problem of insufficient data.
Furthermore, the organization secrecy as
to relating their financial report to the researcher was also faced.
1.8 METHOD OF DATA ANALYSIS
Most analysis was done by means of
tables and percentages. Tables were drawn, to show the various response of the
question raised in the survey. In testing the two hypothesis, chi-square (X2)
is used in that, the data are discrete and variables studied are independent of
one another.
1.9 DEFINITIONS OF TERMS
Terms used in the course of this study
are explained in relation to what it stands for. They include:
1) AUDIT:
Okolo (1987:7) defined Audit as “an objective and conscientious examination of
a statement of account, the underlying records and all the available evidence
relating to the statement of account as will enable the auditor to form an
opinion as to whether it represent a fair and true view of whatever it purports
to represent and to report accordingly.
2) AUDITING:
Mautz and Sharaf (1961) say that auditing is concerned with verification, the
examination of financial data for the purpose of judging the faithfulness with
which they portray events and conditions
3) AUDITOR:
An auditor is an independent professionally trained accountant who deals with
statement of accounts relating to different organizations. Austin. O. Okolie
(2007).
4) EXTERNAL AUDIT:
Okolie (1988:61) defined external audit as “the independent, objective and conscientious
examination of a statement of account, the underlying documents, physical
assets and all other evidence as will enable the auditor to form an opinion as
to whether or not the statement of account presents a true and fair view of
whatever it purports to represent, and to report accordingly”.
5) INTERNAL AUDIT:
Millichamp (1990:434) defined internal Audit as “an independent appraisal
function within an organization for the review of systems of control and the
quality of performance as a service to the organization. It objectively
examines, evaluates and report on the adequacy of internal control as a
contribution to the proper economic, efficient and effective use of resources.
6) FINANCIAL STATEMENT:
Ayaduba (1996:16) defined financial statements as “periodical financial reports
of accounts and other related documents that highlight the financial position
of an enterprise as well as its profitability.
7) INTERNAL CONTROL:
Millichamp (1990:76) defined internal control as the whole system of controls,
financial and otherwise established by the management in order to carry on the
business enterprise in an orderly and efficient manner.
8) FRAUD:
Okolo (1988) it is used to refer to the intentional mis-representation of
financial statement/information or mis-appropriation of assets which could
result in mis-statements of an entity’s financial statements by proprietors,
management, employees, third parties e.t.c.
9) ERROR:
Okolo(1988): this refers to unintentional mistakes in preparing financial
statements.
10) AUDIT PROGRAMME:
Austin .O. Okolie (2007): is a list of audit assignments detailing work to be
carried out by the auditor.
