ABSTRACT
The study was
intended to examine the effects of audit report on annual financial reporting
quality of organization (a case study of Enugu metropolis).
This
study was guided by the following objectives; Determine the cause of issuing
unprofessional audit report by professional auditors, Ascertain the benefits and limitations
associated with this auditing concept, Determine the perceived roles of audit
report on financial reporting.
The study employed the survey research design;
questionnaires in addition to library research were applied in order to collect
data. The population of this study comprises all the auditors in Enugu
metropolis.
Primary
and secondary data sources were used and data was analyzed using the
correlation statistical tool at 5% level of significance which was presented in
frequency tables and percentage. The respondents under the study were 30
auditors from each of the firms in Enugu
metropolis.
The
study findings revealed that audit
report affects the financial report positively; that auditor report makes the
financial report credible.
The
outcome of this research will improve the quality of accounting information
offered by the auditors, represent a gain both for users and society in
general, contribute to the development of the profession and promote the good
name of the external audit.
TABLE OF
CONTENTS
Title Page - - - - - - - - - i
Approval Page - - - - - - - - ii
Declaration - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgement - - - - - - - v
Abstract - - - - - - - - - vi
Table of Contents - - - - - - - vii
CHAPTER
ONE – INTRODUCTION
1.1 Background of the Study - - - - -
1.2 Statement of General Problem - - - -
1.3 Objective of the Study - - - - - -
1.4 Research Questions - - - - - -
1.5 Hypothesis
- - -
- - -
- - -
1.6 Significance of the Study - - - - -
1.7 Scope of the Study - - - - - -
1.8 Definition of Terms - - - - - -
CHAPTER
TWO – REVIEW OF RELATED LITERATURE
2.1 Introduction - - - - - - - - -
2.1 Conceptual frame
work - - - - - - -
2.1.1 Audit report - - - - - - - - -
2.1.2 Quality of
report - - - - - - - -
2.1.3 Effectiveness
of Internal Audit Function - - - -
2.1.4 Organizational
performance - - - - - -
2.1.5The relationship
between auditors and the efficiency of an organization - - - - - - - - -
2.2 Theoretical frame
work - - - - - - -
2.2.1 Agency theory through
auditing (Mills, 2009) - - -
2.2.2 Capture theory - - - - - - - - -
2.3 Empirical Review - - - - - - - - -
2.3.1 Literature on
the objectivity of audit report - - -
2.3.2 Internal audit
reporting channels - - - - -
2.3.3 Internal audit report
completeness - - - - -
2.3.4 Internal audit
report timeliness - - - - -
CHAPTER
THREE – RESEARCH METHODOLOGY
3.1 Introduction - - - - - - - - -
3.2 Research Design - - - - - - - -
3.3 Area of the Study - - - - - - - -
3.4 Population of Study - - - - - - - -
3.5 Sample size and Sampling Techniques - - - - -
3.6 Instrument for Data Collection - - - - - -
3.7 Validity of the Instrument - - - - - - -
3.8 Reliability of the Instrument - - - - - -
3.9 Method of Data Collection - - - - - - -
3.10 Method of Data Analysis - - - - - - -
CHAPTER
FOUR – DATA PRESENTATION AND ANALYSIS
4.0 Introduction - - - - - - - - -
4.1 Data Presentation and Analysis - - - - - -
4.2 Characteristics of the Respondents - - - - -
4.3 Data
Analysis - - - - - - - - -
4.4 Testing Hypothesis - - - - - - - -
4.5 Summary
of Findings - - - - - - - -
4.6 Discussion of Findings - - - - - - -
CHAPTER
FIVE – SUMMARY, CONCLUSION AND RECOMMENDATION
5.0 Introduction - - - - - - - - -
5.1 Summary - - - - - - - - - -
5.2 Conclusion - - - - - - - - - -
5.3 Recommendations - - - - - - - -
References
- - - - - - - - - -
Appendix - - - - - - - - - -
CHAPTER
ONE
INTRODUCTION
1.0 BACKGROUND TO THE
STUDY
In the wake of the financial crisis of
2007–2009 and the failure of a number of global corporate entities, investors,
analysts and regulators continue to wonder exactly what happened, what could
have prevented it, and what measures can be taken to ensure it doesn’t happen
again. With companies collapsing on the heels of financial reports that sounded
no alarm bells for current or potential investors, it’s understandable that the
quality of financial reporting is coming under scrutiny. While there are
numerous discussions and activities underway around auditing standards,
judgments, estimates and other technical reporting components, audit committees
may find it valuable to consider the connection between audit report and the
quality of financial reporting. If sound and relevant financial reporting is
one of the direct results of a quality audit report – and I believe that it is
– then the immediate questions to ask may be: what does “audit report” mean?
Will current audit reform proposals improve the quality of audit reports? And
how can the audit committee help the process?
A reliable audit report is imperative
in corporate organizations where the retention of public confidence remains of
utmost importance. In this regard, the
auditors are the essential fulcrum upon which the concepts of objectivity, fairness
coupled with independence and integrity of financial reporting rest. This assertion, notwithstanding, it suffices
to say that reports from statutory auditors are still challenged. Financial scandal is an undesirable
occurrence that had threatened the going concern status of many corporate
organisations in Nigeria. In spite of
frequent development in technology such as computer assisted audit technique,
internet, automated accounting system etc, financial scandals in both public
and private organisations still top the headlines of Nigerian newspapers on
daily basis.
The auditor's
report is a disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit or public]], among others) as an assurance service in order for the user to make decisions
based on the results of the audit.
An auditor's report is considered an essential tool
when reporting financial information to users, particularly in business. Since
many third-party users prefer, or even require financial information to be
certified by an independent external auditor, many shareholders rely on auditor
reports to certify their information in order to attract investors, obtain
loans, and improve public appearance. Some have even stated that financial
information without an auditor's report is "essentially worthless"
for investing purposes.
Stakeholders too often see the audit report
as a relatively discrete document when, in fact, the processes and controls
that ensure the broader integrity of the audit report comprise much more than
the audit opinion itself. These processes and controls range from the company’s
collection and recording of financial information to the actual audit, through
to the issuance of the annual financial report. As a result, the quality of
financial reporting – so critical to investor confidence and transparency is
directly dependent on the quality of the audit report. The value of an expert,
independent opinion on a company’s financial statements simply can’t be
underestimated. And the simple knowledge that the audit team is coming,
combined with the requirements and internal controls that exist around it,
exerts a preventative, quality-control pressure on financial statement
preparation – even before the audit takes place.
Effective audit report starts with a
thorough understanding of the context within which the client and other key
stakeholders operate. This context involves both the governance and management
process, and the accountability arrangements that bind them together, In
Nigeria, the spate of corporate failure witnessed in the financial sector in
early 1990’s brought auditors into focus and caused the Nigerian public to
question the roles of auditors (Ajibolade, 2008) Also, an emerging body of
literature argues that accounting professionals have increasingly used their
expertise to conceal and promote anti-social practices (Bakre, 2007), study by
Bakre (2007) also documented various cases in which accountants and external
auditors in collaboration with management and director of companies falsify and
deliberately overstate accounts.
Investigation into financial report of Afribank (Main street plc)
implicated Akintola Williams and Deloitte in facilitating an over statement of
the banks account by the management.
Other Nigerian cases have also been documented in which a number of
professional accounting firms were involved and indicted for anti-social practices such as issuing fake and
unqualified audit report in conflict with their professional claims in an attempt to be acting in public interest
and it was suggested that the matter needed further investigation (Bakre,
2007).
The finality of the auditor’s work is
made by writing a report, by the help of which it expresses an opinion over the
audit financial situations so that any user of this information is able to take
decisions based on it. “The report represents the means by which the auditor
tells the holders and to any other interested users, the way in which it is satisfied by the way in
which the financial situations have been made”(Dobro?eanu,
2002).
Audit report is a commercial document
in which it is shown the length of the done audit papers by the auditor and the
professional opinion that he/she has reached as a result of analyzing financial
situations. It represents the final product of the auditor’s work and the only
document through which can be appreciated the professionalism. Moreover, the
purpose of an audit is “to improve the degree of trust of the users across the
financial situations. This thing is obtained by expressing an opinion by the
auditor. ”(Manual of International
Standards, 2009). The problem is that, most of the times it is expected for an
answer from the auditors which shouldn’t be given according the law. “The
opinion of the auditor concerning the financial situations treats the way in
which the financial situations are prepared, in all significant aspects, according
to the general frame of applicable financial report”(Manual of International Standards, 2009).
It is important to note that auditor's reports
on financial statements are neither evaluations nor any other similar
determination used to evaluate entities in order to make a decision. The report
is only an opinion on whether the information presented is correct and free
from material misstatements, whereas all other determinations are left for the
user to decide.It is also important to get conscious of the fact that the audit
does not mean remaking all the accounting documents. It uses sample techniques
and significance thresholds in verifying the transactions or analyzing the
indices so that a professional opinion could be formed. This way can be
expressed the opinion of “reasonable” and “solid” or “clear image” even if the
firm has some financial difficulties.