THE ROLE OF AUDITING IN ENSURING ORGANIZATIONAL EFFECTIVENESSCHAPTER ONE
OVERVIEW
Corporate performance management is the area of business intelligence
involved with monitoring and managing an organizations performance such
as revenue, returns in investment, overhead, operational cort etc.
Price Walter house Cooper (2012) noted that it provides the avenue
for translating a company’s strategy into measurable targets, in
monitoring and evaluating how the company is doing. Corporate
performance management gives management, investors, and other
stakeholders a real time picture of how the organization is actually in
line with its corporate targets so that corporate actions can be taken
where necessary.
Margaret (2011) pointed out that it encompasses strategic planning,
budgeting, forecasting, work fork, reporting, modeling, scenario
planning, profitability analysis, key performance indicate monitoring
and consolidation as it addresses both financial and generating
activities of the business entity.
The key performance indicators according to Massey (2011),
means the company’s progress as they relate to its goals and strategy
and are usually enshrined in the financial statement of such companies.
Harper (2012) and institute of centered accountant of Nigeria (2009)
defined the financial statement as a formal record of the financial
activities of a business, person or other entities; relevant information
about the reporting entity are presented therein the financial
statement and in a structured and easily understandable manner, having
the following components.
- Statement of financial position showing report on assets, liabilities and equity
- Statement of comprehensive income and expenses (Known as profit and loss statement)
- Statement of cash flow
- Statement of comprehensive changes in equity
- Notes to the financial statement.
The very essence of financial statement is deeply routed in
the companies and Allied matters Act (2004:5331) which states that
“every company shall keep proper accounting record and such records
shall be sufficient to show and explain the transactions of the company
and shall be such to:
- Disclose with reasonable accuracy, at anytime, the financial position of the company and
- Enable the directors ensure that the financial statements prepared
comply with the requirement of the Act with regard to form and content.
Information emaciating from the financial statements are so
vital that it helps a wide range of users such as shareholders,
government, financial institutions, employees, creditors/suppliers,
media, the general public etc. in making economic decisions.
Kleinschmidt (2007) pointed out that the very fact that
ownership of companies differ from management, their trust is not enough
to guarantee the accuracy of such financial statements prepared by
management as they emphasized tend to conceal the following:
- Weak internal control mechanism
- Presence of material misstatement and on errors that tend to depict a
financial position different from what actually exist in the company.
- Non compliance to statutory, accounting professional guidelines/requirements.
- Fraud, other financial irregularities as many be perpetuated by management and on employees of the companies.
On account of the above challenges, the need for an independent
appraisal of the state of affairs in any company cannot be over
emphasized. Little Wonder Paul (2009) was quoted to say that “an audit
can be compared to an annual checkup with the doctors, the auditor being
the doctor while the company is the patient” in the same vein, section
359(1) of the companies and Allied Matters Act (2004) mandated and the
need for auditing of companies individuals and on government accounts to
guarantee a reasonable level assurance that the financial statement are
true and fair, represent state of affairs at the company. This, Okezie
(2008) pointed out helps to reduce or settle disputes that might
otherwise arise regarding acceptance of the annual reports and accounts
of companies.
In the lights of the foregoing, the researcher shall
examine auditing, not just as a concept but also as an exercise, with a
view to determining its place as the backbone of organizational
effectiveness.
STATEMENT OF THE PROBLEM
Modern-day organizations are increasingly facing performance driven
challenges that tend to erode the confidence placed on the financial
statements prepared by management of these companies (Bamidele, 2009).
In charting the course for other scholars, Okozie (2008)
frowned at the problems trailing the absence of auditing which, when
unattended to, could hamper the quality, form, disclosure requirements
of financial statements. These are;
- Presence of weak interval accounting control system which tends
to give unwarranted forous to some dubious company management and or
employees
- Material misstatement of crucial assets liability or capital item.
This, in turn, leads to financial statements that do not fairly and
truly represent the state of affairs at the company.
- Gross violation of statutory provisions, professional guideline as
well as weak level of corporate government which if uncorrected, may
bring down heavy fines in the company by the various regulatory /
professional bodies.
- The unattractiveness of company’s shares due to unaudited nature of its account which might scare off investors.
Wikipedia (2012) posited that auditing as a vital part of accounting
which provides an assessment of a company’s internal control, seeks not
only to solve the above mentioned challenges but also to provide an
assurance that financial statements are of the highest quality which
would impact on the effectiveness of such reporting entity.
OBJECTIVE OF STUDY
The following are the key objectives the researcher proposes the study / research to active.
- To use auditing as a means of evaluating the effectiveness of a company internal control system.
- To disclose any firm of material misstatement that may exist in the account of a company through they activity of auditing.
- To help companies ascertain their level of compliance to both
statutory, professional disclosure requirement with a view to correcting
variances.
- To use as a tool to prevent fraud, embezzlement of funds in organizations.
- To improve the investment potentials of companies through the mechanism of auditing.
- To determine if auditing is really the backbone of organizational effectiveness or not.
RESEARCH QUESTION
Asika (2001) defined research questions as the set of questions which
the research hopes in mind that the study would give answers to this
research work shall answer the following questions:
- Can auditing truly evaluate company’s internal control system?
- Would auditing ensure a reduction, if not elimination of fraud, embezzlement in company’s annual reports?
- Is auditing really the backbone of organizational effectiveness
- Can auditing improve the investment potentials of companies?
STATEMENT OF HYPOTHESIS
Ho: Auditing can not truly evaluate company’s internal control system
Hi: Auditing can truly evaluate company’s internal control system.
Ho: Auditing would not ensure a reduction (if not
elimination) of fraud, embezzlement of funds and materials misstatement
in company’s annual reports.
H1: Auditing would ensure a reduction (if not
elimination) of fraud, embezzlement of funds and material misstatement
in company’s annual reports.
Ho: Auditing cannot improve the investment potentials of companies.
H1: Auditing can improve the investment potentials of companies.
Ho: Auditing is not the backbone of organizational effectiveness
H1: Auditing is the backbone of organizational effectiveness.
SCOPE OF THE STUDY
The thrust of this project work on the role auditing plays in
ensuring organizational effectiveness. The researcher demonstrated this
by critically x-raying the conditions necessitating the adaption of
auditing in firms. The data primary data was constrained to specially
designed questionnaires, administered to employees of;
- Mr. Bigg’s (subsidiary of VAC PLC), Asaba
- First City Monument Bank PLC, Asaba
- Dav Notch Ltd Asaba
The secondary data utilized were textbooks online resources, journals etc.
It is imperative to note here in that the research id constrained to
Asaba Metropolis of Delta State, Nigeria and shall base its assessment
of 5 years operations of the companies so selected.
SIGNIFICANCE OF THE STUDY
The research is expected to make reasonable impact in the following areas.
- Enlighten bothprivate and public companies regulatory agency as
well as its audience in the impact of auditing in organizational
effectiveness.
- Educate the researcher’s audience in the concept of auditing so as to increase their awareness level.
- It would serve as a base for future researchers who may want to dive into the world of auditing as their research area
- It would proffer workable recommendations based of research findings, so as to solve organizational challenges.
LIMITATION OF THE STUDY
These are the apparent difficulties experienced by the researcher
which tend to water down the overall quality of the study: these are;
- The time frame for carrying out the research work is too short
studies of the nature take longer duration that what the researcher
used.
- The number of sample was inadequate
- The research base of Asaba is inadequate. This, if not for financial constraints, would have been increased.
- Sourcing of literature of the study was quite difficult.
ORGANIZATION OF THE STUDY
The project works cover 5 distinct chapters, in line with approved format of the faculty of management sciences.
Chapter one introduces the project work at hard, this chapter gives
the audience a quick run down of what to expect in other chapters of the
project.
Chapter two review relevant literatures surrounding auditing in order to enrich the researcher’s work.
Chapter three projects the research methodology adopted by the
researcher in a bid to collect, analyze, interpret and prevent data.
Chapter four analyses the data collected usually an agreed data analysis method.
Chapter five concludes the study by giving discussion of findings, recommendation as well as areas of future studies.
SUMMARY
The researcher, under this chapter, has taken an in-depth review of
the concept “with a view to establishing its importance in
organizations, conditions warranting its introduction into the scheme of
workings of modern day companies to achieve the crucial objectives of
the study, important research questions were asked, hypothesis stated
etc.
In essence, the chapter under review gives the audience a quick, though comprehensive, sketch of the project work.