ABSTRACT
Auditors have been variously accused of profiting from
violating professional standard and ethical practices. The purpose of the study
is to examine the role of external auditors in ensuring effectives
accountability. The required data for this study were obtained from primary and
secondary data sources. While the statistical tools applied in the study were
the simple percentages, the study reveals that there are some transaction,
interest and relationship that impaired the auditor independence and ethical
practices. The independence role does not apply to all services performed by
the auditor especially when the client is the major beneficially as long as no
attestation services are being provided for the client. The multiple role of an
auditor does to some extent impair his professional independence, and ethical
practices. Hence, the credibility of the published financial statement of his
client from the conclusion drawn above, we therefore, recommended that a
registered public accounting firm that audits company should be prohibited form
providing non attest services firm that company. A public accounting firm
should not allow personal working on non attest engagement to also work on the
audit of the same client.
CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
The importance of examine of the role of external auditors
in ensuring effective accountability cannot be overstated.
In (April 12, 2011) Arens and Leedback defines Auditing as
the accumulation and evaluation of evidence about quantifiable information of
an economic entity to determine and report on the degree of correspondence
between the information and established criteria and auditing should be done by
a competent independence person, called an auditor.
An auditor is a person who examines or inquires into a
financial statement or books of accounts and its underlying documents to enable
him form an opinion as to the truth and fairness of the account presented and
whether proper books of account have been presented.
An auditor is required by the companies and Allied Matters
Act, 1990. To express an unbiased opinion on the following.
1. The state
of the financial affairs of the establishment.
2. The truth and fairness of the financial statement
prepared.
3. Whether the financial statement are in agreement with the
underlying accounts to be prepared.
4. Whether the provision of the company and Allied Matters Act
1990 have been complied with.
1.2 Statement of
the Problem
Auditors’ independence is very important to the credibility
of the published financial statement. However, in recent times, auditor’s
independence has been questioned with increasing frequency. In some cases,
negative publicity has resulted against the auditors. There have been more
reports in the financial press about various illegal payments or fraudulent and
unethical activities by auditors. And this has only helped to increased skepticism
about the auditor’s independence.
In this journal of accounting (2008), leader in his article
on auditor independence, expressed an opinion that the auditor cannot be truly
or totally independent. He is of the view that the partner of bigger firm are
willing to admit privately and off the records that irrespective of the ethical
rules as regards the clients companies, this is not so much a problem that
affect independence but rather professional fees from a big client would have
impact on their objectivity. This implies that the fear of losing a major audit
job if full objectivity is displayed is very real, and auditors firm are in
business primarily for profit reasons, notwithstanding ethical rules and
guidelines.
Scholars have said that as long as directors of companies
influence the choice of company auditors, notwithstanding what company law
provisions and ethical guidelines are on independence, auditors can never be
truly independent.
The auditor loses his ability to ensured credibility in
published financial statement when he is not independent.
The auditor will be tempted to allow his clients financial
affairs to be presented in a way which will preserve or enhance the value of
the client company in circumstance where an impartial auditor would have
disagreed with the true and fair view purported to be presented by the
financial statements.
An auditor may find himself in a situation where he can
benefit from violating professional standard or loss by refusing to violate the
standard and ethical practice. This conflict is common to all professional
groups and it is called self-interest versus ethical conflicts. An individual
self-interest may be consistent with acting in accordance with his or her
ethical belief. If for example the auditor has a direct or indirect financial
holding in the audited company, he is in a position to increase their values by
omitting relevant facts or misinterpreting certain activities. This can be view
as internal conflict between the auditors’ self-interest and his professional
integrity. Other rules of professional conduct issue by I can do not considered
an auditor independent, if he has financial interest in the clients business.
However, the potential loss of auditor tree may be such greater than course for
conflict between professional integrity and self-interest. It is in view to
address this problem that prompted the researcher to investigate the role of
external auditors in ensuring effective accountability using Beta Glass plc as
a survey study.
1.3 Objectives of
the Study
The objectives
of the study are to examine the role of external auditors in ensuring an
effective accountability. To achieve this, the study intends to ascertain the
following:
To investigate and report on the multiple role of an
auditor.
To investigate the report on the role of external auditors
in ensuring effective accountability.
To investigate and report on the professional and ethical
guidelines of auditing.
To investigate and report on the factor that militates
against the auditor from exercising his professional independence and ethical
code of conduct.
To investigate and report on the consequence risks involved
in exercising the professional independence of auditors and the ethical code of
conduct.
To provide the necessary recommendation for the study based
on the findings.
1.4 Research
Question
The following question are raised to address the problems
and objectives of the study
What is the multiple role of an auditor?
What are the professional and ethical guidelines of
auditing?
What are the factors that may likely influence the auditor
from exercising his professional independence and ethical code of conduct?
What are the implication of auditors multiple role on his
professional independence and ethical practices?
To what extent can it be said that the multiple role of
auditor prevent him from exercising his independence and ethical practice code
of conduct?
To what extent can it
be said that the auditor personal relationship between the auditing firm and
his clients and the financial involvement impair the independence of auditor?
What are the risk consequence of not exercising the
professional independence of an auditor and the ethical code of conduct?
What are the objectives of an auditor and how does the
auditors professional independence and ethical practices help in the auditor to
achieve his objectives?
1.5 Significance of
the Study
1. This study is expected to benefit a number of people the
shareholders are expected to be top in this regards. It is for their sake that
the auditors are appointed after all.
The auditor of a company not only has a responsibility to
the shareholders but he also has a duty of care to third parties such as
creditors and would be investors.
2. The professional auditor is on the line focus this work
invaluable. The main goal of the research is to alleviate the threats to the
existence of the professional.
3. Accounting bodies would benefit from this study since it
would help them o understand better the forces against attaining independence
and ethical on the side of the auditor.
4. The government is not left out in this list of these to
benefit as it is an audit report that such matters as tax, issue are relied on.
5. Students and other persons would benefit immensely from
the study.
6. This study can be a basis for further study on the
subject matter.
7. The literature on this study will be an update to the
literature on the subject matters.
1.6 Scope of the Study
This study is suppose to cover all the auditing practicing,
firms in Nigeria, but due to time, financial constraint, the study has been
limited to Beta Glass plc, Ughelli, Delta State, Nigeria.
It is hoped that the findings from this area covered would
be used for generalization
1.7
Limitation of the Study
Every research study has certain limitation which falls
short of the ideals which the researcher has recognized. Therefore, this study
is not an exception; hence the following were the limitation of the study:
Lack of current secondary materials such as textbooks,
journals magazines, newspaper etc. which deals on the subject matter. Hence
researcher finds it difficult to source for current materials on the subject
matter.
Time and financial constraint: another constraint
encountered in this study was time and finance needed to cover wider areas. A
study of this nature required enough time and money to enable the researcher
get in tough or visit all the ageing practicing audit firms in Nigeria.
Nonchalant attitude of respondents: another obstacle
encountered by the researcher was the collection of data. From the respondents
due to extraneous variable including the negative attitude of some of the
respondents inspire of all these obstacles, the research study was successful
conducted as reasonable amount of data were collected, which makes the finding
of this study reliable.
1.8 Definition of
Terms
The following terms are defines for the purpose of
understanding:
Auditing: this is an examination and evaluation of the
authenticity and therefore the reliability of the firm’s business documents and
records.
Audit: this is a conscientious and objective examination or
an inquiry into any statement of account relating to money or money’s worth,
the underlying document and the physical asset where possible as would enable
the auditor form an opinion as to whether or not the statement of account
present a true and fair view of whether it purports to present and to report
accordingly.
Auditor: is a person who examines or inquires into a
financial statement or books of accounts and its underlying documents to enable
him form an opinion to the correctness and fairness of the accounts presented
and whether proper books of account have been presents.
Financial statement: the financial statement is the set of
statement, usually presented to the shareholders at the annual general meeting.
They consist of the profit and loss account, trial balance and the balance,
sheet.
Firm: a firm is a partnership of more than one person,
engaged in any trade or vocation. The firm in this study refers to the auditing
firm.
Client: this is the company whose books of account are being
examined by an auditor; the company is referred to as the client to the
auditor.
Independence: power to act in accordance with the
professional ethical and general accepted standard of reporting without succumbing
to pressures.