CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF
THE STUDY
The origin of auditing is as a result of the separation of
ownership from control. It is instituted to protect the interest of the owners
by ensuring that financial statements are justifiable. Because of the
separation of ownership from control, it becomes necessary of those managers
entrusted with the owners of financial and economic resources to present their
financial reports to their employer. The reports presented might contain
errors, omission, and frauds or even refuse to disclose relevant information.
For these reasons, the owners may hold some reservations about the credibility
of the managers’ reports.
For the owners to be satisfied and even for the managers to
be justified to establish and maintain their integrity, it becomes necessary to
invite an independent party, one who is not involved with either party to
examine the reports for the purpose of expressing an opinion as to the truth
and fairness of the reports. The independent party’s duty is not just mere
examination of the accounts from which the financial statements were prepared,
rather, it include collection of all relevant information thought necessary to
satisfy section 360
(3) of companies and Allied Matters Decree (CAMD) 1990. It
is obvious that the owners may not be skillful enough or have time to go
through this reports in order to assure themselves that the report presented
contain no errors or omissions. This independent party is known as AUDITORS or
professional accountants. They go extra miles in order to ensure that the
financial statement contains no errors, omissions or frauds or where it exists,
they detect it. These become their statutory duties or liabilities to
organization that invited them.
In the past, investors rely solely on the advice given to
them by their financial consultants rather than analyzing the financial
statements by themselves. Today there has been a great change on that
direction. Many stakeholders including the Government focuses on the financial
statements as one of their most reliable source or instrument of assessing the
viability or otherwise of companies. Below are some of the interested parties:
1.Owners or share holders of companies
Creditors and debenture holders.
Employees of organizations
Government agencies
Accountants and
The general public
One question which these managers seem to ask when they
report to the owners is: can the owners believe the report? Since the report
may contain errors, non-disclosure of frauds, and some omission, thereby
misleading.
The panacea to this problem of misleading financial
statements lies in appointing independent auditors to investigate the accounts
and reports. It is therefore the responsibility of these auditors to ensure
that they discharged their duties according to the law. Since it is a liability
on the auditors, they should exercise reasonable care and skill to enable them
form an unbiased opinion based on their findings.
Auditors are liable under different laws: the common law;
the civil law; and the criminal law.
1.2
STATEMENT OF THE PROBLEM
The liability of an auditor appointed by the owners or
shareholders of any organization is to ensure that the financial statement
prepared from the books and records of that enterprise portrays the actual
position of that entity. It is also the auditors’ liabilities to report to the
owners of the business whether the financial statement show a true and fair
view of that organization and also comply with the relevant laws, these liabilities / duties are spelt out by an Act
governing the activities of companies in Nigeria. The Act is known as Companies
and Allied Matters Decree (CAMD) 1990. Section 360(1)
stated their duties as to investigate all relevant books and
documents to enable them give an unbiased opinion. Section 360(3) gives them
their rights of access to the documents, while section 368(2) gave enough clue
as to what might be their punishments when they go astray.