project work investigates the role of auditors in the detection of fraud in
some business organization. In carrying out this research work, textbooks were
consulted for related literature as well as questionnaires and oral interview
for collecting data. All essential departments relevant to the study were
properly enlightened and the examinations of an auditor in areas of
ramification were thoroughly dealt with. The study revealed that in any
business organization, the employment of an auditor whether internal or
external can contribute immensely towards the effective management of the
organization. It also revealed that auditing the financial statements of
companies’ increases investment and it helped in knowing the importance and
role of an auditor in the detection and prevention of fraud in a business
organization to enable the organization make efforts in maintaining a positive
and at the same time pursue its growth and objectives. This project work will
be useful to researchers who try to find out the contribution of an auditor
towards business organization in detecting and preventing fraud. Finally, there
must be adequate provisions for the reliance of auditor on the control of an
organization and any advice given by the auditor must be seen as a professional
opinion and it should be taken seriously.
Background to the study
In our society where the business culture has been
overridden in recent times with fraudulent practices penetrated by management
and employees, the lack of clear understanding of the duties of an auditor in
relation to fraud detection has often led to unjustifiable criticisms of his
role. Auditors are known to be competent, honest and independent professionals
who express unbiased opinion on the truth and fairness of the financial
statement as presented by management to members of the company. The accounting
profession has over the years built a reputation, which encourages others to rely
upon the opinions auditors express. If these opinions are unclear or even
unreliable, serious consequences may and indeed have resulted. Fraud is not a
recent phenomenon associated to some highly-publicized cases. It can be found
early in the history of our world as men have made use of tricks, manipulation,
and deceit in order to acquire money, land, goods, or trust, with the overall
objective of making profit. The creation of accounting and audit are connected
in economic history with the desire, especially on the part of the state and
the church, to contain and prevent stealing and misrepresentation in their
finances. Traces of the precursors of audit can be dated back to Antiquity, to
ancient Babylon and Egypt, where archaeological findings have proven the
existence of some justifying documents of commercial transactions that allowed
for a rudimentary form of verification and accounting (Bogdan, 2005). And once
the commercial trades blossomed during a period or another, the need to keep a
record of transaction also emerged albeit at a primitive level. But with
economic prosperity came also the temptation to deceit and manipulate others
for self-profit. Control mechanisms were, therefore, developed by state
institutions in order to verify and supervise the use of funds and the circuit
of transactions, as was the case for example in ancient Rome, where the
questors elected by the people were responsible of this role (Bogdan, 2005).
During the middle Ages, however, the interest to control financial documents
and accounts and to verify the use or misuse of funds increased in Western
Europe. The main objective was to discover those who eluded payment,
appropriated funds, or misused money and property, and to defer them to
justice. The three institutions that introduced as early as the 13th-14th
centuries the idea of verifying accounts and hold the wrongdoers accountable
were the state (represented by the reigning monarch), the Catholic Church, and
the universities (especially those from Northern Italy), and employed
functionaries or monks to keep the accounting of their respective structure
From the mid-19th century, the professional category of
accountants and auditors emerged as a specialized group of people involved in
preventing and detecting real or possible frauds and errors in the financial
situations within the state or an economic entity. Their role was not only to
investigate, but also to assess possible risks and to guarantee the
responsibility of internal control mechanisms. At the end of the 20th century
and the beginning of the 21st century, auditors have become a necessity for the
good-functioning and efficiency of an economic entity’s management that can
prevent and deter possible scenarios of trickery, funds embezzlement, or theft.
1.2 STATEMENT OF THE PROBLEM
All organization can be a risk of fraud. As we know, large
fraud will lead to the collapse of the entire organizations, causing major
losses to investors, an important legal cost affecting directly to key
individuals, and loss of confidence in capital markets. Publicized fraudulent
behavior by key executives has negatively impacted the reputation, brands, and
images of many organizations in the worldwide.
The definition of ‘fraud prevention and fraud detection’ are
related to each other, however it is not the same concepts preventing fraud
include policy, procedure, training and communication to prevent fraud
happening. While the detection focusing on the activity and technique in order
to quickly recognize fraudulent whether fraud has happened or is happening.
Specifically problem of this study are if the role of
auditors is well understood in business. The rate of auditors in fraud
detection, if there is a legislature to this effects. Who are the offenders of
business fraud in an organization? Finally, the misinterpretation of the
primary role of audit true and fairness to be the detection of fraud.
1.3 Objectives of the Study
The objectives of the study are stated below;
To ascertain if there is significant relationship between
the role of the auditor and fraud detection in the banking sector in Nigeria.
To ascertain if there is significant relationship between
fraud detection and audit of the financial statement in selected firms in
iii. To ascertain the relationship between
the qualification and experience of the auditors and fraud detection in
selected firms in Nigeria.
1.4 RESEARCH QUESTIONS
The following are the research questions of the study;
What is the significant relationship between the role of the
auditor and fraud detection in selected firms in Nigeria?
What is the significant relationship between fraud detection
and audit of the financial statement in selected firms in Nigeria?
What is the relationship between the qualification and
experience of the auditors and fraud detection in selected firms in Nigeria?
STATEMENT OF HYPOTHESES
There is no significant relationship between the role of the auditor and fraud detection
in selected firms in Nigeria.
There is significant relationship between the role of the auditor and fraud
detection in selected firms in Nigeria.
There is no significant relationship between fraud detection and audit of the
financial statement in selected firms in Nigeria.
There is significant relationship between fraud detection and audit of the
financial statement in selected firms in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
It is believed that at the completion of the study, the
findings will be useful to the management of organizations as the study seek to
emphasis on the usefulness of forensic audit in fraud prevention and detection
in organizations. The study will also be of great importance to the audit profession
as the study seek to elaborate on the importance and role of forensic audit in
crime prevention and detection. The study will also be of great importance to
student who intend to embark on a study in similar topic as the findings of the
study will serve as a pathfinder to them. Finally the study will be of great
importance to students, teachers and the general public as the finding will add
to the pool of existing literature. Generally, the result of this research
would help prospective investors, students, researchers, bankers, managers,
governments, directors, employees and other financial institutions.
1.7 SCOPE AND LIMITATION OF THE
This study is on the role
of auditors in the detection and prevention of fraud in some selected business
organizations in Enugu State. The researcher delineated the scope of the study
to public and private organizations in Enugu State due to time and financial
constraint. The following are some other variables to be considered in
examining the role of auditors in business organizations such as audit:
auditor, qualification and disqualification of an auditor, auditor’s
responsibilities in fraud detection and prevention, professional conduct of
auditor fraud, the offenders. At first financial constraint, some of the
business organizations were not easily accessible. Another limitation was time
constraint; therefore time became a limiting factor since all the business
organizations cannot be visited by the researcher within a very short time.
Secondly, small sample size is one of the limitations and the researcher
distributed 133 questionnaires and after filtering out the questions and
answers are not valid questions, only 100 questionnaires of which were used for
this study. Therefore, it leads to the population of the study which was
limited to two areas, Benin and Auchi in Edo State.
1.8 DEFINITION OF
Auditing: Auditing is seen as a systematic process of
objectively obtaining and evaluating evidence regarding assertions about
economic actions and events to ascertain the degree of correspondence between
these assertions and established criteria and communicating the results to
Audit: Audit is
simply a systematic examination and verification of a firm’s books of account,
transaction records, other relevant documents and physical inspection of
inventory by qualified accountants (called auditors).
Auditor: An auditor
may be defined as an accountant who has undergone a recognized bodies resident
in Nigeria and who is carrying out a professional accountancy practice.
Fraud: This is the
intentional deception to cause a person to give up property or some lawful
right. It is also an intentional act by one or more individual among
management, employees or third parties, which results in a misrepresentation of
The term “financial statement” covers the Balance Sheet, Income Statement or
Profit and Loss Accounts, Statements and explanatory materials, which are
identified as being part of financial statement.
Registered Companies: These are companies incorporated under the Companies
Decree and as amended by the Companies and Allied Matters Act (CAMA) 1990.
Audit Report: This is
the means by which the auditors express their opinion on the truth and fairness
of the company’s financial statement.
Independence: To the
accountancy profession, independence is a fundamental concept that implied the
attitude of mind, characterized by objectivity and integrity in approach to
These are the basic principle and practices to be followed in all audits. They
specify the requirement that an audit must meet if it is to be considered a satisfactory
and professional effort.
Accounting: This is
concerned with the keeping of records of daily transactions entered into in the
day-to-day management of a business organization.
Role : The position
or purpose that someone or something has in a situation, organization, society,
Auditing: Is an independent, objective
assurance and consulting activity designed to add value and improve an
organization’s operations. It helps an organization accomplish its objectives
by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes. Internal
auditing is a catalyst for improving an organization’s governance, risk
management, and management controls by providing insight and recommendations
based on analyses and assessments of data and business processes. With a
commitment to integrity and accountability, internal auditing provides value to
governing bodies and senior management as an objective source of independent
advice. Professionals called internal auditors are employed by organizations to
perform the internal auditing activity.
Fraud: This is a
deliberate deception, trickery, or cheating intended to gain an advantage.
1.9 ORGANIZATION OF
This research work is
organized in five chapters, for easy understanding, as follows. Chapter one is
concern with the introduction, which consist of the (background of the study),
statement of the problem, objectives of the study, research questions, research
hypotheses, significance of the study, scope of the study etc. Chapter two
being the review of the related literature presents the theoretical framework,
conceptual framework and other areas concerning the subject matter. Chapter three is a research methodology
covers deals on the research design and methods adopted in the study. Chapter
four concentrate on the data collection and analysis and presentation of
finding. Chapter five gives summary,
conclusion, and recommendations made of the study.