Auditors Report And Its Impact On Business Organization

This study is aimed at revealing what auditor"s report is all about, the role and responsibility of auditor in ensuring accountability in a business. The primary data was collected from the field using questionnaire, interview and observation method. The secondary data were collected from First Bank Nigeria Plc, Ughowo Branch, Benin City. The study is designed to investigate the relevance of auditors report and its impacts on the management of business organization. The hypotheses formulated for the study were as follows: (1) there is a strong significant relationship between auditors" report and investment decision making. (2) The analysis of hypothesis I reveals that auditors reports have major function to the business firm in relation to decision making; (3) the findings also show that it is permissible for auditors to include a reference to the management report when an annual shareholders" report contains a management report; (4) the responses of the respondents also help to find out that auditor reports are essential tools in reporting company"s financial information to the users.

Introduction

1.1 Background of the Study

In the early civilization, the method of recording accounts were so crude and the numbers of transaction to be recorded were small and as such every individual was able to put down all his transaction. As man became more civilized, system of checks were applied to their public account thus increasing the need for some system of checks upon persons, whose business was to record the receipt of disbursement of money on behalf of others.

The ancient records of auditing are continued principally to public account; there is clear indication that from an early date, it was customary for an audit of the account of minors and estimates to be performed. The person whose duty it was to make such as examination of accounts became known as on auditor, the word derived from the Latin words "AUDIRE" which means to "HEAR".

The auditor"s report is the primary means by which the auditor communicates with investors and other financial statement user"s information regarding his or her audit of the financial statements. As it exists today, the auditor"s report identifies the financial statements that were audited, describes the nature of an audit, and presents the auditor"s opinion as to whether the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the company in conformity with the applicable financial reporting framework. This type of auditor"s report has been commonly described as a pass/fail model because the auditor opines on whether the financial statements are fairly presented (pass) or not (fail). Theodore J. Mock, Jean Bedard, Paul J. Coram, Shawn M. Davis, Reza Espahbodi, and Rick C. Warne,(2013).

However, while the existing auditor"s report provides important information about an audit in general, it does not provide information that is specific to a particular audit.

Academic research suggests that investors and other financial statement users refer to the existing auditor"s report only to determine whether the opinion is unqualified because it does not provide any other informational value about the particular audit. Glen et. al, (2011).

During the Board"s outreach activities over the last three years; many investors have expressed dissatisfaction that the content of the existing auditor"s report provides little, if any, information specific to the audit of the company"s financial statements to investors or other financial statement users. During a financial statement audit, auditors obtain and evaluate important information concerning the company, the company"s environment, and the preparation of the company"s financial statements. Many investors have indicated that they would benefit from additional auditor reporting because they do not have access to, or may not be aware of, much of this information. Additionally, many investors indicated that auditors have unique and relevant insight based on their audits and that auditors should provide information about their insights in the auditor"s report to make the reports more relevant and useful.

Additionally, the auditor"s report is undergoing change globally. Several international standard setters and regulators, such as the International Auditing and Assurance Standards Board ("IAASB"), the United Kingdom"s Financial Reporting Council ("FRC"), and the European Commission ("EC") have been working on similar projects to change the auditor"s report. Bryan et. al (2008).

After extensive outreach conducted over the last three years, the Board is proposing two standards under it s statutory mandate to "protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports".

The proposed standards are intended to increase the informational value of the auditor"s report to promote the usefulness and relevance of the audit and the related auditor"s report. At the same time, the Board sought a balanced approach that would not unduly burden the financial reporting process.

The two proposed standards are:

The Auditor"s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion (the "proposed auditor reporting standard") and The Auditor"s Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor"s Report (the "proposed other information standard"). The Board also is proposing related amendments to other PCAOB auditing standards (the "proposed amendments"). This release collectively refers to the proposed auditor reporting standard, proposed other information standard, and proposed amendments as "the proposed standards and amendments."

Wolf, (2001), discus audit as in modern sense to refer to a process whereby the account of business entities is subjected to scrutiny. In such a way it enables the auditor (independent person) to express an opinion as to the truth and fairness using expert"s opinion approach.

1.2 A Brief History of First Bank Nigeria Plc

First Bank of Nigeria, sometimes referred to as FirstBank, is a Nigerian bank and financial services company. It is the country"s largest bank by assets.

As of June 2013, the bank had assets totaling approximately US$21.3 billion (NGN:3.336 trillion). The bank"s profit before tax, for the twelve months ending 31 December 2012 was approximately US$542.5 million (NGN:86.2 billion). At that time, the bank maintained a customer base in excess of 8.5 million individuals and businesses. First Bank of Nigeria has solid short and long term ratings from Fitch, the Global Credit Rating Company, partly due to its low exposure to non-performing loans. The bank has strong compliance with financial laws and maintains a strong rating from the Economic and Financial Crimes Commission of Nigeria.

Pre-independence

The Bank traces its history back to 1894 and the Bank of British West Africa. The bank originally served the British shipping and trading agencies in Nigeria. The founder, Alfred Lewis Jones, was a shipping magnate who originally had a monopoly on importing silver currency into west Africa through his Elder Dempster shipping company. According to its founder, without a bank, economies were reduced to using barter and a wide variety of mediums of exchange, leading to unsound practices. A bank could provide a secure home for deposits and also a uniform medium of exchange. The bank primarily financed foreign trade, but did little lending to indigenous Nigerians, who had little to offer as collateral for loans.

Post-independence

In 1957, Bank of British West Africa changed its name to Bank of West Africa (BWA). After Nigeria"s independence in 1960, the bank began to extend more credit to indigenous Nigerians. At the same time, citizens began to trust British banks since there was an "independent" financial control mechanism and more citizens began to patronize the new Bank of West Africa.

In 1965, Standard Bank acquired Bank of West Africa and changed its acquisition"s name to Standard Bank of West Africa. In 1969, Standard Bank of West Africa incorporated its Nigerian operations under the name Standard Bank of Nigeria. In 1971, Standard Bank of Nigeria listed its shares on the Nigerian Stock Exchange and placed 13% of its share capital with Nigerian investors. After the end of the Nigerian civil war, Nigeria"s military government sought to increase local control of the retail-banking sector. In response, now Standard Chartered Bank reduced its stake in Standard Bank Nigeria to 38%. Once it had lost majority control, Standard Chartered wished to signal that it was no longer responsible for the bank and the bank changed its name to First Bank of Nigeria in 1979. By then, the bank had re-organized and had more Nigerian directors than ever.

In 1982 First Bank opened a branch in London, that in 2002 it converted to a subsidiary, FBN Bank (UK). Its most recent international expansion was the opening in 2004 of a representative office in Johannesburg, South Africa. In 2005 it acquired MBC International Bank Ltd. and FBN (Merchant Bankers) Ltd. Paribas and a group of Nigerian investors had founded MBC in 1982 as a merchant bank; it had become a commercial bank in 2002.

In June 2009, Stephen Olabisi Onasanya was appointed Group Managing Director and Chief Executive Officer, replacing Sanusi Lamido Sanusi, who had been appointed governor of the Central Bank of Nigeria. Onasanya was formerly Executive Director of Banking Operations & Services. Wikipedia,(2015).

1.3 Statement of Problem

In recent times there has been reported cases of failure in business activities as a result of misinformation and misrepresenting of financial statement report prepared by the auditor, this has made many investors to loss much of their investment because they had to rely on the auditor"s reports.

There is the problem of not enough attention being paid to auditor"s reports and the duties and responsibilities of both the internal and external auditors in Organizations.

There is also the question of how reliable are the auditor"s reports and how its impact the activities of businesses. Some users of auditor"s report have even stated that financial information without an auditor"s report is "essentially worthless" for investing purposes.

There is also the problem of "going concern" in auditing firms. Going concern means that a certain firm will continue to operate in the near future and has enough resources to operate. If the auditee is not a going concern, it means that it will soon be either dissolved, bankrupt, or shutdown, etc. if this statement is not included in the auditor"s reports, it may leads to inconsistency on the part of the auditor.

1.4 Objectives of the Study

The objectives of this study are to:

To investigate the relevance of auditor"s report and its impacts on the management of business organization.

To observe the relationship between auditors"s report and investment decision making.

To examine auditors reports as an essential tool in reporting financial information to users.

To assess the relevance and functions of auditor"s report to the business firm in relation to decision making.

To examine how useful the auditor"s report can be to management, creditors, employees, investors and the government.

1.5 Research Question

Does auditor"s report have any impact on the management of business organization?

Is there any insignificant relationship between auditor"s report and investment decision making?

Are auditor"s reports essential tools in reporting financial information to users?

Does auditor"s report have any relevant function to the business firm in relation to decision making?

How useful can the auditor"s report be to management, creditors, employees, investors and the government?

1.6 Research Hypothesis

Hypothesis I

Ho: Auditor"s report has no impact on the management of business organization.

Hi: Auditor"s report has impacts on the management of business organization.

Hypothesis II

Ho: There is no significant relationship between auditor"s report and investment decision making

Hi: There is a significant relationship between auditor"s report and investment decision making.

1.7 Significance of Study

This research is aim at revealing what auditor"s report is all about, the role and responsibility of auditor in ensuring accountability in a business.

This research also reveals the exact roles played by auditors. The research will show that auditors also examine, on a test basis, underlying transactions and records supporting financial statement balances and disclosures.

In practical sense, the significance of this study is to bring together the various new and facts as regards to the subject matter, against this back drop, it is anticipated that the study will be of immense help to different categories of people both the internal and external auditors, managements and managers, students in various disciplines, the government, employees in different organizations and employers at large. It will also go further to remove the ambiguity that exists in the mind of individuals relating to the impact of auditor"s report on business.

1.8 Scope of Study

Auditing and auditor"s report are vast and complex subjects but in the course of this study, we will concentrate on auditor"s report and how its impact the activities of business.

The area cover in which data were gathered for the research work is limited to First Bank Nigeria Plc, Akpakpava Branch, Benin City which is used as a case study.

1.9 Limitation of the Study

During the conduct of this research work, some factors posed as constraints to the determined efforts of the researcher to carryout the research study to such a depth and in such a manner that it ought to have been carried out judging from its relevance to management, such factors include:

Management Restriction: Management usually refuse to allow access to information that are considered very confidential in nature like detail information of the organization, the organizational corporate profile. As a result of these restrictions the researcher was able to work with only the information that was accessible.

Time Constraint: Time is also another factor tat acts as hindrances in carrying out this research study. This is as a result of the fact that other things were still being attended to in the course of carrying out this research work.

1.10 Definition of Terms

1. Auditing

An official examination of business and financial records to see that they are true and correct.

2. Auditor

Professional expert in the checking of books of account or record.

3. Customer

Someone who uses the services of a business.

4. Fraud

Illegal method of collecting/getting money from Organization (it is a criminal offence).

5. Ethics

Rules, principles or order governing a profession.

6. Generally Accepted Accounting Principles (GAAP)

It is the common set of accounting principles, standards and procedures that companies use to compile their financial statements.

7. Leader

Person in authority (Head of a country or Organization).

8. Management

The act of running and controlling a business or seminar Organization.

9. Dishonesty

Lack of trust and intending to deceive people.

10. Measure

Step, method to control situation.

Summary of Findings, Conclusion and Recommendations

5.1 Introduction

This is the last chapter of this research work which comprises of the summary of what has been said from chapter one to chapter four, conclusive remarks of the entire project research work and recommendations based on the research study.

5.2 Summary of Findings

Having tested the hypotheses formulated for this study in pursuance of the objective of the study, it was observed that auditor"s report plays an important role in the management of business organization.

Based on the data presented and analyzed, the researcher observed the following findings:

Hypothesis I reveals that auditor"s report has positive impacts on the management of business organization. It serves as an assurance service in order for the users to make decisions based on the results of the audit.

The analysis of hypothesis II reveals that there is a strong significant relationship between auditor"s report and investment decision making. The target group or user group of auditor"s reports can be seen as much broader. External investors, bank loan officers, authorities, financial analysts, i.e. users of financial statements, can all be considered users of audit reports. The impact of audit reports on users has been studied by many authors such as Libby (1979); Houghton (1983); LaSalle et al. (1997); Lin et al. (2003) and many others. This research trend is based on the question of how professionals in different positions perceive the information contained in the audit opinion to affect the reliability of the financial statement information and their decision making. It shows that auditor"s report has major function to the business firm in relation to decision making.

The findings also show that it is permissible for the auditor"s report to include a reference to the management report when an annual shareholders" report contains a management report.

The responses of the respondents also help to find out that auditor"s reports are essential tools in reporting company"s financial information to the users and that auditor"s report is meant to be addressed to the shareholders of the company and the board of directors.

The research also helped to discovered that the auditor reporting standard retains the requirement for the auditor"s report to contain a description of the nature of an audit. To this end, auditor"s report is very useful to the management, creditors, employees, investors and the government.

Finally, the research also noted that the soundness of the auditors report determines the level of investment on the company"s shares.

5.3 Conclusion

The research explained that the auditor"s report is a formal opinion, or disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit or evaluation performed on a legal entity.

An audit in modern sense refers to a process whereby the account of business entities is subjected to scrutiny in such detail as where to enable the auditor (independent person) to form an opinion as to truth and fairness using expert"s opinion approach.

The auditor"s report is the primary means by which the auditor communicates with investors and other financial statement user"s information regarding his or her audit of the financial statements. As it exists today, the auditor"s report identifies the financial statements that were audited, describes the nature of an audit, and presents the auditor"s opinion as to whether the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the company in conformity with the applicable financial reporting framework.

In the study, descriptive survey method was used. This is because field survey was carried out and the data collected was analyzed using Chi-square. The area covered in which data were gathered for the research work is including First Bank Nigeria Plc, Akpakpava Branch, Benin City.

In the study, the researcher used both the primary and secondary sources of data. The primary data was collected from the field using questionnaire, interview and observation.

The population is made up of ninety (90) comprising of all the staff (management, senior and junior staff) of First Bank Nigeria Plc, Akpakpava Branch, Benin City.

After questionnaire was prepared and served to 90 workers of First Bank Nigeria Plc, Akpakpava Branch, only 50 questionnaires were appropriately filled and returned to the researcher for the study.

In conclusion, it was discovered that auditors report has positive impact on the management of business organization.

5.4 Recommendations

It has been observed in this project work that the importance of auditor"s reports can not be overemphasized.
Base on the result of the findings of this study, the following recommendations are made:

It is therefore recommended that, the internal and external auditors should meet periodically to discuss common interests; benefit from their complementary skills, areas of expertise, gaining understanding of each other"s scope of work and methods; discussing audit coverage and scheduling to minimize unnecessary risk; to provide access to auditor"s reports and jointly assess areas of risk, to provide sound reports and to prevent fraud.

Management should create good atmosphere and security for auditors in order for them to carryout their duties and responsibilities especially in the area of preparing auditor"s reports.

There is need for a proper adherence and compliance to auditor reporting standard which retains the requirement for the auditor"s report to contain a description of the nature of an audit since auditor"s report is very useful to the management, creditors, investors and the government.

It is also recommended that accountants and internal auditors should work in collaboration with the external auditor to enhance and ensure accountability of the Organization in which they carryout their duties.

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