Corporate Governance And Auditors Reform: An Empirical Review

The project examines the link between corporate governance and auditors report in Nigeria. The study main objective is for an appointed auditor to express a professional opinion on the financial position of an enterprise as contained in the financial statement prepared by the management so that any person reading or using them can have faith in them. The primary source of data collection was used in gathering data from respondents. A structured questionnaire was designed by the researcher which was used to capture the relationship between corporate governance and auditors. It concluded that management of companies need to improve their accounting practices and ensure timely and adequate disclosure of information regarding financial position and performance, as this will in turn improve the public"s understanding of such companies and in the long run attract profitable investment. Finally, it was recommended that the board of directors should be able to check the activities of the internal and external auditors in other for them not to present a fraudulent financial statement that will reduce the image of the companies.

Introduction

1.1 Background to the Study

The term "Corporate Government" has been identified to mean different things to different people. Magdi and Margret (2002) stress that corporate governance is about ensuring that the business is managed well and investors receive fair return. OECD (1999) provides of more encompassing definition of corporate governance. It defines corporate governance as the system by which business corporations are directed and controlled. The corporate structure specifies the distribution of rights and responsibilities among different participants in the corporation such as, the board, manager"s shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affair. By doing this, it also provides the structure through which the company"s objectives and monitoring performances. This definition is in line with that of Akinsulire (2010) financial scandals round the world and recent collapse of major corporate instructions in Nigeria recently having shaken investor"s forth in the capital market and the efficacy of existing corporate governance practices in promoting transparency and "accountability. This has brought to therefore once again the need for the practices of good corporate governance.

Effective corporate governance reduces "control rights" shareholders and creditors confer on managers, increasing the probability that managers invest in positive net present value projects (Shleifer & Vishny 1997; p.78). Depending on the jurisdiction, different bodies may have responsibility of corporate governance. Board of Directors, Audit committee and other supervisory committees. International standards on Auditing (ISA) 260, requires the auditors to determine those persons charged with corporate governance. The most direct benefit of corporate governance is to shareholders. However, the ultimate benefit is the more efficient allocation of capital to its most productive uses.

Where organizations are left to themselves, it can easily deteriorate as a result of individuals seeking for their own interest, therefore not for such organization to be audited. In other worlds no governance system, no matter how well, designed will fully prevent greedy and dishonest people from putting their personal interest ahead of the interest of the company they manage. Many steps can be taken to improve corporate governance and thereby reduce opportunities for accounting fraud; this is where the role of auditing comes into play.

Auditing reports is a report by the auditors appointed to audit the accounts of companies the auditors of a limited company are required to form an opinion as to whether the annual accounts of the company give is true and fair view and of its state of affair at the end of the year or period. (Oxford Dictionary of Accounting, (2005).

According to Adeniyi (2004, p.12), Audit report is the means by which the auditors express their opinion on the truth and fairness of a company"s financial statement for the benefit principally of the shareholders, but also for other users. Since the auditor provides a check on the information aspect of the governance system it is said that the auditor does not have a direct corporate governance responsibility, the roles of auditor"s in corporate governance involves reporting, decision making, accountability and monitoring.

The objective of an auditor under CAMA 1990, is for an appointed auditor to express a professional opinion on the financial position of an enterprise as contained in the financial statement prepared by the management so that any person reading or using them, can have faith in them. Other objectives are to prevent fraud and errors, to detect any forms of irregularity, to advice on financial matters for efficient decision making by the management. Adeniyi, (2004, p. 68).

One perception of corporate governance failure has been to focus on the effectiveness of internal control. Auditing involves a public responsibility that is more important than employment relationship with the client, for the auditors to meet their obligation, relevant and reliable information"s must be given to them.

1.2 Statement of Problem

The research is an attempt to examine the role of auditors" report in corporate governance in relation to the organizations in Nigeria. The research problems can therefore be started as: knowing the factors influencing auditors" report, to what extent does corporate governance influence auditor reports, what is the relationship between corporate governance and auditor reports? What role(s) or any of external auditors in ensuring sound corporate governance? And knowing the role of audit committee in enhancing quality audit report sound corporate governance.

From the above problems, there is the need for effective corporate system to be put in place as a strategy for efficient and effective operation which requires the need for proper audit report.

1.3 Research Questions

The following are the research questions the researcher aim to solve in other to achieve the objective of the study.

What are the factors influencing auditors report?

To what extent auditors report influences corporate governance?

What is the relationship between audit report and corporate governance?

What are the roles of external auditors in ensuring sound corporate governance?

What are the roles of audit committee in ensuring sound corporate governance?

1.4 Objectives of the Study

Any venture without a clear objective amount to inutility and irrelevant in respect of time and resources, in other to make this work as a more purposeful and relevance study emphasis should by on the following;

To examine the factors influencing auditors report.

To examine the extent to which auditors report influences corporate governance.

To examine the relationship between audit report and corporate governance.

To ascertain the roles of external auditors in ensuring sound corporate governance.

To determine the role of audit committee in ensuring sound corporate governance.

1.5 Statement of Hypotheses

A hypothesis can be seen as a tentative answer to a research question. It is often stated in the form of a relationship between dependent and independent variable.

The following hypotheses will be tested to ascertain variables against the research questions. These hypotheses are;

Hypothesis One

HO: Corporate governance does not significantly influence audit report in Nigeria

HI: Corporate governance influence audit report in Nigeria

Hypothesis Two

HO: There is no significant relationship between auditing and corporate governance.

HI: There is a significant relationship between auditing and corporate governance.

Hypothesis Three

HO: Auditing in Nigeria does not give a true and fair view of companies in Nigeria.

HI: Auditing in Nigeria give a true and fair view of companies in Nigeria.

Hypothesis Four

HO: Auditing and corporate governance does not serve as a tool of control used by management to ensure the achievement of organization goals.

HI: Auditing and corporate governance serves as tools of control used by management to ensure that achievement of organization goals.

Where

HO is Null Hypothesis

HI is Alternative Hypothesis

1.6 Significance of the Study

The significant of the study goes a long way, to record the role of auditors report in corporate governance and the relationship between auditing and corporate governance. Taking a glance of the business organization, the management, auditors and owners of the business can be informed on factors influencing good corporate governance and the findings in this study will be relevant in taking steps to ensure adherent to corporate governance and. auditor"s provisions.

1.7 Scope of the Study

The research concern itself with the regulating framework for various aspects of corporate governance and the standard for general auditing practices put in place by organization. This work is empirical in nature and will utilize data of some financial firms listed on the Nigeria Stock Exchange (NSE) between the year 2007 and 2010 in Benin City, Edo State. The study will aim at Banks in Edo State.

1.8 Limitations of the Study

Data collection: The study has limitation on the primary and secondary source of data. The primary data from questionnaires and interview were scanty because of errors in opinion of the respondents on the objectives of the secondary source of data collection. There were not enough literature on the study in the schools library.

The secrecy of the organization was another major constrain is that the top management staff were not willing to dispose certain information that would have enable the researcher to make a proper conclusion.

The retrieval of the administered questionnaire pose another challenges to the end that some of the management staff were not around as at the times the researcher came to collect the answered questionnaires. This inhibits a great problem that hindered the researcher to form a proper conclusion.

1.9 Definition of Terms

Audit:

Is a financial statement in an exercise whose objective is to enable auditors to express an opinion whether the financial statement give a true and fair view of an entity.

Auditor:

A person or a firm appointed to carryout an audit of an organization.

Corporate Governance:

The manner in which organization particularly limited companies are managed and the nature of accountability of the manager to the owners.

Audit Report:

A report by the auditors appointed to audit the account of a company or other organizations.

Auditor Independence:

An auditor independence should not only be independent in fact but also independent in appearance, he should therefore avoid relationship that may cause the users of account to question his integrity and objectivity.

Accounting:

An account maintained by a bank or building society in which a depositor"s money is kept.

Summary, Conclusions and Recommendations

5.1 Introduction

This chapter deals with the summary of the study on the Corporate governance and audit quality of financial report in Non-financial firms. Based on the major findings, some summary and conclusions have been drawn and practical recommendations have been finally forwarded.

5.2 Summary of the Study

The main purpose of this study was the corporate governance and audit quality of financial report of financial reports in Nigerian

Insurance Corporation. In particular, the study aimed to investigate the current practices of Audit in Non-financial firms. To achieve the above purposes, the following basic questions were set:-

Does the Audit maintain the required Audit quality of financial report?

Does the Audit structure in a good organizational setting in Nigeria Insurance Corporation?

Does the Approved Audit charter in the corporation adequately prepared as per the standard?

Does the management support the Audit Department?

Does the management allocate adequate resources to the Audit Department to conduct audit activities in the corporation?

A mixed research approach was employed to assess the practices of the Audit Department of the Non-financial firms. From the different mixed research methods, concurrent embedded mixed research was employed. That is, both quantitative and qualitative data were collected at a time. Questionnaires and interview questions developed by the researcher were used to collect data from the respondents. The validity and reliability of questionnaires were checked using a validity test. The sources of the data for the study were 15 respondents from the Audit Department staff of the UNILEVER. Mean values and standard deviation were used for data analysis.

To assess the quality of financial report from the responses of Audit staffs in the five items Likert scale was provided to the respondents. Thus, the study showed that the overall mean score of Audit quality of financial report is 3.48.This indicated that there is a good Audit quality of financial report in the Non-financial firms.

Regarding the organizational setting, the aggregate mean result is 3.23. This reveals that in the view of respondents, there is a good organizational setting in the corporation. But the organizational chart of the Corporation shows that the Audit Directorate does not have any formal contact with the Board of Directors. Hence, it is possible to say that, the Audit is under the dependence of the management. On the other hand, the respondents disagree regarding „the Audit department is large enough to successfully carry out its duties‟ as the mean score is less than 3.00. The study concluded that the department of Audit is not large enough as required. Furthermore, the finding of the study revealed that the overall average means value of an approved Audit chart is 3.47 which imply that the presence of an approved Audit Charter is good in UNILEVER as it contains all the requirements.

To measure management support to the Audit in UNILEVER, a five-point Likert scale was distributed to the Audit staff. Accordingly, the overall mean score of management support to the Audit is 2.73. This describes that top management supports the Audit in the organization needs attention to further enhance the efficiencies of Audit. To assess the allocation of resources in the Audit Department, the study revealed that the management fairly allocates the required resources during its annual budget approval. However, the required number of Audit Staff is not adequate as compared with the audit coverage.

5.3 Conclusion

Based on the findings of the study, the following concluding remarks are drawn.

The practice of Audit of Non-financial firms is aligning with the current level of professional development. The respondents‟ of the study agreed with practices undertaken by the professional Auditors. The quality of financial report is as per the International Audit Standards. The organizational chart of the UNILEVER shows that the position of Audit Head is under the CEO and this indicates that the Audit Department is exposed to the influence of the Corporation management. This hurts the attempt to improve effectiveness of the Audit department. The findings have shown that Audit department of the Non-financial firms has an approved Audit charter and it is reviewed regularly as required. In addition, it can be concluded that there is a lesser support from the top management in providing training to the Audit staff. Furthermore, the study concluded that the Audit department has adequate budget allocation aligned with the planned audit activities regardless of the inadequate number of audit staff. Finally from the study, it was concluded that most departments of the Corporation are taking corrective actions within a reasonable period on audit findings except in few departments where there are delays in taking corrective action.

5.4 Recommendations

The overall objective of this study is to assess the Audit Practice in Non-financial firms. In this regard, the data analysis using quantitative and qualitative methods was made. According to the research objective and based on the data analysis, the researcher provides the following recommendations to the concerned bodies:-

Best practices as well as the IIA standard requires that the Audit Head shall report to the board of directors and shall attend a board meeting. This is from the viewpoint of ensuring the independence to freely exercise their Audit roles. Hence, the UNILEVER management shall revise its organizational structure so that the Audit Department reports to the Board of Directors.

Management support is very inevitable to the successful implementation of Audit activities. The management of the UNILEVER is indeed supporting the Audit Department in many aspects except that the support of providing the required training is not as required. Hence, for the better performance of the audit department, the management of the UNILEVER shall give serious attention to give adequate training to the Audit staff.

Adequate manpower following the audit assignments to be covered is equally important with the available time and other resources. In UNILEVER, lesser attention is given to the recruitment of the required number of audit staff. Therefore, for better audit coverage and better assurance of control, risk management, and good governance, an adequate number of Auditors shall be fulfilled for the Audit department.

5.5 Suggestion for Future Research

The researcher encourages further research to extend the results of this study and improve the results by minimizing the limitation of the study.

Although the research questions developed in this paper were tested using a single organization, future research needs to be conducted with other organizations that underwent Audit Practices to validate the findings of this study. Further research also treated by using other research methodology like data collection tools and research type, by considering Audit committee member or other board of director members, regulatory bodies, external auditors, Chief Executive Officer of the company in addition to Audit Department staffs and also by adding additional variables to assess the practice of Audit in the organization. The above all mentioned will extend the conclusion of this study.

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