Enhancing Public Confidence In Audit Report Of Tertiary Institutions: The Role Of Auditors Independence

In this study, our focus was on the enhancing Public Confidence in Audit Report of Tertiary Institutions: The role of auditors independence, using University of Lagos as case study. The study is was specifically focused on determining whether the investing public has confidence in the audit report of an audit in recent time; investigating whether improvement in the credibility of financial statement can enhance the public confidence of audit report; examining whether there is significant relationship between auditors" independence and credibility of financial statement, determining whether audit quality and credibility of financial statement, to investigate whether the loss of credibility in audit reports is caused by the collapse of corporate governance in the institutions. and to provide some possible remedies to restores and improve public confidence in audit and financial reporting. The study adopted the survey research design and randomly enrolled participants in the study. A total of 40 responses were validated from the enrolled participants where all respondent are staff University of Lagos, Lagos state.

Introduction

1.1 Background of the Study

The preparation of stewardship report from the accounting point of view is the role of the management who oversees the affairs of the business organization on behalf of the owners usually the shareholders. This stewardship report represents the financial statements covering the operating performance and the financial position of a company. It is usually prepared by the directors and addressed to the shareholders as a fulfillment of their agency responsibility.
Suffice to say that if all the facts concerning financial transaction were properly and accurately recorded and if the owners were properly and accurately recorded, and if the owners and managers of business enterprises were entirely honest and sufficiently skilled in maters of accounting and recording, there would be little need for independent auditing.

However, human nature being as it is, there probably will always be a need for the auditor (www.crfonline.org/orc/cro-11,int ml). .

Dependable financial information is essential to be very existence of our society. The credit professional making a decision of our society: the credit professional making a decision to grant trade credit, the investors making a decision to buy or sell securities, the banker deciding revenue based on income tax returns, all are relying upon information provided by others.

In many of these situations, the goals of the providers of information run directly counter to those of the users of the information. Implicit in this line of reasoning is recognition of the social need for independent auditors, individuals with a professional competence and integrity who can tell us whether the information on which we rely constitutes a fair picture of what is really going on. Good accounting and financial reporting and society in allocating its resources in the most efficient manner.

The contribution of the independence auditor is to give credibility to financial statement.

Credibility in this usage means that the financial statements can be believed; that is, they can be relied upon by outsiders, such as trade creditors, bankers, stock holders, government and other interested third parties. According to the Oxford Advanced Learner"s Dictionary of English, Credibility can be defined as "The quality of being generally accepted and trusted.

Audited financial statements are now the accepted means by which business corporations report their operating results and financial position. The word audit when applied to financial statements means that the balance sheet, statements of income and retained by an audit report prepared by independent public accounts, expressing their professional opinion as to the fairness of the company"s financial statement (www. Crfonline.org/cro/cro-11. intml).

On the other hand, the oxford Advanced Learner"s Dictionary of English, 5th Edition defined Confidence as "The feeling that you can trust, believe in and be sure about the abilities or good qualities of some thing or somebody. Audit competence can only be achieved if public confidence on audit reports can be improved significantly.

Both credibility and confidence go hand in hand and each variable impacted on each other to achieve the audit quality and competence the users of financial statement desired. However, management failure arising from co-operate governance failure over the years majorly contributed to the loss of credibility in audit reports. The solution to this problem of credibility in financial and audit reporting lies in appointing an independent person and public confidence in audit reports is enhanced when the profession encourage high standards of performance and conduct on the part of all practitioners".

According to Olagunju (2011), for an audit to be credible and reliable, it must be performed by someone, who is independent and cannot be influenced by position, power which will affect its own conclusion.

Auditor independence helps to ensure quality audit (Beck, 2004). The UK financial Reporting Council (UKFRC) has undertaken an extensive on audit quality and in February 2008 released the audit quality frame work to improve i.e. the confidence and credibility in audit. They are: the culture within an audit firm, the skills and personal qualities of audit partners and staff, the effectiveness of the audit process; the reliability and usefulness of audit reporting; and factors outside the control of auditors affecting audit quality (www.mia.org.my/at/at/2011/12/06.paf)

To this end, with regards to the issue of public confidence and credibility (1z-a-v-z the factor responsible to the loss of credibility and public confidence, the attitude of users of financial statement to audit reports as well as providing the way forward to improve audit credibility and public confidence, this research work aims at utilizing the significance of confidence and credibility as approaches to improve audit competence.

1.2 Statement of the Problems

One to the cumulative negative effects that window dressing (creative accounting) collapse of some USA giant companies such as Enron; world-com, Global Crossing, Tyco, etc together with a host of smaller scale examples worldwide such as Cadbury in Nigeria (ICAN Study Pack, 2009: 252) has on the credibility of financial reporting.

1.3 Objective of the Study

To determine whether the investing public has confidence in the audit report of an audit in Tertiary Institutions in recent time.

To investigate whether improvement in the credibility of financial statement can enhance the public confidence of Tertiary Institutions audit report

To examine whether there is significant relationship between auditors" independence and credibility of financial statement.

To determine whether audit quality and credibility of financial statement.

To investigate whether the loss of credibility in audit reports is caused by the collapse of corporate governance in Tertiary Institutions.

To provide some possible remedies to restores and improve public confidence in audit and financial reporting.

1.4 Research question

Does the investing public have confidence in the audit reports of Tertiary Institutions in recent times?

Does improvement in the credibility of financial statement enhance the confidence of audit report?

Is there significant relationship between auditors" independence and credibility of financial statement?

Is audit quality and credibility a question of auditor"s personal quality?

Is the loss of Credibility in audit report caused by the collapse of corporate governance of the Tertiary Institution?

What remedy could be recommended to restore and improve audit confidence in audit reporting?

1.5 Research Hypotheses

In order to achieve empirical findings the following hypotheses have been postulated:

Ho: Improvement in the credibility of financial statements cannot enhance the public confidence of audit report.
Hi: Improvement in the credibility of financial statements can enhance the public confidence of audit report.

Ho: Audit quality and credibility is not a question of auditors" personal qualities.
Hi: Audit and credibility is a question of auditors" personal qualities

Ho: Loss of credibility and confidence in audit report is not caused by the collapse of corporate governance in companies.
Hi: Loses of credibility and confidence in audit report is caused by the collapse of corporate governance in companies.

1.6 Significance of the Study.

The research work will be of great significance to the professional accountants and their stakeholders or interest groups having financial interest in audit reports. They include shareholders, directors, investors, employees, labour and trade union, creditors, government etc could through the finding of this research appreciate the true nature of an audit and its importance as it related to transparency and accountability achievement.

Also, the duties and obligation of each stakeholder as to the enforcement of good corporate governance leading to the independence of the auditors and the generation of objectives audit report will be appreciated.

Lastly, readers will be exposed to other factors militating against public confidence achievement which is not directly caused by the auditors ( as most times, auditors are being blamed for the feature of management and corporate governance).

1.7 Scope of the Study

Geographically, the study will cover the global view on issues of public confidence and credibility in audit and financial report reporting. The university of lagos will serve as the case study for the study.

1.8 Limitation of the Study

The constraints facing this research include the relatively short times to conduct it. Also, inadequate previous literature on the topic is another constraint.

Finally, the general apathy of Nigerians towards answering research question posed little differently. However, irrespective of whatever constraints available the researcher remained tenacious in achieving a promising study.

1.9 Definition of Terms

Some keywords that are used in this project work are defined below:

1. Audit Report:

This audit report is a written summary of finding of the auditors during their audit work along with their opinions on such findings.

2. Internal Audit:

Internal audit is an independence appraisal function within an organization for the review of the system of control and the quality of performance as a service to the organization (Okolie 2007: 76)

3. Corporate Governance:

ICAN Study Pack (2009:207) defines corporate governance as "the set of mechanisms through which outside investors are protected from expropriation by insiders(including management, family interest and for governments).

4. Internal Control System:

Okolie (2007:71) defines internal control system as "the complete range of control, financial or otherwise established by management in order to carry on the business of the organization orderly manner and to ensure adherence to management policies, safeguard the asset and secure as far as possible the completeness and accuracy of the records.

5. Stewardship Report:

It is the financial statement prepared by the directors addressed to the shareholders as a fulfillment of their agency responsibility.

6. Fraud:

According to statement of Auditing standards 110, fraud comprises both the use of deception to obtain an unjust or illegal financial advantage and international mis-representation affecting the financial statements, employees or third parties.

7. Window Dressing/Creative Accounting:

When a company undertake expenses and losses and consequently overstate profit earnings, just as Enron corporation have done, the organization"s account are "window dressed or created. It is fraudulent and criminal to create account (ICAN Study Pack, 2009:191).

8. Paper Profit:

This is the consequence of "window dressing". The term is used to describe a situation whereby the profit disclosed in the financial statement lack cash equivalent or tangible assets equivalent (Oxford Advanced Learner"s Dictionary of Accounting).

9. Self Interest:

It is the management"s financial or other interest which will inappropriately influence the professional manager"s or accountants judgments, conduct or behaviour.

10. Expectation Gap:

Is the difference between what the public expect from an audit and what the auditing profession prefers the audit objectives to be (Porter, 1993).

11. Audit Risk:

Is the term given to the risk that the auditor will draw an invalid opinion or conclusion from his audit work. (ICAN Pack, 2009.379).

1.10 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.

Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.

Chapter three deals on the research design and methodology 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.

Summary, Conclusions and Recommendations

5.0 Introduction

This chapter laid to rest all that have been written so far as regards confidence and credibility in audit report, approaches to maintaining and improving audit competence. The chapter comprised introduction, summary of the study, discussion of findings, conclusion, recommendations and suggestions for further studies.

5.1 Summary of the Study

The chapter one covered the introduction, the background of the study, statement of problems and significantly, the objectives of the study. The literature review as contained in the chapter two presented an overview of the concept of credibility and public confidence. The factors responsible for the loss of credibility and public confidence in audit reports were also reviewed. The significance of credible financial statement to the various stakeholders, professional qualities of auditors and guides to maintaining and improving audit competence credibility were also examined. The review also cover how corporate governance failure affects the credibility of auditors report, the issue of expectation gap and the remedies against auditors" threats were the last past of the review.

The chapter three comprised the research methodology adopted in the study which entailed the use of survey and descriptive research design and the use of simple percentage and chi-square test.

The chapter four contained analysis of the questions raised in tables and hypothesis testing as a basis for the acceptance and rejection of hypothesis stated in chapter one of the study. The chapter five include summary of the study, discussion of findings, conclusion, recommendation and suggestions for further studies.

5.2 Conclusion

Having examined the concept of confidence and credibility in audit report as approaches to maintaining and improving audit competence, the factors responsible for the loss of credibility and confidence and the way forward to remedize the situation, there is no doubt that the findings of the research and the recommendation to be made later will help to address the problem of credibility, confidence and the issue of window dressing that are rampant among Nigeria companies. Suffice to say that the solution to the loss of confidence and credibility lies in the auditors and the auditing profession itself. Auditors should therefore live up to their expectation as a "watch dogs".

5.3 Recommendations

The researcher therefore provides the following policy options to sanitize the situation:

An urgent reform is needed in the auditing profession which will look at the modern role of auditor"s

Prohibits auditors from rendering non-audit services to the same client they are auditing so as to prevent the occurrence of self review threat.

Auditor"s should be given more power to punish or sure CEO"s chief financial officers or client"s management that was proved to be fraudulent

A well functioning principles of corporate governance and it compliances by management will help to check the excesses of high-power management team.

Increase in the frequency of audits in a year

ICAN and FRC disciplinary tribunal should be proactive in their investigations rather than being passive or reactive.

Title Page

Certification

Dedication

Acknowledgement

Table of Content

List of Tables

Abstract

Chapter One:

Introduction

1.1 Background of the Study

1.2 Statement of the Problem

1.3 Objective of the Study

1.4 Research Questions

1.5 Research Hypothesis

1.6 Significance of the Study

1.7 Scope of the Study

1.8 Limitation of the Study

1.9 Definition of Terms

1.10 Organisations of the Study

Chapter Two:

Review of Literature

2.1 Conceptual Framework

2.2 Theoretical Framework

2.3 Empirical Review

Chapter Three:

Research Methodology

3.1 Research Design

3.2 Population of the Study

3.3 Sample Size Determination

3.4 Sample Size Selection Technique and Procedure

3.5 Research Instrument and Administration

3.6 Method of Data Collection

3.7 Method of Data Analysis

3.8 Validity of the Study

3.9 Reliability of the Study

3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

4.1 Data Presentation

4.2 Analysis of Data

4.3 Answering Research Questions

4.4 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendation

5.1 Summary

5.2 Conclusion

5.3 Recommendation

References

APPENDIX

QUESTIONNAIRE

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