Significance Of External Auditor’s On The Examination Of Financial Statement
(A Study Of First Bank Of Nigeria Plc)
External auditors play a crucial role in ensuring the accuracy and reliability of financial statements, thereby enhancing the credibility of a company’s financial reporting. These auditors, who are independent third parties, bring objectivity and impartiality to the examination process. By thoroughly reviewing a company’s financial records, transactions, and internal controls, external auditors can identify errors, irregularities, or instances of fraud that might otherwise go unnoticed. This scrutiny not only helps maintain the integrity of financial information but also provides assurance to stakeholders, including investors, creditors, and regulatory bodies, regarding the company’s financial health and compliance with accounting standards. The external auditor’s report, expressing an opinion on the fairness of the financial statements, adds a layer of accountability and transparency to corporate financial practices. This, in turn, contributes to investor confidence, market stability, and the overall health of the business environment.
This study was to assess the significance external auditor‟s in the examination of financial statement of first Bank of Nigeria Plc., Enugu. The banking sector in Nigeria and elsewhere in recent times have become so diversified, challenging, highly competitive and has been characterized by persistent, fraud, errors and misappropriation of funds in the bank, the impact of which has undoubtedly shaken the whole economy of the nation. For this work to be effectively and efficiently carried out the use of primary and secondary methods was adopted for the collection of data, where in primary data, the researcher designed and advanced questionnaires to first Bank Enugu for collection of primary data while secondary data was gotten from textbooks, journals, manuals lecture notes, etc. the data collected from the questionnaire was analyzed in tables with simple percentage and interpreted for the understanding of the study the formulated hypothesis were tested using Z – test formula. The result of the study shows that, external auditors examination of first banks financial statement or records aids in checking and monitoring as well as stopping frauds errors, misappropriation of funds in the Banks. Recommendations were made to the management of First Bank of Nigeria Plc, Abuja.
Approval Page i
Dedication ii
Acknowledgments iii
Abstract iv
CHAPTER ONE:
1.0 INTRODUCTION 1
1.1 Background of the Study 1
1.2 Statement of the Problem 3
1.3 Objectives of the Study 4
1.4 Research Questions 4
1.5 Research Hypotheses 5
1.6 Significance of the Study 6
1.7 Scope/ Limitations of the Study 6
1.8 Definition of Terms 7
Reference 10
CHAPTER TWO
2.0 REVIEW OF RELATED LITERATURE 11
2.1 The Concept of Auditing 11
2.2 Extent of an Auditors investigation Responsibilities of Audit organizations 17
2.3 Responsibilities of Audit Organizations 18
2.4 Evaluating the Significance of an External Auditors 19
2.5 External auditors Role in Detecting Fraud 20
2.5.1 Types of Fraud 22
2.5.2 Weakness in the Internal Control System and Lack of Co-operation by Client Staff 32
2.5.3 Lack of Monitoring System in the Organization 35
2.5.4 Unexplained Discrepancies in Accounts 35
2.5.5 Tolerance of Accounting Errors and Differences 36
2.5.6 Document of Unique Reliance on the Staff 37
2.2.7 Chaotic Accounting System 37
2.6 External Auditors Role in Ensuring the Keeping of Proper Accounts 38
2.7 The Significance of External Auditors in Reporting to the Shareholders (Public Limited Companies) 39
Reference 41
CHAPTER THREE
3.0 RESEARCH DESIGN AND METHODOLOGY 42
3.1 Research Design 42
3.2 Sources of Data 42
3.3 Research Instrument 44
3.4 Reliability/Validity of Research Instrument 45
3.5 Population 46
3.6 Sample Size and Sample Techniques 46
3.7 Administration of Research Instrument 50
3.8 Method of Data Analysis 50
3.8 Decision criterion for Validation of Hypothesis 51
CHAPTER FOUR
4.1 Data Presentation and Analysis 52
4.2 Testing of Hypothesis 65
CHAPTER FIVE
5.0 SUMMARY OF FINDINGS, CONCLUSIONS
AND RECOMMENDATIONS 72
5.1 Summary of Findings 72
5.2 Conclusion 73
5.3 Recommendations 74
Bibliography 76
Appendix 78
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
It is obvious that enormous resources of money and material are
being utilized by corporate organizations. In recent years the
numbers and monetary values of public sector activities have
increased substantially. This increase in activities have brought
within an added demand for accountability.
Auditing is one of the elements of accountability. Shareholders and
government are responsible for ensuring that appropriate audit are
made and reports therefore acted upon. Financial auditing
contributes to public account ability since it provide independent
report or whether the financial information represent a true and fair
view of the organization‟s financial stand, the internal controls and
the compliances with laws and regulation.
As an external auditor, his auditing exercise embrace the
examination of the financial report of the organization in order to
see whether the account have been prepared in accordance or in
compliance with general accepted accounting principle (GAAP) and
applicable laws, ethics and regulations and in the process errors or
fraud maybe detected (mill-champ 1990). Since huge monetary
resources are utilized by the financial institutions of public
organization, errors which tend to lead fraud may exist and is not
disclose in the report may contain errors or mistakes that cause it
to be deliberately misleading or the report may fail to disclose
relevant information. All these maybe revealed through an audit
work done by the external auditor since he is independent of
management.
The responsibly of external auditors for ensuring high ethical
standard with an organization as a lesser one than internal
auditors, for the year only occasional visitors to the company and
can only look at a fraction of numbers of transactions that internal
auditor will not normally be directly involved in the establishment of
the policies within an organization which would include policies of
an ethnic nature.
Therefore, their ability to shape the ethnical nature of an
organization is critically affected by the attitude of the management.
If the management are prepared to establish procedures
demanding the highest ethnical standard from employees, and
demonstrates that themselves to these standard, then the ability of
external audit to help enforce ethnical standards is greatly
enhanced. Based on these factors, it interest the researcher to
know the place of external auditors on the examination of the
financial statement.
1.2 STATEMENT OF THE PROBLEM
The goal of every business is to make profit and profit is to be
made when total revenue exceeds total operating cost and losses
when the reverse is the case.
In view of the above, it is therefore necessary for firms to strive to
manage their affairs effectively and efficiently in order to make
profit achieve their objective; they do by setting various auditing
systems to check mate these.
To reduce cost and at the same time impose quality service
(product) and as well received in acceptance of the costumer,
effective and efficiency control of asset inventory cash human
resources as well as reduce the liabilities, financial abnormalities,
misappropriation and embezzlement of money, and adequate
external audit measures has been established in the bank to aid
the management in curbing the above mentioned variables.
Despite the existence of internal audit system the bank still
experience some financial anomalies which prompt this research
work to study the significance of external auditors on examination
of financial statement in the bank.
1.3 OBJECTIVE OF THE STUDY
The main objective of the study is to determine the significance of
external auditor on the examination of financial statement.
To find out the significance of external auditors in examining
the financial statement of the first bank Nigeria plc.
To find out the modern techniques employed by the auditor
management in reducing fraud, errors and misappropriation.
To identify the problem associated with examination of
financial statement.
1.4 RESEARCH QUESTIONS
The following research questions guided the study;
What are the significance of external auditors in examining
the financial statement o first bank Nigeria plc.
What are the modern techniques employed by the
auditors/management in reducing errors and
misappropriation.
How do we identify the problems associated with examination
of financial statement
1.5 RESEARCH HYPOTHESES
Based on the stated problem as well as the need for the study,
there is need for a set of hypothesis that will act as a guide for the
work. Such hypothesis might be true but such a conclusion can
only be made at the end of the study.
The hypotheses are,
Hypothesis one
H0: There is no relationship between the financial statement of
the bank and audit examination.
H1: There is a relationship between the financial statement of the
bank and audit examination.
Hypothesis two
H0: The auditor‟s report does not represent a true and fair view of
the performance of the organization.
H1: The auditor‟s report represents a true and fair view of the
performance of the organization.
1.6 SIGNIFICANCE OF THE STUDY
This research would be of interest to the management and
employees of first bank of Nigeria plc.
The study would serve as reference materials to other
researchers who may want to carry out more research on this or
related topic.
The study would broaden the researcher knowledge on the
subject.
The study would serve as a requirement for the award ot
bachelor of science in accounting.
1.7 SCOPE/LIMITATION OF THE STUDY
The researcher‟s project focuses on the significance of external
auditors on the examination of financial statement in first bank
Nigeria plc, in order to carryout an extensive study on this topic and
ensure understanding. The researcher shall delimit this study by
covering the following subject and areas. The meaning of external
auditors, significance of external auditors, responsibilities of audit
organizations, external auditors role in detecting fraud, extent of an
auditors investigation and the relationship between external
auditors on the examination of financial statement.
The researcher‟s effort towards a sound research output was
limited by a number of factors. The researcher was limited by
finance as the scholar has to finance the project with her meager
financial resources, which prudently applied towards the successful
completion of this project.
Another notable constraint is the uncooperative attitude of some
staff of first bank Nigeria plc. Most of them were very reluctant to
accept questionnaire addressed to them and where they did, some
vital questions kept unanswered.
1.8 DEFINITION OF TERMS
The section offers some brief definition of the terms used in the
research work.
AUDITING:
According to oxford advanced learners dictionary, auditing is
defined as an official examination of business and financial records
to see that they are true fair or an official examination of the quality
on standard of something.
AUDITOR:
A person who officially examines the business and financial
records of a company or organization.
EXTERNAL AUDITOR:
External auditor as a chartered accountant who is a public officer
and is professionally qualified. Section 357 of CAMD 1990 talk on
our auditor is appointed and he can also be appointed according to
section 86 of the 1999 constitution of the federal republic of
Nigeria.
PUBLIC SECTOR:
The part of the economy of a country or a statement that is owned
or controlled by the government. It includes all organizations which
are not privately owned but which are owned and operated by the
general public.
FRAUD:
Fraud is defined as the crime of deceiving somebody in order
to get money or goods illegally. Oxford Advanced Leaner‟s
Dictionary.
FUNDS:
This is seen as an amount of money that has saved or has
been available for a particular purpose.
FINANCIAL STATEMENT:
This is a record or books kept in an organization stating all the
financial or monetary transactions of the organization. It is usually
prepared within one year by the organizations accountant.
ACCOUNTANT:
A person whose job is to prepare records or check financial
account and also apply his professional competence or knowledge
and still in presenting accounting information tp assist management
decision making.
PRIVATE SECTOR:
This is owned or managed by an individual person or an
independent company rather than the state. Oxford advanced
learners dictionary.
External auditors play a crucial role in the examination of financial statements for organizations. Their primary responsibility is to provide an independent and objective assessment of the accuracy and reliability of the financial information presented by the company. Here are some key reasons why external auditors are significant in the examination of financial statements:
- Independence and Objectivity: External auditors are independent of the company they are auditing. This independence ensures that their assessment is unbiased and free from any conflicts of interest. It helps build confidence among stakeholders that the financial statements are fairly presented and not manipulated to suit the company’s interests.
- Enhancing Credibility: The external auditor’s involvement adds credibility to the financial statements. Stakeholders, such as investors, lenders, and regulators, rely on audited financial statements to make informed decisions. The auditor’s opinion on the accuracy and fairness of the financial information provides assurance that the statements can be trusted.
- Detection of Errors and Fraud: External auditors are trained to identify errors, irregularities, and potential instances of fraud within financial statements. Their audit procedures involve thorough testing and verification of transactions, which helps uncover discrepancies and discrepancies that might not be apparent to the company’s management.
- Compliance with Regulations: Companies are required by law to have their financial statements audited in many jurisdictions. External auditors ensure that the company’s financial reporting is in compliance with accounting standards and regulations specific to the industry. This compliance helps prevent fraudulent activities and misrepresentation of financial information.
- Risk Assessment: Auditors assess the internal controls and risk management systems within a company. Their findings can help the company identify weaknesses in its internal processes, enabling management to take corrective actions to mitigate risks.
- Stakeholder Confidence: Audited financial statements instill confidence among stakeholders, including shareholders, investors, creditors, and employees. When stakeholders can trust that the financial information is accurate and transparent, they are more likely to engage with the company and support its activities.
- Transparency: External auditors promote transparency by ensuring that financial statements are prepared following established accounting principles and guidelines. This transparency helps stakeholders understand the financial health of the company and its performance over time.
- Lender and Investor Requirements: Many lenders and investors require audited financial statements as part of their due diligence process before providing financing or investing in a company. These external parties often consider audited financial statements to be more reliable and informative than unaudited statements.
- Conflict Resolution: In cases of disputes or disagreements related to financial matters, audited financial statements can serve as a reliable source of information. External auditors can provide an impartial assessment of financial data to help resolve conflicts between different parties.
- Continuous Improvement: External auditors often provide recommendations for improving financial reporting processes and internal controls. These suggestions can lead to better practices, increased efficiency, and reduced risks in the company’s financial operations.
In summary, external auditors play a pivotal role in ensuring the accuracy, reliability, and transparency of financial statements. Their independent evaluation contributes to maintaining stakeholder trust, complying with regulations, detecting errors and fraud, and facilitating better financial management within organizations.