IMPACT OF AUDITING ON QUALITY FINANCIAL REPORTING

ABSTRACT

This research was carried out in order to examine the impact of auditing on quality financial reporting in Nigeria. The study aimed at examining, investigating and ascertaining the interaction between audit quality and corporate financial reporting in Nigeria. Hence, the study is a movement towards improving the quality of audit practice in Nigeria. In conducting this research both primary and secondary data were used. The study captured the opinions of respondents including auditors, shareholders, brokers, analysts, regulators, management, academics and others users of financial information. The primary data were got from three hundred and fifty returned and usable copies of questionnaire, while the secondary data were generated from the financial statements of forty annual reports of companies quoted on the Nigerian Stock Exchange. The data gathered were used to test the research hypotheses and answer some of the research questions. The study found a significant and positive relationship between audit quality and the quality of financial reporting.

CHAPTER ONE

INTRODUCTION

1.1               Background to the study

CHAPTER ONE

INTRODUCTION

In recent times, auditors have been put under pressure to ensure that their reports constitute assurance to investors that their funds are put into good use and properly accounted for. In Nigeria, every incorporated company is required to appoint an external auditor, who is required to render an independent opinion on the financial statements; whether or not they show a true and fair view. The Companies and Allied Matters Act (1990) states that every auditor of a company shall have a right of access, at all times, to the books, accounts and vouchers of the company and to such information and explanations as may be necessary in the course of an audit. The auditor shall make a report to the members of the company on the accounts examined by them. The auditor in performing his duties is expected to exercise all care, diligence and skills as is reasonably necessary in each particular circumstance.

Audit report is the medium through which the auditor expresses his opinion on the financial statement examined by him. Due to familiarity, threat of replacement of an auditor, provision of book-keeping services by the auditor and many other factors, the auditor may want to issue an unqualified audit report even when the situation on ground proved otherwise. This situation raises doubt about the independence of an auditor. Independence is the cornerstone of accountability. The challenge is that corporate management hires, fires, and pays both their internal and external auditors. Auditors, therefore, develop good relationships with management to keep the job of the client. They may not, therefore, be independent of the corporate management. In the United States of America, the Sarbanes-Oxley Act (2002) prevents auditors from providing non-audit services to their clients. Nevertheless, auditors will understandably, want to keep their clients for as long as possible (George, 2003). In Nigeria, there have been a number of audit failures, some leading to the restatement of figures in the financial statements. For example, Lever Brothers, African Petroleum and Cadbury, just to mention a few important  ones. Although, it has not been proved by any detailed investigation that these audit failures were due to impairment of auditor’s independence it could reasonably be suspected to be a contributing factor (Adelaja, 2009). Many researchers in the developed nations have investigated the extent of audit independence. For example, Harrast and Mason-Olsen (2007); Abu Baker and Ahmad (2009); Abdullah (2008); Ismail et al. (2008); Sikka (2009); Geiger and Raghunandan (2002) and Zhang et al. (2007). All these studies were conceptualized and executed from the perspectives of developed nations. However, in Nigeria, there  is a  paucity of empirical studies in the same direction. The foregoing perspectives, therefore, make it desirable to investigate the impact of audit independence on corporate financial reporting in Nigeria.

Audit quality practices are procedures established by auditors to ensure that financial reports communicate relevant and reliable information to members of an organisation and the public. These practices vary from one audit organisation to the other depending on their sizes, nature of activities and applicable legislations. Literature documents differences in opinion as to what constitutes appropriate definition of audit quality. Saleh and Azary (2008:65 -77) view audit quality as how well an audit detects and reports material misstatements, reduces information asymmetry between management and stockholders and thus assist protect the interest of stockholders. From the reasoning of Palmrose (1988), audit quality is the probability that financial statements contain no material misstatements. Also, Davidson and Neu (1993: 479 - 488) define audit quality as a function of the auditor’s ability to detect and eliminate material misstatements and manipulations in reported net income. While De Angelo (1981) reports audit quality as the market assessed joint probability that a given auditor will both discover a breach in the client’s accounting system and report the breach. These definitions, no matter how divergent, emphasis compliance with relevant audit procedures and standards (Al -Khaddash, et al., 2013). Users of financial statements demand nothing less than a report that conveys accurate and reliable information relevant for decision making. This is made possible by auditors through the provision of quality services. Salehi and Kangarlouei (2010) investigated the effect of audit quality on accrual reliability of listed companies and found existence of more accrual stability coefficient in audit firms with higher audit quality than those with lower audit quality. Similarly, Al-Khaddash et al. (2013) did a work on the factors affecting the quality of auditing, drawing data from Jordanian commercial Banks. Results indicate a positive and significant association between audit quality and audit efficiency, the reputation of auditing office, auditing fees, the size of audit firm and the proficiency of the auditor.

TOPIC: IMPACT OF AUDITING ON QUALITY FINANCIAL REPORTING

Format: MS Word

Chapters: 1 - 5, Abstract, References, Data Analysis
Delivery: Email

Number of Pages: 68

Price: 3000 NGN

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