THE IMPACT OF AUDITING IN ENHANCING BUSINESS SURVIVAL

THE IMPACT OF AUDITING IN ENHANCING BUSINESS SURVIVAL (A CASE STUDY OF GTBANK AND UBA)

ABSTRACTS

This research examines the impact of auditing in enhancing business survival, a case study of guaranteed trust bank (GTBank) and united bank for Africa (UBA). The work is aimed at determining the aims, objective, and achievement of auditing and how auditing through a well planned work of an auditor can have impact in the development of business and its profitability. It was also highlighted that auditors who confronted with some problems should demonstrate adequate skill, care and independent as to prove business development, survival and corporate accountability and by so doing will propel the enhancement in business and other sectors of the economy.

CHAPTER ONE

1.0   INTRODUCTION

 This research work is on the impact of auditing in enhancing business survival: A case study of    guaranteed trust bank (GTBank) and united bank for Africa (UBA).  Auditing has been the backbone of the complicated business world and has always changed with times. As the business world grew strong horizontally and vertically, auditors’ role becomes more complex and challenging. The auditors’ job becomes more difficult and complicating as the accounting principles and standards changes. Organizations application of internal control software and use of internal controls specialists, which introduces the need for testing, makes audit assignments fairly easy and reduces the scope covered as reliance is placed by the auditor on the works done by the internal control specialists. Scandals and stock market crashes, failure of some financial institutions and sudden failures of many companies highlighted to the auditors the deficiencies in auditing and loopholes in audit work. This also led to several innovations which made the auditors and the auditing community to quickly review their operations and fix the anomalies.

The practice of auditing existed even in the Vedic period. Historical records show that Egyptians, Greeks and Roman used to get this public account scrutinized by and independent official. Kautaly in his book “arthshastra” has stated that “all undertakings depend on finance; hence foremost attention should be paid to the treasury”. Auditing as it exists today can be associated with the emerging of Joint Stock Company during the industrial revolution.

  Historically the word “audit” was derived from the Latin word “audire”, meaning “to hear”. The practice of auditing has existed since the primitive days when men were required to account for their transactions. This was developed from the concept of stewardship, where by productive resources were supplied by person or group of persons. These providers of funds would in turn require the stewards of the business to give an account of stewardship accordingly at the end of a particular period of how the resources given to them were been expected.

The practice of stewardship can be linked to present day limited liability companies, which are owned by shareholders, who provide the finance for running the business and managed by directors appointed by them.

“Auditing as we understand now has its root two or three hundred years ago in the first division of interest between those engaged in a business undertaking (the entrepreneurs) and those who made the finance available without necessary becoming directing involved in the day to day management. It was used mostly for the detection of fraud and was done through extensive detailed examination from ancient times until the late nineteenth century. Fraud was a great concern during the early history of auditing, because internal controls were not used or not used effectively until the twentieth century. The late nineteenth century was a turning point in auditing history, when laws like the English Companies Act of 1862 were enacted. “The English Companies Act of 1862 was a general acceptance of the need for an independent review of accounts for both large and small enterprises.” This Act of 1862 showed that there was a great demand for specialized-trained professionals to perform these reviews reliably and -independently. The text by William Jackson, In the True Form of Debtor and Creditor, written in 1823 discussed the need for an orderly and standardized system of accounting. Accurate reporting and the prevention of fraud would result through the use of an orderly and standardized system of accounting.

   It is a bit difficult to give a precise definition of the word audit in a word or two. Originally its meaning and use was confined merely to cash audit and the auditor had to ascertain whether the person responsible for the maintenance of accounts had properly accounted for all the cash receipts the payment on behalf of his principle. But the word, audit, had a wide usage and it now means a through scrutiny of the books of accounts and its ultimate aim is to verify the financial position disclosed by the balance sheet and the profit and loss account of a company. The following are the some of the definitions of audit given by some writers:

Clement (2012) defined auditing as a means of evaluating the effectiveness of a company’s internal control, maintaining an effective system of internal control, the notes is vital for achieving a company’s business objectives obtaining reliable financial reporting on its objectives, preventing fraud and misappropriation of its assets and minimizing its cost of  capital. Inasimilan tone, auditing is an independent   examination of an expression of opinion on the financial statements   of an enterprise, by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation (Okezie, 2008 and Uwota, 2012).

Wikipedia (2012) asserted    that auditing plays a vital role in accounting of a systems internal control; it seeks to provide a reasonable assurance that the financial statements are free from material misstatement and error. In supporting this claim, Uwota (2012) wrote that auditing consists of a searching investigation of the accounting records and other evidences supporting the financial statements in order to provide a fair and reasonable picture of financial details of the company.

Auditing is an independent examination of, and the expression of an opinion on the financial statements of an enterprise by an appointed auditor, in accordance with his terms of engagement and the observance of statutory regulations and professional requirements (Mainoma, 2007)

Spicer and Pegler’s practical auditing, supplements: companies Act 1980 expanded the above definition as follows:

‘‘An audit may be said to be such an examination of the books, accounts and vouchers of a business as well enable the auditor to satisfy that the balance sheet is properly drawn up, so as to give a true and fair view of the state of affairs of the business and whether the profit or loss for the financial period according to the best of his information and the explanations given to him and as shown by the books, and if not, in what respect he is not satisfied.’’

Lawrence R. Dicksee (2003) defines audit is an examination of records undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they relate. In some circumstances it may be necessary to ascertain whether the transactions are supported by authority.

 According R.B. Bose (2006) explain audit may be said to the verification of the accuracy and correctness of the books of accounts by independent person qualified for the job and not in any way connected with the preparation of such accounts.

The international auditing practices committee defines auditing as “the independent examination of financial information of any entity whether profit oriented or not and irrespective of size/legal form when such an examination is conducted with a view to express an opinion thereon”.

In a statement issued by the international federation of accountants committee (IFAC) on international auditing guidelines (IAG) defined audit as ‘‘the independent examination of, and the expression of opinion on, the financial statement of an expertise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory and professional obligations’’. The statement added that ‘‘the responsibility for the preparation of financial statements and the presentation there in rests with the management of the enterprise’’.

It is clear from the above definitions that auditing is the systematic and scientific examination of the books of accounts and records of a business so as to enable the auditor to satisfy himself that the balance sheet and the profit and loss account are properly drawn up so as to exhibit a true and fair view of the financial state of affairs for the business and profit or loss for the financial period. The auditor will have to go through various books and accounts and related evidence to satisfy him about the accuracy and authenticity to report the financial health of the business.

Generally, it can be deduced from all the definitions that an auditor is one person whose independent, honesty, integrity and competent in performing his work is not in doubt in terms of expressing an opinion (professional), which measures the degree of correspondence between actual transactions that have failing place and what is being presented to him in conformity with statutory laws outlined for the profession.

The auditor therefore should be one appointed to investigate activities of an organization, its records and the financial statements prepared by the management and thus form an opinion on the accuracy, truth, validity, reliability, correctness and fairness of the financial statements.

The primary aim of an audit is to determine and judge the reliability of financial statement and supporting accounting records of a particular financial period is the main purpose of the audit.

These primary objective of an auditor is in respect to the owners of his business expressing his opinion whether account exhibits true and fair view of the state of affairs of the business. It should be remembered that in case of a company, he reports to the shareholders who are the owners of the company and not tot the director. The auditor is also concerned with verifying how far the accounting system is successful in correctly recording transactions. He had to see whether accounts are prepared in accordance with recognized accounting policies and practices and as per statutory requirements.

Secondary aim on its own part report the financial condition of the business, auditor has to examine the books of accounts and the relevant documents. In the process he may come across some errors and fraud. We may classify these errors and frauds as below:

• Detection  and prevention of errors
• Detection and prevention of frauds.
• Provide other services like taxation, receivership and liquidation, management consultancy, financial advisory services, accountancy services, investigation and secretional services.

Auditing is classified mainly into two:-

• External and
• Internal auditing

Ø  External Audit:  this is an independent examination of financial statement being carried out by non-employees of the business enterprise. External audit therefore can be statutory or private.

Ø  Internal auditing is a function of effective internal control put in place by an organization and to ensure the efficient and effective operation of the business of the organization.

         This research work will be concerned on both external and internal auditing.

1.1 BACKGROUND OF THE STUDY

    Banking industries in Nigeria have over the year experienced a remarkable growth and expansion that the traditional approach of business management is no longer adequate to meet the heavily bordered company management in maintaining control over the wide spread operations. The increase in regular activities, the trend towards decentralization and greater geographical dispersion has in themselves posed serious challenge to management control. When this is added, the fact that in any representation of financial information or in the operation of internal activities, individual could be guilty of self-interest, carelessness, and dishonesty. There is the need for an outstanding performance for all levels of management, these new problem have made it necessary    for management to delegate responsibilities and authority to many level of supervision. However management responsibilities does not end with these allocation of duties, management has to turn to a control specialist, (Auditor) for assistance in ~maintaining a close watch over the management control network. Without auditors guide, management could not rely on financial statement as a guide in making any decision and the auditor (external) cannot rely on the internal control system without greatly increasing his test and the extent of his auditing procedure.

   The role of auditors incorporate generally studying the efficiency of functions within the organization which includes financial checks, operational accounting, and evaluation and reviewing of the system of internal control. The auditors appraise financial and control periodically summarises the results of continuous investigations, prepare recommendations for better procedure and report the results of his findings to top management says A.W. HONES and W.S. OVERMYER auditing standard and procedure page (3) three.

The auditors (external and internal) perform the same functions except that external auditors perform their investigation on periodic basis usually once or twice in a year. The regulatory examination is done by Central Banks and business activities to ensure that banks conforms to the lay down central ~bank banking guidelines.

The objectives of auditing as stated in the company and allied decree (CAMD) 1990 is to express on opinion as to the truth and fairness of the financial statement as presented by the companies. The reason why and to prevent and detect fraud in banking industries and its implication for auditor is bone of public contention in the country today, this is why as academician and concerned citizens of this country, the researcher has taken it as a challenge to make it cleared to the public on the impact of auditing in enhancing business survival in order to settle the misconceptions of the public in regards to the auditors roles, responsibilities, duties, right and independence.

The auditors in addition to their obligation carry out risk assessment of their client. Risk assessment refers to management identification and analysis of relevant risks that hampers the achievement of specified objectives. All entities regardless of its size, nature, structure or industry are subject to business risk. Business risk affects each entity’s ability to survive, successfully, compete within its industry, maintain its financial strength and positive public image; and maintain the overall quality of its products, services and people.

1.2 STATEMENT OF PROBLEM

     The life span of a business organization is expected to exist on a going concern basis. The organizations that have survived the economic crises and environmental influence have succeeded principally because of the efficiency and effectiveness of management and auditors.

The fact that in any representation of financial information or in the operation of internal control system activities in a banking industries or organisations today, individual has been found guilty of one problem or the other which always leads to fraud, errors or mismanagement in bank/business entities.

This event might be due to errors committed in financial institution (bank) or organisation:

Such errors include;

• Clerical errors and
• Errors of principle

Fraud on the other hand can be of the following types:

• Misappropriation of cash
• Misappropriation of goods
• Falsification or manipulation of accounts
• Window dressing
• Secret reserves.

The examination and scope of external auditing contributes to a great extent in business substance. It goes a long way in detecting fraud and to express an opinion on the truth and fairness of the financial statements of an organisation presented to him.

Internal auditing on its own part, contributes to the extent of assurance and consulting activity designed to add value and improve an organisational operations. It helps organisation accomplish its objective by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

A careful and critical review of the ways and manner in which several organisations have closed down or liquidated in the recent time in Nigeria, comprising, manufacturing companies, banks, marketing and service industries, one may be compelled to ask such question as;

• What effect has auditing to business organisation in Nigeria?
• How competent and effective are auditors?
• To what extent is the work of auditors contributing to enhancing business survival?
• Can business survive without the auditors? If yes to what extent?
• Has the business threat been unveiled to the auditors?
• Has the auditors been given all the freedom to carry out their job as required? If yes then what has gone wrong?

This research shall attempt to proffer solution to these question and several others alike that demands urgent responses as it will go a long way to enhance the survival of business in Nigeria. At this same time it will prevent the occurrences of several problems attached to business organizations that lead to subsequent closure and liquidation thereby redeeming the image and the credibility of auditing/accounting profession.

1.3 OBJECTIVES OF THE STUDY

     Generally, every research report has to have aims or reasons for conducting it. There has to be goals or target laid down at the beginning to be achieved at the end of the research. These goals are compared with the end results of the research to determine whether or not the objective is achieved. Furthermore, at the end of this research work knowledge would be gained among the quality of good research is its open-ended nature which gives room for constructive criticism and further research.

The primary aim of this research is to improve the already existing knowledge on how auditing scope could be enhanced for efficient/effective result. This research study shall also examine a number of objectives which includes:-

    1. To review scope and effectiveness of auditing.

    2. To ensure that financial institutions and business enterprises adheres strictly to audit principle in carrying out their operation.

   3.  To determine or ensure that they adhere to various audit statutes.

   4.  To examine that documents necessary for proper auditing present a true and fair financial statement

   5. To assess the problem facing the auditors in the cause that enhances the survival of the clients business.

   6. To examine the extent to which business risk assessment is carried out.

   7. To review a constraints of auditors.

   8. To review how audit work can be improved.

   9. To examine the internal control system, identify and document the management weaknesses, suggest possible solution and recommendation on how it could be improved for more effectiveness and efficiency.

 10. To identify trait and utilize opportunities.

 11. To make recommendations based on the finding of this study.   

TOPIC: THE IMPACT OF AUDITING IN ENHANCING BUSINESS SURVIVAL

Format: MS Word

Chapters: 1 - 5
Delivery: Email

Number of Pages: 83

Price: 3000 NGN

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