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THE AUDITOR AS AN INDISPENSABLE PART OF A PROFITABLE BUSINESS ORGANIZATION

(Accounting)

THE AUDITOR AS AN INDISPENSABLE PART OF A PROFITABLE BUSINESS ORGANIZATION

TABLE OF CONTENT

CHAPTER ONE

1.1           BACKGROUND OF STUDY       

1.2           STATEMENT OF THE PROBLEM          

1.3           OBJECTIVES OF THE STUDY               

1.4           SIGNIFICANCE OF STUDY                    

1.5           DEFINITION OF THE TERMS                             

1.6           SCOPE AND LIMITATION OF THE STUDY

CHAPTER TWO

LITERATURE REVIEW                                                     

2.1         DEFINITION OF AUDITING STANDARD           

2.2         ORIGIN OF AUDITING STANDARD                   

2.3         HOW AUDITOR DUTIES RELATED TO THE ACHIEVEMENT OF PROFITABLE BUSINESS ORGANIZATION                                                     

2.4         RELATIONSHIP BETWEEN AUDITING

AND ACCOUNTING                                                          

2.5         INTERNAL CONTROL                                           

2.6         EXTERNAL AUDITING                                          

2.7         AUDITING PROCEDURES                                              

2.8         THE AUDITOR AND FRAUD                               

CHAPTER THREE

SUMMARY, RECOMMENDATION AND CONCLUSION

3.1         SUMMARY OF FINDINGS                                                

3.2         CONCLUSION                                                                    

3.3         RECOMMENDATION                                            

3.4         BIBLIOGRAPHY                                                     

                                                CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

            Complexity and growth in a business organization calls for employment or more employee and separation of business from the owners thus, is because the owner cannot efficiently oversee the various departments due to increase in the size of the business.  Therefore there is need for extra hands, managers are then employed as stewards to oversee or look after the business assets and control certain departments.

            It is pertinent that as the business continues to show a growth rate, the sole proprietorship will gradually give way to partnership will gradually give way to partnership perhaps one to need of better management and also due to of bigger capital. As the partnership became Bigger, it ushers in the limited liability company which came in with the share holding concept a situation where a very large capital is required of a business venture by the public each contributing a single unit of share.  

            The shareholders as the owners of the business appointed directors to run the day to day affairs of the company.  The directors in form appoint managers to serve as stewards of the company.

            The managers, fulfill their accountability to the share holders and other interested parties by preparing financial statements.  It may be in form of balance sheets, profits and loss account, source and application of fund statement (VAS) and historical financial summary.

            These statement are presented inform of annual report to achieve accounting goals, which finally serve as instrument towards achieving profit in any business organization.

            Virtually when managers report to share holders some problems always existed such as can the shareholders believe the report? Some of the reasons why these shareholders, employees, investors and other body agencies became doubted about the report are as follows:

1.            Such reports contain some errors eg. Error of omission, commission principles etc.

2.            Such reports can be unintentionally misleading or deliberately misleading.

3.            Such reports may not disclose relevant information.

The solution to the above problem of reliability and validity in the report and accounts lies in the appointment of an independent expert called an “Auditor” to investigate the reports and makes his own opinion and report on his findings.

However, the auditor is regarded as the eyes and ears of the records of the organization in order to ensure that the financial statement are a reflection of the affairs of the organization as appeared in these records since these records are a summary of the transactions for a specific period, the auditor also goes behind these records to the source documents in order to confirm the accuracy, completeness and validity of the record transactions.

According to Pugh Michael (1992) P.12 it is the auditors responsibility to ascertain that all financial statement of the business origination are followed because the accounting profession requires of it’s member integrity, transparent honestly, independence and objectivity of performance as well as strict adherence to accepted professional conduct.

Borrowing a leaf from A.W. Holiness (159) P. 12, he stated that there is a required that all registered limited companies most have their financial records audited annually by a firm of auditors so appointed.” He further stated that the law concept compels the auditor to express his opinion to the authoritative the auditor must be seen to be independent.

            Summarily therefore, the auditor, shareholder and director have a tripartite relationship in the company.  The shareholders are the owners of the company, the directors or management are employed by the shareholders to manger the business.  In turn the shareholders appoint the auditors to act as checks and balances for the purpose of giving them a true and fair view of their company at any giving time.

            The duty of preparing the financial statement is placed on the directors, while that of reporting is on the auditors who is responsible to the shareholders.  All these are aimed towards achieving profit in the business organization.

1.2       STATEMENT OF THE PROBLEM                              

            Today in the country, people view the auditor in different ways.  Some recognize them as a body that check the fraudulent acts in a present business organization while others regards the auditor as somebody who approaches his work with suspicion or with foregone conclusion that there is something wrong.  In the case of DE-KINGSTON MILL COMPANY (1896), it was held that the auditor is not bound to approach his work with suspicion or with a forgone conclusion that there is something wrong.

            Present business organization are filled with stories of fraud, 419ers (Advanced fee fraud) Ducks and Drakes of Public Funds, etc. Fraudulent acts has become so rampant that one wonders if there is no means of limiting if not eliminating it completely.

            It has been said that the management of a business enterprise are the custodians of its assets and are therefore responsible for any act that result in loss or mismanagement of assets.  However, the accountant who prepares or keeps the books of the enterprise is under the control of the management and thus, it is possible for the managers to alter the records, the books cover fraudulent acts, deliberately given an unfair and untrue view in their statements of account, etc.

            For the purpose of protecting the shareholder’s interest, investors and to make sure that there is no room for mismanagement and improprieties of funds, the auditors is appointed to act as eye and ear or watch dogs towards these activities.  The auditor is an accounting expert that is independence of the company’s management.

            His duty is to give credibility to the financial statement of a company.  He gives the assurance and confidence that the financial statement represent a true and fair view of a company.  The auditors duty according to Augusta’s text book stared that, the Auditor duty is limited to expressing an opinion as to whether or not the company’s financial statement is to the best of his knowledge represent a true and fair view of the company.  According to him, he is not responsible for not detecting and uncovering fraud as such duties belong to the management and are only a subsidiary duty to him.

            The problem now is, if the auditor is not responsible for not uncovering fraud act, such duties belong to the management and are only a subsidiary duty to him.  How does he give assurance to the various users of final accounts that the financial statement represent a true and fair view of the company.  If the auditor is not relevant in uncovering fraud, he is probably not relevant to the company at all.  Public expectation is that auditor should and must discover fraud.

OBJECTIVE OF THE STUDY

            Internal control is the tool at management’s disposal to curb fraud.  Despite internal control, management has not successfully used to control fraud as we can see from media reports filled with news of financial fraud. 

            We therefore need to know and to understand why this system has failed tremendously.  Also since the report of financial fraud has grown to an alarming rate, it has become necessary to think out a more economical efficient and effective ways of curbing it.  This of course many perhaps require the service of an external expert, the auditor.  In which case, the primary aim of an audit has to include detection and prevention of fraud.

            The objective of this study is therefore:

i.              To examine the statutory principles of audit in relation to fraud.

ii.            To examine the need for auditors as well as managers to be responsible for detecting and curbing fraud.

iii.           To evaluate the system of external control as a measure of controlling fraud.

iv.           To seek the possibility of extending the scope of present day audit in order to make the auditor be of more relevance to business organization.

v.            Finally to define clearly the extent of the auditors responsibility.

SIGNIFICANCE OF STUDY                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

            The primary goal of an audit as required by the company and allied matters decree (CAMD) of 1990 is that the auditor must satisfy himself that:

a.            The accounts have been prepared in accordance with the decree.

b.            The accounts are in agreement with records.

c.            Proper accounting records have been kept.

d.            The balance sheet shows a true and fair view the results of the period.

e.            He has obtained all the information and explanations necessary for the purpose of audit and that adequate returns have been received from branches not visited by him.

The secondary goal of an audit according the CSMD is:

a.            The prevention and direction of fraud, errors and irregularities.

b.            The provision of assistance to management by way of drawing management’s attention to weakness in the system discovered in the course of audit exercise.

This study will show that the secondary goals of auditing are indeed the goals that make the auditors relevant in a profitable business organization.  The study will try and fashion out a way where by auditing will not be restricted to inspections of books as shown in primary goals of an audit, rather it will involve a well organized system of preventing and detecting fraud.

            They study also took into the current mode of relationship and suggest ways of improvement so that they can work together for the common goal of the organization.

            Finally, this research will be of most benefit to business organizations.  The share holders stand to benefit in the sense that the information gotten will enhance his opinion of who an auditor is and relevance to the profitability of his business organization.  Directors of the organization will benefit from this study because they already know that they are not the only people handling the records of the organization.  Students, who may need further research will find the research work advantages and finally the study will benefit the general public.

            DEFINITION OF TERMS

Materiality:     The auditing practices board defines materiality as follows: A mater is material if it’s omission or misstatement would reasonable influence the decision of a user of the financial statements.                                                      

ii.            Staff collusion: Collusion is the compensation relaxation of interrelated checks be staffs that operate complementary roles for their mutual benefits.

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    Project Details

    Department Accounting
    Project ID ACC0578
    Price N3000 ($14)
    CHAPTERS 3 Chapters
    No of Pages 38 Pages
    Methodology Descriptive
    Reference YES
    Format Microsoft Word