MANAGERS PERCEPTION OF THE CONSEQUENCES OF AUDITOR’S TENURE ON AUDITOR’S INDEPENDENCE ABSTRACT This study was centered on Managers Perception of the Consequences of Auditors Tenure on Auditors Independence. The objective of the study was basically to find out if there is a relationship between auditors tenure and auditors independence, if auditors tenure influences audit quality, if there is a relationship between auditors tenure and audit report qualification and also to examine if managers perception influence audit tenureship. The researcher used primary and secondary data. The chi-square was used for data analysis. The result of the findings showed that there is a relationship between auditors tenure and auditors independence, auditors tenure influences audit quality, there’s a relationship between auditors tenure and audit report qualification and it was also deduced that managers perception influences audit quality, we discovered from our study that auditors tend to be relaxed when they think the job is going to last for a long time. From our study we can conclude that managers perceive that auditors tenure influences his independence. TABLE OF CONTENTS CHAPTER ONE Introduction Statement of Research Problem Research Questions Objectives of the Study Scope of the Study Significance of the Study Research Hypotheses 1.8 Limitation of the Study References CHAPTER TWO: LITERATURE REVIEW 2.1 Introductions 2.2 Origin of Auditing The Auditor and Its Legal Framework Appointment of Auditors of a Bank (Sec 29) 2.5 Appointment of Auditors of Insurance Companies The Concept of Auditor Independence Tenure of Audit Non–Audit Services Influence of Managers on Audit Fee Size of Audit Firm Other Factors Influencing the Independence of Auditor Nature of Auditor Independence in Nigeria Audit Fees and Earnings Quality Auditor Fees and Qualified Audit Opinions References CHAPTER THREE Research Methodology Population Research Design Sample Method The Sample Size Sources of Data Collection Instrument of Data Collection Method of Data Analysis References CHAPTER FOUR 4.1 Analyses of Data 4.2 Analysis of Responses 4.3 Test and Discussion of Hypotheses CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION Introductions 5.2 Summary of Findings Conclusion 5.4 Recommendations References Bibliography Appendix CHAPTER ONE INTRODUCTION BACKGROUND TO THE STUDY Audits are performed to ascertain the validity and reliability of corporate information. It also provides an assessment of a system internal control of an organization. However, the goal of an audit is to express a professional opinion on the financial statements being examined, based on work done on a test basis, Evans and Parker (2008), described auditing as one of the most powerful safety monitoring technologies and effective way to avoid complacency and highlight slowly deteriorating conditions especially when the audit focuses not just on compliance but effectiveness. As public concerns about instances of alleged accounting and audit failure have increased, so has the interest of political and regulatory organizations in the promulgation of rules impacting on the scope of the audit, as well as aspects of the audit-client engagement. Particular attention has been given to aspects of the auditor-client relationship that could impact on auditor independence, whether in fact or in appearance. For example, the provision of non – audit services (NAS) is now severely restricted in many countries. Auditor tenure has also been subject to regulatory intervention, on the basis that longer tenure is likely to result in reduced independence on auditor tenure have been considered at two levels. First, there have been calls to restrict the length of time that an audit firm can audit a specific client, although this has largely been restricted, with explicit recognition of potentially high court of mandatory audit firm rotation. Second, it has the engagement partner, should be periodically rotated off the audit. Consequently, requirements have been put in places that require the mandatory rotation of the partner most responsible for overseeing the audit (i.e. the engagement partner). This legislative intervention is despite pre-existing processional standards expressing the need to ensure at least some degree of partner rotation, as well as recent revisions to these standards to require partner rotation. However, in the light of the recent corporate scandals Fairchild, (2007) stated that auditors independence and turnover has become the focus of much debate. He stresses on the need for firm to be forced to replace their auditor on regular basis or allow the auditor build strong relationship with client. Proponent of enforced regular turnover of auditors argue that a long-run relationship may lead to a reduction in the auditor’s due-diligence, as he becomes more prepared to turn a blind eye to inappropriate managerial actions. The opposing view is that a long term relationship is beneficial as auditor may need some time to gain expertise in the business that they audit. Regular auditor replacement reduces the auditor’s ability to detect irregularities. In light of the issue arising in the Nigerian Banking Sector one would be forced to the ideal for auditor advocate tenureship rotation as the presence of same firm can hinder corporate reporting and the true picture of corporate activities. The question of auditor independence which is synonymous with auditor objectivity and the auditor’s ability to withstand client pressure has received increased attention from regulators, academics and practitioners round the world in recent years due to highly publicized audit failures. Regulators often argue that dependence on non-audit as well as “excessive” audit fees. Some academics, however, argue that regulators fail to consider the cost to auditors of compromising their independence (e.g. loss of reputation) and that non-audit services may actually improve audit quality (e.g., Defond, Raghunandan and Subramanyam 2002). However, the research is aimed at analyzing MANAGERS perception of the consequences of auditor tenure on auditors independence in the Nigerian Banking Sector. STATEMENT OF RESEARCH PROBLEM There has been a preponderance of high profile corporate failure in the last century all over the world such as Enron, World.com, Tyco, Xerox in U.S.A. Pollypeck, Maxwell.com, BCCI in U.K. Parmalat in Italy (ICAN Study Pack, Financial Reporting and Ethics, V/I publishers 2009 and also in view of the current issue on tenureshp and independence in the Nigerian bank sector which resulted in serous crisis among some banks in Nigeria in 2009 and 2010, the need arises therefore for one to examine the effect/challenges of audit tenureshp on audit independence in the Nigerian banks through an analysis of the MANAGERS perceptions. RESEARCH QUESTIONS Is there a relationship between auditor’s tenure and auditor’s independence? Does auditor tenure influence audit quality? Is there a relationship between audit tenure and audit report qualification? Does managers perception influence audit tenureship OBJECTIVES OF THE STUDY The core aim of this work is to examine investor’s perception of the consequences of audit tenureship and how it affects their independence. Objectives include to: Find out if there is a relationship between auditor’s tenure and auditor’s independence. Find out if auditor tenure influences audit quality. Find out if there’s a relationship between auditor tenure and audit report qualification Examine if managers perception influence audit tenureship. RESEARCH HYPOTHESES The research hypotheses are: Hypothesis I Null: There is no relationship between auditor’s tenure and auditor’s independence. Alternate: There is relationship between auditor’s tenure and auditor’s independence Hypothesis II Null: Auditor’s tenure does not influence audit quality Alternate: Auditor’s tenure influences audit quality. Hypothesis III Null: There is no relationship between auditor’s tenure and audit report qualification Alternate: There is relationship between auditor’s tenure and audit report qualification Hypothesis IV Null: Managers perception does not influence audit tenureship. Alternate: Managers perception influence audit tenureship SCOPE OF THE STUDY The study focuses on all commercial banks across the country, that includes all the quoted banks in the Nigeria Stock Exchange (NSE). However, the research work was restricted to Edo state, particularly Benin City, because of the fact that most banks have their branches in Benin – City and moreso, because of the presence of the Nigeria Stock Exchange (NSE) in the City. Emphasis was placed on the post consolidation era of the bank. SIGNIFICANCE OF THE STUDY Enhancing economic wellbeing and improving performance, strength and stability of corporate organizations is of utmost importance to any organization. These, however is premised on the fact that the continual failure and crisis of corporate business has affected the national corporate system which in turn has influenced the economy negatively. The study harps on the ways in which these failure and collapses of corporate organization can be reduced through a well structured audit tenureship and proper application of the principle of quality independence. The study is hoped also, to contribute to the body of existing knowledge, on the subject matter, enhance policies and decision making and be of importance to future researchers. LIMITATION OF THE STUDY No researcher is perfect and this work is not an exception. The key constraint in the course of this research is time. Other constraints involve finance, smallness of sample size, inability to obtain complete sample etc. REFERENCES Evans A. and Parker J. (2008) “Beyond Safety management Systems. Aero Safety World, p. 12 – 17. Fairchild R. (2007) Audit Tenure, Report Qualification and Fraud, A Working Paper submitted to the School of Management Sciences, University of Bath. Defond, M. L, Raghunandan K. and Subramanyam K. R. (2002) Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit opinions. Journal of Accounting Research, Vol 40.No4 1247 – 1274 ICAN Study Pack, Financial Reporting and Ethics V/I publishers 2009. Pg 240-242.
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