Controversies have trailed the credibility of financial statements prepared by management of companies. More worrisome is the collapse of banks in Nigeria months after such banks have been issued a clean bill of health. A financial statement is supposed to reflect a company’s true financial position at any given time. When this is jeopardized, corporate failure becomes inevitable. This study examines auditors’ role in the failure of banks. The main objective is to ascertain the extent to which auditors are liable to the failure of banks in Nigeria. A sample of  CBN’s adjudged ‘ailing banks’ was selected for the study. A multiple linear regression model was used to estimate the variables. The findings revealed that only auditing laws (AL) is not significant to bank failure (BF) which is the dependent variable. While professional negligence (PN), and auditors independence (AI) are significant with bank failure.
Background to the Study                            
The research Problem                            
Objective of the Study                            
Research Hypotheses                             
Scope of the Study                                 
Significance of the Study                             
2.1     Introduction                                    
2.2     The Historical Perspective of Auditing                    
2.3     Auditors and Financial Scandals                            
2.4     Modern Approach to Auditors’ Duties and Obligations            
2.5      Auditing in the Future                            
2.6     The Role of the Bank’s External Auditor                    
2.7     The Responsibility of the Bank’s Board of Directors and the Management    
2.8    Bank Failures                                
2.9    Factors Contributing to Bank Failures in Nigeria            
3.1    Introduction                                        
3.2    Method of Data Collection                            
3.3    Population and Sample Size                        
3.4   Research Instrument                                     
3.5     Method of Estimation                                 
3.6     Model Evaluation                                  
3.7    Test of Significance of Parameter Estimate (T-Statistic)        
3.8     Goodness of Fit Test - (R2)                            
3.9     Adequacy of Regression Equations (F-Test)                    
4.1    Introduction                                      
Descriptive Statistics                            
Regression Analysis                             
Test of Hypotheses                                     
Summary of Findings                             
Discussion of Findings                             
Accounting scandals that have been experienced in the last few years such as Enron, Arthur Anderson and World Com have affected the regulators trust of financial statements'. The total demise of Arthur Anderson in 2002, one of the Big 5 of U.S public accounting firms, sent shock waves all over the world and is often viewed as having generated considerable stress on the principles of accountancy (Gendron, Suddaby, and Lam, 2006). This scandal and its subsequent results were a main reason for drawing attention towards the quality of financial statements. Moreover, the financial crisis which has affected most of the world in the recent years has pushed up the demand for high quality audits. Fargher and Jiang (2008) found that auditors were more likely to issue going concern opinions for financially stressed companies immediately after the crisis. This result may signal that auditors are being more watchful after such crisis and that they now tend to perform their work in a highly ethical way and ensure the quality of their work. Davidson and Neu (1993) mentioned that audit quality is viewed as one of the main factors that affect the credibility of financial information. The higher the audit quality is the more financial information. This can be a motive for deep research and insight in audit quality and the factors that may affect it.  
In Nigeria the spate of corporate failures witnessed in the financial sector in the early 1990s brought auditors into sharp focus and caused the Nigerian public to question the role of accountants and auditors (Okike, 2004; Bakre, 2007; Ajibolade, 2008). Furthermore, the investigations launched by the regulators and other stakeholders into the cases of distress and disclosure revealed that accountants and auditors were implicated (NDIC, 2007).
With the recent banking failure in Nigeria members of the auditing profession in Nigeria are once again in the limelight, as the banking crisis and the revelation of unethical practices by bank executives and board members has raised many questions about the ethical standards of the accounting profession and about the integrity of financial reports issued by professional accountants (Ebhodaghe, 2009). The question has been raised as a result of the failure on the part of accountants and auditors to alert regulators when they have discovered fraud and other irregularities in company records (Bakre, 2007).
In respect of the banking failure, attention has focused on the role of accountants and auditors who have been involved. Accountants and auditors may be expected to report financial irregularities in company accounts by ensuring transparency and accountability and by developing techniques for fraud detection. However, an emerging body of literature argues that accounting professionals have increasingly used their expertise to conceal and promote anti-social practices (Sikka, 2008). For example, Akintola Williams and Deloitte (AWD) was indicted for facilitating the falsification of the accounts of Afribank Plc and for deliberately overstating the profits of Cadbury Nigeria Plc. It has been reported that between 1990 and 1994 the Nigerian economy lost more than N6 billion ($42.9 million) to fraud within the banking sector alone (Bakre, 2007).
The social cost of the banking crisis is difficult to estimate, but huge amounts of public money are being used to bail out distressed banks (Sikka, 2009). In 2008, almost every Reserve Bank across the globe, in collaboration with finance ministries, forced to adopt extraordinary measures to stave off the collapse of the financial institutions and to restore confidence in the banking system (Ogwuma, 2009).
While the global recession was biting hard on advanced economies, the governors of the Central Bank of Nigeria (CBN) had stated that ‘what the rest of the world is now trying to do as the bailout option was what Nigeria did about four years ago, through a pro-active initiative, the result of which we are celebrating today’. Less than a year later, however, Nigerians were awoken to the reality that the Nigerian banks were not so stable after all (Ogwuma, 2009). The audit conducted by the CBN into the activities of the 24 registered banks in 2009 revealed that they were experiencing huge financial difficulties in their operations. As a consequence, in August 2009, CBN injected N420 billion ($2.8 billion) into the first five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) which had failed the CBN audit. Two months later, an additional N200 billion ($1.33 billion) was injected to stimulate the liquidity of four other banks (BankPHB, Equitorial Trust Bank, Spring Bank and Wema Bank) (Odozi, 2009). This injection of money was done in order to stabilise the banks and to ensure that they remained going concerns after their former managers had been sacked for reckless lending and for lax corporate governance which had rendered the institutions undercapitalised (Odozi, 2009).
Against this backdrop, the researcher intends to empirically investigate auditor and bank failure in Nigeria.
This study is undertaken to determine whether the role or activities of auditors in the Nigeria banking sector contributed to the recent failures of banks in Nigeria. In the light of the background information, this study seeks to answer the following questions:
Have Bank’s auditors actually contributed to the distress and failure of their client banks?
To what extent may an auditor be held responsible for a bank’s failure?  
To determine if the bank auditors actually contribute to the distress and failure of their client banks?
To ascertain the extent to which auditors should be held responsible for a bank’s failure.
Ho:    Bank auditors do not contribute to the distress and failure of banks
    Ha:    Bank auditors contribute to the distress and failure of banks.    
2.    Ho:    Bank auditors should not be held liable for bank failure.
    Ha:    Bank auditors should not be held liable for bank failure.
This study examines the existing legal provisions in Nigeria on auditing particularly. (CAMA 1990, NDIC Decree of 1998 and BOFIA 1991 as amended to date).
The study questionnaire is administered on owners and depositors within Benin City to ascertain their opinion on the allegation against the auditor. Secondary data on bank distress from the NDIC publications are used in the study.
The significance of this study are numerous. The result of the study could be useful to the following due to the accompanying reasons:
The Professional Bodies: The result of the study will assist professional bodies like ICAN and CBN in drawing up more stringent code of ethics and robust professional requirements for members.
The Accountant/Auditor: The professional accountant will find the outcome of the study helpful in that he will become fully aware of the consequences of his actions or inactions on his integrity more so as the world is now a global village.
Regulators of the Banking Sector: If the assertion is found true, it will help to improve their supervisory efforts and place less reliance on auditors’ report.
The Government/Law Makers: These set of stakeholders will be enabled to evaluate the existing legal provisions and make necessary amendments or enactment of further law if necessary.
Ajibolade, S. O. (2008) ‘A Survey of the Perception of Ethical Behaviour of Future Nigerian Accounting Professionals’, The Nigerian Accountant, 43 (3): 54-59.
Bakre, O. M. (2007) ‘The Unethical Practices of Accountants and Auditors and the Compromising Stance of Professional Bodies in the Corporate World: Evidence from Corporate Nigeria’, Accounting Forum, 31(3): 277-303.
Davidson, R.A. and Neu, D. (1993), "A Note on the Association between Audit Firm Size and Audit Quality", Contemporary Accounting Research, Vol. 9, No. 2, pp.479-488.
Ebhodaghe, J. U., (2009) “Banking: The Growing Distress Syndrome”, ThisDay Newspaper, 12 December 2009
Fragher, N. L. and Jiang, L. (2008), "Changes in the Audit Environment and Auditors’ Propensity to Issue Going-Concern Opinions", Auditing: a Journal of Practice & Theory, Vol.27, No.2, pp.55-77
Gendron, Y., Suddaby, R. and Lam, H. (2006), "An Examination of the Ethical Commitment of Professional Accountants to Auditor Independence", Journal of Business Ethics, Vol.64, No.1, pp.169-193


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