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PROJECT TOPIC AND MATERIAL ON Auditor’s Legal Responsibility and its Effect on Accounting Profession
The Project File Details
- Name: Auditor’s Legal Responsibility and its Effect on Accounting Profession
- Type: PDF and MS Word (DOC)
- Size: 151
- Length: 76 Pages
The study investigate auditor’s legal responsibility and its effect on accounting profession. A survey research design was adopted in the course of the study. The study used a sample size of 49. The total population from which the samples size was derived are the population who of legally registered and practicing accounting firm. Questionnaire was the main data collection instrument used for the collection of field data from the respondents. Field data were collected from respondent in three different states (Anambra state, Enugu and Akwaibom state) all in south east and south south Geo-political zones of Nigeira. The field data collected from the respondent were all presented in tables and analysed using mean, standard deviation and analysis of variance (ANOVA). The finding shows that auditor’s legal responsibilities such as detection of fraud, prevention of fraud and error etc have positive effect on accounting profession. The result also indicated that auditors play vital role in auditing financial record of organization in other to balance financial account, check and detect financial fraud and also authenticate the correctness of financial information passed to it end users as one of the functions of the legal responsibilities of auditors in accounting profession. It is recommended in the research that auditors should be conscious of their legal responsibilities in accounting profession during auditing activities, it was also recommended that auditors should be free from the influence of internal or external factors which could affect their profession negatively, hence, auditors should always authenticate financial statements in order to be credible in accounting profession.
1.1 Background to the Study
Auditing is a systematic examination of books, accounts, documents and vouchers of an organization to ascertain how far the financial statements present a true and fair view of the concern. It also ensures that the books of accounts are properly maintained by the concern as required by law. Auditing is defined as a systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an enterprise for a stated purpose. In any auditing the auditor perceives and recognizes the propositions before him/her for examination, collects evidence, evaluates the same and on this basis formulates his/her judgment which is communicated through his/her audit report [www.wikipedia.org]. Auditors’ auditing of a financial record provides third party assurance to various stakeholders that the subject matter is free from material misstatement. The term is most frequently applied to audits of the financial information relating to a legal person. Other areas which are commonly audited include: internal controls, quality management, project management, water management, and energy conservation. As a result of an audit, stakeholders may effectively evaluate and improve the effectiveness of risk management, control, and the governance process over the subject manner.
That an auditor has the responsibility for the prevention, detection and reporting of fraud, other illegal acts and errors is one of the most controversial issues in auditing, and has been one of the most frequently debated areas amongst auditors, politicians, media, regulators and the public (Gay et al, 2013). This debate has been especially highlighted by the collapse of both small and big corporations across the globe. The auditing profession in Nigeria has caught the media’s attention following financial scandals in some of the Nigerian banks such as Intercontinental Bank, Oceanic Bank, Afribank, and Bank PHB among others.
Organisations’ management has control over the accounting systems of the organisation and is not only responsible for the financial reports to investors, the owners of the organisations, but also has the authority to determine the precise nature of the representations that go into the reports. It is the responsibility of the management of the organisation that is vested with the preparation and presentation of the financial statement of the organisation to the stakeholders, which may need such information to guide them in their decision making (Chukwuncdu, 2009). To increase the confidence of investors and creditors in financial statements, they are provided with an independent and expert opinion on the fairness of the reports. This expert opinion will be initially provided by one or more stockholders, who will be designated by the other stockholders to perform the task as representatives of the rest of the stockholders.
This mark the beginning of the auditing profession as it quickly emerged to meet market needs for their services. It became necessary that legislation will be soon required to permit persons other than stakeholders to perform the audits, giving rise to the formation of auditing firms. These developments resulted in demand for the services of specialists in bookkeeping and in auditing. Thus the institutionalization of audit as a profession will be then merely a matter of time.
Unfortunately, the spate of corporate failures, financial scandals and audit failures has led to an increase and significant criticism and litigation against the auditing profession (Maccarrone, 2011, Dan et al,2007). Audit is a formal examination, correction, and official endorsing of financial accounts, especially those of a business, undertaken annually by an Accountant. The accounting profession in Nigeria has been under intense pressure due to rising public expectations which is as a result of series of financial failures that occurred during the recessionary years of the late 80’s and the early 90’s (Ekwueme, 2000:14). These financial failures happened too quickly after an unqualified’ audit report was issued by the external auditors. Koh and Woo (2012), noted that in recent years, some spectacular and well-publicized corporate collapses and the subsequent implication of the reporting auditors have highlighted the audit expectation gap. In reality, the unqualified opinion is wrongly seen as a certification that the firm or enterprise is solvent, liquid and has the capacity to adapt to the dynamics of the environment. Any subsequent failure of business resulting from management misjudgement, fraudulent practice, economic instability, inconsistency in micro and macroeconomic policies etc are viewed as failures of auditors (Adeniji, 2011:510).
The role of auditors is crucial in today’s corporate world is especially due to the separation of ownership from management as a result of numerous shareholders in companies. The auditors are usually perceived as independent and as a result users rely on audit reports because they expect auditors are unbiased (Nagy, 2010:4). The Auditor’s role is carried out to add credibility to the financial information released after the end of a company’s financial year. This credibility is, however, called into question after some spectacular and well-publicized corporations (for example Enron and WorldCom in USA) collapsed shortly after an unqualified (in other words “clean”) audit report had been issued (Lee, Gloeck and Palaniappan, 2007:1).
These events have thrown the accounting profession into a spotlight. Ekwueme (2000) explained that shareholders and most of the general public feel that as a result of the collapse of banks and firms, the auditor’s safeguard are worthless.
These perceptions draw a line that needs to define the role of the auditor in protecting the interest of shareholders and ensuring that there is good corporate governance. Owners of business need auditors, more than ever, to detect and prevent fraud. Perhaps, this is due to the expanding nature of modem day businesses. Clients need value added and not an auditor that will vouch and does the normal trade test (Nwokolo, 2012:25). Additionally, auditors have been known for high integrity and objectivity as well as their commitment to public interest. In relation to this view, Hillier (2000) stated that diverse clients now expect them to provide more services than just performing statutory audit and attesting to the credibility of financial statements. The society wants their franchise to include detection of fraud and exposure of all corrupt practices that are likely to vitiate the fortunes of corporate entities. The difference between the actual nature and objective of an audit and that perceived by the users of audited
financial statements has led to the concept of “audit expectation gap”. This study examines the opinion of auditors, clients and users of financial statement on their various understanding of the legal responsibilities of auditors or audit reports in Nigeria and the consequences on the accounting profession.
1.2 Statement of Research Problem
Auditing standards are important to the user of accounting reports such as banks, host community, shareholders, government, creditors etc. The standards explain the legal responsibility and independence of the auditor from the point of view of management and shareholders. International standards have been formulated to harmonize auditing practices between different nations and are to be applied where there are no local standards. In Nigeria, the International Standards on Auditing (ISA) are mandatory for the companies quoted on the Nigeria Stock Exchange (NSE) where Nigerian Auditing Standards do not exist. In both public and private sector an increased interest in audit, inspections and oversight of the public sector is noted by many scholars( Gendron et al., 2007; Hood et al., 1999;Guenin- Paracini & Gendron,2010). This increase is not merely driven by efficiency considerations but also by confidence that external audit of the public sector which also contributes to the overall legitimacy of the democratic society. But due to the peculiarity of the Nigerian environment on July, 2006 nine (9) Nigerian Standards on Auditing (NSA) were issued. These claimed priority over the ISAs in the Nigeria context. The objective of the audit of financial statements is to enable the auditor to express an opinion on whether the financial statements were prepared, in all material respects, in accordance with an identified financial reporting framework. The auditor’s opinion is intended to enhance the credibility of the financial statements which is a legal responsibility of an auditor. To achieve these objectives there are legal responsibility such as auditor independence, objectivity, integrity, confidentiality and technical standard required that should be satisfied according to the International standard of accounting and NSAs. It has been asserted that many Nigerian auditors are not complying with the general auditing standard, legal responsibility, field work standards, reporting standards and that there is a need for guidelines for applying the broad concept of these legal auditing responsibility requirement to Nigerian circumstances. Against this backdrop, the paper is therefore to examine auditor’s legal responsibility and it effect on accounting profession.
1.3 Objectives of the Study
In order to effectively arrive on sound and reliable research, the main objective of the study is to ascertain the legal responsibilities of auditor and the effect it will have on accounting profession. Other specific objective that guides the study is to examine the extent.
- Auditor’s expression of opinion on financial statement affect accounting profession.
- Auditor’s independence affects accounting profession.
- Auditor’s detection of fraud affects accounting profession.
- Auditor’s detection of error affects accounting profession.
- Auditor’s prevention of fraud affects accounting profession.
- Auditor’s prevention of errors affects accounting profession.
1.4 Research Questions
In other to gather relevant responses from the respondent the following research questions are posed guild the study as follows:-
- How does auditor’s expression of opinion on financial statement affects accounting profession?
- To what extent do auditor’s independence affect accounting profession?
- To what extent do auditor’s detection of fraud affects accounting profession?
- To what extent do auditors detection of error affect accounting profession?
- To what extent do auditor’s prevention of fraud affect accounting profession?
- To what extent do auditor’s prevention of errors affects accounting profession?
1.5 Research Hypotheses
H01: Auditor’s expression of opinion on financial statement do not significantly affects accounting profession.
H02: Auditor’s independence during auditing do not significantly affect accounting profession
H03: Auditor’s detection of fraud do not significantly affects accounting profession
H04: Auditors detection of error significantly does not affect accounting profession.
H05: Auditor’s prevention of fraud do not significantly affect accounting profession.
H06: the prevention of error by auditor’s significantly do not affects accounting profession.
1.6 Scope of the Study
The scope of this study covers the appraisal of auditor legal responsibilities and the consequences on the accounting profession. The main concern of this research is to establish whether those areas of concern, (areas that brought about the creation of misunderstanding of the legal responsibilities of auditor s and the audit profession) could be identified and measures could be taken to either eliminate them or reduce them to the barest minimum.
This study also focus on professional Accountants from all the recognized accounting bodies including practicing and non- practicing accountants in Anambra State, Awka Ibom state and Lagos state.
- 7 Significance of the Study
The research findings of this study are of immense benefit to public and private firm. It will be of help in understanding of the statutory objectives of internal audit in order to reduce any unreasonable expectations of the external auditor. The research is also significant since it will help to maintain public confidence in financial statements and protect public interests on accounting profession. The research on the other hand, will also help accounting profession to redefine the role of auditors because of the changing nature of the business environment and it will establish the relationship between auditor’s responsibility and the effect it will have on accounting profession. The finding of the research will serve as a source of reference for fellow researcher and enable governmental and non-governmental sectors to value the role play by auditors in accounting profession.
1.8 Limitation of the study
The study was faced with some limitations such as geographical area, getting certified accounting firm professionals and finance. In respect to geographical area, the problem of locating the respondent in their various offices was another limitation faced by the researcher. Getting certified accounting firm professional was another limitation which was faced by the researcher since some of the certified professionals are not stationary and are not in the same location. Another limitation faced is the difficulty in getting responses of the respondents.
In surmounting this limitation, the researcher decided to use University environment in these geo-political zones in order to easily enable her to get the certified professionals. The researcher also explained in the detail the aim of the study and logically convinced the respondent to respond to the research questions.
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