CONFLICT OF INTEREST AND THE AUDITOR INDEPENDENCE.

CONFLICT OF INTEREST AND THE AUDITOR INDEPENDENCE. (A CASE STUDY OF PRICE WATER HOUSE COOPERS)

Abstract

This project work titled “the impact of conflicts of interest on the auditor’s independence” using a price water house coopers as a case study, examines specifically the concepts of independence and conflicts that may arise when it is lacking. Independence are identified and discussed on how to manage threats. The primary and secondary sources of data were used in gathering information for the success of the project work. It was discovered that auditor’s conflict of interest greatly influence the auditor’s independence. It was concluded that the conflicts of interest exists from the auditor to the structures that govern the industry, the institutions and legislation. Finally, it was recommended that auditors should be chosen not by management of the company, but by the committee which should comprise of the Board of Directors (BODs).

TABLE OF CONTENTS

Title Page                                                                         i

Certification                                                             ii

Dedication                                                               iii

Acknowledgements                                                  iv

Abstract                                                                   v

Table of Contents                                                     vi

Chapter One: Introduction                                    1

1.1   Background of the Study                                         1

1.2   Statement of Problem                                              3

1.3   Statement of Research Problem

1.4   Objectives of the Study                                            6

1.5   Research Hypotheses

1.6   Scope of the Study                                                   6

1.7   Significance of the Study                                         7

1.8   Limitation of the Study                                            7

1.9   Definition of Terms                                                  8

Chapter Two: Literature Review                            12

2.1   Introduction                                                             12

2.2   The Historical Origin and Development of Auditing         12

2.3   The Concept of Independence                                  21

2.4   Auditor and the Importance of Independence          23

2.5   Professional Responsibility of an Independent

Auditor                                                                    25

2.6   The Companies and Allied Matter Act 1990 and the

Auditor’s Independence                                           27

2.7   Conflicts of Interest                                                  32

2.8   Price Water House Cooper: History and Milestones  54

Chapter Three: Research Method and Design               59

3.1   Introduction                                                             59

3.2   Research Design                                                      59

3.3   Description of Population of the Study                    60

3.4   Sample Size                                                             60

3.5   Sampling Techniques                                              60

3.6   Sources of Data Collection                                       60

3.7   Method of Data Presentation                                   61

3.8   Method of Data Analysis                                          62

Chapter Four: Data Presentation, Analysis and

Interpretation                                                                        64

4.1   Introduction                                                             64

4.2   Data Presentation                                                    64

4.3   Data Analysis                                                           64

4.4   Hypothesis Testing                                                  79

Chapter Five: Summary, Conclusion and

Recommendations                                                         83

5.1   Introduction                                                             83

5.2   Summary of Findings                                              83

5.3   Conclusion                                                              84

5.4   Recommendations                                                   86

References                                                               89

Appendices                                                              91

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

Conflict of interest and auditor’s independence are two concepts that must be considered properly in this project work. If there is any way auditors’ conflict of interest affects his independence.

To start with auditor’s conflict of interest according to Andrew (2004) is a setting where an auditor trade off the influence and been biased of his report. There are two types of conflicts of interest in this regard. They are conflict where auditor earns reward from a third party between form and clients interest and conflict between the interests of two or more client e.g. where an auditor or audit team has a long term relationship.

While auditor’s independence refers to as the independence of the auditor from parties that have an interest in the financial statement of an entity.

This usually safeguard the auditor’s integrity and also an objective approach to the audit process.

It is obvious that there is auditor’s conflict of interest i.e. either of the two types of conflict of interest, there is usually auditor trade of the influence and been based that could make auditor not given accurate report, and then affect auditor independence.

The definition of auditor and auditor’s independence over the decades, have evolved along with accounting profession itself the concept independence was considered of great importance, and the focus was am elimination of conflict of interest that arose from financial relationships between auditors and their clients.

The twin sides of a coin are the concept of audit and the concept of independence. The auditor who has lost his independence has lost his reason, he has become a dependent auditor and will be in conflict of interest with his clients. Independence remains as crucial an issue as it was in the nineteenth century, and is still required to be demonstrated.

1.2   Statement of Problem

Financial reports are meant to be a formal record of business activities and these reports are meant to provide an overview of the financial position and profitability in both short and long term of companies to the users of these financial statements such as shareholders, managers, employees, tax analyst, banks, etc. But in recent times, the financial manipulations, weak internal control systems, ignorance on the part of the board of directors and audit committee, manipulation on the part of the reporting auditor and other fraudulent activities that occur within companies, creating a negative goo