CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The term “Corporate Government” has been identified to mean different things to different people. Magdi and Margret (2002) stress that corporate governance is about ensuring that the business is managed well and investors receive fair return. OECD (1999) provides of more encompassing definition of corporate governance. It defines corporate governance as the system by which business corporations are directed and controlled. The corporate structure specifies the distribution of rights and responsibilities among different participants in the corporation such as, the board, manager’s shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affair.
By doing this, it also provides the structure through which the company’s objectives and monitoring performances. This definition is in line with that of Akinsulire (2010) financial scandals round the world and recent collapse of major corporate instructions in Nigeria recently having shaken investor’s forth in the capital market and the efficacy of existing corporate governance practices in promoting transparency and ‘accountability. This has brought to therefore once again the need for the practices of good corporate governance.Effective corporate governance reduces “control rights” shareholders and creditors confer on managers, increasing the probability that managers invest in positive net present value projects (Shleifer & Vishny 1997; p.78).
Depending on the jurisdiction, different bodies may have responsibility of corporate governance. Board of Directors, Audit committee and other supervisory committees. International standards on Auditing (ISA) 260, requires the auditors to determine those persons charged with corporate governance. The most direct benefit of corporate governance is to shareholders. However, the ultimate benefit is the more efficient allocation of capital to its most productive uses.Where organizations are left to themselves, it can easily deteriorate as a result of individuals seeking for their own interest, therefore not for such organization to be audited. In other worlds no governance system, no matter how well, designed will fully prevent greedy and dishonest people from putting their personal interest ahead of the interest of the company they manage. Many steps can be taken to improve corporate governance and thereby reduce opportunities for accounting fraud; this is where the role of auditing comes into play.Auditing reports is a report by the auditors appointed to audit the accounts of companies the auditors of a limited company are required to form an opinion as to whether the annual accounts of the company give is true and fair view and of its state of affair at the end of the year or period. (Oxford Dictionary of Accounting, (2005).
According to Adeniyi (2004, p.12), Audit report is the means by which the auditors express their opinion on the truth and fairness of a company’s financial statement for the benefit principally of the shareholders, but also for other users. Since the auditor provides a check on the information aspect of the governance system it is said that the auditor does not have a direct corporate governance responsibility, the roles of auditor’s in corporate governance involves reporting, decision making, accountability and monitoring.
The objective of an auditor under CAMA 1990, is for an appointed auditor to express a professional opinion on the financial position of an enterprise as contained in the financial statement prepared by the management so that any person reading or using them, can have faith in them. Other objectives are to prevent fraud and errors, to detect any forms of irregularity, to advice on financial matters for efficient decision making by the management. Adeniyi, (2004, p. 68).One perception of corporate governance failure has been to focus on the effectiveness of internal control. Auditing involves a public responsibility that is more important than employment relationship with the client, for the auditors to meet their obligation, relevant and reliable information’s must be given to them.
1.2 Statement of Problem
The research is an attempt to examine the role of auditors’ report in corporate governance in relation to the organizations in Nigeria. The research problems can therefore be started as:
- knowing the factors influencing auditors’ report, to what extent does corporate governance influence auditor reports, what is the relationship between corporate governance and auditor reports?
- What role(s) or any of external auditors in ensuring sound corporate governance?
- And knowing the role of audit committee in enhancing quality audit report sound corporate governance.
From the above problems, there is the need for effective corporate system to be put in place as a strategy for efficient and effective operation which requires the need for proper audit report.
1.3 Research Questions
The following are the research questions the researcher aim to solve in other to achieve the objective of the study.
1. What are the factors influencing auditors report?
2. To what extent auditors report influences corporate governance?
3. What is the relationship between audit report and corporate governance?
4. What are the roles of external auditors in ensuring sound corporate governance?
5. What are the roles of audit committee in ensuring sound corporate governance?
1.4 Objectives of the Study
Any venture without a clear objective amount to in utility and irrelevant in respect of time and resources, in other to make this work as a more purposeful and relevance study emphasis should by on the following;
1. To examine the factors influencing auditors report.
2. To examine the extent to which auditors report influences corporate governance.
3. To examine the relationship between audit report and corporate governance.
4. To ascertain the roles of external auditors in ensuring sound corporate governance.
5. To determine the role of audit committee in ensuring sound corporate governance.
1.5 Statement of Hypotheses
A hypothesis can be seen as a tentative answer to a research question. It is often stated in the form of a relationship between dependent and independent variable.The following hypotheses will be tested to ascertain variables against the research questions. These hypotheses are;
Hypothesis OneHO: Corporate governance does not significantly influence audit report in Nigeria
HI: Corporate governance influence audit report in Nigeria
Hypothesis TwoHO: There is no significant relationship between auditing and corporate governance.
HI: There is a significant relationship between auditing and corporate governance.
Hypothesis ThreeHO: Auditing in Nigeria does not give a true and fair view of companies in Nigeria.
HI: Auditing in Nigeria give a true and fair view of companies in Nigeria.
Hypothesis FourHO: Auditing and corporate governance does not serve as a tool of control used by management to ensure the achievement of organization goals.
HI: Auditing and corporate governance serves as tools of control used by management to ensure that achievement of organization goals. Where HO is Null Hypothesis HI is Alternative Hypothesis
1.6 Significance of the Study
The significant of the study goes a long way, to record the role of auditors report in corporate governance and the relationship between auditing and corporate governance. Taking a glance of the business organization, the management, auditors and owners of the business can be informed on factors influencing good corporate governance and the findings in this study will be relevant in taking steps to ensure adherent to corporate governance and. auditor’s provisions.
1.7 Scope of the Study
The research concern itself with the regulating framework for various aspects of corporate governance and the standard for general auditing practices put in place by organization. This work is empirical in nature and will utilize data of some financial firms listed on the Nigeria Stock Exchange (NSE) between the year 2007 and 2010 in Benin City, Edo State. The study will aim at Banks in Edo State.
1.8 Limitations of the Study
- Data collection: The study has limitation on the primary and secondary source of data. The primary data from questionnaires and interview were scanty because of errors in opinion of the respondents on the objectives of the secondary source of data collection. There were not enough literature on the study in the schools library.
- The secrecy of the organization was another major constrain is that the top management staff were not willing to dispose certain information that would have enable the researcher to make a proper conclusion.
- The retrieval of the administered questionnaire pose another challenges to the end that some of the management staff were not around as at the times the researcher came to collect the answered questionnaires. This inhibits a great problem that hindered the researcher to form a proper conclusion.
1.9 Definition of Terms
-Audit: Is a financial statement in an exercise whose objective is to enable auditors to express an opinion whether the financial statement give a true and fair view of an entity.
-Auditor: A person or a firm appointed to carryout an audit of an organization.
-Corporate Governance: The manner in which organization particularly limited companies are managed and the nature of accountability of the manager to the owners.
-Audit Report: A report by the auditors appointed to audit the account of a company or other organizations.
-Auditor Independence: An auditor independence should not only be independent in fact but also independent in appearance, he should therefore avoid relationship that may cause the users of account to question his integrity and objectivity.
-Accounting: An account maintained by a bank or building society in which a depositor’s money is kept.
