THE IMPACTS OF AUDITOR’S REPORT ON CORPORATE GOVERNANCE
Abstracts
This project examines the role of auditors report in corporate governance. The problems, challenges, prospects of auditing and corporate governance looked. As a worldwide phenomenon, they have continued to generate divergent views among scholars. The data used comprises of primary data, which consist of self-administered questionnaires and oral interview of some of the respondents. To achieve the purpose of the study, a survey of ten selected companies quoted in the Nigeria to give a true and fair view of companies, It was also discovered that good corporate governance practices builds confidence in investors and encourages stable investment and also auditing and corporate governance are used as a tool of control by management in the achievement of its objectives. It is imperative for Nigeria to adequately address the challenges of these issues for the benefit of the economy.
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgements iv
Abstract v
Table of Contents vi
Chapter One: Introduction 1
Background to the Study 1
Statement of Problem 5
Research Questions 6
Objectives of the Study 6
Statement of Hypotheses 8
Significance of the Study 10
Scope of the Study 9
Limitations of the Study 10
Definitions of Terms 11
Chapter Two: Review of Related Literature 12
Introduction 12
Theories on Auditing and Corporate Governance 13
Historical Framework 15
The Issue of Corporate Governance in Nigeria 20
Corporate Governance and Audit 23
The Mechanisms of Corporate Governance 24
The Roles of the Board of Directors 28
The CEO and Management 29
Shareholders Rights and Privilege 29
The Role of the Audit Committee 30
The Functions of Audit Committee 31
Auditors and Corporate Governance 32
Origin of Auditor Independence 33
Definitions of Auditors Independence 34
Importance of Auditor Independence 35
Why External Auditors 38
Who is an External Auditor 38
Corporate Governance Challenges in Nigeria 39
Impact of Corporate Governance 40
Essence of good Corporate Governance 40
The Link between Corporate Governance
and Investor Confidence 42
The Role of those concerned with
Financial Statements 43
Fundamental Determinants of Equity
Agency Problems 43
Perquisite Consumption 44
Diversification and Wealth 45
Resistance to Takeovers 45
Auditing 46
Auditing and Corporate Governance 53
Significance of Auditing to Management
Summary 58
References 61
Chapter Three: Research Method and Design 72
Introduction 72
Research Design 72
Description of Population of the Study 73
Sample Size 73
Sampling Technique 74
Sources of Data Collection 75
Method of Data Presentation 76
Method of Data Analysis 76
Chapter Four: Data Presentation, Analysis
and Interpretation 79
Introduction 79
Presentation of Data 80
Data Analysis
Hypothesis Testing 94
Chapter Five: Summary of Findings, Conclusion
and Recommendations 109
Introduction 109
Summary of Findings 109
Conclusion 113
Recommendations 114
Bibliography 117
Appendix 121
Questionnaires 122
CHAPTER ONE
INTRODUCTION
Background to the Study
Auditing and corporate governance as a good tool or form of control in organizations, are gaining more recognition in Nigeria today, due to the fact that organizations are striving to achieve their vision and mission. The company and Allied Matter Act 1990 (as amended) has made it compulsory for an audit report by an independent auditor to be presented alongside the financial statement of companies which are presented during their Annual General Meetings (AGM).
According to the auditing standards, an audit is an independent examination of and expression of an opinion on the financial statement of an enterprise. It is an examination by an auditor of the evidence from which the final revenue accounts and balance sheet of an organization at the end date, thus enabling the auditor to report thereon.
Where organizations are left audited, it would give rise to indiscipline and non-accordance to standard accounting and auditing practices. Long before the highly publicized corporate scandals and failures worldwide, the Nigerian public has shown increasing concern on the issues of corporate governance, because it has a link to national growth and development.
Corporate governance has been defined as the way and manner in which the affairs of companies are conducted by those charged with the responsibility. It is a system that ensures optimal utilization of resources for the benefits of shareholders while meeting societal expectations. Given the high correlation between corporate governance and investor decisions, the government of Nigerian is keen to position the country to take advantage of the opportunities in the global market by adhering to principle of good governance, thus, Securities and Exchange Commission (SEC) and the Corporate Affairs Commission (CAC) came out with seventeen (17) member committee and drafted the code of best practices for corporate governance in Nigeria.
Depending of the jurisdiction, different bodies may have responsibility of corporate governance, board of Directors, Audit Committee and other supervision committees. International Standards on Auditing (ISA) 260, requires the auditor to determine those persons charged with corporate governance. The most direct of corporate governance is to shareholders. However, the ultimate benefit is the more efficient allocation of capital to its most productive uses. In the real sense, no governance system, no matter how well designed, will fully prevent greedy and dishonest people from putting their personal interests ahead of the interests of the companies 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 (through proper audit reports) comes into play.
The auditor does not has a direct corporate governance responsibility, but rather provides a check on the information aspects of the governance system. The role of auditors in corporate governance involves reporting, decision making, accountability and monitoring. Decision requires relevant and reliable information, accountability involves measuring, reporting and transparency, and monitoring includes system and feedback. Auditor’s primary role is to check whether the financial information given to investors is reliable, i.e. if its expressed the true and image of the organization. The objective of an audit is to express an expert opinion on the fairness with which the financial statement are prepared and presented, in all material aspects a company’s financial position, results of operations, and cash flow in conformity with GAAP to be able to express such an opinion. This must be done using sound auditing techniques.
People rely on financial statements to make economic decision, especially the shareholders, that is, an enterprise outside the organization. With the help of audit work by the external auditor, risk and uncertainty are reduced. Error and fraud can cause irregularity in the case of financial report or statement of any organization. It is the responsibility of the auditor to verify the cause of any irregularity of the auditor to verify the cause of any irregularities in the financial statement. One perception to corporate failures has been to focus on public companies internal controls. Sarbanes-Oxley Act (2002) (SOX) requires a separate report on the effectiveness of internal controls. Recent changes to ISAs place a much higher focus on the auditors understanding internal controls as a part of the audit.
Auditing involves a public responsibility that is more important than the employment relationship with the client. To meet it obligations to shareholders, the board must ensure that it receives relevant and reliable information. The auditor assist the board in achieving those goals. There should be open dialogue between the Auditors and the Board. The auditor must be candid in communicating with the board and its audit committee.
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