THE IMPACT OF AUDIT REPORT ON THE USERS OF FINANCIAL STATEMENT. (A CASE STUDY OF FIRST BANK OF NIGERIA PLC)
Auditing therefore, is one of recent professions established as a result of complexity of modern business people have entered into contractual relationship with one another the desire to ensure and accuracy and reliability of the financial statement has always existed the divagation of public treasure and the collapse of business being to create doubt as to the effectiveness of audit report and its contribution to economic development. Being a feedback information, the averting now is whether an audit report does actually, have some effects on the users of financial statement of the first bank of Nigeria Plc.
1.1 BACKGROUND OF STUDY
As a result of the good performance of the African Banking Corporation in 1894, the bank of British West African (now known as first Bank of Nigeria Plc) opened its branch office in Lagos. The bank was registered in London in 1892 with an authorized share capital of 100,000 pounds. The Bank enjoyed monopoly over banking business in Nigeria until 1916 the bank (BBWA) was the sole agent for the custody and distribution of British silver currency in West African as issued by the West African currency Board which was established in 1912.
During the era of indigenization in Nigeria 1970 to 1977, the indigenization of Nigeria Banking and 1973 the federal government took 40% ownership in the three biggest foreign bans, which are union Bank Plc, UBA and First bank Plc. The second indigenization excuse which took place in 1976 federal government increases is shows to 60% and also took 60% share in other foreign banks to achieve 60% indigenous ownership to these banks.
The first Bank of Nigeria Plc which was then are among the three biggest foreign banks in Nigeria, which is able to withstand all the predicaments imposed on it by the federal government during the time of 1952 ordinance and 1973-1976 indigenization exercise and the name first bank of Nigeria was originated.
From the industrial revolution up to the turn of the 19th century, the intricacies and exigencies of human business interaction have given rise to the need for accountability. This process has assigned a formable dimension and is today profession and description of notable impact.
Accountability can be defined as presenting information in a clear form which would give the users a ready understanding of the organization financial position and performance and enable them to see at a glance how the performance is composed with that comparable organization.
Accountability is the process of identifying and analyzing, classifying, interpreting and communicating of financial information to permit or enable informal judgement of the users of the information.
Auditing therefore, is one of recent professions established as a result of complexity of modern business people have entered into contractual relationship with one another the desire to ensure and accuracy and reliability of the financial statement has always existed the divagation of public treasure and the collapse of business being to create doubt as to the effective nears of audit report and its contribution to economic development. Being a feedback information, the averting now is whether an audit report does actually, have some effects on the users of financial statement of the first bank of Nigeria Plc.
This project will try to find out.
1.2 STATEMENT OF PROBLEM
It is not surprising that in many cases of performance evaluated there is always a general expression of dissatisfaction after examination and investigation of an organizational record the auditor expresses opinion as to the credibility of the financial statement but my aim will be on the following:
- How reliable is an audit report to the users of the financial statement?
- Who does audit report satisfy the desire of its users?
- How effective is audit report on the growth of the economy?
- Does audit report show a true and fair view of the organization?
- Does audit report have any effect on the users of the financial statement?
1.3 PURPOSE OF THE STUDY
As regard to our economy, there is need for us to evaluate the impact or effect of audit report on the uses. If there are no effects whatsoever why is the situation like this in the country in general and first Bank Plc in particular the success of the auditor lies in how effectively he discharges his public trust. The researcher is desirous to find out of the quest for materialism affect the integrity of the auditors and in turn economic development.
1.4 SIGNIFICANCE OF THE STUDY
Knowledge and facts form this study will help the research to perform as a good auditor and to recommend to other in the profession, the need for the credibility and reliability of an audit report such as to satisfy the needs of the users and thus create positive impact on the users decisions.
A good audit report contributed to prudent management of available resources, greater accountability and control auditor report should create greater confidence in the auditing profession of the members of the public (users) since the report is a made of recommendation between the entity and the external parties.
Both management and external users of financial statement attach values to unqualified audit report because it assures them of the future prospects of the organizations.
1.5 STATEMENT OF HYPOTHESIS
HI: Audit report will help in the economic development of an organization especially in banking industry.
H0: Audit report will not help in the economic development of an organization especially in banking industry.
H1: Audit report will influence banking system in Nigeria.
H0: Audit report will not influence banking system in Nigeria.
H1: Audit report prevent fraud and error in the organization
H0: Audit report cannot prevent fraud and error in the organization
1.6 RESEARCH QUESTION
a How can audit report influence banking system in Nigeria?
b To what extent will audit report improve the standard of our economy?
c Will audit report help in the economic development of an organization especially in banking industry?
d Do you think that users make use of audit report ?
e Do you think external audit do not influence fraud prevention and control which may also result improve accounting records?
f Does shareholders used audit report to know the standard of the organization?
1.7 SCOPE OF THE STUDY
Since a nation economy is not more than the aggregation of the individual entities within it the overall financial condition of the bank should determine the health of its economic affairs it is the researcher intension to reach as many users of financial statement as possible both in the public and private sector since the growth of the banking economy is a joint contribution of the individual and banks.
It is my view that, it a leviable audit report are produced uses will take better economic decisions that will help in review the present economic situation of the banks.
Thus, our economic growth and stability is heavily dependence upon reliable economic information on which decision should based upon.
It is impossible to interview all the users of financial statement due to time and financial conditions. Despite the above mentioned problems, it is hoped that the study will cover a representative of users of the report in managerial and customers held interview with the management and employees of first bank of Nigeria Plc some customers were also interviewed.
This study involved gathering data within specifies time limit. This situation tended to make the researchers work obstructive since he could not accept long appointment or delayed meetings with officials.
1.9 DEFINITIONS OF TERMS
1 Accounting standard: This is a rule or set of rules which prescribes the method(s) by which accounts should be prepared and presented. They may be referred o as “working regulation” and are issued by a national or international body of accounting profession.
- Auditing: Is an independent examination of financial statement or books of account to ascertain that they present the truth and fairness of the transaction of an organization within the audit period.
- Audit Report: Is an account of an independent examination of and expression of an opinion on the financial statement of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any legal or statutory obligation.
- Financial statement: Are part of a company annual report the purpose of which is to communicating information about the company to those who have a right to receive it. They provide an indication of the organization performance and of aspect of its financial position at a particular date example profit and loss account, balance sheet cash flow statement and others.
2.1 RESEARCH QUESTIONS / HYPOTHESIS MODEL / THEORIES
The separation of business form the hand of owners and the trusting of resource into the hands of person different from the owners give rise to accountability Carbery (1983) in his speech at the London school of economic and political science defined accountability as: the means of producing information in a clear from which would give the users a ready understanding of the body financial position and performance and enables them to see how that performance is compared with that of comparable organization.
This mode of communication between the entity and the external parties is the financial statements. The users of these financial statements requires all independent third part to examine and lend credibility to the financial statement prepared by management. By so during the auditor not only greatly enhance the usefulness and value of the statement upon which he is reporting but also increase the credibility of other non-audited information released by management. The accounting profession provided accounting standard or yard sticks of measurement which the auditor must adhere to in his examination before he issues an audit report.
If the auditor report give good credibility to the users of the financial statement, what revered more are:
- The management should give all the necessary information needed by the auditor.
- Management should or provide all the books of accounts according to statutory requirement.
2.2 CURRENT LITERATURE ON THEORIES MODELS
1 DEVELOPMENT OF ACCOUNTING INFORMATION SYSTEM
Accounting took the simplest form of recording cash and payment. As business grew large and more complex the number of information also increased by 5th century there was need for elaborate recording such that transaction could be classified according to their types. This resulted in the double entry book-keeping of record revenue and expenditure or assets and liabilities. This double entry bookkeeping was described by Goethe as “the timest invention of human mind”.
The industrial revolution led to another step in the development of accounting in limited liability company whose affairs are regulated by the company acts.
In the early days, the fear that owners would in the enjoyment of the protection of the limited liability act with prudence than gold traders and partners resulted in the balance sheet being used as a measures of financial soundness.
Later company acts compelled companies to disclose more information about their affairs according to the requirement the profit loss account and balance sheet must show a true and fair view of the financial position of the company at the year end.
Statement of standard Accounting practice (SSAP) sit our principles and rules governing the content and form of financial statements.
Later, a third form of accounting statement know as fund flow statements.
2 INFORMATION SYSTEM OF ACCOUNTING
Accounting is an economic information system designed to communicate significance financial and other economic information about organization in order to permit informed judgment and decision by the users of the information itself.
NATURE AND DEFINITION OF AUDITING NATURE
When business were conducted by sole proprietors or ownership there was no much demand for audit work until the development limited liability companies in 19th century.
A company’s auditors were appointed form among its shareholders the work they do was probable not very effective.
Hence, the appointment of auditors become compulsory for all business organization it is necessary to note that the following factors contributed to the development of modern auditing.
a Statutory Law: The company acts
b The establishment of professional bodies of accountants which have regulated and improved standards.
c Case law: Which has determined the precise extinct of the auditor’s responsibilities in particular situation. It is particularly describable for sole trader and partnership to have auditors. They are not bound by laws: Auditing of company is carried out by the auditors to fulfill statutory requirement. The professional bodies set up standards and develop techniques of auditing to meet challenges in the size, complexity and methods of accounting of client organization.
In case law is concerned with the interest of the uses of audit report.
Auditing is defined by “De Poula and Attwood” as the independent examination of financial statement of an enterprise, where such an examination is conducted with a view to expressing an opinion on whether those statement give a true and fair view and comply with relevant statute.
According to Victor Okoye “An audit is the independent examination of and expression of opinion on the financial statement of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation of could be further described as an examination by an auditor of the evidence from which the final revenue account and balance sheet of an organization have been prepared, in order to ascertain that present a true and fair view at the summarized transaction for the period under review and of the financial statement of he organization of end date, this enabling the auditor to report their on the auditor despite examination of the books of account and vouchers of the establishment or organization may go further in examining the actual assets held.
OBJECTIVES OF AN AUDIT
The objectives of today’s auditing practice in Nigeria could be divided into major areas namely:
A LONG RANGE OBJECTIVES:
Under this category- auditing practice usher in an auditor that serve as a guide to management’s. further decision in financial matters such as forecasting, controlling, analyzing and reporting. The aim of such decision is to improved the performance of the organization for the reason of going concern concept of business organization, an audit should not be viewed as a historical summing up of facts, figures, data and evidence, but as the basis for future managerial guidance in the conduct and operation of business organization.
B SHORT-RANGE OBJECTIVE
It also group into primary and secondary objectives:
1) Primary objective: This ascertains the reliability of the financial statement or books of account as submitted by the management or client in accordance with the term of the auditors appointment. It also aims at rendering an opinion as to the truth and fairness of the financial statement. In essence this brothers on the review of past transaction, the expression and rendition of the auditor’s opinion.
2) Secondary objective: This is the after of an auditor
- i) It will include the following among others
- ii) Detection of errors and fraud
iii) To provide other sin-off effects which may include the provision of services to the clients by the auditor in the following areas.
* Financial Advice
At the end or every audit, that is after examination of the records and financial statements, the auditors issues a report addressed to the owners in it he the auditor expresses an opinion of truth and fairness.
Auditors opinion is a vital point in the report hence “Crowhurest (1982) says:
Obviously, the audit report is absolutely fundamental to the audit. The whole purpose of all the procedure carried out during the audit is to enable the auditors to express opinion in their report to the members.
It is very crucial to note that auditor is required to lead credibility to the financial statements. The requirement is truth and fairness, the auditor in reporting does not say the financial statement show a true and fair view rather say in my “OPINION” the financial statement show a true and fair view.
The question now is what is financial statement?
Milichamp (1987) defined it as “Annual report and account which include a profit and loss account, balance sheet, and other statement including the directors report and a funds flows statement.
The auditor with all attribute of independence integrity and competent is looked upon by the users to state the truth of position of the financial statement and nothing but truth. The auditor is not a watch dog but should investigate any matter that raise his suspicion to the bottom.
TRUE AND FAIR VIEW
It is the responsibility of the directors to prepare account that will disclose a “true and fair view” the auditor duty is to report whether or not in his opinion the account to give a true and fair views.
The auditor in his examination of the financial statement test and evaluate the internal control system which accuracy depends on the vouching of the documentary evidence and verification of the assets once of the auditor has diligently performed the examination to the best of us integrity he expresses his opinion as the true and fair view of the financial statement based on his findings.
The true and fair phrase should not tempt users of financial statement to believe that a balance sheet disclose the “true with“ at the organization. The balance sheet does not value the business the balance is merely a statement of those assets and liabilities of the organization which the accounting rules recognize.
There should not be any doubt as to the credibility of an audit report it users themselves know actually the objects of an audit and the responsibility of management the auditor knows what his duty is and this he states before engaging himself in any audit excise.
There are cases when the auditor cannot form an opinion it could be as a result of uncertainty, disagreement failure to get enough information, this he must state in the report.
CLASSIFICATION OF AUDIT REPORT
Audit report can be prepared by internal auditors or the external auditors. The balance eternal auditors report is aimed at achieving reasonable system or account and control.
This enables the external auditors to determine the system of internal control during his engagement and finally spotlight the areas of weakness which if not corrected within some period after the internal report and subsequent report to management with be raised in the final reports.
An auditor report can be qualified a unqualified depending on acceptable evidence found in audit report. An audit report can be qualified or unqualified depending on acceptable evidence found in audit report.
UNQUALIFIED AUDIT REPORT
When the auditors considers that the account so not given a true and fair view or that certain prescribed information is missing he will qualify his report accordingly. This step is only taken if it proves impossible to persuade the management the change the account so that they will be satisfactory.
Management is aware that a qualified audit report causes a great harm and damage to the image of the company the auditor is equally aware but he must report the situation the way he sees it absolutely in clear terms to the shareholders.
Auditor attestation is a stamp of approval on the financial statement for the benefit of the owners and organization now or in future. This attestation implies that the auditor holds himself liable to the public as and expert in the field.
THE USEFULNESS OF AUDIT REPORT TO THE USERS OF FINANCIAL STATEMENT.
The objective of financial statement is to serve primarily to those users who have limited authority ability or resources to obtain information and who rely on financial statement as their principle source of information about an enterprise economic activities such financial reports are relied upon heavily by investors, creditors, security analyst and government other are employees customers, tax agencies, labour unions and the general public (Taxpayers) these uses have various needs some with individual concern include analyst labour unions, stock exchanges etc.
The role of the auditor in lending, credibility to those financial statement is vital in establishing and maintaining confidence on the profession. The auditor opinion as an information system useful of it serves the users needs of the information and also help to reduce the effect of uncertainty. How one set of financial statement can be fail to all interested parties with their various needs deserves attention because it will have some effects on the auditor’s report.
THE INTERNAL CONTROL AND THE AUDIT PROGRAMME
Internal control comprises the plan of organization and all the coordinated methods and measures adopted with a business, to safeguard its assets checking accuracy and reliability of the accounting records. Promote operational efficiency and encourage adherence to managerial policies.
The basic internal control can be typically grouped in the following headings:
Organizational structure (arrangement), segregation of duties, competence of staff, authorization and approval, accounting record and documentation physical and internal audit.
SCOPE OF WORK OF INTERNAL AUDITOR
The internal auditor should make sure that the scope of his work do covers the following areas to best of his ability.
- To ensure that internal accounting control are adhered to
2 To ensure that all accounting are recorded
3 Examination of accounting transaction are coded
4 Examination of accounting data to ensure that they are accurate and authentic.
5 Examine with the view to effecting improvement to safeguard wastage and minimize cost and reappraisal of the various operating procedures.
2.3 THE SUMMARY OF THE LITERATURE REVIEW
In summary therefore, the role of auditor in society, the sole of the auditor in the society cannot be over looked in any given economy their roles can be grouped in the under listed ways:
- To make credible, the financial statements of all organization including trading organization government and local authority agencies private club and societies and others in situations where accounts do not show a true and fair view in whole or part ot indicated that facts to readers.
- To report on the property of action by management and other person in a position of trust. This is particularly true for local authorities and solicitors but it is also true for the accountability of many actions by company directors.
- To provide spin affect these include deference of fraud and error by the simple existence of his role, and the audibility of his professional advice.