TABLE OF CONTENT
Table of content
1.1 Background of the study
1.2 Statement of problem
1.3 Objective of the study
1.4 Research Hypotheses
1.5 Significance of the study
1.6 Scope and limitation of the study
1.7 Definition of terms
1.8 Organization of the study
3.0 Research methodology
3.1 sources of data collection
3.3 Population of the study
3.4 Sampling and sampling distribution
3.5 Validation of research instrument
3.6 Method of data analysis
DATA PRESENTATION AND ANALYSIS AND INTERPRETATION
4.2 Data analysis
This paper examined the influence of audit quality practices on financial reporting in Nigeria, drawing evidence from auditing firms. Data were collected through questionnaire. The researcher uses percentage method of analyses was performed using descriptive statistic, with the aid of statistical package for social sciences (SPSS) hypotheses were tested. Findings indicate a statistically significantly positively strong relationship between the measures of audit quality (auditor independence, technical training and proficiency and engagement performance) and financial reporting (measured in terms of reliability of financial report).
1.1 Background of the study
Audit quality practices are procedures established by auditors to ensure that financial reports communicate relevant and reliable information to members of an organization and the public. These practices vary from one audit organization to the other depending on their sizes, nature of activities and applicable legislations. Literature documents differences in opinion as to what constitutes appropriate definition of audit quality. Saleh and Azary (2008) view audit quality as how well an audit detects and reports material misstatements, reduces information asymmetry between management and stockholders and thus assist protect the interest of stockholders. From the reasoning of Palmrose (1988), audit quality is the probability that financial statements contain no material misstatements. Also, Davidson and Neu (1993: 479 – 488) define audit quality as a function of the auditor’s ability to detect and eliminate material misstatements and manipulations in reported net income. While De Angelo (1981) reports audit quality as the market assessed joint probability that a given auditor will both discover a breach in the client’s accounting system and report the breach. These definitions, no matter how divergent, emphasis compliance with relevant audit procedures and standards (Al -Khaddash, et al., 2013). Users of financial statements demand nothing less than a report that conveys accurate and reliable information relevant for decision making. This is made possible by auditors through the provision of quality services. Salehi and Kangarlouei (2010) investigated the effect of audit quality on accrual reliability of listed companies and found existence of more accrual stability coefficient in audit firms with higher audit quality than those with lower audit quality. Similarly, Al-Khaddash et al. (2013) did a work on the factors affecting the quality of auditing, drawing data from Jordanian commercial Banks. Results indicate a positive and significant association between audit quality and audit efficiency, the reputation of auditing office, auditing fees, the size of audit firm and the proficiency of the auditor. The foregoing studies did not consider the association between audit quality practices and financial reporting, particularly in Nigeria, the hub of Africa’s economic activities. Window dressed accounts raised concerns in the USA with the collapse of the energy corporation ENRON in 2001. The company filed for bankruptcy after adjusting its accounts. WorldCom, Global Crossing and Rank Xerox are other companies in the USA with similar problem. In Italy, Parmalat failed in 2003 when it engaged in accounting scandals worth 8 billion Euros (Demaki, 2011; Norwani, et al., 2011)). In New Zealand, Allied Nationwide Finance failed in September 2010 while NZF Money became bankrupt in January, 2011 (Lianne, 2011). Nigeria has had its own share of financial reporting failures with the problems in Cadbury Nigeria Plc. in 2006; Afribank Nigeria Plc faced problem of financial reporting in 2009; Intercontinental Bank Plc. (2009). Countries all around the world have set codes of best practice as guidelines to address governance and financial reporting anomalies: Cadbury Report was produced in United Kingdom, Sarbanes Oxley in United States, The Dey Report in Canada, the Vienot Report in France, the Olivencia Report in Spain, the King’s Report in South Africa, Principles and Guidelines on Corporate Governance in New Zealand and the Cromme Code in Germany. The goal of these regulations was to improve firms’ corporate governance environments (Bhagat and Bolton, 2009). In Nigeria, the Regulatory authorities have responded by compelling companies to comply with stringent corporate governance codes. Idornigie (2010) reports that Nigeria have multiplicity of codes of corporate governance with distinctive dissimilarities namely:
- Security and Exchange Commission (SEC) code of corporate governance (2003) addressed to public companies listed in the Nigeria Stock Exchange (NSE). The code was reviewed in 2011;
- Central Bank of Nigeria (CBN) Code (2006) for banks established under the provision of the Bank and Other Financial Institutions Act (BOFIA);
iii. National Insurance Commission (NAICOM) Code (2009), directed at all insurance, reinsurance, broking and loss adjusting companies in Nigeria; and
- Pension Commission (PENCOM) Code (2008), for all licensed pension fund operators. Despite the interventions of the regulatory authorities, the challenges of ensuring credibility in financial reporting and auditing are still prevalent. It therefore becomes pertinent to investigate the factors affecting audit quality in order to enhance the relevance of audit and assurance functions. Nigeria is currently experiencing a paucity of research in this direction. This study is expected to broaden extant literature and provide essential findings to assist stakeholders of financial reporting and auditing in the country in formulating and administering relevant and pragmatic policies to enhance corporate financial reporting.
Auditing profession emanate as a result of the development in the business organization over the years from sole proprietorship to partnership and then to corporate entities, ownership continue to be separated from the control (management) of the business. Ikechukwu and Bridget (2004) Opine that today providers of capital that is business owners or shareholders engage managers (steward) to run the business organization on their behalf. They managers are accountable to the owners then the question arises: How true or correct are the presentation of the managers to the owners of the business on the day-to-day running of the business.
An intermediary (Auditor) comes into play to mediate between to owners and the management. Ikechukwu and Bridget (2004) define audit as the independence examination of an expression of opinion on the financial statement of an enterprise by appointed auditor in pursuance of that appointment and in compliance by any relevant statutory obligation. Okezie (1995) see An audit in a process carried out by a suitable, qualified accountants or auditors whereby the accounts of business entities including charities, trust and professional firms are subjected to scrutiny in such a details as to enable the auditor to form an opinion as to the accuracy, truth and fairness. This opinion is then embodies in an “audit report” (attestation) address to interested parties who commission the audit or to whom the auditors are responsible. For this audit report to be of high quality there is need for professional independence.
1.2 STATEMENT OF THE PROBLEM
Theoretically, the auditor is expected to be independent of the management staff of the company being audited. However, a number of factors like familiarity, threat of replacement of an auditor and the provision of management advisory services appear to impair auditor’s independence. Concerns have been expressed about the conflict of interest between the statutory role of the auditor and the other services it may undertake for a client. The spate of audit failures in the world has brought a great deal of disappointment to investors and other corporate financial reporting stakeholders. Longevity of audit firm tenure has also been linked with fraudulent financial reporting.
1.3 RESEARCH OBJECTIVES
The main objective of the study is to examine audit reporting process; the role of quality control in audit practice, but to aid the completion of the study, the researcher intends to achieve the following specific objective;
- i) To evaluate the benefit quality control measures in the audit process
- ii) To examine the extent that auditors’ engagement in management advisory services (non-audit services) influenced the quality of financial reporting in Nigeria
iii) To examine if there is any significant relationship between audit reporting process and quality control in audit practice
- iv) To ascertain the effect auditors independence on the quality of audit report
1.4 RESEARCH QUESTIONS
The following research questions were formulated by the researcher to aid the completion of the study;
- i) Does quality control measures has any benefit in the audit process?
- ii) Does auditors’ engagement in management advisory services (non-audit services) influenced the quality of financial reporting in Nigeria?
iii) Is there significant relationship between audit reporting process and quality control in audit practice?
- iv) Does auditor independence has any effect on the quality of audit report
1.5 RESEARCH HYPOTHESES
The following research hypotheses were formulated by the researcher to aid the completion of the study:
H0: there is no significant relationship between audit reporting process and quality control in audit practice
H1: there is a significant relationship between audit reporting process and quality control in audit practice
H0: quality control measures do not have any benefit in the audit process
H2: quality control measures do have benefit in the audit process
1.6 SIGNIFICANCE OF THE STUDY
It is conceived that at the completion of the study its findings would be beneficial to. The management of business entities who are contributors to the subject in consideration. The accounting profession and auditors in their different engagements and assist them to project a good image of accounting profession. Research students who may want to use the study as a source of reference in their academic pursuit. The entire public (Investors and potential investors) who rely on the external auditor for economic decision making
1.7 SCOPE AND LIMITATION OF THE STUDY
The scope of the study covers audit reporting process; the role of quality control in audit practice; but in the cause of the study, there are some factors that limited the scope of the study:
- a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
- b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
- c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.
1.8 OPERATIONAL DEFINITION OF TERMS
Auditor: An auditor is a person who examines the books, account and vouchers of an organization in such a way as would enable him to express an opinion as to whether the account show a true and fair state of affairs of the organization in a particular period. (Omeje 1990)
External Auditor: Akpakpan (2006) defines external auditor as an independent public accountant who is an outside auditor and who is not employed by the organization engaging him in the audit work.
CLIENT: The company or business organization audited by the external auditor
Financial statement: Akakpan (2002) defines financial statement as the financial data or reports concerning an organization. Financial statement or report is a formal record of the financial activities of a business, person or other entity.
Working papers: Audit working papers contain information from accounting and statistical records, personal observation, they result interview and enquires and other available sources.
Generally Accepted Accounting Principle
An accounting term that encompasses the conventions rules and procedures necessary to define accepted accounting practice at a particular time.
1.9 ORGANIZATION OF STUDY
This research work is organized in five chapters, for easy understanding, as follows
Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study.