AUDIT TENURESHIP AND INVESTOR’S CONFIDENCE ON AUDIT REPORT IN NIGERIA

Abstract

This study dwells extensively on the efficiency and effectiveness of audit tenure in relation to investors’ confidence on audit report in Nigeria. Auditing has become the objective of attention in most organizations. This study examines the relationship between the duration of the audit client, on the other hand and the relationship between auditor and investors confidence on the report in the other hand. A 14 item questionnaire was administered for the study survey. Interview was also conducted together information. Simple percentage was used to present and analyze the data. Chi-square was used for the hypotheses testing. The analysis and test reveal that there is a significant relationship between the audit tenure and the reliability of financial statement. It was recommended among others that organizations need to constantly review and update their internal control and management should give maximum attention to the internal audit department’s request and demand to enhance the effectiveness of the auditor on financial reporting, so that investors will have confidence on the audit report. 

TABLE OF CONTENTS

Title Page                                                                         i

Certification                                                             ii

Dedication                                                               iii

Acknowledgements                                                  iv

Abstract                                                                   v

Table of Contents                                                     vi

Chapter One: Introduction

1.1   Background to the Study                                         1

1.2   Statement of Problem                                              3

1.3   Research Questions                                                 4

1.4   Objective of the Study                                              5

1.5   Statement of Hypothesis                                          5

1.6   Significance of the Study                                         6

1.7   Scope of the Study                                                   7

1.8   Limitations of the Study                                          8

1.9   Definition of Terms                                                  9

Chapter Two: Review of Related Literature          11

2.1   Introduction                                                             11

2.2   Objective of Financial Statement Reporting             12

2.3   Functions of the Internal Auditor                            13

2.4   Attributes of the Internal Auditor                             14

2.5   Auditing and the Problem of Independence             15

2.6   Internal Audit as a vital concept of ensuring

organization accountability                                      20

2.6.1 Internal Check and Internal Audit                                  21

2.7    Distinguishing Between Internal and External Auditing     23

2.8    Responsibility for Detection and Prevention of Frauds       25

2.9   Common Areas of Frauds                                                27

2.10         Delegation of Audit                                                          29

2.11         Professional Ethics and Practice                              31

2.12 Auditors Tenure and Perceived Credibility of Financial Reporting                                                           32

2.13 The Final Review of the Financial Statements                 34

Chapter Three: Research Method and Design

3.1   Introduction                                                             36

3.2   Research Design                                                      36

3.3   Description of Population of Study                                  36

3.4   Sample Size                                                             37

3.5   Sampling Technique                                                37

3.6   Sources of Data Collection                                       38

3.7   Method of Data Presentation                                   38

3.8   Method of Data Analysis                                                  39

Chapter Four: Data Presentation, Analysis and Interpretation

4.1   Introduction                                                             40

4.2   Presentation of Data                                                40

4.3   Data Analysis                                                           40

4.4   Hypothesis Testing                                                  51

Chapter Five: Summary of Findings, Conclusion and Recommendations                                                 56

5.1   Introduction                                                             56

5.2   Summary of Findings                                              57

5.3   Conclusion                                                              57

5.4   Recommendations                                                   59

References                                                               60

Appendix I                                                               61

Appendix II                                                              62

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

The study dwells extensively on the audit efficiency as if affect investors’ confidence. Auditing has become the object of attention in most organizations. The key in the field of auditing and assurance is to recognize that auditing can be of great value if it looks beyond the traditional financial issues and focuses on issues that matter to a wider range of stakeholders and the public.

Errors, irregularities, mismanagement and fraud are common occurrences in most organization and require care and skills to actually detect. To carry out this duty effectively, organizations required a body within to serve as a check on employee and management activities; this is where auditor comes in (Matcher, 2003).

If the financial statements of business organizations are properly audited, error and irregularities can be detected at an early stage and corrective action will be taken thereby saving millions of naira which can he ploughed back unto the business for investments that will yield high returns and increase growth and values of the organization.

Since audit function cannot thrive without an adequate system of internal, me role of one seem to complement that of the other, internal audit concept will be critically assessed in relation to audit in this piece of research work, it is in this respect that we will attach some recognition to these concept as they reflect in the complexities and sophistication of modern business either in profit making type of business or non-profit making types. Modern organization tend to have large multinational activities hence preparation of accounts of such group can be cumbersome as it involves bringing together and summarizing of accounts of subsidiaries with differing conventions, legal system and accounting control system. Financial statements are also required to conform in detailed with complex requirement of the General Accepted Accounting Principles (GAAP).

1.2   Statement of Problem

Audit can be likened to a life-wire of any organization. Quite a number of organizations have been forced into voluntary liquidation due to mismanagement of the financial and material resources.

Timeless is an important qualitative attribute of financial statement which requires the information to be made available to the users as rapidly as possible. The increase in the reporting lag reduces the information content and the relevancy of the document. The delayed in disclosure may encourage certain unscrupulous investors to acquire costly inside information and exploit the private information at the expenses of less informative investors.

The proponents of mandatory auditor rotation have general been concerned with eroding auditor independence, and its effect on audit quality as the length of auditor tenure increases. The length of time that audit firms maintain clients has long been an issue of debate and that auditor may be influenced more by the management of a newly acquired client that for a client that has been audited for a longer period.

The result are consistent with the position that auditor may be more influenced by their newly obtain client in the earlier year of the engagement and do not support the argument of those who propose that rotation made mandatory is necessarily to improve auditor quality. The audit report is the final output of the auditing process, and is the only external communication of what the auditor has done and concluded during the audit, the decision on what type of audit report to render to the client is the final cumulative audit decision, and is subject to a consideration amount of professional judgement and negotiation with the client.

1.3   Research Questions

The following research questions will aid the researcher in carrying out this research work.

i.      How does audit tenure affect investor’s confidence on audit report in Nigeria?

ii.     How does audit tenure affect the credibility and reliability of financial report in Nigeria?

iii.    How does audit tenure has influence the role of financial reporting of an organization in Nigeria.

1.4   Objective of the Study

The broad objective of this study is to investigate the impact of audit tenureship and investor’s confidence on audit report in Nigeria. The following purposes are also included;

i.      To ascertain if audit tenure has positive impact on investor’s confidence on audit report in Nigeria

ii.     To ascertain if audit tenure has impact on the credibility and reliability of financial report in Nigeria

iii.    To examine if audit tenure has significant influence on the role of financial reporting of an organization in Nigeria.

1.5   Statement of Hypotheses

The following hypotheses will be tested in this work;

Hypothesis One

HO:   Audit tenure does not have positive impact on investor’s confidence on audit report in Nigeria.

HI:    Audit tenure has positive impact on investor’s confidence on audit report in Nigeria

Hypothesis Two

HO:   Audit tenure has no impact on the credibility and reliability of financial report in Nigeria.

HI:    Audit tenure has impact on the credibility and reliability of financial report in Nigeria

Hypothesis Three

HO:   Audit tenure has no significance influence on the role of financial reporting of an organization in Nigeria.

HI:    Audit tenure has significant influence on the role of financial reporting of an organization in Nigeria.

1.6   Significance of the Study

The importance of auditing cannot be overemphasized. Every organization is concerned with need to organized its affairs efficiency and safeguard its asset.

Investors: External audit is a vital tool that when properly applied would be of immense benefit to the organization. Investors of immense benefits to the organization, investors in today’s market are looking at accountants to provide greater information on a more timely basis.

Auditors: Information technology is dramatically reducing the time it takes to close a company’s book and prepare financial statements. As a result of these trends, auditors are under increasing pressure to reduce the time it takes to complete the year-end audit.

Management: It will serve as a reference in establishing a very functional audit report lag system towards achieving goals.

Finally, audit reports increased when consulting service are offered. It would however serve different purpose for different people and organization depending on their needs and view.

1.7   Scope of the Study

This study examines how audit tenure and investor’s confidence affect audit report in Nigeria. In view of the diverse and wide nature of this research work, the researcher has focused his research study within geographical area of Edo State, Nigeria. The scope of this study also covers other issues as to examine the association between the duration of the auditor/client relationship. More so, it interests the researcher to critically examine the length of time that audit firms maintain with clients which has long been issue of debate. A time frame of 5 years will be used (2011 to 2015) with both years inclusive. For effective study, a sample size of 90 was used.

1.8   Limitations of the Study

There are many constraints, which often hinder the successful completion of a research work. In carrying out this work however, it is designed only to provide reasonable assurance but not absolute assurance in regards to accounting for and safe guarding of asset, the reliability of financial information and the compliance with law and regulations.

In view of’ these, there is lack of adequate data on specific areas of investigation this cause some limitations to the researcher. Unwillingness of staff to release some vital information due to the overriding duty of secrecy militated against the intellectual ability of very low and often at times vague and distorted information, this is because of what staff regard has confidential.

1.9   Definition of Terms

1.     Audit: Is the examination of all relevant records and reports of a company in order to check that what is provided is relevant and accurate

2.     Auditor: This is the person(s) who examine all relevant document, reports and records of finance prepared by the company’s accountant or department to verify the reliability, adequacy and accuracy of the reports prepared by the department.

3.     Investigation: This is the act of caring out finding to ascertain the correctness of a report or statement.

4.     Reporting: Is the act of relating or interpreting the finding gathered from the investigation of a given phenomenon or statements.

5.     Directors: These are a group of senior managers who run a company.

6.     Internal Control: Internal control is the examination, monitoring and analysis of activities related to a company’s operation, including its business structure employee behaviour and information systems.