ENHANCING CORPORATE ACCOUNTABILITY THROUGH EFFECTIVE AUDIT SYSTEM (A Case Study of Sheffeild Risk Management Limited Owerri Imo State)

CHAPTER ONE

1.0 INTRODUCTION

Accountability in both public and private section has being an issue that is worth discussing due to its paramount and colossal impact to the overall performance of an organization.

It (Accountability) has to do with reporting back action, task carried out by an individual to the authority who apportioned such function.

1.1 BACKGROUND OF THE STUDY

Accountability is the process or act of reporting back to a higher authority, body or individual the actions taken by a steward. It enables the person or persons reported to determine if the steward has acted or performed the assigned duties properly and satisfactory. It plays a major role in the success or failure of any business, particularly when the business is not managed by its owner.

Initially most business set-ups were managed by their owners. The owners‟ manager was the sole financial contribution to the enterprise. But with the development in the scale and scope of business, a huge capital beyond that affordable by the sole individual or a family was needed. Consequently contributors (hereafter called shareholders) were required to raise the funds for the business. The emergence of these shareholders led to the divorce of the owner managers from the management of the business as all of them cannot be directors at the same time. This the management of business was entrusted to the hands of people who have no financial claims to the business and the shareholders were sceptical about this particularly as the law does not permit them individually to go through the books of the company in their desire to keep abreast of the performance of the directors.

This skepticism aroused the need for surveillance over the activities of the non-owner managing directors. This bid to fulfil the later led to the engagement of third-party (an Auditor) to perform an audit of the company‟s accounts.

Audit has since them received a lot of definitions and/or then received a lot of definitions and/or interpretations both from accounting bodies and auditors and their non-the-like. Justifiable is to say that audit has suffered a lot of misinterpretations. Most of the misgiving interpretations see it as being armed at fraud and error detection. But audit essentially involves much more than that. One of the most involved and of course the most acceptable definitions so far is that issued by the consultative council of accountability bodies (CCAB) which sees audit as “the independent examination and expression of opinion on the financial statement of an enterprise by an appointed auditor in pursuance of statutory obligation (Howard 1982:1).

Deductively, an audit is the objective scrutiny of someone‟s work or presentation by a third party (an auditor) who is different from the users and the preparing of the presentation. The general essence of audit is to ascertain compliance of the firm‟s records and operational policies with usefulness of acceptability of and the dependability on the firm‟s financial statements.

Accountability as explained above has suffered some misconceptions, surprisingly in the hands of those who should have understood it better. Most of the lay men conceptual understanding of accountability relates it to „communicating about monetary matters (Odon, 1999:7) but accountability goes beyond that. According to the Webster encyclopaedia dictionary of English language (1995:110), accountability is defined as “the state of being accountable, answerable, liable or responsible” the same dictionary goes further to define accountable as “liable to pay or make good in case of loss; responsible to a trust, liable to be called to account, put in another way an much more related to the context in the articles Aba times of fourth September 1999 captioned “accountability in the third republic” it says

Accountability connotes answerability and stewardship, by answerability is meant answering for one‟s actions and decisions (odon1999:7)

Stewardship according to the article means service; it means that every leader should be responsible to the people who reposed trust in him.

For accountability to be accorded its rightful place in an organization the writer believes that there is a high need for proper internal control measure and in addition, efforts should be made to ensure that company accounts are subjected to external and independent audits after each financial period.

The bible also records in chapter 25 verse 14-30 of saint Matthew gospel, the story of a rich man who went on a far journey entrusting the affairs to his servants and who when he returned, required the servants to answer individually, for their stewardship to the business while he was away. It in the same manner that it is required of the chief executives and directors of a company who are quite different from the real owners of the business to answer for their stewardship of the funds and property entrusted to them by the shareholders. It is desire for accountability that gave rise to what we know today as audit- a mechanism through which the shareholders are made abreast of the true and fair picture of the activities of the directors and chief executive of the company

THE HISTORICAL BACKGROUND OF SHEFFIELD RISK MANAGEMENT LIMITED, OWERRI

Sheffield risk management limited is located within the industrial layout area of Owerri, it is established as a private limited liability company, it is an incorporated company.

The company is an insurance brokerage firm that serves as an intermediary between the insurer and the insured; they also serve as underwriter of insurance policies. The insurance policies in which Sheffield risks management limited act as intermediary between the insurer (insurance company) and the insured (client) or consultant to each or both include Life insurance, Car insurance, Burglary insurance, Motor vehicle insurance etc.

1.2 STATEMENT OF PROBLEM

The increasing wave of fraud and embezzlement of public funds by high officers and chief executives in the private and public companies brought to the lime light some misconceptions of what the job of an auditor is and what audit is all about. To the uninformed, the auditor is a wizened individual who wears the traditional green eyeshade and sleeve garters.

They will expect to find him perched on top a high stool counting money, meticulously adding long columns of figures and gaining his sole pleasure in life from the apprehension of luckless person whose books failed to balance or whose cash account proved to be short (harword 2002:135).

According to Pratt (1998:1), were you to ask the average man in the street about the auditor‟s job, he will probably tell you that he prevent fraud, press our layman further, he may paint you a picture of a rather gray individual who buries himself in ledger, emerging only from time to time to produce sets or figure which are not important anyway

Such are the image that the auditor has attracted but they are incorrect in the sense that “the auditor‟s primary responsibility is neither to prevent fraud nor to produce figures” (woolf 1982:12)

The problems are:

I. Mismanagement of enterprises by directors and top management who in most cases have no real financial stake in the business.

II. Because of the fact that the directors and top managers have no financial claims to the business or its enterprise, they tend to exhibit the highest level of truancy to work and are generally indifferent to the progress of the company. Most them regrettably choose their moments for putting the company into liquidation of little or no cost to them, by diverting the funds and assets entrusted into their care for their personal uses.

III. And without the misappropriation being detected not the culprit being brought to book the auditor expresses an opinion of “a true and fair view” of the perpetrated fraud. The problem is that this attitude has dented considerably the professional image of audit. To most employees of the auditor, the effect is “there is no need for auditors as it has failed to detect fraud”.

And to the few informed ones the question constantly asked is “how independent is the independent auditor?”