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A CRITICAL ANALYSIS OF THE IMPORTANCE OF AUDITING IN THE AUTHENTICATION OF FINANCIAL STATEMENT OF BUSINESS ORGANIZATIONS.

A CRITICAL ANALYSIS OF THE IMPORTANCE OF AUDITING IN THE AUTHENTICATION OF FINANCIAL STATEMENT OF BUSINESS ORGANIZATIONS.

ABSTRACT

A critical analysis of the importance of auditing in the Authentication of Financial Statement of business organization.

The importance attachment to auditing as a tool for certifying the financial statement of business enterprise, the researcher has to be very briefly discussing the origin of auditing and the factors required.  Auditing, it was noted became very important in the business cycle and clearly stated in the 17th century following the common form of business.  There is severance of ownership from the burden of management.  Because of this severance, the need for accountability and auditing has to be employed to your credibility to such stewardship reports because the advertantly or otherwise contain in themselves errors and thus be unreliable.

Also the concept of auditing was classified under two broad groups namely according to the nature of work, audit objectives were identified and analyzed into primary and secondary objectives.

Furthermore, the researcher discussed about the type of audit report or opinion, the meaning of significant of those factors that are likely to as well as the elements and contents of every audit report.

PROPOSAL


A critical analysis of the importance of auditing in the Authentication or genuine of financial statement of business organization.

This project will look into the importance attached to auditing as a tool for certifying the financial statement of a business.  I will also briefly discuss the origin of auditing and the factors required.  This project will also look into the classification of the concept of auditing.

Furthermore, I will discuss about the type of audit report or opinion, the meaning of significant of those factors that are likely to as well as the elements and content of every audit report.

This project will cover five topics and five chapters.  Chapter one will deal on the introduction of the topic.  Chapter two will talk more on the literature review, type of audit and audit objectives.  Chapter three will talk about the research design and methodology.  Chapter four will talk more of the presentation analysis and interpretation of data and hypothesis testing.

Then chapter five will deal on the summary of findings, conclusion and recommendation. Finally, my sources of data will be both primary and secondary sources of data.

CHAPTER ONE

1.0     Introduction                                                                            1

1.1     Background of study                                                     1

1.2     Historical background of Niger Gas                              3

1.3     Objective of the study                                                    4

1.4     Statement of the problem                                                        6

1.5     Significance of the study                                                         8

1.6     Scope and limitation of the study                                  9

1.7     Formulation of hypothesis                                            10

1.8     Definition of terms                                                                   11

CHAPTER TWO


2.0     Review of related literature                                           12

2.1     Meaning and importance of auditing                             12

2.2     Type audit                                                                     14

2.3     Audit objective                                                               18

2.4     Element and contents of audit report                                      20

2.5     Audit Report and/or opinion                                         21

2.6     Auditors independence, meaning and objective             30

2.7     Legal liability of Auditors                                              34

2.8     True and fair view abstraction and reality                     39

2.9     Asset and liability verification                                       41

 

CHAPTER THREE


3.0     Research design and methodology                                 54

3.1     Source of data                                                               54

3.2     Questionnaire design                                                     55

3.3     Method of investigation                                                 55

3.4     Sample used and determination of size                          56

3.5     Statistical techniques used for data analysis                           59

CHAPTER FOUR


4.0     Presentation analysis and interpretation of data            60

 

CHAPTER FIVE



  • Summary of findings, conclusion and


Recommendation                                                           73

5.1     Summary of findings                                                     73

5.2     conclusions                                                                    74

5.3     Recommendation                                                           76

Bibliography                                                                  78

Appendixes                                                                             80

 



CHAPTER ONE


 

  1. 0 INTRODUCTION

    • BACKGROUND OF STUDY




The concept of auditing dates back to antgenty, the earliest found in lately and Egypt amongst great land owners of the middle ages.  Auditing to day is regarded as the process of accountability in business and need for stewardship accounting growth is required for its subsequent authentication of financial statement of the business organization.

Furthermore, accounting to Afouka (1993) statutory audit which incidentally forms the main thrust of the research arose to the inception of company form of business in the 17th century for trading and other purpose.

Therefore, through this development it made possible for investor to commit their resources in a business without necessarily getting involved in the administration and management of such business with the passage of time, this practice was further modified such that there was a total split between the ownership and management this while shareholder retained ownership and the board of directors took charge of management

 

Also under this situation, It is required that the management should report back to predetermined internal to the owners of the business they hold in trust.  But there are chances that such stewardship report might contain errors, not showing proper record misleading by literately or failure to disclose relevant information it then following that these possibility will naturally give management periodic reports insufficient credibility.  Also, it is such probability that underscores the arbiter (person that control) in accordance of law to give “a stamp of appraisal on the stewardship report.  The need for auditing is heavily on the fact that by lending credence and for justification to the accounts of stewardship user of accounting information namely: investor, shareholder, employee, debenture holders, government agencies such as tax authorities and professional bodies such as economists, accountants, stock brokers etc can conveniently depend upon on such reports for sound economic decision making.

To ensure that auditor discharge this responsibility efficiently and satisfactory, they are given unimaginable power and right, it is this understanding that necessitated the making of auditing very imperative to all corporate bodies on annual basis y such government legislation as company and allied matters degree 1990 and price productivity income board 1991.

 

  • HISTORICAL BACKGROUND OF NIGER GAS LIMITED


Niger Gas Ltd started its operation in 1962 following its official commissioning by government of the then Eastern Nigeria.  Originally, the company belonged to the government of the then eastern Nigeria.

Furthermore, due to change in the political structure of Nigeria occasioned via state creation, Enugu State Government at presents holds controlling shareholding interest with other as E.M. Michillete, S.O. Alinta and central Investment Company limited Enugu constituting the minority shareholders.

The company was established to manufacture and at the same time market industrial and medical oxygen.

Before the advent of the structure Adjustment programme (SAP) the form was doing relatively well sequel to the introduction of this tight economic reform policy sourcing of foreign exchange for use in purchasing spare parts and raw materials has been hindered dries invariable has affected rather badly the profit position of the economy.

 

  • OBJECTIVE OF THE STUDY


The objective of this research are not far fetched especially when the provisions of section 339 (2) of the companies and allied matters decree 1990 which made it compulsory that auditor’s works be countersigned by the legal practitioners is bought to bear.  The main focus of this research will include the followings:

1        Ascertaining whether there has indeed become the need to reorder the important of auditing as is being propounded by two (1992) in the following words.

Considering the emergent business environment in this country, it had become extremely unavoidable now to re-order the objective for while the auditors objection is that of establishing the truth and fairness of which the books and accounts of the company has reflected its transactions within a given period, the society’s objective is that the audit objective should be concerned with establishing whether a found has occurred or not

  1. To determine if auditing has been serving its periodic objective of re- enforcing public confidence in the stewardship report of management.

  2. To ascertain if the management for whatever reason have been confining with auditor to defrauds the establishment at the expense of investing public.


The auditor should be an independent person who is appointed to investigate the organization its records and the financial statement prepares form them, and this form an opinion on the accuracy and correctness of the audit is to enable the auditor to say “these accounts show a true and fair view” or course, to say that they do not the objective of an audit are:

PRIMARY: To produce a report by the auditor of his opinion of the truth and fairness of financial statement so that any person reading and using them can have belief in them

 

SUBSIDIARY/ SECONDARY FUNCTION

  1. i) To detect errors and fraud

  2. ii) To prevent errors and fraud by the deterrent and moral effect of the audit.


iii)     To provide spim-off effects. The auditor will be able to assist his clients with accounting system, taxation, financial and problem.

 

  • STATEMENT OF PROBLEM


All categories of investors (individual and government )make capital budgeting decisions chiefly for the profit they expect will accrue form such ventures that is to say that, investment are not take for the simple reason of investing but in anticipation of a return.

Furthermore, the extent to which the above objective or principle is maintained in our own context, especially since the re- regulation of the economy in 1986 appear not to be satisfactory consequently breaking even to most business enterprises have become an allusion not to talk of satisfying to effect of most investors.

This prevailing though, abnormal situation necessitated calls to rely together and deliberate on how to salvage the dwindling fortune of this once very vibrant.  Really in a period of economic crises, need for accountability becomes more pronounced the question of effective audit is therefore, worth examining in the Nigerian context.

However, in the business cycle, the appointment of auditors is assumed to fully guarantee and protest the interest of shareholders and other third parties, there are ever  increasing doubt as to hard will these presume watch dog of the investing public have fraud

Credence is given to these year as management keeps complaining of low capacity vitalization, poor turnover or high turnover but with ridiculously high cost of sale all depicting no returns on investment and yet auditor keep repeating their jargon in our opinion, the financial statement of as examined by us presents a true and fair view of the statement of affairs and the profit and source and application of fund as the year ended 31st December 19xp.

The aftermath of the foregoing is accusation that auditors are colluding with management to hold back form investors knowledge that they should have this explains the basis for the intensified litigations in law court against auditors.  It has also lead to gross loss of confidence in such body corporate, its management and above all auditors by all and sundry, little WON IBB (1990) carried out saying:

 

However, upon all these enumerate scared requirement of your (auditors) duty our experience in this country has been in both public and private sector of our economy there have been fraud lent transaction, cover up to tax evasion and some inexplicable losses of physical assets.

Ultimately, it is such accusation as carrying out audit evidence, trying to alter existing evidence and of being deliberately misreading that informal this research work

 

  • SIGNIFICANCE OF TH STUDY


The importance of this research will rest squarely on the fact that through its solutions will be adduced for the scaring mysteries and controversies that surround the concept of auditing in it entirely put differently, the outcome of this endeavor will.

1)      If exonerated will show that the accusation are unfounded and this based on the blatant refusal of users of accounting information to distinguish the primary form secondary objective of auditing.

2)      Either rope in auditors, the more on the ground that they eroded rather dangerously public confidence of their reports

3)      If indicated, will serves as warning signal to all classes of udders of accounting information while at the same time calling for an in house mending by the relevant  accountancy regulatory bodies in Nigeria.

 

  • SCOPE AND LIMITATION OF THE STUDY


Auditing as a practice applied to virtually all organization and institution where financial matter arise.  It applied to profit making organization like churches co-operative and club

For sake of adequate coverage, the researcher had wished that information were sourced form a cross section of these organized bodies.  However, owing to constraints mainly a pecuniary nature that researchers could not cover Enugu state talk more of Nigeria as a whole in pursuance of the objective of this research.  As a result, the work is limited not just to Enugu state but further to Niger Gas ltd.

In process of trying to realize the aims of this research, some difficulties were experimental by the researchers such setbacks includes:

1)      FINANCE: It is a truism that enormous funds are needed to see through every research process, but in the face to galloping inflation as our economy is currently experiencing the situation is made more particle.  This it was not easy to control costs of transportation typing and binding as they charge in hourly basis.

2)      TIME: Naturally, task as demanding as this one requires a lot of time but in our context such academic exercise is hardly given enough time.

3)      Castly and more importantly, is the reluctance of most being accused of releasing classified information to competitors and even tax authorities

 

1.7 FORMATION OF HYPOTHESIS

For the purpose of analyzing the response obtains form respondents the researcher has formulated the following hypothesis

HYPOTHESIS NO. 1

HO: Professional accountants have not favoured the management much more than any other person or group in carrying out their functions.

H1: Professional accountant have favoured the management much more that any other person or group in carrying out their function.

HYPOTHESIS NO.2

Ho: There is no need to render the important of auditing.

Hi: There is need to re-order the important of auditing.

 

1.8     DEFINITION OF TERMS

  1. HYPOTHESIS: Means a tentative, probable explanation between two or more variable that creates a state of affairs or phenomenon


 

HO MEANS NULL HYPOTHESIS: It is usually stated in “No” difference form and the one to be tested

 

HI MEANS ALTERNATIVE HYPOTHESIS: It is usually stated in positive form it is the hypothesis to be accepted if the null hypothesis fails.

b        ARBITER Means person that control

c        Authentication Means genuine

  1. SAM Means structural Adjustment programme


e        Defraud Means Trick

  1. Credence Means believe

  2. Truism Means statement that is obviously true and need not have been made


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