CHAPTER ONE

INTRODUCTION

1.1 Background Of The Study

The preparation of stewardship report from the accounting point of view is the role of the

management who oversees the affairs of the business organization on behalf of the owners

usually the shareholders. This stewardship report represents the financial statements covering

the operating performance and the financial position of a company. It is usually prepared by the

directors and addressed to the shareholders as a fulfillment of their agency responsibility.

Suffice to say that if all the facts concerning financial transaction were properly and accurately

recorded and if the owners and managers of business enterprises were entirely honest and

sufficiently skilled in matters of accounting and recording, there would be little need for

independent auditing.

Dependable financial information is essential to be very existence of our society. The credit

professional making a decision of our society: the credit professional making a decision to grant

trade credit, the investors making a decision to buy or sell securities, the banker deciding

revenue based on income tax returns, all are relying upon information provided by others.

In many of these situations, the goals of the providers of information run directly counter to

those of the users of the information. Implicit in this line of reasoning is recognition of the

social need for independent auditors, individuals with a professional competence and integrity

who can tell us whether the information on which we rely constitutes a fair picture of what is

really going on. Good accounting and financial reporting and society in allocating its resources

in the most efficient manner.

1
The contribution of the independent auditor is to give credibility to financial statement.

Credibility in this usage means that the financial statements can be believed; that is, they can be

relied upon by outsiders, such as trade creditors, bankers, stock holders, government and other

interested third parties. According to the Oxford Advanced Learner’s Dictionary of English,

Credibility can be defined as “The quality of being generally accepted and trusted.

Audited financial statements are now the accepted means by which business corporations report

their operating results and financial position. The word audit when applied to financial

statements means that the balance sheet, statements of income and retained by an audit report

prepared by independent public accounts, expressing their professional opinion as to the

fairness of the company’s financial statement (www. Crfonline.org/cro/cro-11. intml).

On the other hand, the oxford Advanced Learner’s Dictionary of English, 5 th Edition defined

Confidence as “The feeling that you can trust, believe in and be sure about the abilities or good

qualities of some thing or somebody. Audit competence can only be achieved if public

confidence on audit reports can be improved significantly.

Both credibility and confidence go hand in hand and each variable impacted on each other to

achieve the audit quality and competence the users of financial statement desired. However,

management failure arising from co-operate governance failure over the years majorly

contributed to the loss of credibility in audit reports. The solution to this problem of credibility

in financial and audit reporting lies in appointing an independent person and public confidence

in audit reports is enhanced when the profession encourage high standards of performance and

conduct on the part of all practitioners’.

According to Olagunju (2021), for an audit to be credible and reliable, it must be performed by

someone, who is independent and cannot be influenced by position, power which will affect its

2
own conclusion. Auditor’s independence helps to ensure quality audit (Beck, 2004). The UK

financial Reporting Council (UKFRC) has undertaken an extensive on audit quality and in

February 2008 released the audit quality frame work to improve i.e. the confidence and

credibility in audit. They are: the culture within an audit firm, the skills and personal qualities of

audit partners and staff, the effectiveness of the audit process; the reliability and usefulness of

audit reporting; and factors outside the control of auditors affecting audit quality

(www.mia.org.my/at/at/2021/12/06.paf)

To this end, with regards to the issue of public confidence and credibility factor responsible for

the loss of credibility and public confidence, the attitude of users of the financial statement to

audit reports as well as providing the way forward to improve audit credibility and public

confidence, this research work aims at utilizing the significance of confidence and credibility as

approaches to improve audit competence.

1.2 Statement Of The Problem

Internal audit is an integral part of the internal control system of financial institutions, at the

heart of banking is the audit function: This is evidenced by the fact that all other departments

are linked with internal audit department. The importance of internal audit system cannot be

overemphasized, since organizations have recognized internal audit function as a tool for

ensuring effective workings of the internal control system. Okolo, (2021) describes internal

audit functions as an aspect of control mechanism, within a business, manned by specially

assigned staff.

However, in Nigeria, the audit function in the banking sub-sector has not been fully taped. This

could be seen in the numerous cases of errors, intent to defraud and other fraudulent acts that

exist in the banking industry. It is therefore, no wonder that the distress in the banking sub-

sector in the nineties reflected lack of effective control mechanism of the audit function in the

3
banking industry. The experience of failed banks in Nigeria and other nations have called for

reinforcement of audit and the strengthening of the control system in the Nigerian banks. It is

against this background that, this study seeks to evaluate the role of internal auditing in

enhancing efficient performance of financial institutions in Nigeria considering the fact that, the

banking institutions is critical to the survival of any economy.

1.3 Objectives Of The Study

The main objective of this research study is to examine effect of auditor’s independence on

reliability of financial reporting. The specific objectives are:

i. To determine whether the investing public has confidence in the independence of the

auditor.

ii. To investigate whether improvement in the credibility of financial statement can

enhance the public confidence of audit report

iii. To examine whether there is significant relationship between auditors’ independence

and credibility of financial statement.

iv. To provide some possible remedies to restores and improve public confidence in audit

and financial reporting.

1.4 Research Questions

Based on above stated objectives, the following questions will act as a guide to this research

study:

i. Is there any significant relationship between investing public confidence and audit report

in recent times?

4
ii. To what extent does credibility of financial statement enhance the public confidence of

audit report?

iii. Is there any significant relationship between auditors’ independence and credibility of

financial statement?

1.5 Statement Of Hypotheses

In order to achieve empirical findings the following hypotheses have been postulated:

Ho1: Accountability enhancement does not significantly affect to auditors independence

Ho2: Improvement in the credibility of financial statements cannot enhance the public

confidence of audit reports.

1.6 Significance Of The Study

This study will be of immense importance in the sense that it will assist management to realize

the company’s set performance goals; this will be achieved through projecting to the public the

impact of internal audit on performance of firms.

This work will also broaden not only the researcher’s knowledge but also the general public on

how the internal audit committee can assist management in realizing profitability and

accountability. More so, this work shall be found useful to those who may want to carry out

further on this topic.

1.7 Scope Of The Study

This study will seek to examine the enhancing accountability in corporate organization; the role

of auditors independence. Data will be collected from journals, textbooks, authors, past

researches, internet etc.

5
1.8 Limitations Of The Study

The likely limitations of the study should be the uncooperative attitude of the organizations

taken into study, inadequacy of time, financial constraints and inadequate power supply. Some

of those approached for information declined and refused to cooperate. This affected the volume

of information available for the study. Again, limited time allocated for this research work did

not provide room for accuracy and reliability of results.

1.9 Definitions Of Key Terms

Some keywords that are used in this project work are defined below:

Audit Report: This audit report is a written summary of finding of the auditors during their

audit work along with their opinions on such findings.

Audit Risk: Is the term given to the risk that the auditor will draw an invalid opinion or

conclusion from his audit work. (ICAN Pack, 2019).

Corporate Governance: ICAN Study Pack (2019) defines corporate governance as “the set

of mechanisms through which outside investors are protected from expropriation by

insiders(including management, family interest and for governments).

Expectation Gap: Is the difference between what the public expect from an audit and what the

auditing profession prefers the audit objectives to be

Fraud: According to statement of Auditing standards 110, fraud comprises both the use of

deception to obtain an unjust or illegal financial advantage and international mis-representation

affecting the financial statements, employees or third parties.

6
Internal Audit: Internal audit is an independence appraisal function within an organization for

the review of the system of control and the quality of performance as a service to the

organization

Internal Control System: defines internal control system as “the complete range of control,

financial or otherwise established by management in order to carry on the business of the

organization orderly manner and to ensure adherence to management policies, safeguard the

asset and secure as far as possible the completeness and accuracy of the records.

Paper Profit: This is the consequence of “window dressing”. The term is used to describe a

situation whereby the profit disclosed in the financial statement lack cash equivalent or tangible

assets equivalent (Oxford Advanced Learner’s Dictionary of Accounting).

Self Interest: It is the management’s financial or other interest which will inappropriately

influence the professional manager’s or accountants judgments, conduct or behaviour.

Stewardship Report: It is the financial statement prepared by the directors addressed to the

shareholders as a fulfillment of their agency responsibility.

Window Dressing/Creative Accounting: When a company undertake expenses and losses and

consequently overstate profit earnings, just as Enron corporation have done, the organization’s

account are “window dressed or created. It is fraudulent and criminal to create account.

7
 CHAPTER TWO

LITERATURE REVIEW

2.1 Conceptual Review

Over the past decade, increased instigation as well as criticism of auditors has left little room for

doubt that auditors are facing a liability and credibility crises in their profession. The reputation

of accountancy profession comes under question for the reliability of their services (Adhikari,

2021).

Similarly, failure of business in which deficiencies of financial reporting and corporate

disclosure have figured prominently are not new phenomena however, high profile cases of

recent past such as Enron, Worldcom, Global crossing, Adelphia communication and most

recently, Royal Ahold and Health South together with a host of small-scale example worldwide

such as Cadbury, Oceanic bank and Intercontinental Bank Plc. in Nigeria, have drawn for

greater attention to this area.

At the same, there has been evidence of an increased frequency of re-stated financial statements.

All these have had a negative cumulative impact on the way informed opinions views the

quality of financial reporting. This loss of credibility has been wide spread across capital

market.

A key factor in the scale of the problems was the unprecedented high level of share price in

many markets. Maintaining these price levels was a top management objective and when it

became clear that the supposed level and trend of profitability justifying the level has not

existed, the fall in share prices was accentuated by a major re-rating of the shares.

8
This impacted share in similar companies (ICAN Study Pack, 2019). Be that as it may, the quest

over the year has been how confidence and credibility in audit and financial reporting (both in

internal and internal auditing) can be improved and sustained.

Adequate literature review has shown that effectives of the audit process, the auditor’s personal

qualities and skills as well as the discipline from the audit profession have significant

relationship with the achievement of public confidence and credibility. For instance,

independence is fundamental to the credibility of auditors’ reports. Those reports would not be

credible, and investors and creditors would have little confidence in them. If auditors were not

independent in both fact and appearance. To be credible, an audit opinion must be based on an

objective and disintegrated assessment (Olagungu, 2021).

It is on the basis of the issue raised above that this research work aims a presenting confidence

and credibility in audit report as reliable approaches to maintaining and improving audit

competence.

Meanwhile, the next literature review will include the overview of the concept of credibility and

confidence in audit reports, the factors responsible for loss of credibility and confidence, the

drivers and indicators of audit quality as well as suggestion to improve credibility and public

confidence in audit reports.

Overview Of The Concept Of Credibility And Public Confidence In Audit Reports

Credibility in this usage means that the financial statements can be believed, that is, they can be

relied upon by outsiders, such as trade creditors, bankers, stockholders, government and other

interested third parties (www.crfonline.org/cro/cro-11.html).On the other hand, confidence

according to the Oxford Advanced Learner’s Dictionary of English, 5 th edition, is defined as

9
“the feeling that you can trust, believe in and be sure about the abilities or good qualities of

something or somebody”.

Again, the public relates to the stakeholders of the professional accountant who have varying

interest uses and expectations from the financial statement prepared by directors of the

company. The stakeholder of the professional accountant includes and is not limited to the

following.

a. The general public

b. Shareholders-potential and existing

c. Government at various level

d. Creditors

e. Debtors

f. Employees

g. Management

h. The international community

i. Donor agencies

j. Multilateral institutions

k. The institute

l. Regulatory authorities

(ICAN Study Pack 2019:133)

10
The basic objective for preparing financial statement is to provide information useful for

making economic decisions. The functions of auditing is to lend credibility to the financial

provide information useful for making economic decisions. The functions of audition are to land

credibility to the financial statements.

According to Olagunju [2021], for an audit to credible, and reliable, it must be performed by

someone who is independent and can be influence by position and power which will affect its

own position. In the work of Olagungu [2021], he recommended that for auditors to remain

strictly independent and credible, they should not allowed to provide audit clients, with any

other advisory or non-audit services in order to safe guard the audition from self-review threat.

To this end, the over view of the concept of credibility and confidence has shown that the

concept has relationship with many factors exerting influence on its achievements.

Factors Responsible for Loss of Confidence and of the Cause of Loss of Public Confidence

and Credibility include:

a. Window dressing or creative accounting: Okolie [2017:187] defined the term as all

action taken to hide unpalatable facts about the company from its creditors, bankers, and general

public. Some of such action include frequent revaluation of land and building, inflation of stock

values, lower depreciation charges, capitalization of revenue expenditures liked repairs and

maintenance expense upon the above manipulation, the company obtains an unqualified audit

report despite the truth that the trues financial position has been hidden for years from the

investing public being and the various stakeholders of the company.

b. Corporate governance failure: ICAN STUDY PACK [2019:240] provide a list of factors

responsible for many of the corporate governance failure:

i. poorly designed remuneration package

11
ii. Excessive use of share options among top management

iii. When trading failed to earn the targets of earnings manipulation of accounts set in.

This case was very apparent in the case of companies like Ahold, Enron, WorldCom and zerox.

c. Auditors compromising fundamental principles:

Most times because of the closeness or familiarity between the auditors and clients the risk of

losing big clients, auditors favour their client and themselves during financial auditing and

reporting to the disadvantage of the investors. Such principle usually breached includes

independence, objectivity and integrity.

On practical grounds, one or all the aforementioned have resulted in the wave of corporate

scandals, especially in the united state of America within the last few years. Nigeria had its

portion of the crises recently with the financial institutions, when the prices of shares nosedived,

wiping out billions of naira in the market value. Confidence of investors was rocked to its

foundation. [ICAN Study Pack, 2019. 240].

Significance of Credible Financial Statements to Various Users: ICAN study pack [2019:

134] identifies the statement below:

1. Government requires and uses accounting information as a score sheet for stewardship,

decision making and for tax imposition.

2. Employees would like to know the profitability and liquidity position of their

establishment to confirm stability of tenure, promotion prospects and contained supply of

recreatory facilities.

12
3. Employers are interested in accounting information to ascertain the profit made,

compare yearly figures and plan for future generations.

4. Existing investors are anxious to know whether fund placed in the business of a

company will continues to yield reasonable returns, or divested.

5. Now investors display rationality of putting their money in viable, profitable and

liquidity sound ventures only.

6. Banks, creditors and professional lenders, will not grant credit to poorly performing

entities whose accounts showed in ability to repay loans, service-changes etc. they rely on credit

financial statement to do this.

7. Companies within the same industry are requiring credible financial statements to

compare their performance of firms so as to draw average ratios as bench marks.

8. Statisticians and financials journalist’s compute many accounting ratios from the audited

financial agencies seek information from them.

With regards to the aforementioned, one will know that the need for credible financial statement

can never be over-emphasized.

PROFESSIONAL QUALITIES OF AUDITORS

The list of this quality of an auditor is not exhaustive and can grow to intimidating proportions.

But with respect to human personality, morality and emotion and perhaps appear more

reasonable (Okolie, 2017).

13
Intellectual Qualities

The auditor’s qualifications are not limited to his professional certificates. These include

intelligence, judgment, creativity, intuition, and technical knowledge of the field, technical

proficiency and judgment most be adequately combined together with a certain degree of

creativity and intuition to enable an auditor perform creditably well.

Personality Traits

Personality traits are overall necessary qualities that will enable an auditor to be able to conduct

a given audit job. Skiptism, inquisitiveness, self-confidence, independence, assertiveness and

egoism are trait that the auditor cannot function without. They must be combined together.

Moral Qualities

An auditor is expected to maintain high sense of more auditor discipline before he function

properly as an auditor. Some of these moral qualities are entrenched in the code of ethnics of the

institute of chartered accountant of Nigeria. The qualities include here are fairness, integrity

high ethical standards, and good human relations.

Emotional Qualities

Emotional mean feelings. It indicates a person reactions or responsiveness to other people

actions, inactions, and reaction. A person without feeling is like automation. The emotional

qualities requires by an auditor include empathy, tack, and sensitivity.

The operating personal of a client often christen or see auditors as “policemen” because they

have the ability to report criticism of operating performance failure and weakness and this

makes the auditors to be seen as a threat or as someone to be suspected and feared.

14
The auditor must also be factual and persuasive in his argument so that he is able to convince

his client about his view point. Sensitivity unlike empathy requires the auditors to recognize and

note changes in the feelings of others.

Guides to Maintaining and Improving Audit Competence

A strict adherence to the fundamental audit procedure by auditors will assist in some ways in

the quest to ensure audit competence and arouse public confidence in financial reporting.

Audit Planning and Strategy

Audit strategy is directed to the gathering to relevant and reliable audit evidence in order to

support the expression of an opinion on the accounts. In carrying out an audit assignment the

auditor should (ICAN Study Pack, 2019).

a) consider his responsibilities as defined in the terms of engagement

b) familiarize himself with the client’s business and organization

c) obtain a preliminary understanding of the principle feature of the clients accounting

system and internal control procedures

d) determine and record the audit strategy to be adopted

e) Carryout detailed evaluation of client accounting and internal control system and review

selected transactions to confirm the extent of reliance on the client system.

f) Discuss any weakness in the system with the client in order to ascertain whether they are

compensated by other control.

g) Test the system to determine whether the control on which he intends to place reliance

were operating during the period.

15
 h) Report apparent weakness and breakdown internal control to the client in a management

letter.

i) Based on the results of the work describe above, carryout a programme of audit work to

substantial the amount appearing in the accounts and related noted and fair view of the state of

affairs and the results of the business. (ICAN Study Pack, 2021).

Points for Consideration in Audit Planning

i. The auditor should carry out a preliminary work in addition to the real work. This

includes such matters as stocktaking, cash count, debtors’ circularization and review of

previews year’s working papers.

ii. Changes in legislation such as any auditing standards, guideline, companies and allied

matters act, cap.(20,cfn 2004, etc) should be reviewed ahead of the operations or reporting

requirement of the enterprises.

iii. Analytical review of available management accounts and other management information

that relate, to the accounts.

iv. Changes in business or management such as the appointment of a new chief finance

officer and the establishment of a new business should be reviewed

v. The auditor should work in line with the deadline established for the submission of audit

report.

vi. The audit should also determine ahead which aspect of the client business should be

selected for testing or verification (ICAN Study Pack, 2017).

16
Audit Evidence

The reliability of audit evidence is dependent upon the particular circumstance. However, the

following general assumptions maybe found helpful (ICAN STUDY PACK 2019).

a) Documentary evidence is likely to be more reliable than oral evidence

b) Evidence obtained from independent source is more likely to be reliable than that

secured from the client

c) Evidence originated by the auditor form his analytical reviews and physical in section is

more reliable than evidence obtained from others.

Audit Risk

Audit risk is the term given to the risk that the auditor will reach an invalid opinion or

conclusion from his audit work. Although some level of risk will have to be accepted in practice

a firm will need to quantity its acceptable level of audit risk.

At the planning stage, the auditor should asses the risk of material errors or misstatements in the

following areas:

a) in the financial statements as a whole

b) in each of the component terms in the financial statement, such as cash, stock, debtors,

creditors and expenses and purchases (in the profit and loss account)

Review of Audits

ICAN Study Pack (2019:219) provide that “one aspect of audit procedure that will help

guarantee high quality of work is the review process. There may be internal or external review.

A review may be carried out at various stages of the audit process and by different levels of
17
staff. The overall intention is to ensure that audit work performed at all stages and by different

levels of staff meet the required standard of the firm or the accountancy profession at large.

Professional Accountants And Ethnical Principles To Enhance Independence

An auditor must always approach his work with objectively and independence. However, it has

been observed that it is not always an easy task for the Millichamp (1990), the typical ethical

guide to ameliorate threats to independence include:

a) fees from any one client or group of client should not exceed 15% of gross practice

income

b) It is describe to avoid professional relationship where personal relationships exist.

c) In general, partners, their spouse, and minor children should not hold shares in or have

investment in client companies

d) An auditing practice or anyone connected with it should not make loans to its clients nor

receive loans from clients.

e) Goods and services should not be accepted by a practice or by anyone closely connected

with it unless the value of any benefit is modest

f) Auditors should exercise due diligence in order to avoid actual or threatened litigation

due to auditors negligence since it’s prevent auditors objectively.

g) Manage pressure from associated practices, bankers, solicitors, government or those

introducing business so as to prevent loss of objectivity.

h) Provisions of other services is acceptable in principles, but are not to be taken.

18
i) Receipt of a reward from a third party other than the clients for advising the client to

pursue one course rather than another should be stopped.

j) Audit firms should review on annual basis for every client to determine if it is proper to

accept or continue an audit engagement bearing in mind the threats. The rules of professionals

conduct for members of ICAN should always be followed.

Fundamental Principles

The individual chartered accountant should be guided by the fundamental principle

outlined in section 100(5) of the code of July, 2019, issued by the international federation of

accountants. These may be re-cast as follows.

a) Integrity

A professional accountant should be honest and straight forward in all business and professional

judgments.

b) Objectivity

He should not allow conflict of interest, bias or undue influence of other people to sway his

business or professional judgment

c) Confidentiality

A professional accountant should preserve the confidentiality of information which he obtains

in consequence of business and professional relationship. He should not disclose any of such

information to third parties without the knowledge and consent of his principal, unless there is a

professional duty or legal obligation to disclose it. A professional accountant should not use the

information obtained for his personal benefit or that of third parties.

19
d) Professional behavior.

He has to comply with relevant laws, rules and regulation. A professional accountant

should avoid any action which ridicules the profession and/or the institute of chartered

accountants of Nigeria where a professional accountant or a member of the ICAN faces a

dilemma in the course of duties; he is obliged to contact his professional body for guidance.

Source: IFAC Codes (2019)

The Foundation Of The Accounting Profession

The accountant holds a fiduciary position. He is an agent of his employer or clients. The

foundation of the profession therefore is trust. Shareholders base their assessment of the

financial reality and performance of their company on the report of the external decision. In all

of these, for the accountant to enjoy continuous confidence and trust, he must at all time

maintain high ethical standard in his job.

Suffice it therefore to say that, the value of the accounting profession can only be

maintained through a sound understanding and application of ethical principles. Anything short

of this results in loss of confidence and credibility. (ICAN Study Pack, 2019:132).

Role Of Auditors In Formulating Government Framework

Corruption and power are closely intervened and are the masterminds and underlying factors for

corporate governance failure all over the globe. Many individual and business outfits look up to

accountants to prepare their financial returns/tax paper etc. based on trust. The energy giant in

the United States of America, Enron, is a very notorious example where those at the top

20
institutionalized fraudulent practices by collapsing the wall of internal control mechanisms and

concealed important information

Notwithstanding the unsavory development all over the world, the role of accountants and

auditors include the following:

a. Accountant are the first set of gate keepers they should ensure that all financial

transaction are not aims length (that is without showing favour or familiarity so as strengthen

bargaining power)

b. Accountants and auditors hold strategic position of access to highly privileged and

confidential information which should be guarded scrupulously

c. Accountants and auditors should execute their functions with professionalism, and react

positively to the indicators of fraud and other irregularities and forward report to highest levels

of authority

d. Internals auditors are the watchdog of organization resources because they are year-

round, unlike the statutory internal auditors are in a unique position to influence management

and the boards or risk management enforcement and review of internal control procedures and

corporate governance.

Independence Of An Auditor

What is independence? Why is it necessary for professional accountant? How is it maintained?

These are some of issues raised with respect to auditors.

Adhikare (2021) is of the view that the term independence has no concrete meaning. However,

integrity, objectivity and trust worthness are the key element in independence. The concept of

auditor’s independence has been accepted from the very beginning when the accounting came

21
to being as a profession. Independence is fundamental to the reliability of auditor’s reports, if

they were not independent from the management in both fact and appearance.

Without independence, an auditor’s opinion is a suspect and the users of financial

statements believe that there is no need for internal auditor. If independence has not been

maintained. Third parities acceptance implies that the role of the internal auditors is an

independent financial control within the corporate entity. He must strive to ensure that the audit

quality is not compromised under any circumstances.

Auditing Standards And Guidelines

Auditing Standards

Auditing standards prescribes basic principles and practices which members are expected

to follow when carrying out an audit. It is mandatory for practicing chartered accountants to

apply the relevant standards who an audit is carried out.

The institute of charted accountants of Nigeria has auditing standard committee (ASC) charged

with the duty of setting standards and guideline. The stand requires the auditor to adequately

plan control and record his work, ascertain the enterprises system of recording process,

transaction, assess, its adequately as a basis for preparation of financial statement and if the

auditor wishes to place reliance on nay internal control, the needs to carryout the following:

The auditor will ascertain and evaluate those controls and perform compliance test on their

operation and the auditors should carryout a review of the financial as sufficient in conjunction

with the conclusion drawn from other audit evidence obtained to give a reasonable basis for his

opinion on the financial statement.

22
Audit standard may be in two parts, the text and the explanatory note in which case, there are

explanatory notes on the status and purpose of auditing guideline.

Members of accounting bodies are expected to observed the auditing standard and any apparent

failure to comply with them may cause investigation and disciplinary action. Auditing standard

as best practice and observance of them can enhance the quality of audit work and boost the

public image of auditor.

Audit Guideline

Auditing guidelines are aimed at improving the level of uniformity of audit practice and related

services. Audit guideline basic principles and practiced which members are expected to follow.

Audit guideline are interned to give guidance on

a. Procedure by which auditioning standards may be applied appearing in the financial

statement of the enter prices

b. The application of auditing standards to a particular sectors industries or service

organization

c. Other matters relating to proper performance of a an audit work.

The auditing standards committee (A.S.C) is charged with the responsibility of preparing

auditing standard and guideline that are applicable in Nigeria. It was set up by ICAN in 1987.

The guidelines issued by auditing standard committee are as follow

AG 1 –auditing guideline on engagement letter

AG 2 –auditing guideline prospectus and reporting accountant. (Source: Statement of Auditing

Standards)

23
 Concept Of Audit Report

Okolie (2017:127) is of the view that “one of the most important aspects of the whole audit job

is the auditor’s report. The content of the auditors report is guided and governed by:

a. Statute regulating the existence and operations of the company. In Nigeria, such law

include companies and allied matter, Act, 1990, bank and other financial institutions Act

(BOFIA, 2021), the insurance Act, 2003 etc.

b. The auditing standard and guidelines

Contents of the audit report as laid down by auditing standards.

The auditing standard requires that the auditors report should state clearly the following matters

as discussed below

i. The auditors report should be properly titled or given a suitable heading and its is

normally addressed to the members of the company

ii. The particular financial statement audited must be identified and this usually done at the

introductory paragraph. It also includes the accounting convention and accounting policies

which have been followed in preparing financial statements.

iii. Statement of responsibilities of the auditors and director i.e. the directors are responsible

for the preparation and presentation of the financial statement and a statement that the

responsibility of the auditors is to express on opinion on the responsibility of the auditors is to

express and opinion on the financial statement and a statement that the responsibility of the

auditors is to express and opinion on the financial statement.

24
 The inclusion of the description of director’s responsibilities in the auditor’s report is

very necessary especially where such descriptions has not been included in the financial

statements or in any other accompany information such as the directors report. The following

points according to Okolie 2017:130 must be included in the description of directors’

responsibilities before it can be considered adequate.

a. CAMA, 2004 requires to prepare financial statement for each financial year.

Such statement should give a true and fair view of the company’s (or group of companies) state

of affairs at the end of the profit and loss for the year ended.

b. In preparing those statement, the directors are required to

i. Select suitable accounting policies and apply them on consistent basis, making

judgments and estimates that are prudent and reasonable.

ii. State whether applicable accounting standards have been followed, subject to any

material departures disclosed and explained in the financials statements.

iii. Prepare the financial statements on a going concern basis unless it is not appropriate to

presume that the company will continue in business.

c. The directors are for:

i. Keeping proper accounting records

ii. Safeguarding the assets of the company

iii. Taking reasonable steps to prevent and detect fraud and other irregularities

Source: CAMA (2004)

Basis of Auditor’s Opinion

25
The opinions of the auditors must rest on certain substantive criteria. The basis of the auditor’s

opinions must always be explained by including in their report.

i. A statement showing the auditors compliance with auditing standard and guideline or

departure

ii. A statement showing that in the process of carrying out the audit.

a. Evidence relevant to the amount and disclosure in the financial statements were

examined on a text basis

c. Statement showing that the accounting policies appropriate for the company’s

circumstance were consistently applied and adequately disclosed.

d. Significant estimates and judgments made by the company’s directors in preparing the

financial statement were assessed.

e. A statement that the financial statements are devoid of material miss-statements caused

by fraud, errors, improprieties or any other irregularities

f. A statement that the auditors’ has complied with relevant accounting and auditing

standards.

Meanwhile, the opinion expressed by an auditor may be either a qualified opinion or an

unqualified opinion.

Unqualified Audit Reports

an unqualified auditors opinion is a opinion in which, in the judgment of the auditor, the

financial statement give a true and fair view and have been prepared in accordance with the

26
requirement of the accounting principle, policies and necessary provision relevant or applicable

statement (Okolie 2017:132)

Qualified Audit Report

ICAN study pack [2019; 238] described other matter which affect the auditor’s opinion and in

metrical circumstance where he is unable to express on unqualified opinion and which may lead

to a qualified auditor report

There are no reasons for auditors not to issued qualified reports since their intention is to audit

the clients and report on the lapses, errors and mis-statement discoverer.

Mean white the situation that could give rise to the issue of qualified report are:

[i] There is a limitation on the scope of the actuators work

[ii] There is a disagreement with management regarding the acceptability of the accountancy

polices selected, the method of their application or the adequacy of financial statements

disclosures.

Grounds for a Qualification

In case of uncertainty the auditor can give either

A ‘’disclaimer of opinion if the matter is fundamental

27
This shows that the auditor has not been able to form an opinion’’ as to whether the financial

statement give a true and fair view.

A subject to opinion qualification if the matter is material but not fundamental. This shows that

the financial statement give a true and fair view only if portion of the financial statement

referred to is correct. In case of disagreement, the auditor can give an adverse opinion’ if the

matter under consideration is fundamental. This is to the effect that the financial statement gives

a true and fair view .

An ‘‘except for option’’ report if the matter is material but not fundamental. This is to the

effect that the financial statement gives a true and fair view except for matter referred to [ICAN

study pack, 2019]

Linking Financial Statement and Audit Report Preparation

Okolie [2017] opines that financial statements provide an indication of the company’s trading or

operational performance and give a fixed point, snap shot of it financial position at a particular

date. The duty to prepare account s or financial report is statutorily required of the company’s

board of directors under section 334[1] of cama, 2004. Infact, the detecting of error or fraud

does not fall among the major object of auditing the financial statement of a company. The

accounts expected to be prepared and presented by the directors to stakeholders include:

i statement of accounting polices

ii balance sheet as at the last date of the year

iii profit and loss or income and expenditure account for the year

iv notes on the accounts

28
v director’s reports

vi auditors reports

vii statement of cash flow for the year

viii value added statement for the year

ix Five year financial summary

x . Group financial statement [for a holding company]

A. the record of a business or company so as to ascertain the level of reliability of the

information which they contain

B. the document from which the records have beer develops in search of validity.

In the summary, directors through their account staff prepares and keep the records and

generate account. The auditors evaluate the correctness of the account prepared against the

underlying records and whether or and not they accord with the stipulation of the law and

statements of accounting standards. The auditor’s duties are bolding written in section 359.360

and schedule 6 of cama. 2004

The end result of audit is for auditor to express its opinion on the truthness and fairness of

the financial statements prepared by the directors.

The Auditor’s Threat

These are two general source of threat identified by the raised codes. The ‘APB’ ethical

standard I identified a sixth threat (the management threat).

29
 a) Self-interest threat (for example, having financial interest in a client). This is threat that

“a financial or other interest will in appropriately influence the professional accountants

judgment”, conduct or behaviour according to the code (2019), examples which creates self

interest threat for a professional accountant in public practices include:

I. A firm entering into a contingent fee arrangement that relates to an assurance

engagement

II. A member of the audit team entering into employment deals with the audit clients.

III. A firm which is concerned about the chance happening of losing a significant

client.

IV. A firm having undue dependence on total fees receivable from a client

V. A member of the assurance terms having a significant close business relationship

with an assurance client

b) Self-review threat (for example, auditing financial statement prepared by the firm).

c) Advocacy threat (for example, promoting the clients, position by dealing in its shares).

This threat says that a professional accountant will promote the position of a client or

employees to the stage that the professional accountant’s objectivity is compromised. Example

include

i. When the firm is promoting share in an audit client

ii. When a professional accountant is acting as an advocate on behalf of an audit client in

litigation or disputes with third parties.

30
 d) Familiarity threat (for example, an audit team member having his/her family member as

an officer of the client).

e) Intimidation threat (for example, threat of replacement due to disagreement). This is the

threat that a professional accountant will be prevented from performing his work objectively in

view of actual or perceived pressure which includes: attempts to exert undue influence over

him. Examples of circumstances which may create intimidation threat for a professional account

who is in public service include:

i. A firm being threatened with dismissal from a client engagement

ii. A firm being threatened with litigation by the client

iii. A firm being pressurized to reduce in appropriately the extent of work performed so as

reduce fees.

iv. A professional accountant being informed by a partner of the firm that a planned

promotion will not take place except the accountant agrees with an audit clients in

appropriate accounting treatment.

v. Management threat (for example, doing a job that should be carried out by client’s

management, such as the design and implementation of it systems, there are two general

categories of safeguard identified by the code

vi. Safeguards created by the profession, legislation or regulation

vii. Safeguards within the work environment

Remedies Against Auditor’s Threat

Examples of safeguards

31
 i. education training and experience requirements for entry into the profession

ii. continuity professional development requirements

iii. corporate governance regulations

iv. professional standards

v. professional or regulatory monitoring and disciplinary procedures

vi. External review by a legally empowered third party of the reports, returns,

communication or information produced by professional accountant.

2.2 Theoretical Review

The study draws on the agency theory, the contingency theory and the systems theory as

theoretical framework that guided this research.

Agency Theory

The theory of agency exists when the principle who cannot manage his business on his/her own

delegates the authority to an agent (Jensen & Meckling, 1976). The problem with agency arises

immediately when the desires and the goals a principal and the agent conflict.

It is very tough and difficult or rather expensive for a principal to always monitor the work of

his/her agent to ensure that the agent works and makes some decisions on the best interest of the

principle. Thus, the theory of agency is help in solving the principle and agent issues with an

aim of ensuring a better relationship between them (Arwinge, 2013).

32
This theory is based on the notion that the interests of shareholders and the managers are not

aligned in a perfect away to enable them work for a common goal which is achieving the

organizational set goals and objectives. The agency theory plays a crucial role in financing

decisions because of the problems that arise be between the debt holders and the shareholders

(Arwinge, 2013).

The agency cost theory arose from the seminal contributions of Jensen & Meckling (1976).

Agency cost theory assumes that firm’s financing structure can be used as a mechanism or

vehicle by managers and investors solve the free cash flow problem. Agency theory explains

that corporate form of organizations is illustrated by professional managers who have little

ownership but are running business on behalf of shareholders (owners) who are extensively

dispersed characterizes an archetypal principal-agent problem (Arwinge, 2013). Agency costs

arises from separation of ownership and control, whereby managers maximize their own

benefits or employ the firm’s resources for personal gains instead of maximizing value of firm

or the shareholders wealth (Mian, Haris and Muhammad, 2024).

Internal controls are among the mechanisms, which are normally used in addressing the agency

problem, which affects the performance of business entities. Installation of controls is able to

reduce business risks and uncertainty, which arise from information asymmetries between

principals and agents (Arwinge, 2013). Agency theory affirms that systems of internal control

together with other intervention mechanisms such as good financial reporting and audit can help

in maintaining a cost-efficient contracting between managers and the firm owners (Düztas,

2008). The principal has to put in place some controls, which will effectively and efficiently

address agency issues (Arwinge, 2013).

Contingency Theory

33
Contingency theory is usually applied in description of a relationship that exists between

context and structure of effective internal control and organizational performance especially in

financial reporting perspective (Jokipii, 2010). This theory asserts that there exist no better way

of design planning and system of control as well as management systems which can handle all

situations effectively and successfully (Bobkova, 2014).

Therefore, this theory suggests that exists no one universal control system, which is applicable

to all firms in all situations. The basic premise of contingency research is that, organizational

context and structure must fit together for an organization to perform well (Jokipii, 2010).

Therefore, the planning design and systems of control is dependent on various internal variables

and external variables and which a better fit between both internal and external variables and

management systems should result in an improved performance of an organization (Bobkova,

2014).

Systems Theory

The systems theory was developed by Kaufmann (1966) to explain the historical development

as a vibrant process. According to Amagoh (2008), a system consists of other subsystems whose

integration and interdependence move toward an equilibrium within a larger system. Therefore,

this theory is all about how systems integrate to a broad range of systems.

The systems perspective holds that to fully comprehend function of entire system, the

integration among different components or individual units have to be understood. The internal

control system covers all relevant areas of an entity and help in creating a properly organized

and controlled unit (Cheruiyot, 2014). The theory offers powerful tools to analyze systems of

internal control and to understand interactions since an effective system of internal control is an

34
integrated system with interrelated components, supporting principles and attributes (Ayagre,

Ishmael & Nartey, 2014).

2.3 Empirical Review

Morteza, Parviz and Shima (2015) assessed the existence of the relation between internal

control system and performance in financial perspective of Telecommunication Company of

Golestan province in Iran. The study revealed a significant and positive relation between

internal control system and performance in financial perspective of the Telecommunication

Company of Golestan province. Thus, the study concluded that existence of system of internal

control influence financial performance positively and an internal control system seems to be

necessary for effective performance.

Haat (2024) assessed the relation between internal controls on SME performance. A significant

relation between implementation of internal control and SMEs performance in financial

perspective. In addition, the study revealed that most of the SMEs in Malaysia were ready to

implement internal controls but the concept was still in primitive stages and that most SMEs

lack of awareness on the advantages of internal control to their businesses.

Mwakimasinde, Odhiambo and Byaruhanga (2014) examined effect of systems of internal

control on performance in financial perspective of sugarcane out grower firms in Kenya.

The study adopted a descriptive correlational survey design and collected data using

questionnaires. In addition, the study used the key informant’s method where is obtained data

from all the finance managers and heads of internal audit for every out grower company. The

data collection instrument was administered to all the nine sugarcane out grower institutions.

The study findings revealed a positive significant effect of systems of internal control on

performance in financial perspective.

35
Accountability according to Nwabueze (2005) is synonymous with stewardship. In the public

sector, there appears to be great demand for regular appraisal and reviews of financial

performance of public sector bodies. It is also the basic requirement that every steward should

be faithful. Accountability then can be seen as involving:

Exercising public power

Giving an account of the action taken and

Being held to account for those actions

It is not function of the remuneration of the steward; rather it is a test of faithfulness and

transparency. When a steward is faithful in little, much will be added to him. It is by a good

performance at a lower post that promotion is gained to a higher post and remuneration is

increased.

According to Oshisami (2023:188) accountability in government however goes beyond the

stewardship function. The complexity of accountability has very serious consequences, when

decisions taken by the public scrutiny particularly by those who were either not parties to those

decisions or are even incapable of appreciating the intricacies of such decisions.

Oshisami (1994) identifies five known patterns of accountability viz. legal, political, and

financial, ombudsman or public complaint and public opinion. It would appear those public

office holders are expected to show accountability in these five dimensions, our concern in

these would be the financial accountability, but in brief mention should be made of legal and

political accountability. Public sector accountability can also be defined as those charged with

drafting and| or carrying out policy should be obliged to given an explanation of their actions to

their electorate being a composite group that include clients, employees and taxpayers.

36
Accountability is all about relationship both internally and externally. An important way to

communicate accountability is through the provision of financial and related information. The

various aspects are:

Financial accountability: it is the accounting system that is intended to keep a record of all legal

authorizations as well as commitments, agreements, obligations and expenditure that use any

part of authorization granted.

Legal accountability: it is primarily directed towards providing protection for the individual

against administrative discretion.

37
 CHAPTER THREE

METHODOLOGY

3.1 Research Design

Aigbokhaevbolo and Ofanson (2006) defined research design as “the plan or strategy, which

indicates how data relating to the research should be collected and analyzed.” Similarly, the

ICAN Study Pack (2019) opines that research design is a blue print or scheme that is used by

the researcher for specific structure and strategy in investigating the relationships that exist

among variable of the study so as to enable him collect the data, to be used for the study.

It must however be borne in mind that fact that the design chosen must measure appropriately

the phenomena that is of interest and obtain data that will lead to a useful conclusion.

Hence, this research work used the survey design to achieve an assessment of the confidence

and credibility in audit report by providing answers to the three set of hypothesis put forward.

Firstly, to determine whether improvement in the credibility of financial reports. Secondly, to

investigate whether audit quality and credibility is a question of auditors personal quality and

Thirdly to investigate whether the loss it credibility in audit reports is caused by the collapse of

corporate governance in companies.

3.2 Population Of The Study

Okolie (2019) defined population as a collection of the individual items were of people or

things, that are to be observed in a given problem situation.

38
The population of the study comprises of 606 audit firms in Nigeria as at 31 December 2023).

Four firms were purposively selected based on events criteria of those with complete

information and consistently listed at the stock market as at the time of the study.

3.3 Sample Size and Sampling Techniques

Staff of the organisation will be contacted for all needed information in order to achieve the

study target. A total number of one hundred twenty four (124) questionnaires were distributed

but only Seventy One (71) copies of questionnaire were completely retrieved and analyzed for

this study

This study essentially targets Top management staff of these aforementioned offices and

personalities. The researcher therefore will use purposive sampling techniques to selecting

interview respondents. This will ensure that only people with relevant information are sampled.

3.4 Method Of Data Collection

In as much data ought to be collected first, before they are analyzed, data collection exercise is

essential in the sense that it helps the researcher gather first and information about the study

under investigation.

Hence, the data for this study was gathered from only primary sources. According the primary

data was collected through the questionnaire that was administered to the staff, management

partners and directors of some audit firms, bank, companies and other users of financial

statement in Ogun state.

3.5 Data Presentation And Analysis Technique

The researcher would use both quantitative and qualitative techniques to analyse the data. The

data that would be obtained from the field would be analysed using frequencies and

39
percentages, as well as inferential statistics. Statistical Package for the Social Sciences (SPSS)

version 20.0 will be employed for data analysis. The use of this version is because there will be

the need for data reduction through factor analysis, for the purposes of regression and

correlation analysis. Percentages would be used to determine sample distribution across various

demographic variables while mean scores of the variables. Standard deviation would also be

used in the analysis. Frequency distribution tables and pie charts would be used to present the

data.

3.6 Reliability & Validity of Instrument

The instruments were given to experts in the department of Accountancy in D.S Adegbenro ICT

Polytechnic. These experts are versed in research and their observations and correction were

effected in the final questionnaire.

3.7 Ethical Consideration

Science is not complete without ethical considerations. All ethical issues include anonymity and

discretion; no harm to respondents; volunteer involvement; avoiding deception; and just

reporting (Babbie, 2009). Before, during, and after the study, ethical guidelines were observed.

Respondents were asked for informed consent so that they could participate at free will. The

respondents received an introduction letter informing them of the study's intent. Since the

survey did not require the disclosure of personal information, respondents’ data was kept private

and the source of information was hidden. To promote objectivity in research, efforts were

made to ensure that the researcher's biases did not interfere with the data collection process. The

information collected remained confidential and was used solely for reporting purposes.

40
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 INTRODUCTION

This chapter discusses the presentation and analysis of the data collected. Pearson Correlation

Co-efficient was used to test the hypotheses in order to establish a relationship between the

dependents and independents variables in each hypothesis. Statistical Package for the Social

Sciences (SPSS 20.0) was employed for the data analysis. A total number of one hundred

twenty four (124) questionnaires were distributed but only Seventy One (71) copies of

questionnaire were completely retrieved and analyzed for this study. Data analysis was

undertaken at five percent (5percent) level of significance. The results of the analysis are

presented beginning with the presentation of demographical characteristics of the respondents

as shown in tables below:

4.2 RESPONDENTS’ CHARACTERISTICS AND CLASSIFICATION

Table 4: Age of Respondents

Valid Cumulative
Frequency Percent Percent Percent

Valid 21 29.6 29.6 29.6

Below 20 24 33.8 33.8 63.4

20-30 22 31.0 31.0 94.4

31-40
4 5.6 5.6 100.0
41and above

Total 71 100.0 100.0

41
 Source: Field Survey, July 2024.

Interpretation:

The information in the above table shows that, 29.6percent of the respondents are below 20,

33.8percent are 20-30, and 31.0percent of the respondents are 31-40 years while 41 and above

are 5.6percent of the total respondents. This implies that personnel between the ages of 20-30

years participated more in the research study.

Table 2: Sex of Respondents

Valid Cumulative

Frequency Percent Percent Percent

Valid Male 39 54.9 54.9 54.9

Female 32 45.1 45.1 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

Table 1 classifies respondents by sex. As revealed in the above analysis 54.9percent of the

respondents are male while the remaining 45.1percent were female. This implies that there are

more male in the organization than female.

42
Table 3: Marital Status of Respondents

Valid Cumulative

Frequency Percent Percent Percent

Valid Christian 17 23.9 23.9 23.9

Muslim 25 35.2 35.2 59.2

Christian 29 40.8 40.8 100.0

Muslim 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

From the table above, 23.9 percent of the respondents are single, 35.2 percent are married and

40.8 percent are others. It implies that others respondents participated more in the study.

Table 4: Educational Qualification of the Respondents

Valid Cumulative
Frequency Percent Percent Percent

Valid SSCE 21 29.6 29.6 29.6

OND/Diploma
24 33.8 33.8 63.4
HND

B.sc 22 31.0 31.0 94.4

M.sc 4 5.6 5.6 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

43
Interpretation:

The information in the above table shows that, 29.6percent of the respondents have SSCE,

33.8percent obtain OND/Diploma, 31.0percent of the respondents obtain HND while B.sc are

5.6percent of the total respondents. It implies that there are more personnel who obtain

OND/Diploma in the organization.

4.3 PRESENTATION ACCORDING TO RESEARCH QUESTIONS

Table 5: Business Entities Financial Statement Should Be Audited To Ensure Truth

Fullness and Credibility Of Accounting Information

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 46 64.8 64.8 64.8

A 11 15.5 15.5 80.3

U 5 7.0 7.0 87.3

D 5 7.0 7.0 94.4

SD 4 5.6 5.6 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

From the table above, 64.8percent of the respondents strongly agreed to the statement,

15.5percent agreed, 7.0percent were undecided, 7.0percent disagreed, while 5.6percent of the

total respondents strongly disagreed to the statement. It implies that business entities financial

statement should be audited to ensure truth fullness and credibility of accounting information.

44
Table 6: financial statement desire a credible audit report to be relied upon for their investment

decision making

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 33 46.5 46.5 46.5

A 29 40.8 40.8 87.3

U 2 2.8 2.8 90.1

D 4 5.6 5.6 95.8

SD 3 4.2 4.2 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

In the analysis above, 46.5percent of the respondents strongly agreed to the statement,

40.8percent agreed, 2.8percent were undecided, 5.6percent disagreed, while 4.2percent of the

total respondents strongly disagreed to the statement. This means that financial statement desire

a credible audit report to be relied upon for their investment decision making.

45
Table 7: Improvement in the credibility of financial statement hips to enhance the public

confidence of audit report

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 43 60.6 60.6 60.6

A 10 14.1 14.1 74.6

U 3 4.2 4.2 78.9

D 11 15.5 15.5 94.4

SD 4 5.6 5.6 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

From the table above, 60.6percent of the respondents strongly agreed to the statement,

14.1percent agreed, 4.2percent were undecided, 15.5percent disagreed, while 5.6percent of the

total respondents strongly disagreed to the statement. It implies that Improvement in the

credibility of financial statement hips to enhance the public confidence of audit report.

46
Table 8: Confident and credibility in audit report will help to improve the reputation of both the

auditor and the auditing profession

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 32 45.1 45.1 45.1

A 27 38.0 38.0 83.1

D 7 9.9 9.9 93.0

SD 5 7.0 7.0 100.0

Total 71 100.0 100.0

Source: Field Survey, March, 2024.

Interpretation:

In the analysis above, 45.1percent of the respondents strongly agreed to the statement,

38.0percent agreed, 9.9 percent disagreed, while 7.0 percent of the total respondents strongly

disagreed to the statement. This implies that Confident and credibility in audit report will help

to improve the reputation of both the auditor and the auditing profession.

47
Table 9: The hallmark of auditioning is to land credibility to the financial statement, auditors

should be given more power to perform their job

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 49 69.0 69.0 69.0

A 9 12.7 12.7 81.7

U 5 7.0 7.0 88.7

D 4 5.6 5.6 94.4

SD 4 5.6 5.6 100.0

Tota
71 100.0 100.0
l

Source: Field Survey, July 2024.

Interpretation:

The result above shows that, 69.0percent of the respondents strongly agreed to the statement,

12.7percent agreed, and 7.0percent were undecided, 5.6percent disagreed, while 5.6percent of

the total respondents strongly disagreed to the statement. This shows that The hallmark of

auditioning is to land credibility to the financial statement, auditors should be given more power

to perform their job.

48
Table 10: Self-disciplined auditors are likely to exhibit high independence in their professional

duty

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 21 29.6 29.6 29.6

A 39 54.9 54.9 84.5

U 5 7.0 7.0 91.5

D 2 2.8 2.8 94.4

SD 4 5.6 5.6 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

From the table above, 29.6percent of the respondents strongly agreed to the statement, 54.9

percent agreed, 7.0 percent were undecided, 2.8percent disagreed, while 5.6 percent of the total

respondents strongly disagreed to the statement. It implies that Self-disciplined auditors are

likely to exhibit high independence in their professional duty.

49
Table 11: It can be concluded that audit quality and credibility is a question of auditor’s

personal qualities

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 30 42.3 42.3 42.3

A 38 53.5 53.5 95.8

U 2 2.8 2.8 98.6

SD 1 1.4 1.4 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

In the analysis above, 42.3percent of the respondents strongly agreed to the statement,

53.5percent agreed, 2.8percent were undecided, while 1.4percent of the total respondents

strongly disagreed to the statement. This means that It can be concluded that audit quality and

credibility is a question of auditor’s personal qualities.

50
Table 12: There is significant relationship between auditors independence and incredibility of

financial statement

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 23 32.4 32.4 32.4

A 38 53.5 53.5 85.9

U 4 5.6 5.6 91.5

D 4 5.6 5.6 97.2

SD 2 2.8 2.8 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

From the table above, 32.4percent of the respondents strongly agreed to the statement,

53.5percent agreed, 5.6percent were undecided, 5.6percent disagreed, while 2.8percent of the

total respondents strongly disagreed to the statement. It implies that there is significant

relationship between auditors independence incredibility of financial statement.

51
Table 13: One good quality of an auditor report is that auditors should reports both “good and

bad news” if credibility is to be achieved

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 41 57.7 57.7 57.7

A 11 15.5 15.5 73.2

U 3 4.2 4.2 77.5

D 11 15.5 15.5 93.0

SD 5 7.0 7.0 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

In the analysis above, 57.7percent of the respondents strongly agreed to the statement,

15.5percent agreed, 4.2percent were undecided, 15.5percent disagreed, while 7.0percent of the

total respondents strongly disagreed to the statement. This means that One good quality of an

auditor report is that auditors should reports both “good and bad news” if credibility is to be

achieved.

52
Table 14: auditors be responsible for the fraud irregularities and in efficiencies observed in

clients operation

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 38 53.5 53.5 53.5

A 22 31.0 31.0 84.5

U 4 5.6 5.6 90.1

D 5 7.0 7.0 97.2

SD 2 2.8 2.8 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

From the table above, 53.5percent of the respondents strongly agreed to the statement,

31.0percent agreed, 5.6percent were undecided, 7.0percent disagreed, while 2.8percent of the

total respondents strongly disagreed to the statement. It implies that auditors be responsible for

the fraud irregularities and in efficiencies observed in clients operation.

53
 Table 15: Considering the frequencies and the magnitude of sharp practice of CEOs, and chief

financial officers of companies, we can conclude that corporate governance failure is

responsible for the loss of credibility audit report and most of the corporate scandals

experienced globally in recent past

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 30 42.3 42.3 42.3

A 31 43.7 43.7 85.9

U 3 4.2 4.2 90.1

D 6 8.5 8.5 98.6

SD 1 1.4 1.4 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

In the analysis above, 42.3percent of the respondents strongly agreed to the statement,

43.7percent agreed, 4.2percent were undecided, 8.5percent disagreed, while 1.4percent of the

total respondents strongly disagreed to the statement. This means that Considering the

frequencies and the magnitude of sharp practice of CEOs, and chief financial officers of

companies, it can be concluded that corporate governance failure is responsible for the loss of

credibility audit report and most of the corporate scandals experienced globally in recent past.

54
 Table 16: client’s management is responsible for the smooth operation of corporate

governance and coordinate best practice

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 30 42.3 42.3 42.3

A 31 43.7 43.7 85.9

U 3 4.2 4.2 90.1

D 6 8.5 8.5 98.6

SD 1 1.4 1.4 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

From the table above, 40.8percent of the respondents strongly agreed to the statement,

42.3percent agreed, 9.9percent were undecided, 7.0percent disagreed to the statement. It implies

that client’s management is responsible for the smooth operation of corporate governance and

coordinate best practice.

Table 17: auditor should be held liable where they agreed to the conspiracy of the management
board to window and dress account

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 23 32.4 32.4 32.4

A 38 53.5 53.5 85.9

U 4 5.6 5.6 91.5

D 4 5.6 5.6 97.2

SD 2 2.8 2.8 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

55
Interpretation:

From the table above, 32.4percent of the respondents strongly agreed to the statement,

53.5percent agreed, 5.6percent were undecided, 5.6percent disagreed, while 2.8percent of the

total respondents strongly disagreed to the statement. It implies that auditor should be held

liable where they agreed to the conspiracy of the management board to window and dress

account.

Table 18: One of the ways of improving audit credibility is to increase the frequency of

auditing in year account

Valid Cumulative
Frequency Percent Percent Percent

Valid SA 41 57.7 57.7 57.7

A 11 15.5 15.5 73.2

U 3 4.2 4.2 77.5

D 11 15.5 15.5 93.0

SD 5 7.0 7.0 100.0

Total 71 100.0 100.0

Source: Field Survey, July 2024.

Interpretation:

In the analysis above, 57.7percent of the respondents strongly agreed to the statement,

15.5percent agreed, 4.2percent were undecided, 15.5percent disagreed, while 7.0percent of the

total respondents strongly disagreed to the statement. This means that One of the ways of

improving audit credibility is to increase the frequency of auditing in year account.

56
 4.4 TEST OF HYPOTHESES

Pearson Correlation was used to measure the effect of the independent variable to the dependent

variable of hypothesis 1, to 3 and proper interpretation and analysis techniques were used to

explain the hypotheses testing.

Hypotheses One

Ho: Accountability enhancement does not significantly affect to auditors independence

Descriptive Statistics

Mean Std. Deviation N

Accountability enhancement 1.7324 1.20662 71

Auditors independence 1.8028 1.03675 71

Nonparametric Correlations

Correlations

Human Capital Poverty

Development Reduction

Accountability Pearson
enhancement 1 .774
Correlation

Sig. (2-tailed) .000

N 71 71

Audit Pearson
.774 1
independence Correlation

Sig. (2-tailed) .000

N 71 71

* Correlation is significant at the 0.05 level (2-tailed).

57
Decision Rule

If the P-value is less than 5percent (P<0.005), then the null hypothesis is rejected, otherwise

accepted.

Interpretation of Result

The correlation co-efficient shows that accountability enhancement significantly affect to

auditors independence

Hypothesis 2:

Ho: Improvement in the credibility of financial statements cannot enhance public confidence

of audit reports.

Descriptive Statistics

Mean Std. Deviation N

Public confidence 1.9577 1.22401 71

Financial statement credibility 1.5070 .89240 71

Non-parametric Correlations

58
 Correlations

Public confidence Pearson

1 .802
Correlation

Sig. (2-tailed) .000

N 71 71

Financial statement Pearson

.802 1
credibility Correlation

Sig. (2-tailed) .000

N 71 71

*Correlation is significant at the 0.05 level (2-tailed).

Decision Rule

If the P-value is less than 5percent (P<0.005), then the null hypothesis is rejected, otherwise

accepted.

Interpretation of Result

The analysis above shows a strong positive correlation between the dependent and independent

variables with the value of 0.802. Hence, it is concluded that improvement in the credibility of

financial statements can enhance the public confidence of audit reports.

4.5 DISCUSSION OF FINDINGS

The research explored impact how to enhance accountability in corporate organization, the role

of auditors’ independence. After all relevant data were gathered and analyzed. Two (2)

hypotheses were tested and the entire alternative hypotheses were accepted

59
 CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 SUMMARY OF THE FINDINGS

The chapter one covered the introduction, the background of the study, statement of problems

and significantly, the objectives of the study.

The literature review as contained in the chapter two presented an overview of the concept of

credibility and public confidence. The factors responsible for the loss of credibility and public

confidence in audit reports were also reviewed. The significance of credible financial statement

to the various stakeholders, professional qualities of auditors and guides to maintaining and

improving audit competence credibility were also examined. The review also cover how

corporate governance failure affects the credibility of auditors report, the issue of expectation

gap and the remedies against auditors’ threats were the last past of the review.

The chapter three comprised the research methodology adopted in the study which entailed the

use of survey and descriptive research design and the use of simple percentage and chi-square

test.

The chapter four contained analysis of the questions raised in tables and hypothesis testing as a

basis for the acceptance and rejection of hypothesis stated in chapter one of the study.

The chapter five include summary of the study, discussion of findings, conclusion,

recommendation and suggestions for further studies.

60
5.2 CONCLUSION

Having examined the concept of confidence and credibility in audit report as approaches to

maintaining and improving audit competence, the factors responsible for the loss of credibility

and confidence and the way forward to remedize the situation, there is no doubt that the

findings of the research and the recommendation to be made later will help to address the

problem of credibility, confidence and the issue of window dressing that are rampant among

Nigeria companies. Suffice to say that the solution to the loss of confidence and credibility lies

in the auditors and the auditing profession itself. Auditors should therefore live up to their

expectation as a “watch dogs”.

5.3 RECOMMENDATIONS

Based on the conclusion of the study, the following recommendation were suggested

1. An urgent reform is needed in the auditing profession which will look at the modern role of

auditor’s

2. Prohibits auditors from rendering non-audit services to the same client they are auditing so

as to prevent the occurrence of self review threat.

3. Auditor’s should be given more power to punish or sure CEO’s chief financial officers or

client’s management that was proved to be fraudulent

4. A well-functioning principles of corporate governance and it compliances by management

will help to check the excesses of high-power management team.

5. Increase in the frequency of audits in a year

61
6. ICAN and FRC disciplinary tribunal should be proactive in their investigations rather than

being passive or reactive.

5.4 SUGGESTIONS FOR FURTHER STUDIES

The importance of this research can be viewed from its contribution to fill an important gap in

literature. However, the following are areas of further studies by future researchers in this field:

1. The roles of ICAN, ANAN and FRC towards improving audit credibility and public

confidence in audit report.

2. The practicability of corporate governance principles in companies.

3. The effect of morality on audit credibility.

5.5 LIMITATIONS TO THE STUDY

The following limitations were encountered during this research study.

Time factor may pose a constraint to the research work

Lack of adequate material

Finance constraints

Error that may occur during the course of the study

5.6 CONTRIBUTION TO KNOWLEDGE

This study was of immense importance in the sense that it will assist management to realize the

company’s set performance goals; this will be achieved through projecting to the public the

impact of internal audit on performance of firms.

62
This work also broaden not only the researcher’s knowledge but also the general public on how

the internal audit committee assist management in realizing profitability and accountability.

More so, this work was found useful to those who may want to carry out further on this topic.

63
 REFERENCE

Adhikari, p (2021), credibility question in accounting Profession, retrieved 5 th may, 2024 from

htt://.New business age. Com/sectoral/452.

Aigbokhaeubolo, o.m. and ofanson, E,J. (2006) Project work. Ejodamen publishers, Benin City.

Almer, R and brody, R (2022) an empirical investigation of content, dependent communication

between auditors and bankers, managerial auditing journal, vol 17, No 8.

Anyiwe, M.A. (2021). Statement handbook for social scientist Uniben Press, Benin City, P.

125.

Companies and Allied Maters Act, Cap (20, LFN 2004)

ICAN study pack (2019). Advanced audit and assurance professional examination I, VI

publishers, logos, Pg 252-391

ICAN study pack (2019) business communication and research methodology. Lagos, V.I

publishers. P 99-391.

ICAN study pack (2019) financial reporting and ethics. Professional examination II, VI

published Lagos Pg 134, 191-207.

IFAC (2019). Professional Codes of Conduct For Members: Improving confidence in audit; A

framework for auditors self-assessment (2021). Retrieved on 22 nd august, 2024 from

http:www.mia org.my/at/2021/12/06.Pdp

Lindberg, D.L and back. FO. (2014). Before and After Enron; certificate public accountants

view on auditors independence, the CPA journal online.

64
Millichamp, A.P (2014). Auditing; an instructional manual for accounting students, DP

publication Ltd London.

Okolie; A.O. (2017). Fundamentals of audit, 3rd edition, nono publishers. Pg 4-5,71-76.

Okolie, R.O. (2019) statement for business application first edition, De winner printers’ ekpoma

P2-3, 34-36.

Olagunju, A. (2021). An empirical analysis of the impact of auditors independence on the

credibility of financial statement in Nigeria research journal financial and accounting vol

2.No.3 retrieved on 25th august, 2024 from http. //www,//ste. Org/journals/index. PHP

/RJFA/article/download/329/218

Oxford advanced learner dictionary of English, 5th editions, oxford university press, London.

Portor, B (2023). An empirical study of the audit expectation-performance gap according and

business research vol 24, No 93.

Stagliona, A.J. (2021). Non audit service and perceived independence; some new evidence

auditing A journal of practice and theory.

Sucher et al (2018). Eliminating the expectation gab forward achieving audit quality journal of

auditing and accounting, vol3, No2.

Understanding the auditors report (2021). Retrieved on 24th august, 2024 from http;//www.cr

online. Org lard cro-11-html

65
Please fill the space and tick the appropriate boxes below:

Section A

1. Sex: Male ( ) Female ( )

2. Profession or occupation: Auditor ( ), users ( )

3. Educational qualification: MSC/MBA ( )

University/polytechnic education ( ), AND/A level ( ) WACSE/GCE ( )

4. Work experience: 1-5years ( ) 6-10years ( ) 11years and above ( )

66
 SECTION B

1. Do you think all business entities financial statement should be audited to ensure truth

fullness and credibility of accounting information? Yes ( ) No ( ) Not sure ( )

2. Do users of financial statement desire a credible audit report to be relied upon for their

investment decision making? Yes ( ) No ( ) Not sure ( )

1. Improvement in the credibility of financial statement hips to enhance the public

confidence of audit report?

Strongly agreed ( ) agreed ( ) undecided ( ) strongly disagreed ( ) disagreed ( )if you answer

in question (3) above is agreed kindly suggest three ways by which credibility of financial

statement can be improved.

(1) _____________

(2) _____________

(3) _____________

(4) Confident and credibility in audit report will help to improve the reputation of both the

auditor and the auditing profession?

(5) Since the hallmark of auditioning is to land credibility to the financial statement, do you

think auditors should be given more power to perform their job? Yes ( ) No ( ) Not sure ( )

(6) Self-disciplined auditors are likely to exhibit high independence in their professional

duty. Yes ( ) No ( ) Not sure ( )

(7) We can conclude that audit quality and credibility is a question of auditor’s personal

qualities.
67
Strongly agreed ( ) Agreed ( ) undecided ( ) strongly disagreed ( ) Disagreed ( )

If your answer is agreed, kindly suggest three ethnic qualities an auditor should possess?

(1) ____________

(2) ____________

(3) ____________

(8) Do you think there is significant relationship between auditors independence

incredibility of financial statement. Yes ( ) No ( ) Not sure ( )

(9) One good quality of an auditor report is that auditors should reports both “good and bad

news” if credibility is to be achieved? Yes ( ) No ( ) Not sure ( )

(10) Can auditors be responsible for the fraud irregularities and in efficiencies observed in

clients operation? Yes ( ) No ( ) Not sure ( )

(10) Considering the frequencies and the magnitude of sharp practice of CEOs, and chief

financial officers of companies, we can conclude that corporate governance failure is

responsible for the loss of credibility audit report and most of the corporate scandals

experienced globally in recent past? Strongly agreed ( ) agreed ( ) undecided ( ) strongly

disagreed ( ) disagreed ( )

If you answer is agreed, kindly list three management practice responsible for corporate

governance of the failure?

(1) ____________

(2) ____________

68
(3) ____________

(12) Do you think client’s management is responsible for the smooth operation of

corporate governance and coordinate best practice? Yes ( ) No ( ) Not sure ( )

(13) Should auditor held liable where they agreed to the conspiracy of the management

board to window and dress account. Yes ( ) No ( ) Not sure ( )

(14) One of the ways of improving audit credibility is to increase the frequency of

auditing in year account? Yes ( ) No ( ) Not sure ( )

69