The Impact Of Legal Audit Requirements On The Auditors Performance In Nigeria

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The Impact Of Legal Audit Requirements On The Auditors Performance In Nigeria


This research work was conducted to examine the impact of legal audit requirements on the audit performance in Nigeria. The research methodology used was survey research method and the descriptive research method. The sample for the study was fifteen (15) audit firms drawn from the population using random sampling technique. Ten (10) auditors were randomly selected through simple random selection method. Using the Nunnally and Bernstein (1994) benchmark for internal consistency reliability at 0.70, it shows therefore that, at 0.91 Raw Alpha coefficient, the test instrument designed for the auditors in the audit firms in northern zone of Nigeria can be said to be Internally Consistent and reliable. The study employed the simple percentage model in analyzing and interpreting the responses from the study participants while the hypothesis was tested using chi-square and Pearson correlation co-efficient. There is a relationship between practical effectiveness and theoretical Correctness as regards the efficiency of legal and it requirements in Nigeria, which is attributed to the fact that the legal audit requirement in Nigeria has positive effect on the auditor’s performance.

Chapter One

1.0 Introduction

1.1 Background of the Study

“Business without auditing stifles public confidence and auditing without law is force” (Emile wolf) Auditing occupies a very critical position in the business life of any society both industrialized and non industrialized countries like Nigeria and other west African countries. This implies that auditing plays a critical and improtant role in the economic development of any nation.

This is more importance as business, which is the mainstay/ bedrock of the economy is fast growing. It has grown beyond what may be described as “purely personal management that were common in the olden days. Such business establishments are small in size personally owned financed and managed by the owner.

However there is changed situation in this modern time. The hallmark of most business is no longer owners management. The owner and financers are separate person (shareholders and investors) and controlled by outsiders (director and managers) because of the increase in size and company of business activities. This practice is know as “stewardship” the entrails as its foundational feature that shareholders and other parties to the business will like to know how their resources entrusted in the care of management are being used to achieve the corporate aim. This is therefore done by employing the services of person’s who are professionally qualified and referred to as independent public auditors to attest on the effective utilization or otherwise of the financial resources after examining the account prepared by the management. It was this motive that gave rise to the birth of the profession auditing with vital role and heavy responsibilities.

It would be right to stress that the down auditing era is the wake into consciousness and disciplines in business operations the quest to maintain sanctity in the conduct of business.

But to have auditing profession void of legal backing is a despicable attempt to accord the practice a persuasive influence but not authoritative status.

Auditing without the law is a force a contraction on terms. To this extent the law become a fundamental aspect of the profession and practically speaking too bears conspicuous implications. For example in performing the attest functions problem and hardships may arise and both the law and the professional body are not silent on these effect.

It is therefore the legal prescriptions and their consequences on auditing that constitute the terms of reference of this research work. The legal framework presently applicable to auditing in Nigeria is the companies and allied matters act (CAMA) 1990. This is normal reviewed in the light of the regulatory codes issued of the authorities in auditing profession both within and outside Nigeria. This the investigation with expose any difficulties in the legal environment of auditing which the law can solve and suggest ways of improving the deficiencies.

1.2 Statement of the Problem

In this system we shall examine the situation which exist in the Nigeria auditing scene as he basis for the problem which has been chosen for investigation. These problem are summarized below. Auditors have been found to negate the spirit of the legal requirements for various reason which revolve around maintaining a cordial relationship with the director’s management who they are specifically appointed to check.

Comments made by some auditors made the researchers believe that the legal audit requirements especially on the areas of appointment removal of auditor to more to stile rather than enhance their independence auditors sometimes change their negative opinion so as to retain their appointments as auditors. This situation apart form as implications to the profession will mean that company financial position could be worse as they would be no pressure from uniformed shareholder and the general public to apply the corrective measures. These seems to be lack of appreciation of the auditors roles in companies management hence the staff of companies generally see auditing work as a disturbance to the normal running of the business which make them give only minimal co-operation to auditors.

For companies registered under the companies act there is more pressure to issue an unqualified and positive opinion on the truth and fairness of the financial statements. In the course of audit the auditors may not feel secured to face-up-to-the unpleasant facts relating to the company. Emotions could be aroused and objectively clouded by sentiment just to avoid stepping on the sore toes of the management.

1.3 Research Question

In the view of these foregoing vitiating factors in the Nigeria auditing context the following questions are contemplated or framed.

  1. Do the legal audit requirements apply to the practical situation of companies in Nigeria?
  2. Do auditors comply with the legal audit requirements in performing their duties in Nigeria?
  3. To what extent do the legal audit requirements provision influence the auditor opinion in Nigeria?
  4. Do auditors who comply with the legal audit prescription perform better than those who do not?

1.4 Research Hypotheses

The aim of hypothesis is to provide a logical ground for developing the research work. The hypothesis serves or provides as possible answers to the chosen problems and further research will provide imperial basis of the acceptance or otherwise the reception of the hypothesis.

  • H01: There is no relationship between practical effectiveness and theoretical
  • H02: The legal audit requirements in Nigeria have negative effect on the auditor’s performance.

1.5 Purpose of the Study

The principles purpose of this research work is to critically examine the legal audit requirements that are currently applied to the practice of auditing in Nigeria so as to ascertain the extent to which these requirements influence the auditor in the performance of their duties.

Some of the problems plaguing the practice of the profession have been identified in the proceeding section. This study attempts to find the causes of these problems and to proffer measure that will remedy the ailing situations.
Although the research exercise is basically academic but its findings are expected to the applied by both the auditors and lawmakers

1.6 Significance of the Study

The Nigeria auditing practice is fraught with risks and problems. We are not unaware of the increasing case of fraud and misappropriations on the part of directors and staff of company’s cases of supporting and abetting crimes as well as professional negligence arising from pressures on auditors to issue unqualified report. These circumstance led to an erosion of confidence the public at large consequent delay of the professional standard.

This significance of this study stems from the need to ameliorate or avert this worsening situation especially as there are many interested parties in the report of auditors paramount among these interested parties is the auditor that issues the report. This research work recognized that and for the auditors to find ways of protecting themselves form the large wave of current limitation arising from a numerous and often cute liabilities placed on them by the shareholders or third parties. Measures will be prescribed to guide against these problem. Shareholders and the investing public are in some occasion disgruntled with the auditor’s certification as emotions and sentiments interfere with objectivity and sound judgment as to the truth and fairness of the financial statements which the auditors are appointed to examine. The shareholders and third parties who rely on the technical advice of the auditors will be benefited by the findings of this study government agencies that have interests in the audited accounts of various companies for various reasons including taxation and lawmaker whose interest is in the area of legal audit prescription will also have relevance to this research project.

The significance of this investigation into the impact of legal audit requirement on the auditor performance is inexhaustible and the research in doubtful believe that with all finding the stature of the auditing profession will be improved.

1.7 Scope of the Study

This research study is confined to auditors in Nigeria. The legal provision considered are those given by the companies and allied matters act (CAMA) 1990 questions will therefore be directed towards findings out how the auditors carryout their normal audit work as required for companies registered under the Corporate affairs commission (CAC)

1.8 Definition of Terms

This provide the contractual meaning of certain terms used in the study.


This means the effect of or influence.


This means in accordance with or authorities by the law


Independent examination and expression of opinion on the validity and deepened ability of financial statements prepared by management.

Legal Audit Requirement:

The provision of the law that guide the conduct of audit.


The accountant who performs the audit work/professional accountant (ICAN holed).


The investing public who own shares in a company.


A customer to the auditor the business entity which employed the service of the auditors.

Third Party:

A person or an institution who has financial interest in out no contractual relationship with the business.


An agreement between two or more person which has legal backing and connotation.

Financial Statement and Account:

All the financial accounting records used by a business entity.

Limited Company:

A body establishment by law in public companies composed of non-executive directors and auditors for the purpose of reviewing the financial statements and audit findings recommendation of auditors and appointment and remuneration of auditors and performing other possible related functions.


A commission or omission in the performance of an act arising out of carelessness which a reasonable and prudent man in the circumstance would have avoided.

Compliance Test:

Those test which seek to provide audit evidence that the internal control procedure are being applied as prescribed.

Substantive Test:

Those tests of transactions and balance and other procedure such as analytical review which seeks to provide audit evidence as to the completeness accuracy and validity of the information contained in the accounting records or in the financial statement.

Audit Risk:

This is the chance of causing damage to an audit firm as a result of giving a wrong opinion under a circumstance.


An act which causes harm to a determinate person. It is a breach of duty arising out of a person relation or contact and which is either contrary to the law or an omission of a specific legal duty or violation of an absolute right.

Internal Cheek:

The allocation of authority and work in such a manner as to afford checks on the routine transaction of today work by means of the work of one person’s being prove independently by another of the work of a person being complementary to that of another.


To lessen the effect of something.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary

This research work was conducted to examine the impact of legal requirement on the audit performance in Nigeria. Three research objectives, questions and hypothesis were formulated to guide this study. The Scope of the study was limited to external auditors, Public Limited Companies, the interested Parties and users of financial statements in Nigeria. The researcher conducted an extensive review of related literature in order to assist with updated knowledge in carrying out the research. The research methodology used was survey research method and the descriptive research method. Appropriate data was collected by making use of the data collection methods. That is, questionnaire and personal interviews. The relevant data was presented and analyzed which enabled the researcher to come out with significant findings from the study. From the findings, the researcher would be able to arrive at appropriate conclusion. Recommendations would also be brought in at the remaining part of this Chapter.

5.2 Conclusion and Recommendation

From the findings the following conclusion were made;

  1. The legal audit requirements apply to the practical situation of companies in Nigeria.
  2. The auditors comply with the legal audit requirements in performing their duties in Nigeria.
  3. There is a very great extent to which the legal audit requirements provision influence the auditor opinion in Nigeria.
  4. The result shows the auditors with the legal audit prescription perform better than those who do not.
  5. There is a relationship between practical effectiveness and theoretical Correctness as regards the efficiency of legal and it requirements in Nigeria
  6. The Auditors have been complying with the legal audit requirements in Material aspects.
  7. The legal audit requirements in Nigeria have positive effect on the auditor’s performance.

Thus, they following recommendation were made;

  1. The Regulatory body should ensure that all auditors who are on duty should comply with the legal requirement.
  2. There should be set down rules to penalize any auditor who do not comply with auditing code of conduct and practices.
  3. Auditors should try to be independent when carrying out their audit work in compliance to set down rules and regulations guiding the body.

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