The Problems Encountered By External Auditors In Auditing Nigerian Companies

Project and Seminar Material for Accountancy / Accounting

The Problems Encountered By External Auditors In Auditing Nigerian Companies


Abstract


This work is designed to examine the problem encountered by external auditors in auditing Nigerian companies, there causes, and there effect on the work of auditors and also the possible solution to eradicate these problems.
Chapter one was designed to give an overview of the research work.

This chapter of the project dealt with the background of the study, objectives of the study, research questions, the significance of the study, scope and limitations of the study were also discussed, including the definitions of technical terms.

Chapter two was a review of previous literature and studies. In this chapter, previous literature on theoretical issues of auditing, types of auditing, qualification, appointment, removal and redress available to auditors were discussed. The chapter also covered that problem of external auditors in auditing Nigerian companies.

In chapter three, the procedures or methodology and design adopted in carrying out the research were described. It also highlighted the sources of data and data collection technique, and location of data.

Chapter four explained the actual presentation and analysis of data obtained. The result of the research finding which confirmed that external auditors have problems in auditing Nigerian companies, were presented in tabular form and analyzed.

In chapter five, the summary of the finding, recommendations and conclusion were covered. One of the recommendations was that auditors should help to update the knowledge of the client staff by organizing training and programmes for them. In fact, this work has been interesting one and will be of great help in its audience.


Table Of Contents


Preliminary Page(s)

  • Title Page
  • Approval Page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Contents

Chapter One

1.0 Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problems
  • 1.3 Objectives of the Study
  • 1.4 Research Questions
  • 1.5 Statement of Hypothesis Hypothesis
  • 1.6 Significance of the Study
  • 1.7 The Scope of the Study
  • 1.8 Limitations of the Study
  • 1.9 Definition of Terms

Chapter Two

2.0 Literature Review

  • 2.1 Introduction
  • 2.2 Developing of Auditing
  • 2.3 Types of Auditing
  • 2.4 Qualification of Auditors
  • 2.5 Appointment of Auditors
  • 2.6 Removal of Auditors and Redress Available to them
  • 2.7 The Problems of External Auditors in Nigeria Companies

Chapter Three

3.0 Research Design And Methodology

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.3 Sources/Method Of Data Collection
  • 3.4 Population And Sample Size
  • 3.5 Sampling Techniques
  • 3.6 Validity And Reliability Of Measuring Instrument
  • 3.7 Method Of Data Analysis

Chapter Four

4.0 Presentation And Analysis Of Data

  • 4.1 Introduction
  • 4.2 Presentation Of Data
  • 4.3 Analysis Of Data
  • 4.4 Testing Of Hypothesis
  • 4.4 Interpretation Of Result

Chapter Five

5.0 Summary of Findings, Recommendations and Conclusion

  • 5.1 Introduction
  • 5.2 Summary of Findings
  • 5.3 Conclusion
  • 5.4 Recommendations
  • 5.5 Suggestions for Further Study
  • Bibliography

Chapter One


1.0 Introduction

External auditor is an audit professional who performs an audit in accordance with specific law or rules on the financial statement of a company government entity, either legal entity or organization, and who is independent of the entity being audited.

There are problems which external auditor faces such as lack of visible evidence inn the computerized system, the use of unqualified accounting staff by the client, lack of proper keeping of books and records. The auditor also encounters problem in the areas of information supply; problem in the Nigerian business circle is fraud.


1.1 Background Of The Study

The significance of auditing in the accounting profession has been since the inception of business activities from a sole proprietorship to large public enterprises. According to experts, it is a very vital instrument of financial reporting. It forms the bed rock of placing reliance on report presented by the steward of companies on the state of affairs of the companies. The various interest groups in the business organization are to be assured that their interest are being protected. The owners of the business (shareholders) are concerned to be guaranteed that the management is performing its duties effectively.

Their ultimate aim is to receive as much returns as possible from the capital which they invested in the business. The government on their own part is interested in knowing whether the profit and loss shown in the financial statement is correctly prepared for the purpose of tax assessment.

Auditors’ reports are used by the company’s advisers (the legal, financial analysts) to give advice to the management. The legal adviser interprets the legal implication of some information disclosed in the financial statement. The financial analyst also uses the result shown by the auditors to advice the clients on the best source of fund to embark on, where to invest and how much to invest in each alternative.

The auditors are always seen as the watchdog of the entire economy by representing the interest of all these various groups. Their peculiar position therefore calls for a conducive atmosphere, but it is unfortunate that most external auditor encounter serious problem in the performance of their duties. This research work therefore tends to investigate into the nature and causes of these problem and also proper solution to them.


1.2 Statement Of Problems

There are various problems facing external auditor in Nigeria. Auditor sometimes find it very difficult fo audit Nigerian companies as a result of expansion of business activities illiteracy, moral laxity, lack of adequate technical skill and training. This work studies these problems, their causes, effects and remedies.


1.3 Objectives Of The Study

The objectives of embarking on this study include:

  1. To ascertain the nature of the problem which the external auditors face while auditing Nigerian companies.
  2. To identify the cause of the problems
  3. To ascertain the effects of these problems on the work of the auditors
  4. To recommend measures that could enable external auditors to overcome the problem identified
  5. To recommend measures to be taken to overcome those problem.

1.4 Research Question

  1. Can the problem which the external auditors face while auditing Nigerian companies be checked
  2. Is there any cause of the problems faced by external auditors
  3. Is there any effects of these problems on the work of the auditors
  4. Can there be any measures that could enable external auditors to overcome the problem identified

1.5 Statement Of Hypothesis

  • H0: external auditors do not have problems in auditing Nigerian companies
  • (H1) external auditors have problems in auditing Nigerian companies

1.6 Significance Of The Study

This study will enable the new or intending auditors to be aware of the problems they will encounter in the course of performing their duties and be able to guard against them. It will also enable government to know how it can play its role in creating a better and conducive atmosphere for auditor who has been engaged to perform any duty in the Nigerian companies.

Again, it is expected that this study will consider contributions of directors in Nigerian companies toward a better auditing atmosphere in their various companies.

Furthermore, this study will form a good reference material for any other student who may wish to embark on related topic in future.


1.7 The Scope Of The Study

The study will not exceed problems encountered by external auditors in Nigerian companies. It will consider the effects of these problems on the work of the auditors and proffer possible solution to the problem.


1.8 Limitation Of The Study

There are many constraint facing the researcher during her study in this field such constraints include:

Time Factor:

The time that is made available for carrying out the study is limited. Most often, it is interrupted by other academic programme and circular work.

Shortage Of Finance:

There is an insufficient fund to meet up with financial demand required. As a result some research procedures, methods, techniques and process intended for this study will not be applied because of the cost involvement.

Scarcity Of Local Data:

Most of the text book that deal with the problem under review are foreign texts and are no longer current.

Non Available Problem:

In spite of several calls, some officers who the researcher wants to interview cannot be reached at because of their office schedule.


1.9 Definition Of Terms

Auditors:

An auditor is a person who examines tha book of accounts and vouchers of an organization in such a manner as to enable him express an opinion as to whether the accounts show a true and fair view of the state of affairs of the organization at a particular period.

Internal Auditor:

This is a person employed in an organization whose responsibility is to review the operations and record of the business of the organization and to keep management informed of its operation on a more continuous basis.

Client:

The company or business organization audited by the external auditors.
PERMANENT FILE: the permanent file contains information of permanent nature which are of continuing relevance to the auditor as regards to the operation and financial statements of the company being audited.

Current File:

The current file (working file) contains documents and working papers which relate to the current year’s audit.

System File:

A system file contains details of an organizations system of accounting and internal control i.e. the system of the organization documentation both manual and computer system.

Internal Check:

Internal check is defined as the allocation of authority and duty in such a manner that afford check on the routine transactions of day to day work by means of work of one person being complementary to that of another person.

Auditor’s Report:

This report shall state whether in the auditor’s opinion the annual account has been properly prepared in accordance with the companies and allied matter decree and whether the account shows a true and affair view of the company’s state of affairs.


Chapter Five


5.0 Summary Of Findings, Recommendations And Conclusions

5.1 Introduction

The study carried out to identify the problem encountered by external auditors in auditing Nigerian companies.
Chapter one deals with introduction and definition while chapter two discusses the review of related literature, definition of monetary policy, definition, causes of inflation and role of monetary policy in the control of inflation in Nigeria.


5.2 Summary Of Findings

This section highlight the result of this research based on the analysis presented in the previous chapter and possible solution to these problems are also pointed out. From the data collected, it could be inferred that actually external auditors in Nigeria encounter many problems in dealing with their clients.
These problems are identified as follows:

1. None Implementation Of Auditors Recommendations:

Auditors while performing their duties, test the strength of the internal control system and make recommendations as to observed weakness. It is however unfortunate that most clients staff do not take actions to correct reported deficiencies. As a result of poor performance, this anomaly will still be reflecting in financial reports thereby making it to be poor. The people who are not aware of the part already played by the auditors in such cases see the auditors as not being efficient.

2. Delay Of Audit Assignment:

The auditors are not usually called for annual audit immediately after the end of a financial period. The most common experience is that the auditors are told that the clients are not yes ready for annual audit. Inmost cases, the audit is usually carried out after a period of three months or more. The effect of this is that some corrective changes which would have been made to the system on time are made when much harm must have already been dine or when it would not be useful again. An example is the case of fraud where the person involved has left the company before his/her act was discovered.

3. Non-Payment Of Audit Expenses Fees:

Most clients find it interesting to delay payment of fees to auditors who have displayed highest degree of integrity, competence and objectivity. Sometimes though, this may be as a result of the liquidity problem of the clients. It may not necessarily be that the clients do not have the money but because they are not happy with the auditors for qualifying his report based on the work they have carried out concerning the company. This contributes a very serious problem to auditors who also have their own employees to maintain and other operating cost to meet. Furthermore, auditors are not given a conducive environment from which to operate. Instead of making enough financial provision for their accommodation during their engagement, they will be forced to operate in an area which is far from the particular company they are auditing where they will be given a poor housing accommodation.

4. Late Response To Audit Queries:

The auditors are given right to enquiry into the affairs of the company they audit one of the major instruments of this enquiry is the audit query. Unfortunately, when they raise such queries, the client’s staffs do not quickly give reply to them thereby increasing the total time spent by the auditor in doing a particular assignment.

5. Inadequacy Of Books And Records:

Most clients do not keep adequate, records and even voucher. The few vouchers kept by them are not well filed. They are not arranged in a way that permits easy access and tracing. The financial information are recorded haphazardly and so the auditor finds himself doing accountancy work first before delivering into the auditing work proper. Moreover, this makes vouching a difficult exercise.

6. Poor Staffing Of The Accountancy Department:

The account departments of most clients are not staffed with qualified personnel. There are people who are jumping into the profession form the back door. The various accounting positions inn the department such as accountants, cashiers and so on are occupied by people who do not have proper accounting knowledge. They are only keeping experience. These results to rendering of poor services despite all these problems there are only few accounting personnel in the accounting department of client.

7. Family Influences And Personal Relationship:

The idea of nepotism practiced by many Nigerians also poses very serious problems to auditors in auditing Nigerian companies.


5.3 Conclusion

It has been an interesting experience to research on this problem. We have been able to find out through out test of hypotheses that external auditors actually have been problems in the auditing Nigerian companies. Efforts were also made to discover these problems. The causes and the effect on the work of the auditors were also summarized. It can also be observed that even though the problems are numerous, there are available solutions to them. The governments, the auditors, the users of auditor’s service and the publict at large have important roles to play to reduce these problems to their minimum level. When this is sincerely practicalized, there will be a better atmosphere for external auditing of Nigerian companies which will in turn result to a better accountability among companies.


5.4 Recommendations

In view of the series of problems discussed in this work which external auditors encounter in carrying out their work in Nigerian companies. It is very vital that the following possible solution should equally be recommended.

Reporting To The Highest Decision Making Body:

In order to deal with the non-challant attitude of management t0o auditors report and recommendations, the auditor should always ensure that weaknesses are reported to the highest level of the company’s management. This will always enable him to avoid being personally held liable in event of litigations.

Exercise Of Right Of Lien:

Where the auditor is not settled on time, he should lien on the company’s property or books. In an external case, he should embark on legal proceedings against his client. This will help him check future delays in clearing of audit charges.

Computer Literacy:

The client, staff and the audit staff should be thoroughly trained in operating computer systems. This will enable them carry out their duties in the modern computer dominated environment. The management of the client companies should also embark on saving funds from the capital and money to enable sponsor consequently their Accountancy Department. With this they can afford to maintain their staff with adequate funds available, they can also provide good accounting facilities, train their staff, enjoy expert advice and take serious measures to complete accounting records. Again corrective and disciplinary actions should always be taken against default staff especially those who delay audit queries and information demanded by auditors. Another measure which the auditors could use to encourage good accounting systems and keeping of complete and proper record by client is to reduce the amount of fees they charge so that the client will not use it as an excuse for not inviting external auditors whenever they needed their services. This will compel the clients to call for the service of the auditor when they need it. The auditor as a protective measure should guard himself against possible liabilities that could arise from the problems already mentioned in this text. Some of the measures that will enable auditor to avoid litigation in the view of Walter .G. Kell include:

  • Use of engagement letters for all professional services
  • Make a thorough investigation on prospective client
  • Comply fully with professional pronouncement
  • Establish and maintain high standard of quality control
  • Exercise caution in engagement involving clients in financial difficulty.
Employment Of Internal Auditors:

The external auditor should advice their clients to employ not only qualified accountant but also a stable internal auditor to harmonize the affairs of the organization so that the external auditor can easily make his inquiries form the employed auditors. It has been discovered that many client do not invite the auditor unless things go beyond amendment. However, the client should help the situation by inviting the auditor at the appropriate time to avoid many mistakes that could lead to winding up of the company.

Employ Qualified Staff:

The auditor should let the client know the importance of employing qualified people and that it goes a long way to helping the company. Again, they should avoid employing people just because they are their relations to avoid doing things wrong. The government on its own part should play a significant role in alleviating the problems of these external auditors. This could take form of a more stringent legal enactment to regulate the accounting system of commercial firms. Moreover, there should be a monitoring exercise by the government or its agents on the level of company’s compliance with the relevant accounting legislation.

Organizing Training And Programmes For Client Staff:

As an expert in the field, the auditor can help to update the knowledge of the client staff by organizing seminars, symposiums, workshops and create other training forums. He should not make their fees to be too high so that the clients can afford their staff such opportunities. On the other hand, the client should not pretend as if their staffs do not need the training and just continue to save the money that could have been used to train their staff. Instead the client should see the importance of the training just like the auditor for the benefit of their companies.

Finally, it should be the duty of the accountancy body the Institute of Chartered Accountant of Nigeria (ICAN) to revive the application to highest discipline in the professional practice. A more serious approach has to be adopted in dealing with any member who is found acting contrary to the ethical standard should be profession. Such measure like suspension, withdrawal of certificate, fines and other legal action should be considered in cases of grass misconduct depending on the nature.


5.5 Suggestions For Further Study

Although this project has been carried out using Akintola Williams and Co. Chartered Enugu as my case study firm I suggest that other researchers should undertake further research work to ascertain whether or not they will have the same or similar results.


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Frequently Asked Questions


Are You struggling with audit problems?

Many auditors struggle with audit problems they encounter during the audit process without understanding how to deal with them. Hopefully this article provided some solutions and insight into ways that you can make your auditing process more productive, less stressful, and more beneficial.

How does an auditor work?

An auditor can work through getting management support, preparing for an audit, dealing with difficult auditees, properly reporting the audit results, and other audit problems in a much more proficient audit process.

What happens if an auditor performs an audit haphazardly?

Audits that are performed haphazardly are the result of no preparation, planning, or process review. Auditees will know that proper planning wasn’t completed when you read their procedures during interviews or ask irrelevant questions. The worst that can happen is the auditor goes off on tangents outside of the audit scope.

How can an auditor overcome difficult situations?

An auditor must literally become an expert in communication skills to ensure that his or her interviewing techniques can overcome difficult situations. Take a communication class on verbal and nonverbal skills. Get training on dealing with difficult people. Understand cultural differences. 

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