LITERATURE REVIEW
This chapter reviews literature relating to the theme and sub-themes of the study much has been said and written on the topic of the study by ancient scholars and experts in the filed of auditing. These chapters review some of the work done by these scholars and exports.
2.1 HISTORY OF AUDITING
According to auditor (2004; 1) the term auditing is derived from the Latin word “audile”, which means to her. The origin of an audit can be traced to the ancient times in Britain when landowners allowed tenant farmers to farm on their land. The landowners did not involve themselves in the cultivation of the land or in the supervision of these tenant farmers. Cultivation of the land was done by these tenant farmers while supervision of the tenant farmers was done by overseers appointed by the landowners.
Millichamp (2002; 2), added that nowadays various social clubs, students’ union bodies, charitable organizations, companies, etc, do provide in their constitution the election of officials who collect and disburse the organizations’ money, such constitutions also invariably make provide for audit of the accounts of organization. Today must large business organization owned by shareholders, government, etc are managed by board of directors appointed by the owners of such business organization.
However, it is expected that the owners who appointed directors to mange their business will be concerned with what happened to their business. The process whereby the mangers of a business account or report to the owners of the business is called stewardship accounting. This reporting is usually done by means of financial statement.
The problem which has always existed when managers report? The report may;
Contain errors;
Not disclose fraud
Be inadvertently misleading
Deliberately misleading
Fail to disclose relevant information;
Fail to conform with relevant obligation;
The solution to those problems of incredibility in accounts and report lead to appointing an independent auditor (s) to investigate the accounts and report on his/their findings.
2.2 MEANING OF AUDITING
Most authors defined auditing as contained in the auditing standard and guidelines, thus auditing is the in dependent examination of and expression of opinion on the financial statement of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation. (Combined council of accountancy bodies, London). This implies that auditing is the independent examination of the financial statement by an in dependent person called an auditor to form an opinion and make a report on the financial statement based on his findings.
According to Paula and Attwood (1982:18), “ Auditing is independent examination of financial statement where such examination is conducted with a view of expressing an opinion on whether these statements give a true any fair view and company with relevant statute. That is to say that, audit is conducted on the financial statement with the aim for the auditor to express his opinion based on the truth and fairness of the financial statement and whether they are prepared in accordance with relevant statutory requirement.
The world book Encyclopedia (1988:887), sees “ auditing as a systematic and official examination and check of business activities” this means that business activities are checked and examined by an independent person who does not involve himself in the running of the business by ens of auditing.
Oshisanu: (2000;91) hold the view that,” Auditing involve taking a critical look at what has happened to arrive at an opinion as to whether the aims and expectations have in actual fact been met or whether performance has fallen short of these.
Leshie (1982; 10) in his opinion suggested that, “Auditing is one of the established profession born out of the institute of the modern business world.
Nwabueze (2000;23) state that, “Auditing is an independent examination by an auditor of the evidence from which the final revenue, account and balance sheet of an enterprise have been prepared in order to ascertain that they present true and fair view of the summarized transaction of the period under review and of the financial state of the organization at the year end, thus enabling the auditor to report which have been written up, with the objective of enabling the auditor to make report on the balance sheet or other statement prepared from the books to the person 9s) to whom he has appointed to report.
2.3 WHO IS AN AUDITOR
Nwabueze (2000:23) went further to give a definition of an auditor as an accountant who has undergone a recognized professional course and is a member of one of the recognized accountancy bodies resident in Nigeria and who is carrying out a professional accountancy practice.
An auditor should be an accountant in the contract of professional status and study. He must possess a valid license to practice accountancy and registered with appropriate authority for this business.
Finally, since the duty of an auditor concerns with the examination of accounts, he must be proficient in accounting and other related subjects such as taxation, management, business system and analysis company law etc.
According to Rutherford and Borne (1993; 37), ‘an auditor is examiner of accounts”. This means that they primary responsibility of the auditor is have a critical look on the prepared account. They further stated that every company must appoint a properly qualified auditor (s) who are responsible for ascertaining and stating the true financial position of the company.
Okezie (2004:18) holds a view that, “an auditor may be defined as an accountant who has gone through a recognized professional course and is bodies residence in Nigeria and who is caring out a professional accountancy practice. He should not be a body corporate nor an employee of the company being audited. An auditor must be an accountant in the content of professional status and study. He should be recognizes in the content of institute of chartered accountant of Nigeria act N0 15 1965.
2.4 STATUTORY BASIS OF AUDITING
Since statute means, law or legal, statutory audit simply means an audit required by law of the land, statutory audit is therefore a mandatory obligation on the account of a certain level of companies, Ubesie (2000;18).
Audit ordinance (1956.7) provides that the auditor-general of the federation shall un-behalf of the National assembly inquire into and audit the accounts of all accounting officers and all persons entrusted with the collection, receipt, custody, issue sale, transfer or delivery of stamps, security, stores or other property of the government of the federation.
According to federal Republic of Nigeria constitution (1999;39), there shall be an auditor general for the Federation who shall be appointed in accordance with the provisions of section 86(1) of the constitution.
Section 85 (2) of the constitution further states that, the public accounts of the federation and all offices and courts of the Federation shall be audited and reported on by the auditor general who shall submit his reports to the National Assembly, and for that purpose the Auditor-general or any person authorized by him in that behave shall have access to all books, records, returns and other documents relating to these accounts. The constitutions also provide same for the state auditor general in page 51 section 125 (2).
According to the companies and allied matters act (1990: 151) section 357 (1), ‘Every company shall at each Annual General Meeting (AGM) appoint an auditor (s) who shall be entrusted with the power to audit the financial statement of the company.
Federal Republic of Nigeria constitution 1979 provides that, all persons and bodies esblished by law entrust with the collection and administration. “This brought the account of all statutory corporations, parastatals and government controlled companies into the armpit of the auditor general for the federal. The audit reports ad certified accounts of these bodies are however not including in the auditor general annual reports. Section 85(3) (a) of the 1999 constitution provides that the auditor general shall provide such bodies, (that is, government statutory corporations Commission, agencies, authorities, including National Assembly e.g. UNTH, Imo with:
A list of auditors qualified to be appointed by them as external auditors and from which the bodies shall appoint their external auditors; and
Guide lines on the level of fees to be paid to the external auditor ; and
Comment on their annual accounts and provide same for the state.
2.5 THE ROLE OF A STATUTORY AUDITOR AS REGARDS CONTROLLING OF FRAUDS.
According to Hornby (2000:1021), a role is the function or position that somebody has or expected to have in an organization, society or in a relationship. In case of an auditor, it is the function or position that an auditor has or expected to have in an organization.
Fraud, according to Adenyi (2004: 354) is an intentional act by one or more individuals among management employees, or third parties which results in a misplacement of financial statements. The author further states that frauds may involve;
(a) Manipulation, falsification or alteration of records and documents;
(b) Misimpressions of assets;
(c ) Suppression or Commission of the effect of transaction from records or documents;
(d) Recording of transaction without substance;
(e) Manipulation of document i.e. account policies
Kurt Panny (1977;154) holds the view that “fraud is manipulation, falsification and misstatement of accounting records intentionally to obtain illegal financial advantage.
Onovo (2000; 53) suggested that, “fraud is one type of irregularity”. He maintained that the fraud is used to refer to irregularity involving the use of criminal deception to obtain unjust or illegal advantages.
According to Eze 92004;35), fraud is an act by which one person intends to have a dishonest advantage over another person.
Auditing standard and guidelines defined the word fraud as irregularities involving the use of criminal deception to obtain an unjust and illegal advantage. That is to say that, “fraud is an intentional misstatement or concealment of a material fact.
THE DUTIES OF AN AUDITOR
According to Taylor (1976; 45), “the duties of an auditor will be generally governed by the instructions given to him. He will generally report on the statement of accounts examined by him and say whether in his opinion such accounts represents a true and fair view of the state of affairs, but he will still require discharging his duty.
Daniel (1999;20) holds the view that auditor shall make a report to the members on the account examined by them, and on every balance sheet, profit and loss account and all group accounts laid down before the company in Annual general meeting during their tenure.
Orojo(1992; 398) suggests that, “the primary duty of an auditor is to show true financial position of the company. He went further to state the duties of an auditor as it contains in section 360 of the companies and allied matters act 1990thus;
It is the duty of an auditor, in preparing his report to carry out such investigation as will enable him form an opinion as to the following matters:
Whether proper accounting records have been kept by the company and proper returns adequate for their audit have been received from the branches not visited by them; and
Whether the company’s balance sheet and (if not consolidated) its profit and loss account are in agreement with the accounting records and returns section 360(1).
If the auditors are of the opinion that proper accounting records have not been kept by the company, proper returns have not been received from branches not visited, or if the balance sheet and profit and loss account are not agreement with accounting records and returns, section 360 (2).
According to Ejiofor, Okonkwo and Ilegbune (1982; 31) auditors must make report to the members on the account examined by them and every balance account laid before them in the general meeting. The report must contain statement on matters mentioned in schedule 9 of companies’ act of 1968. These include;
Whether they obtain all the information necessary the audit;
Whether the accounts prepared agreed with the company’s books and returns;
Whether the company has kept proper books of account;
True and fair view of the company state of affair’s of profit or loss.
Cooper (1974; 1) suggests that, the objective of an audit is to ensure that the accounts on which the auditor is reporting shows a true and fair and are not misleading.
2.7 AUDITOR’S INDEPENDENCE
Hornby (200; 608) state that independent means the state of been confident and free to do things without needing help from another person (ie without an influential act from any person) therefore an independent auditor is a professional accountant, registered, licensed and a member of a registered accountancy bodies in Nigeria, who discharges is duty confidentially without influential act from anyone or corporate body.
Okezie (2004; 455) hold the view that, in accountancy profession, independence may be either corporate or private (in divide). He went further to say that corporate independence deals with the independence of the accountancy profession as a whole while individual (private) independence deals with the independence of each individual members of accountancy profession. He maintained that, in public sector auditing the auditor-general should enjoy the same corporate professional independence as in the private sector to enable him performs his duty and responsibility effectively and efficiently. Professional independence is therefore an attitude of mind based on integrity and objective approach to work.