THE ROLE OF INDEPENDENT AUDITOR IN NIGERIA

THE ROLE OF INDEPENDENT AUDITOR IN NIGERIA

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Format: MS WORD  |  Chapters: 1-5  |  Pages: 67
CHAPTER ONE
INTRODUCTION
1.1       Background of the Study
The independence of auditors is regarded as key to their credibility as external verifiers of external financial statements. The requirement for external auditors to be independent of their clients when undertaking an audit is enshrined in the International Federation of Accountant's (IFAC) Code of Ethics and in the European Union's Eighth Directive. In the IFAC code, this requirement is translated into various situations where observance of certain rules should ensure independence.
Recent bankruptcies of many large corporations with clean auditor‘s reports around the globe have called to question the validity of the financial statements prepared by those corporations. The case of Enron in the United States, Parmalat in Italy and Cadbury in Nigeria are clear examples.
According to Okolie (2007), ―statutory auditors are expected to audit the financial statements prepared by the directors of enterprises and express an independent opinion on them‖. Therefore, in accounting practice of today, the independence of the auditor is one of the most important issues because it increases the effectiveness of the audit by ensuring that the auditor plans and carries out the audit objectively.
Okolie (2007) maintains that high quality audits enhance the reliability of the financial reporting process and facilitate optimal allocation of capital by investors and other users of the financial statements. The nature of the auditor‘s work requires him to be independent from the influence of any party so that he can objectively form an opinion on the financial statements examined by him and not tossed by wind from either the owners of the resources or the managers of such resources (Okolie, 2006: 11-15).
The foregoing discussions show that the independence of an auditor is fundamental when the issue of accountability is concerned and is influenced by many factors within and outside the control of the auditor himself. In addition, most literature appears to concentrate on the developed countries and the Asian countries. In Nigeria, much evidence from literature dwells more on private sector audit. Very few literatures exist, particularly about audit in the public sector. That is why this study is concerned about independence of auditors in the Nigerian public sector.
The independence of an auditor is one of the fundamental concepts to the accounting profession. Auditing as a profession arose primarily because of separation in the ownership as well as the administration of the company, we therefore have to employ a professional manager whose responsibility is to utilize the shareholders resources and produce a quantitative statement. This statement is referred to as stewardship account, in order to make the owners of the business place reliance on members of management as regard the true and fair view of the financial statement, the shareholders appoints an auditor to produce on audit, reports.
Independence is often an altitude of the mind characterized by integrity and objectively to professional works. In May, 2000, the Institute of Chartered Accountant of Nigeria reviewed an existing document issued in November, 1979 embodying a code of conduct for the members. This document titled ‘rules of professional conduct for members” because of the essential part of the rules to incoming members; the essential part of the rules is majorly on
Independence of an auditor definitely must have a direct impact in the audit report. This therefore means that if an auditor’s independence is effective, what we should be expecting qualified report. The importance of the independence to an auditor cannot be over emphasized owing to the fact that it forms the crux of the profession and can be likened to the part of the auditing profession (Howard, 2010).
1.2       Statement of the Problem
With the introduction of the Constitution (Suspension and Modification) (Amendment) Decree (1985 No. 17) in Nigeria, the directors of public enterprises are empowered to appoint, reappoint, and remove their external auditors and they are also to fix the external auditor‘s fees using the guidelines of the Auditor-General as an aid. The problem so created is that the directors are officers of the organization, who also have the responsibility of managing the funds, budgeting, spending including awarding of contracts and the preparation of financial statements. The same people who are therefore placed in a position to render stewardship accounts are now given the power to ‗hire and fire‘ external auditors who would audit the accounts of their own activities. This runs counter to the ideal principles of public accountability. The development therefore appears to put the   auditor‘s investigative and reporting independence in jeopardy and this may defeat the purpose of public audit and erode the independence and hence, the objectivity of report of the auditors. It is therefore doubtful if the independence of the auditor will have any significant impact on the accountability of the public enterprises in Nigeria. This study therefore seeks, among other things, to examine the impacts of auditor‘s independence on accountability in Nigerian public enterprises by finding answers to such questions as: to what extent does the auditor‘s independence impact on accountability in Nigerian public enterprises; what are the determinants of auditors‘ independence in public enterprises; what are the factors, which encourage the independence of auditors in public enterprises; what are the factors, which reduce the independence of auditors in public enterprises; and what are the policy implications of lack of auditors‘ independence in the public sector?
 
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1.3       Objectives of the Study
The main objective of this study is to examine the role of independent auditor in Nigeria.
Specific objectives include;
i.                    To evaluate the impact of auditors independence on audited report.
ii.                  To increase credibility on the financial statement to the user.
iii.                To ensure that auditors know and appreciate relevance of independence
iv.                To appraise the areas of weakness and strength with a view to making recommendation on possible improvements where necessary.
 
v.                  To assess relevant provision by statutory bodies and standard on auditor’s independence and as certain how credible it has been. If not to evaluate and give necessary suggestions that will help appraise the system.

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