THE USEFULNESS OF AUDITING IN NIGERIAN COMPANIES

By

UWALAKA AMARACHI J.

Presented To

Department of Accountancy

TABLE OF CONTENTS

Title page ii

Dedication iii

Certification iv

Acknowledgement v

Table of contents vii

CHAPTER ONE

1.0 Introduction 1

1.1 background of study 2

1.2 Objective of study 3

1.3 Scope and limitations of study 4

1.4 Significance of study 5

1.5 Statement of the problem 5

1.6 Definition of terms 7

CHAPTER TWO

2.0 Literature review 10

2.1 historical background of auditing 10

2.2 The objective of auditing 12

2.3 Definition of internal audit 13

2.4 Difference between other types

of audit and internal audit 15

2.5 Usefulness of auditing 18

2.6 Problems of internal audit 20

2.7 Solution to the problems 21

CHAPTER THREE

3.0 Summary, recommendation and conclusion 24

3.1 Summary of findings 24

3.2 Recommendation 24

3.3 Conclusion 25

Bibliography 26

CHAPTER ONE

1.0 INTRODUCTION

The question of how to increase the usefulness and positive result in audit work in Nigeria companies has been bothersome to the generality of the people in the country.

Formally, industries or establishments were small and could be controlled by the management expansion of these industries or establishments, coupled with the increase in the scope of managements, functions required to cope with the situation, management could not co-ordinate all activities alone.

Finally, as a result of tremendous expansion in our establishments, the usefulness of internal audit control is highly needed which simply means the whole system of controls, financial and otherwise established by the management in order to carry out the business of the enterprises in and orderly and efficient manner, ensure adherence to management policies, safeguard its assets and secures as far as possible the accuracy and reliability of its record and also to assist management in advisory capacity.

1.1 BACKGROUND OF STUDY

EVOLUTION OF AUDITING

The word audit was derived from Latin word AUDIRE meaning to hear or AUDITUS, meaning hearing.

In mediaval period, the steward was responsible for the welfare of his master's estates. The noble man's system of checking the accounts of his estates was by hearing his steward red over the financial statements of the estates under his control because they believed that the steward were more trustworthy.

However, the time principle of auditing as practiced today was first done by William of "Normandy" when he conquered England in 1066 A.D. after which he carried out one of the most comprehensive audit in history been refered as "the domesday survey".

At that time, the objective of audit was probably based on ascertaining the correctness of sum money collected and disbursed.

Now, the services of internal audit are very essential in our industries and governmental bodies due to expansions. Various audit techniques have been adopted to enable auditors to give "the usefulness of auditing" in an establishment. From the above short history, it could be seen that audit has ascended from mere hearing of accounts to a reputable profession with professional etiguitte.

1.2 OBJECTIVE OF STUDY

Auditing as is known today has come a long way from what it used to be in 1956. People see the Auditors from different angles. Some see them as a guard against the "theft" of public funds.

Others regard internal auditors as enemy "spy" or fault finders" that must be eliminated find solutions teo identified problems. Therefore the objectives of the research are as follows:

- To examine the extent to which internal auditors is useful to management effectiveness

- To determine the problems dand find solution to the problems of internal audits in various departments in an organization.

- To make recommdations on how to improve the efficiency of an organizaiton by using internal audit.

1.3 SCOPE AND LIMITATIONS OF STUDY

SCOPE:

This research work concentrates much onsmaller organizaiton that have not understood the usefulness of auditing in their organizations.

LIMITATIONS:

In the process of carrying out this research, a lot of obstacles where encountered which limit the scope of the research work.

The obstacles include:

a. TIME CONSTRAINTS: because of this, only libraries and organization in Enugu, like I.M.T library Esut library, National library and also National Archives Enugu.

b. LACK OF FINANCE: Due to inability to set enough finance while writing the project it has limited the area of coverage of the research work.

c. LACK OF CORPORATION: On the course of writing this research work, a lot of material and information would have been gathered but due to lack of co-operation of staff we come across.

1.4 SIGNIFICANCE OF STUDY

The growing nature of the Nigerian society and the complexity of industries have today given rise to frequent loss of funds. The importance of this study is to set up a Special Investigation Panel (SIP) to look into causes of loss of public funds. If the field auditors are given a free hand to conduct their audit inspections in a manner capable of achieving best results the need for a tribunal etc; would not arise.

Secondly, public officers now regard compliance in regularity audit as as routine duty to be performed by auditors merely to earn his monthly salary. The fear that the internal auditors recommendations might lead to a public officer being retired, dismissed or denoted have not been seen to be there.

1.5 STATEMENT OF PROBLEMS

In many organizations, internal audit is established and controlled by eth management. Such a situation had subjected internal audit to various problems.

These are of two categories

a. Internal problems

b. External problems

Internal problems are likely to be in the form of:

- Financial limitations in implementing audit assignments.

- Statutory limitations in implementing suggested recommendation.

- Personal problems in the form of lack of proper recruitment of qualified officers.

- Lack of indecision programme for newly recruited staff.

- Lack of manuals for proper guidance of staff carrying out the fieldwork.

External problems are likely to be in form of:

- Delay in the preparation and submission of accounts.

- Lack of documentary evidence to support claims or expenses.

- Incorrrectiveness and unreliability of documents

- Undo-operative attitude of staff at the client's office of adequate internal control within the organization being audited.

1.6 DEFINITION OF TERMS

A. AUDITING

This is as the independent examination of and expression of opinion on the financial statements of an enterprises by an appointment and in compliance with any relevant statutory obligation.

B. AUDITOR

This is competent and impartial critic appointed to verify a financial or other statement of accounts, and to satisfy himself, that the statement exhibits a correct view of the affairs of the business or organization concerned.

C. INTERNAL CHECK

It is defined as the allocation of work in such a manner as to afford checks on the routine transaction of day-to-day work by means of the work of one person being proud independently by another, or work of a person being complementary to that of another.

D. TRUE AND FAIR VIEW

It implies that the auditors has exercised his care, skill and judgement in his examination of documents and records by which the company's transactions have been carried out and he is convinced that such documents were sufficiently valid, reliable and relevant and also that after verifying the existence of these transactions, that he is also convinced of the ownership, existence and correct value of the assets and liabilities arising from these transactions.

E. LETTER OF REPRESENTATION

This letter bring home to the directors their responsibility for the accuracy of the accounts, and the fairness of the view which they represent.

The letter is obtained from an executive director of the company.

F. LETTER OF WEAKNESS

It is a letter sent by an auditor to his client bringing to his attention the weakness in the system of internal control discovered during the auditors examination. Prior to submitting the letter the auditor should array an interview with the clients in order to ensure that the points ae understood.

G. FLOW CHART

This may be defined as diagrammatic representation of the flow of operation and documentation on their correct sequence from the initiation from the transaction to its final entry in the books.