IMPORTANCE OF AUDITORS ON THE INSPECTION OF FINANCIAL STATEMENT
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- NGN 3000
Background of the study
It should come as no surprise that huge sums of money and vast amounts of material are being put to use by various business groups (Baker, 2022). Both the quantity of and the monetary worth of activities carried out by the public sector have seen significant growth in recent years. Because of the rise in activity, there is now a greater demand for responsibility (Akpakpan, 2021). The accountability process includes auditing as one of its components. Shareholders and the government have the responsibility of seeing to it that suitable audits are conducted and that the resulting findings are acted upon. An independent report on whether or not the organization's financial information represents a true and fair view of the organization's financial stand, the internal controls, and the compliances with laws and regulation is provided by financial auditing, which is one of the ways that financial auditing contributes to public accountability (Babatunde, 2022). The majority of banks have management that is separate from the shareholders (Principal-Agency Theory). Merkling (1976), as cited in Omokhudu and Omoye (2012), defines an agency relationship as a contract in which one party (the principal) engages another party (the agent) to perform some services on their behalf, with the principal delegating decision making authority to the agent. This definition comes from Merkling (1976). (Akpakpan, 2021). As a consequence of this, the owners or shareholders of the majority of banks do not participate in the day-to-day operations of the organisation but rather look forward to the achievement of their objectives. However, there are also other interest groups that are reliant on the organisation in order to accomplish their own distinct objectives (Babatunde, 2022). Since these owners are not involved in the day-to-day operations of the business, they may be sceptical of what the management may present to them as a report of the organization's performance for the purpose of relying on the management report, the stakeholders need confirmation report, the stakeholders need confirmation or assurance by an independent party known as the external audit. Suppliers, stock brokers, lenders, and the government are all examples of stakeholders (Baker, 2022). In light of this, clients want the reassurance that can only be provided by external auditors, who are heavily relied upon due to the fact that it is anticipated of them to maintain an attitude of professional scepticism (Akpakpan, 2021). This indicates that even if the auditors are not primarily responsible for discovering fraudulent activity in the financial report, they should acknowledge the potential that it does occur (Babatunde, 2022). This is one of the proclamations that are included in ISA 240, which was further strengthened and rendered enforceable by the adoption of the Sarbanes Oxley Act in the year 2002. The crisis at Enron, which was deftly concealed from the external auditors of Anderson and ultimately resulted in enormous financial losses for all of the company's stakeholders in every region of the world, was the impetus for the passage of this law in 2002. However, not every expectation that the stakeholders have of the external auditors may be legally enforced. One example of this is the Re-Kingston cotton mill in 1896, in which the external auditors were relegated to the role of watchdogs rather than being legally obligated (Millichap, 2008). In contrast to what the stakeholders believe, auditors are responsible for adhering to the legislative requirements and are thus obligated or liable to do so. The term "expectation gap" refers to the disparity that exists between the legislative obligation and the stakeholders' views of the auditor (Baker, 2022). Because there are so many issues surrounding this topic, it is important to conduct a thorough examination of the responsibilities of external auditors to public and private companies in order to gain an understanding of how a lack of compliance on the part of auditors can impact the overall performance of an organisation (Akpakpan, 2021). Stakeholders, without a shadow of a doubt, look up to the external auditors as the ones who have the professional competence and whose advice or opinion is held in the highest regard for investment decision making (Babatunde, 2022). A statutory requirement or engagement letter becomes the springboard on which the organization's success or failure is viewed in relation to the auditor's actions. Although the duties of the auditor of the public companies are expressly stated, it is important that an agreement letter which states the duties to be performed be given to the auditor of banks. Even though the duties of the auditor of the public companies are expressly stated, it is pertinent that an agreement letter which states the duties to be performed be given to the auditor of banks (Baker, 2022). The fact that stakeholders, in particular depositors in banks, still look forward to the reports of external auditors to reassure them of the safety of their savings and to address other continuing concern inquiries about the banking sector is perhaps the most crucial aspect of this situation. This paper seeks to review the roles of external auditing in assisting banks in increasing their deposits, thereby enhancing value creation for stakeholders. This is because the stakeholders have a perception of the responsibilities of external auditors in this regard, and this paper seeks to review those roles (Akpakpan, 2021).
The terms "financial statements" and "financial reports" refer to the same thing: official records of the financial activity of a company, person, or other body (Babatunde, 2022). The phrase "financial statement" is also used, notably among accountants, however in British English and in United Kingdom Company Law, financial statements are more commonly referred to as "accounts" (IASB, 2007). A financial statement will give an overall picture of a person's or a company's financial situation, both in the near term and in the long term. The term "financial statements" refers to a document that summarises all of the pertinent financial information pertaining to a company and presents it in a fashion that is simple and straightforward to comprehend (Grewal, 2008). When individuals talk about audit quality, they are referring to the credibility of the audited financial statements within the context of the reporting regime in which they were created. This is the emphasis of the conversation. According to Duff (2004), in order to increase the quality of audits, companies need to recruit individuals of a high quality who also possess the essential technical and interpersonal abilities. According to Lennox (1999), the majority of scholars in general concur that the size of audit companies or the brand name of audit firms is an adequate indication of audit quality. According to Palmrose (1988), the quality of an audit is defined in terms of the amount of assurance it provides. Given that the objective of an audit is to offer confidence on financial statements, the quality of an audit may be defined as the chance that financial statements do not include any major misstatements. Academic research (such as that conducted by Elifsen and Willekens, 2008) has shown that the quality of an audit is frequently related to the auditors' level of expertise and independence, as well as their capacity to identify material misstatements and readiness to issue appropriate audit reports that reflect their findings. The quality of an audit is measured by Geiger and Raghunandan (2002) according to whether or not the auditor had given a going-concern qualification in the previous year for customers in the United States who had filed bankruptcy (Baker, 2022). They discovered that auditors are less likely to offer a going concern opinion during the early years of engagement but not during subsequent years. This finding runs counter to the commonly held fear that a long auditor-client relationship significantly affects audit quality. Other measures of audit quality have included things like desk reviews and SEC enforcement actions (Geiger and Rama, 2006), audit size (DeAngelo, 1981; Krishnan and Schauer 2000), audit tenure (Ghosh and Mood, 2005), industry expertise (Wooten 2003), audit fees, and economic independence. [Citation needed] Other measures of audit quality have included things like desk reviews and SEC enforcement actions (Geiger and Rama, 2006), audit size (DeAngelo (Choi et al 2010). A more formal definition of audit quality can be found in DeAngelo (1981), which states that it is the "Market-assessed joint likelihood that a particular auditor detects (a) a breach in the client's accounting system and (b) discloses the breach." This is a definition that is often used and cited. Neither a user of audited financial statements nor a researcher at an academic institution can determine with certainty whether a particular audit report correctly represents the existence or absence of major misstatements in the financial statements (Akpakpan, 2021). Even when misstatements that were not disclosed by an auditor later come to light, this does not constitute definitive proof that there was a failure in the quality of the audit. This is because audits are not meant to offer complete assurance that everything is in order (Babatunde, 2022). According to a publication by the ICAEW in 2002 titled Audit Quality, "...at its core, [audit quality] is about offering a suitable professional opinion supported by the relevant facts and objective judgements." Trying to develop clear expectations of what auditors need to do in order to provide a suitable professional opinion on an individual set of financial statements is one method to bring the notion into the real world. This may be done in a number of ways (Babatunde, 2022). Information that is reported on financial statements is used as part of the basis for making investment decisions. Accounting experts, practitioners, and policy makers continue to place a significant amount of emphasis on questions concerning the accuracy of audited financial statements. For instance, the Enron scandal has forced policymakers in the United States to address concerns with the enhancement of audit quality (Baker, 2022). During this time, the International Federation of Accountants (IFAC) established, in October 2002, the Task Force on Rebuilding Public Confidence in Financial Reporting (also known as the Credibility Task Force) to investigate the various methods that can be utilised to restore the credibility of financial reporting. According to Francis et al. (2005), incorrect information pertaining to the business that is included in the financial statement might provide investors with a risk that cannot be diversified away. Current reporting regimes in the majority of nations strive, through a mix of different mechanisms, to strengthen the dependability of the information included in financial statements (Baker, 2022). In the current study, the researcher will investigate the various qualities that make audited financial statements acceptable in the Nigerian Money Deposit Banking industry (Akpakpan, 2021). This criticism is not at all new, despite the fact that accounting and accountants are subjected to a great deal of it. It is now common practise to lodge vehement protests against audited financial statements that include dishonest or misleading information. This was brought to light in a dramatic way following unanticipated disruptions in the financial system, such as the Enron Scandal in 2002, the failure of Lehman Brothers in the United States of America, and the worldwide financial crises of 2008. A significant number of these were at least partially attributed, if not entirely, to deceptive audited financial statements that were produced by those corporations (Babatunde, 2022). The most recent example of this is the investigation of Nigeria's National Petroleum Corporation (NNPC) in 2012, which was conducted by Akintola William's Accounting Firm and the Federal Republic of Nigeria. As a result of these occurrences, there is a growing need to make certain that the quality of audited financial statements is maintained. Most notably, some of the issues that will never go away are as follows: Shareholders are worried about the safety of their investments entrusted in these Money Deposit Banks in Nigeria, and this has led to uncertainty regarding whether or not to invest in the banks. Money Deposit Banks in Nigeria have published audited financial statements that posted huge returns and presented such banks to the public as sound and healthy. However, quite unfortunately, these banks have since been declared as ailing or failed and bankrupt. In spite of all of these expectations, the vast majority of people today believe that auditing and the services provided by auditors are of no benefit whatsoever. This includes both the investing public and the masses (Babatunde, 2022).
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