The Role Of The Auditor In Small Business Organizations (A Case Study Of Some Small Businesses In Uyo)

The Role Of The Auditor In Small Business Organizations (A Case Study Of Some Small Businesses In Uyo)

ABSTRACT

A significant contribution to the development and survival of business organizations is the role that auditors play. This research work, The Role of Auditors in Small business organizations, gives a broad understanding of what the auditor’s role entails.

In the course of this research, data were collected using a questionnaire. The collected data were analyzed with the aid of percentages. Further analysis was done on relevant information. The statement of the research hypothesis was tested using chi-square distribution.

The use of internal control questionnaires and evaluation forms by auditors, to ascertain and evaluate the strengths and weaknesses of internal control systems of business organizations, and to determine the degree of reliance to be placed on the internal control system, is a major finding of this research.

The recommendation made in respect of the above finding is that the internal control questionnaires and evaluation forms that auditors use in ascertaining and evaluating internal control systems should be constantly reviewed and revised in light of current changes made in clients’ internal control systems.

TABLE OF CONTENT

Title page…………………………………………………………..ii

Certification………………………………………………………iii

Dedication………………………………………………………..iv

Acknowledgement………………………………………………v

Abstract…………………………………………………………..vii

Table of contents………………………………………………..ix

CHAPTER ONE: Introduction

• Background of the study……………………………….1
• Statement of the problem………………………………4
• Objectives of the study………………………………….6
• Scope of the study………………………………………..7
• Statement of research hypothesis…………………….8
• Significance of the study………………………………..9
• Limitations of the study……………………………….10
• Method of data analysis……………………………….10
• Definition of terms………………………………………11

References……………………………………………………….15

CHAPTER TWO: Literature Review

• Introduction…………………………………………….16
• Business organization- an overview……………..16
• Nature of auditing…………………………………….17
• Purpose of auditing…………………………………..19
• Objectives of auditing………………………………..20
• Types of audit………………………………………….22
• Qualities of an auditor……………………………….23
• Responsibilities of auditors…………………………24
• Appointment of auditors…………………………….25

2.10    Removal of auditors………………………………….28

2.11    Qualification of an auditor………………………….29

2.12    Rights of an auditor………………………………….30

2.13    Remuneration of auditors…………………………..32

2.14    Duties of an auditor………………………………….32

2.15    Resignation of appointment………………………..34

2.16    Auditors report………………………………………..35

2.17    Professional considerations………………………..36

2.18    Role of auditors in business organization………41

2.19    Qualities of financial accounts……………………48

2.20    Internal auditing in business organization…….49

2.21    What internal auditors do…………………………..50

2.22    Audit approach………………………………………..51

References……………………………………………………….53

CHAPTER THREE: Research Methodology

• Introduction…………………………………….………..55
• Research design…………………………………………55
  • Sources of data collection…………………………….55
  • An instrument for data collection……………………….56
  • Data presentation and analysis……………………..57
  • Chi-Square (x²)…………………………………………..58
  • Decision rule……………………………………………..60

References……………………………………..………………..61

CHAPTER FOUR: Data Presentation and Analysis

• Introduction………………………………………………62
• Analysis and interpretation of data…………………63
• Test of hypothesis………………………………………90
• Accounting services…………………………………..103
• Verification of financial statement………………..103

References……………………………………………………..105

CHAPTER FIVE: Summary of Findings, Recommendation, andConclusion

• Introduction…………………………………………….106
• Summary of findings…………………………………106
• Recommendations…………………………………….109
• Conclusion………………………………………………113 References……………………………………………………..116                                                                                                      Bibliography…………………………………………………..117                                                                                                 Appendix……………………………………………………….121

CHAPTER ONE

INTRODUCTION

• BACKGROUND OF THE STUDY

According to the third national development plan (vol. 1 page 353) “manufacturing establishments employing less than 10 people or whose investment in machinery and equipment does not exceed N600, 000 are referred to as small scale industries.

In the credit guidelines of the Central Bank of Nigeria (C.B.N), small-scale enterprises are classified as that businesses with an annual turnover of less than half a million naira. Currently, as given by the government, the small-scale industry refers to those industries with a capital investment not exceeding N150, 000 in machinery and equipment alone.

Today, every business organization intends to continue as a going concern, i.e. continue to acquire assets, increase sales, improve profit margin, remain in operational existence into the foreseeable future, and not have any intention to curtail or significantly reduce its scale of operation.

To acquire this aim, the organization will have to institute sound internal control and accounting system, appoint directors and managers to direct the affairs of the business, and ensure that the funds intended to achieve this aim are well applied.

Business organizations that successfully put these structures in place may yet fail to develop and survive in isolation from the auditor. It is evidenced by the fact that the directors and managers who are expected to manage the funds and direct the affairs of the business may begin to perform their activities with a non-challenge attitude knowing fully well that their work will be checked by an independent person (the auditor), as a result, funds may be misapplied, diverted, embezzlement may be on the increase, loss of confidence by shareholders on directors. e.t.c. with all these, the organization may no longer be able to continue as a going concern, and this will eventually result in the liquidation of the business.

No doubt, the role of an auditor in the development of small business organizations is inevitable. With the role of the auditor in force, the directors and managers are more careful in performing their duties as they may want to protect and maintain their integrity. As a result, mismanagement, diversion, misapplication, and embezzlement of funds will be greatly checked. The auditors’ role in achieving these may include: reviewing the controls of the organization in the traditional areas of accounting and finance to ensure compliance and contemporary areas of personnel, marketing, sales, and production, to ensure the efficiency of the economy. e.t.c.

During the audit, frequent correspondences are made between the auditor and the client such as an internal control letter, management letter, and letters of representation, all aimed at ensuring the survival of the business. At the end of the audit, a final audit report is made to the shareholders to boost their credibility on the directors.

This project brings out in detail what auditors do in practice that is, their roles in the development and survival of small-scale business organizations.

A substantial aspect of this project shall focus on external auditing with particular reference to small business organizations in Akoko-Edo.

1.2   STATEMENT OF THE PROBLEM

Though in most cases, small business organizations are usually operated by their proprietors, there are still many of those small business organizations whose management is rested on people other than the proprietors hence the need for audit arises.

However, in the course of this research, the following problems are to be examined.

• Do auditors in small-scale businesses, comply with the provisions of the companies and Allied matters Act 1990 (CAMA) in the execution of their audit assignment?
• How efficient is their internal control mechanism?
• Do audited accounts present a “true and fair view?
• What are the auditors’ responsibilities in the accounts of the business organizations?
• Have cases of fraud and error been prevented in the business?
• Is the principle of independence and honesty, competency observed in the small-scale industry?
• Do the auditors get all the necessary information and write access to the business books of accounts and financial statements?
  • OBJECTIVES OF THE STUDY

The main objective of this research work is to appraise the auditor himself in respect of the role he plays in the firm such as:

1. To ascertain whether auditing is aimed at checking the internal control system adopted in business organizations.
2. Ensuring that Auditors in small business organizations comply with the companies and Allied matters Act 1990 provisions in the execution of their audit.
3. To ascertain the auditor’s responsibilities in the accounts of the business organization.
4. To ensure that the audited work represents an accurate and fair view of the records.
5. The auditor should check for fraud and error.
6. Ensuring that the principles of independence, honesty, and competency are observed in the business.
7. The Auditor should have access to all the necessary information and assess to the business books to help the proprietor have sound accounting techniques.
   • THE SCOPE OF THE STUDY

This research work looks at the role of the auditors in small-scale business organizations concerning small-scale business organizations in Akoko-Edo. It takes a critical look and reveals the various activities of the auditors to ascertain the performance of the internal control of small business organizations.

An insight as to the correctness and accuracy of the records kept by the small business organizations will be looked into and the auditor’s areas of concentration will be emphasized.

1.5   STATEMENT OF RESEARCH HYPOTHESIS

The listed hypotheses are formulated for testing in this research study. A scientific test of this hypothesis is employed to arrive at reasonable conclusions. The formulated hypothesis for consideration includes

1. a) Ho: The auditor does not help to check the internal control system in small business organizations.

H_i: The auditor helps in checking the internal control system in small business organizations.

1. b) Ho: The auditors do not play a significant role in the development and survival of small business organizations.

H_i: The auditors play a significant role in the development and survival of small business organizations.

1.6   SIGNIFICANCE OF THE STUDY

The research work is an investigation into the role of the auditor in small business organizations concerning small business organizations in Akoko-Edo.

Its purpose is to show the importance of an auditor to users of accounting information such as:

1. Government
2. The public
3. Management/managers
4. Creditors
5. Private individuals
6. Tax analyst etc.

It’s also based on correcting the wrong interpretation of the role of auditors in small business organizations.

1.7   LIMITATIONS OF THE STUDY

A lot of limitations were encountered in collecting information in carrying out this research study. The problems of the executive officers willing to give information or have a direct interview with the researcher.

Financial constraint is inevitable considering the present economic situation. Due to a lack of finance at the researcher’s disposal, it was not possible to capture many small-scale businesses.

In developing countries like Nigeria, there is the problem of insufficient data.

Furthermore, the organization’s secrecy as to relating their financial report to the researcher was also faced.

1.8   METHOD OF DATA ANALYSIS

Most analyses were done using tables and percentages. Tables were drawn, to show the various responsibilities of the question raised in the survey. In testing the two hypotheses, chi-square (X²) is used in that, the data are discrete and the variables studied are independent of one another.

1.9   DEFINITIONS OF TERMS

Terms used in this study are explained about what it stands for. They include:

• AUDIT: Okolo (1987:7) defined Audit as “an objective and conscientious examination of a statement of account, the underlying records and all the available evidence relating to the statement of account as will enable the auditor to form an opinion as to whether it represents a fair and true view of whatever it purports to represent and to report accordingly.
• AUDITING: Mautz and Sharaf (1961) say that auditing is concerned with verification, the examination of financial data to judge the faithfulness with which they portray events and conditions
• AUDITOR: An auditor is an independent professionally trained accountant who deals with statements of accounts relating to different organizations. Austin. O. Okolie (2007).
• EXTERNAL AUDIT: Okolie (1988:61) defined external audit as “the independent, objective and conscientious examination of a statement of account, the underlying documents, physical assets, and all other evidence as will enable the auditor to form an opinion as to whether or not the statement of account presents a true and fair view of whatever it purports to represent, and to report accordingly”.
• INTERNAL AUDIT: Millichamp (1990:434) defined internal Audit as “an independent appraisal function within an organization for the review of systems of control and the quality of performance as a service to the organization. It objectively examines, evaluates, and reports on the adequacy of internal control as a contribution to the proper economic, efficient and effective use of resources.
• FINANCIAL STATEMENT: Ayaduba (1996:16) defined financial statements as “periodical financial reports of accounts and other related documents that highlight the financial position of an enterprise as well as its profitability.
• INTERNAL CONTROL: Millichamp (1990:76) defined internal control as the whole system of controls, financial and otherwise established by the management to carry on the business enterprise in an orderly and efficient manner.
• FRAUD: Okolo (1988) is used to refer to the intentional misrepresentation of financial statements/information or misappropriation of assets which could result in misstatements of an entity’s financial statements by proprietors, management, employees, third parties, etc.
• ERROR: Okolo(1988): this refers to unintentional mistakes in preparing financial statements.
• AUDIT PROGRAMME: Austin .O. Okolie (2007): this is a list of audit assignments detailing work to be carried out by the auditor.

REFERENCES

Anyaduba, J.O. (1996): “Financial statements: still a long way to go”. ICAN News volume 1 No2 Victoria Island Lagos. A publication of The Institute of Chartered Accountants of Nigeria.

Arens, A.A. (1984): Auditing An Integrated Approach 3^rd Edition Prentice Hall Int. Englewood Cliffs New Jersey.

Austin.O. Okolie (2007): Fundamentals of Audit 3^rd Edition Benin city. Nono publishers.

Mautz, R.K and Sharaf, H.A (1961): The philosophy of Auditing, American Accounting Association, Florida U.S.A.

Mellichamp, A.H (1990): Auditing, An Instructional manual for Accounting Students. 5^th Edition London D.P. publications limited shepherds. Bush Green.

Okolo, J.U. (1987): The concept and practice of Auditing Ibadan Evans Brothers Limited.

Vivian R.V Copper (1977) Statement manual of Auditing. Gec and Co-publisher 1. Hod London and Albon 1977.

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