PROJECT HUBLET RESEARCH TOPICS AND MATERIALS

UNDERGRADUATES AND FINAL YEAR PROJECT TOPICS AND MATERIALS

ABSTRACT

External auditors occupy a unique position in the business community when they perform an audit for clients. The auditors are called upon to attest to financial statements and to safeguard the interest of various parties. However, in recent years the audit practice because of several scandals has been undermined. Although evidence of corporate governance practices and auditors’ independence exists from developed economies, very scanty studies have been conducted in Nigeria where corporate governance is just evolving. Therefore, this empirical study provides evidence on corporate governance, auditors’ independence, and firm related attributes from a developing country, Nigeria. The purpose of this study is to investigate the relationship between corporate board attributes and auditors’ independence measured by discretionary accruals. To do so, six (6) Listed Deposit Money Banks are selected and studied during the period 2006-2013. Board size and board composition are considered as corporate board attributes and profitability, leverage and size as control variables. The Ordinary Least Square Model estimation technique was used to analyze the relationship between the board attributes and auditors’ independence. The result of the study shows that there is no significant relationship between corporate board attributes and auditors’ independence of Listed Deposit Money Banks in Nigeria. The study therefore recommended that the board should be composed in such a way so as to ensure diversity of experience without compromising compatibility, integrity and independence.
Keywords: Corporate, Board Attributes, Auditors Independence, Deposit Money Banks

 

CHAPTER ONE

 

1.0 INTRODUCTION

The globalization of business practices and financial crisis brought corporate governance to the fore front of research. The increased attention on corporate governance has been motivated by the collapse of great corporations like WorldCom and Enron. The collapse of the Nigerian financial institutions was as a result of poor corporate governance standard, corruption and lack of transparency. Shareholders lost confidence totally in both public and private companies in the country as a result of weak corporate governance practice. In order to gain back the confidence, Security and Exchange Commission came up with the Code of Best Practice. It provides guidelines on the principles of corporate governance in Nigeria (Akpan & Amran, 2014).

The existing studies have indicated that there is no exact definition for corporate governance (Solomon, 2007). For example, the Cadbury (1992) defined corporate governance as: “a system by which companies are directed and controlled”. The nature of corporate governance, therefore, going by this definition consists of two dimensions, direction and control. Direction emphasizes the responsibility of board to attend strategic positioning and planning in order to enhance performance and sustainability of the company. The control side of the definition, on the other hand, emphasizes the responsibility of the board to oversee the executive management of the company in the execution of the plans and strategies. Therefore, a good system of corporate governance is considered as an important element in running the affairs of the company for the best interest of the shareholders. It assists in controlling the performance of the board in business operations. The board of director has a part to play in corporate governance as their main duty is that of supervising the management to ensure proper accountability to shareholders and other stakeholders. Since the board of director is vested with the responsibility of monitoring the interest of shareholders, they ought to have greater interest in the appointment of directors and auditors to ensure that qualified, experienced and educated directors and auditors are appointed. Individual firms apart from the SEC (2006) requirements have specified the profile requirements expected of their directors and auditors.

Auditor Independence (AI) has been defined as the conditional probability of reporting a discovered breach (De Angelo (1981). The International Federation of Accountants (IFAC) differentiates between independence of mind and independence in appearance. It defines independence of mind as the state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgement allowing an individual to act with integrity, exercise objectivity and professional scepticism. Independence in appearance is defined by IFAC as “the avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information would reasonably conclude that a firm’s or a member of the assurance team’s integrity, objectivity or professional scepticism had been compromised” (IFAC 2001).

1.1 WHAT IS AUDITOR’S INDEPENDENCE?
Auditor independence Auditor independence refers to the independence of the internal auditor or of the external auditor from parties that may have a financial interest in the business being audited. Independence requires integrity and an objective approach to the audit process. The concept requires the auditor to carry out his or her work freely and in an objective manner. Independence of the internal auditor means independence from parties whose interests might be harmed by the results of an audit. Specific internal management issues are inadequate risk management, inadequate internal controls, and poor governance. The Charter of Audit and the reporting to an Audit Committee generally provides independence from management, the code of ethics of the company (and of the Internal Audit profession) helps give guidance on independence form suppliers, clients, third parties, etc. Independence of the external auditor means independence from parties that have an interest in the results published in financial statements of an entity. The support from and relation to the Audit Committeeof the client company, the contract and the contractual reference to public accounting standards/codes generally provides independence from management, the code of ethics of the Public Accountant profession) helps give guidance on independence form suppliers, clients, third parties… Internal and external concerns are convoluted when nominally independent divisions of a firm provide auditing and consulting services.[1] The Sarbanes-Oxley Act of 2002 is a legal reaction to such problems. This article mostly deals with the independence of the statutory auditor(commonly called external auditor). For the independence of the Internal Audit, see Chief audit executive, articles “Independent attitude” and “organisational independence”, or organizational independence analysed by the IIA. The purpose of an audit is to enhance the credibility of financial statements by providing written reasonable assurance from an independent source that they present a true and fair view in accordance with an accounting standard. This objective will not be met if users of the audit report believe that the auditor may have been influenced by other parties, more specifically company managers/directors or by conflicting interests (e.g. if the auditor owns shares in the company to be audited). In addition to technical competence, auditor independence is the most important factor in establishing the credibility of the audit opinion. Auditor independence is commonly referred to as the cornerstone of the auditing profession since it is the foundation of the public’s trust in the accounting profession.[2] Since 2000, a wave of high profile accounting scandals have cast the profession into the limelight, negatively affecting the public perception of auditor independence.

1.2 AUDITOR’S INDEPENDENCE AND AUDITORS QUALITY
In recent times, research about the quality of audit report has increased tremendously, several factors has contributed to this fact, stemming from the growing importance of good corporate governance mechanism arising from highly publicized accounting scandals in Nigeria and across the globe. Many high profile corporate collapses, such as the case of world Com and Enron in the United state, have been traced to poor audit quality associated with a perceived lack of auditor independence. Recent reports of questionable accounting practices adopted by some companies in Nigeria have brought the issue of auditor’s independence to the forefront, and putting the auditing profession credibility in doubt (Otusanya and Lauwo, 2010). As a result of all these questionable accounting practices engaged in by companies, auditors have been put under pressure to ensure that their reports is made up of assurance to investors whose funds are invested in those companies are properly accounted for.In Nigeria at present, there are two recognized accounting bodies, the institute of Chartered Accountants of Nigeria (ICAN) and the Association of National Accountant of Nigeria (ANAN), which are saddled with the responsibility of regulating accounting practices in Nigeria. As stipulated by CAMA (2004) it is pertinent that every incorporated companies appoints an external auditor, who is required by law to give an independent opinion on the state of affairs of these corporations, whether or not they show a true and fair view of the financial health of the corporation. The company and allied matters act (CAMA, 2004) states that every auditor shall have the right of access, at all times, to the books, accounts and vouchers of the company and to such information and explanation as may be necessary in the course of carrying out the audit work.
As posited by Knechel (2009), auditing and the audit process provide an evaluation of the probability of material misstatement and reduce the possibility of undetected misstatement to a reasonable or appropriate assurance level. Auditor’s independence has been of serious concern not only to the end users of financial information but to the whole society in general. The need to ensure dependable and high quality audit work has largely focused on auditor’s independence in order to ensure that an auditor is not too familiar with his client, because familiarity will jeopardize the integrity of the auditor and in turn impair their independent opinion as to the financial health of their client. Arrunda (2000), in his view shows that demand for auditing services arose from the need to facilitate dealings between the parties involved in business relationships- shareholders, creditors, public authorities, employees and customers.

1.3 THE ROLE OF AN INDEPENDENT AUDITOR
The objective of the ordinary audit of financial statements by the independent auditor is the expression of an opinion on the fairness with which they present, in all material respects, financial position, results of operations, and its cash flows in conformity with generally accepted accounting principles. The auditor’s report is the medium through which he expresses his opinion or, if circumstances require, disclaims an opinion. In either case, he states whether his audit has been made in accordance with generally accepted auditing standards. These standards require him to state whether, in his opinion, the financial statements are presented in conformity with generally accepted accounting principles and to identify those circumstances in which such principles have not been consistently observed in the preparation of the financial statements of the current period in relation to those of the preceding period.

CORPORATE BOARD ATTRIBUTES AND AUDITORS’ INDEPENDENCE: A STUDY OF LISTED DEPOSIT MONEY BANKS

PROJECT MATERIAL ON CORPORATE BOARD ATTRIBUTES AND AUDITORS’ INDEPENDENCE: A STUDY OF LISTED DEPOSIT MONEY BANKS PDF

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