THE ROLE OF AUDITING IN ENSURING ORGANIZATIONAL EFFECTIVENESS
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A critical element of all research work is the review of literature it is so important that Asolabi (1992) noted that its omission, represents a void or absence of a major element in research. The literature review, a recording to Bruce (1994) has 6 key elements which include a list, a search a survey, a vehicle for learning, a research facilitator and lastly, a report. On account of the above submissions, the researcher shall review relevant, related literature on Auditing with a view to improving the overall quality (content) of the research work.
2.1.1 CONCEPTUAL FRAMEWORK OF AUDITING
Ecaterina (2007)observed that auditing plays on Essential role in serving the public interest in order to strengthen accountability and reinforce trust and confident in financial report. Re-occurring causes like Enron and would come in the USA, African petroleum plc in Nigeria have give the audit profession a lot of publicity, some of which is negative. What then is auditing? And what are the key concepts surrounding this intricate practice.
Clement (2012) defined auditing as a means of evaluating the effectiveness of a company internal control, maintaining an effective system of internal control, the notes is vital for achieving a company business objectives obtaining reliable financial reporting on its objectives, preventing fraud and misappropriation of its assets and minimizing its cost of capital. Inasimilan tone, auditing is an independent examination of and expression of opinion on the financial statements of an enterprise, by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation (Okezie, 2008 and Uwota, 2012).
Wikipedia (2012) asserted that auditing plays a vital role in accounting of a systems internal control; it seeks to provide a reasonable assurance that the financial statements are free from material misstatement and error. In supporting this claim, Uwota (2012) wrote that auditing consists of a searching investigation of the accounting records and other evidences supporting the financial statements in order to provide a fair and reasonable picture of financial details of the company.
2.1.2 BRIEF HISTORY OF AUDITING
The development of modern accountancy and auditing dales back to the great expansion in industry and commerce, which has taken place the industrial revolution of the 18th century (Okezie 2008) Ecaterial (2007) pointed out that the industrial revolution led to the development of large industrial companies with complex bureaucratic structures. In the course of time, specialists were needed to provide appropriate book-keeping and auditing as a result of separation of ownership from management of large companies. The need for the managers to account to the shareholders became necessary. The shareholder thus, requires an independent person(s) to represent their interest in reviewing the reports of the managers to ensure that it is accurate.
In recent times, the demand for auditors exists not just only in the process of communication of accounting information but also a regulation requirement made by government to ensure proper accountability of both public and private companies.
Okezie (2008) posited that the 1844 joint companies Act started that legal lead for the annual audit of the balance sheet of Joint Stock Companies in Britain. Later is 1856, the compulsory audit of limited liability companies was abolished. It was, however, restored by the companies Act of 1900 which required the auditors to state whether in their opinion, the balance sheet showed a œtrue and correct view of the state of affairs in such companies. There was no provision relating to the profit and loss account in the 1900 Act. The English Companies Act 1948 however laid a comprehensive foundation for modern day auditing practice which includes;
It laid down certain minimum information to be disclosed by companies account
It required auditing report to express opinion on both profit and loss account and the balance sheet
It required auditing report to express opinion on group financial statements
It set a minimum requirement for any person or group of persons aspiring to be auditors
It replaced the œtrue and current view with the true and fair view
Similarly, the development of accountancy and auditing in Britain influenced that of Nigeria. This took the firm of the establishment of the institute of chartered accountants of Nigeria (ICAN). In 1965, the enactment of the companies decree of 1968 which can rightly be referred to as the œcarbon copy of the English companies Act of 1948 to the Companies and Allied Matters Decree of 1990 and lastly new legislations such as the Companies and Allied Matters Act (CAMA) 2004, Investment and Securities Act (ISA) 1999, the Bank and Other Financial Institutions Act (BOFIA) 2003 etc. have in one way or the other sharpened the industry the way it is today.
2.1.3 THE NEED FOR AUDITING
Delathe (2012) stated that auditing in the past, have been considered as a simple administrative procedure comprised mainly of checking accuracy of transactions pre-payment verification and control, counting assets and reporting in past event, a combination of forces, has, in recent time, let to a quiet revolution in the accounting profession, Government, private and public companies are moving towards a higher level of transparency and as such demonstrate accountability and stewardship in the use of resources entrusted to them.
Reason for Auditing includes
Evaluation and risk management
Control and Government processes
Â Investigative and Advisory services
Clement (2012) note that audit system is important for a company because its enables it to pursue and attain its various corporate objectives. Business processes need various forms of interval control to facilitate supervision and monitoring, prevent and detect irregular transaction, measure ongoing performance, maintaining adequate business records and to promote operations productivity, interval Auditors, review the design of the interval control and informally propose improvement and document any materials irregularities to enable further investigation by management if it is warranted under the circumstances.
Manguis (2011) observed that auditing helps top management manage corporate affairs, providing guidance on various issues ranging from financial accuracy to interval control to regulatory compliance. They also help department heads indentify tools and methodologies to improve operational activities, putting companies on a more sustainable path. The need for Auditing stems from.
Uwota (2012) conductively ascribed that the need for auditing rose from the following point which are.
Financial statement may actually not represent the financial position of the organization.
The accounts prepared by the company€™s accountant(s) may contain errors on misstatement.
Separation of ownership from management of companies.
Meeting statutory requirements.
Establishing a degree of correspondence between assenting made by management and users criteria.
2.1.4 ADVANTAGES OF AUDITING
Okezie (2008) enumerated the advantages of audit to include.
It helps to agree tax assessment with the interval revenue service.
It facilitates any claim for loss of profit from an insurance company, including consequential loss.
It helps to reduce fraud and errors, through interval control system etc.
It enables the client to obtain general and sound financial advice.
It help to reduce on settle dispenses that might otherwise arise regarding acceptance of the annual account and also provides a proper basis for the valuation of good-will on admission or retirement, or death of a partner or sale of sharesÂ or determination of share price at approved stock exchange.
It helps to attest to the truth and fairness of financial statement of companies.
2.1.5 DISASVANTAGES OF AUDIT
Uwota (2012) stressed that as useful as audit is to an organization, certain side effects are known with the process of audit. They include:
It is a very costly exercise
It is time consuming
It sometimes leads to stop of work, especially during cash or stock count.
2.1.6 TYPES OF AUDITOR
Several types of audit exist in modern day practices these, Deloritte (2012) gave as;
Financial and Regularity audit
Value for money audit
Statutory audit is that types of audit imposed by statute, which is carried out because the law requires it. The duties of an auditor under this type are spelt out in the enabling statute (like the companies and allies matter acts 2004) and cannot be limited in any way by the client (although the scope could be increased by mutual agreement between the client and eth auditors) e.g. annual audit of companies and government departments and corporations by external auditors.
The private audit is an audit not imposed by law. The duties of eth external auditors is/are stated by the engagement letter. A private audit is therefore a special audit where the duties and functions of the auditors are specified by the engagement letter and not statute.
Interim audit is the term used to describe the audit conducted before the end of eth financial year. This is where the external auditor reviews the records of an organization before the year end and may be so required by management of companies or their financers e.g. banks, investor supplies etc.