ENHANCING-CORPORATE-ACCOUNTABILITY-THROUGH-

EFFECTIVE-AUDIT-SYSTEM

Abstract

Ability to report back the conclusion of an assignment of the

progress made so far to the person(s) who delegated the authority to
the performer of an assignment, duty or function, has for decades
eluded this nation both in the private and public responsibilities to
be performed and performed and reported back has been carried
out as accomplished. The lack of accountability leads to many vices
in our social and economic system. The objectives of this study
therefore are: (a) To ascertain the determine the role of independent
audit towards accountability in an organization (b) To determine if
independent audit can control fraud and embezzlement. The
primary data sources (the questionnaire) collected response from
thirty two (32) respondents out of forty (40) that was sampled. Data
collected through primary sources were analyzed on tables using
percentages, three hypotheses were stated in null form and ere
tested using the X2 statistics, simple percentages and the test
revealed that audit enhances accountability in an organization and
also help in controlling fraud, embezzlement and defalcation in an
organization.
 vi

TABLE OF CONTENTS

Title page- - - - - - - - - - -i

Certification - - - - - - - - - -ii

Dedication- - - - - - - - - - -iii

Acknowledgement - - - - - - - - -iv

Abstract- - - - - - - - - - -v

Table of contents- - - - - - - - - -vi

CHAPTER ONE

1.0 Introduction- - - - - - - - -1
1.1 Background of the study - - - - - - -1
1.2 Statement of problem- - - - - - -5
1.3 Objectives of the study - - - - - - -6
1.4 Research Hypothesis- - - - - - - -7
1.5 Significant of the study - - - - - - -7
1.6 The Scope Of The Research - - - - - -7
1.7 Limitations Of The Study - - - - - - -8
1.8 Organzation Of Study - - - - - - -9
1.9 Definition of terms- - - - - - - -10

CHAPTER TWO

1.0 Review of related literature- - - - - - -13

1.1 What is an Audit? - - - - - - - -13
1.2 Who is an Auditor? - - - - - - - -15
1.3 Qualification of an Auditor- - - - - - -16
1.4 Appointment of an Auditor - - - - - - -16
1.5 Objectives Of Auditing - - - - - - -17
1.6 Audit Test - - - - - - - - -17
1.7 Audit test- - - - - - - - -21
1.8 Justification For Auditing - - - - - - -24
1.9 Standard of reporting - - - - - - -26
1.10 Internal Control Concept - - - - - -27
 vii

1.11 Characteristics of satisfactory system of internal control- -28

1.12 Relationship between internal Auditing and internal
control- - - - - - - - - -29
1.13 Importance of internal control in Auditing - - - -30
1.14 Internal Auditing defined - - - - - - -31
1.15 Qualities of internal Auditors - - - - - -33
1.16 Independence of internal Auditors - - - - -35
1.17 Measuring the performance of an internal Auditor- - -36
1.18 Relationship between internal and external Auditors- - -37
1.19 Co-operation of internal and external Auditors- - - -38
1.20 Fraud defined- - - - - - - - -39
1.21 Types of fraud- - - - - - - - -39

CHAPTER THREE

2. RESEARCH METHODOLOGY

2.0 Introduction- - - - - - - - -44

2.1 The Research design - - - - - - - -44
2.2 Sources of Data- - - - - - - -45
2.3 Population and sample size- - - - - - -45
2.4 Data collection/instruments- - - - - -45
2.5 Validity of resources- - - - - - - -47
2.6 Method of data Analysis- - - - - - -47
2.7 Library Research- - - - - - - -48

CHAPTER FOUR
4.0 DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 Introduction- - - - - - - - -50

4.2 Data Analysis- - - - - - - - -52
4.3 Test of Hypothesis- - - - - - - -63
4.3.1 Test of Hypothesis number I- - - - - -63
4.3.2 Test of Hypothesis number ii- - - - - -68
4.3.3 Test of Hypothesis number iii- - - - - -70
 viii

CHAPTER FIVE

5.0 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDDATIONS

5.1 Summary of findings - - - - - - - -74

5.2 Conclusion - - - - - - - -76
5.3 Recommendations- - - - - - - -76
5.4 Bibliography- - - - - - - - -79
 1

CHAPTER ONE

1.0 INTRODUCTION

Accountability in both public and private section has being an issue

that is worth discussing due to its paramount and colossal impact to
the overall performance of an organization.

It (Accountability) has to do with reporting back action, task carried

out by an individual to the authority who apportioned such function.

1.1 BACKGROUND OF THE STUDY

Accountability is the process or act of reporting back to a higher

authority, body or individual the actions taken by a steward. It enables
the person or persons reported to determine if the steward has acted or
performed the assigned duties properly and satisfactory. It plays a
major role in the success or failure of any business, particularly when
the business is not managed by its owner.
 Initially most business set-ups were managed by their manager was the sole
financial contribution to the enterprise. But with the development in the scale and
scope of business, a huge capital beyond that

affordable by the sole individual or a family was needed.

Consequently contributors (hereafter called shareholders) were
required to raise the funds for the business. The emergence of these
shareholders led to the divorce of the owner managers from the
management of the business as all of them cannot be directors at the
same time. This the management of business was entrusted to the
hands of people who have no financial claims to the business and the
shareholders were sceptical about this particularly as the law does not
permit them individually to go through the books of the company in
their desire to keep abreast of the performance of the directors.
 2

This skepticism aroused the need for surveillance over the

activities of the non-owner managing directors. This bid to fulfil the
later led to the engagement

of third-party (an Auditor) to perform an a

Audit has since them received a lot of definitions and/or then

received a lot of definitions and/or interpretations both from
accounting bodies and auditors and their non-the-like. Justifiable is to
say that audit has suffered a lot of misinterpretations. Most of the
misgiving interpretations see it as being armed at fraud and error
detection. But audit essentially involves much more than that. One of
the most involved and of course the most acceptable definitions so far
is that issued by the consultative council of accountability bodies
(CCAB) which

sees audit as “the independent examin financial statement of an enterprise by an

appointed auditor in pursuance of

statutory obligation (Howard 1982:1).

Deductively, an audit is the objective scrutiny o presentation by a third party

(an auditor) who is different from the users and the
preparing of the presentation. The general essence of audit is to ascertain
compliance of the firm‟scies withrecordsusefulnessof and acceptability of and the
dependabilit

Accountability as explained above has suffered some

misconceptions, surprisingly in the hands of those who should have
understood it better. Most of

the lay men conceptual understanding of accountability relates it to

„communicating about monetary matters

beyond that. According to the Webster encyclopaedia dictionary of English

language (1995:110), accountability is defined as “the state

accountable, answerable, liable or re

to define accountable incase of“liableloss;responsible to p

to a trust, liable to be called to account, put in another way an much more

 3

related to the context in the articles Aba times of fourth September 1999 captioned
“accountability in the thir

Accountability connotes answerability and stewardship, by answerability is

meant answering fo decisions (odon1999:7)

Stewardship according to the article means

service; it means that every leader should be
responsible to the people who reposed trust in
him.

For accountability to be accorded its rightful place in an organization

the writer believes that there is a high need for proper internal control
measure and in addition, efforts should be made to ensure that
company accounts are subjected to external and independent audits
after each financial period.

The bible also records in chapter 25 verse 14-30 of saint

Matthew gospel, the story of a rich man who went on a far journey
entrusting the affairs to his servants and who when he returned,
required the servants to answer individually, for their stewardship to
the business while he was away. It in the same manner that it is
required of the chief executives and directors of a company who are
quite different from the real owners of the business to answer for their
stewardship of the funds and property entrusted to them by the
shareholders. It is desire for accountability that gave rise to what we
know today as audit- a mechanism through which the shareholders are
made abreast of the true and fair picture of the activities of the
directors and chief executive of the company
 4

THE HISTORICAL BACKGROUND OF SHEFFIELD RISK

MANAGEMENT LIMITED, OWERRI

Sheffield risk management limited is located within the industrial layout

area of Owerri, it is established as a private limited liability company, it is an
incorporated company.

The company is an insurance brokerage firm that serves as an intermediary

between the insurer and the insured; they also serve as underwriter of insurance
policies. The insurance policies in which Sheffield risks management limited act
as intermediary between the insurer (insurance company) and the insured (client)
or consultant to each or both include Life insurance, Car insurance, Burglary
insurance, Motor vehicle insurance etc.

OWNERSHIP STRUCTURE

According to the memorandum of understanding signed by the stake holders

of Sheffield Risk Management, the company has its ownership structure as
shown below out of the start-up capital of twenty two million naira

(₦22,000,000).
Shareholders % Of shareholding Nominal val
Mr. David Okolie 50 11,000,000
Barr Obumneme
Okonkwo 22 4,840,000
Mrs. Mary Nwosu 18 3,960,000
Barr O. Oluchukwu 6 1,320,000
Mr Okey Elendu 4 880,000
 5

BOARD OF DIRECTORS

Going by the memorandum and article of association of the

company, it has provision for six member board which comprises of
the chairman, general

manager, company‟s secretary, market company‟s P.R.O.

This composition has been maintained

1.2 STATEMENT OF PROBLEM

The increasing wave of fraud and embezzlement of public funds

by high officers and chief executives in the private and public
companies brought to the lime light some misconceptions of what the
job of an auditor is and what audit is all about. To the uninformed, the
auditor is a wizened individual who wears the traditional green
eyeshade and sleeve garters.

They will expect to find him perched on top a high stool counting
money, meticulously adding long columns of figures and gaining his
sole pleasure in life from the apprehension of luckless person whose
books failed to balance or whose cash account proved to be short
(harword 2002:135).

According to Pratt (1998:1), were you to ask the average

man in the street about the audito tell you that he prevent fraud, press our
layman further, he

may paint you a picture of a rather gray individual

who buries himself in ledger, emerging only from
time to time to produce sets or figure which are
not important anyway

Such are the image that the auditor has attracted but they are incorrect in the sense
that “the auditor‟s primary res produce figures”982:12) (woolf 1
 6

The problems are:

I. Mismanagement of enterprises by directors and top

management who in most cases have no real financial stake in
the business.

II. Because of the fact that the directors and top managers have no
financial claims to the business or its enterprise, they tend to
exhibit the highest level of truancy to work and are generally
indifferent to the progress of

the company. Most them regrettably choose their moments for

putting the company into liquidation of little or no cost to them,
by diverting the funds and assets entrusted into their care for
their personal uses.

III. And without the misappropriation being detected not the culprit being
brought to book the auditor express of the perpetrated fraud. The problem is
that this attitude has dented considerably the professional image of audit. To
most employees of the auditor, the effect is “there is no fraud”.

And to the few informed ones the independent is the independent audi
1.3 OBJECTIVES OF THE STUDY

Having had the problem stated, the objectives of this study which are stated in

null form are:

I. To ascertain the role of independent audit towards

accountability in an organization

II. To determine whether independent audit can enhance managerial ability;

III. To determine if independent audit can control fraud and embezzlement.

 7

1.4 RESEARCH HYPOTHESES

In order to complete this study successfully the following hypotheses have

been formulated in null form:

I. Independent audit does not enhance accountability in an organization.

II. Fraud and embezzlement will not decrease if independent

auditors do their work properly

III. Mismanagement is not due to lack of accountability.

1.5 SIGNIFICANCE OF THE STUDY

 The misconception of the function of audit has, no doubt, eroded in most

minds the confidence and reliance on credibility with which the audit profession
was known.

The researcher has, therefore taken to this study for the need to show

management and directors that reliance on auditor‟s report wil their performance.
The studies will contribute to knowledge by bringing the

opinion of many experts in one text and this make it easier for readers
to have a broader knowledge of the subject without having to go
through several texts.

Finally the thesis will become a reference material for other student who will

carry out further studies in the field.

1.6 THE SCOPE OF THE RESEARCH

The study will mainly focus on the company selected as a case

study i.e. Sheffield Risk Management Limited, Owerri. The
researcher would go beyond desk search into field to sample the
opinion of workers, officers as well as chief
 8

executive. These would be accomplished through the construction and

issuance of questionnaire to the potential respondents and also
through oral interviews.

The researcher intends to convince the misinformed minds about

the relevance of independent auditing as a tool for enhancing
accountability. To do this only well informed individuals will be
consulted during the primary data collection stage.

The scope of the study will be limited to the statutory role of the
auditor. The auditors power and rights, lead liability, ethics and types
opinion. The study will also cover intend control as a very important
variable in accountability. Further aspects and functions of internal
audit will also be covered.

1.7 LIMITATIONS OF THR STUDY

In the course of this research work, problems of various natures were

encountered, which in no small measur progress of the study. Among the militating
factors are the following:

1. Non-return of completed questionnaire by some respondents:

some of the respondents did not return their response of the
questionnaire irrespective

of the researcher‟s series of remi forgetfulness to lack of chance to attend to

the questionnaire.

2. Piecemeal collection of information: information was collected

in piecemeal from management due to bureaucracy among
others.

3. Reluctance in releasing information on even oral interviews. The

researcher was looked upon as a spy in disguise who has come from their
competitors to x-ray what they called their “top secrets”

As a result; comprehensive data were not easily collected notwithstanding

the researcher‟s le
 9

4. Time: This was not a good friend of the researcher. The time allocated to
this study was very insignificant compared to the volume of the work
involved. This time constraint was further companied by the existence of
other class room work.

5. Funds: Money was another constraint to the research work. Most often, the
researcher ran out of funds and had to delay the work for money to come in.

6. Exeat: Considering the school system, time spent on the search for
permission to leave school as regards to the research study is yet another
factor that ate deep into the very fabric of time allocated for this study,
hence it is considered as a limiting factor to the progress of the study.

1.8 ORGANZATION OF STUDY

In order to realize the aim and objective of this study the write-up was divided
into five chapters not only for an intensive study but also for the convenience and
better understanding of the information by users.
 Chapter one of the research work covered an introduction to the study: the
statement of problem objectives of the research; the limitation encountered by the
researcher during the study: Organization of the study and the operational
definition of terms used in the study.

Chapter two covered an interview of current and related literature.

Chapter three dealt with the methods and procedures used by the researcher in
conducting the study.

The analysis of the data collected by the researcher is treated in chapter four.
 10

The fifth chapter dealt on the r recommendations to the information user and a
conclusion of the entire work

based on the researcher findings, observations and tests.

1.9 DEFINATION OF TERMS

Some terms used in this study which may not be clearly

understood by some readers are hereby defined.

Audit:

This is the dependant examination of a financial statement by an

auditor expressing an opinion about the true and fair view of the
financial statement and state of affairs of the enterprise.

It is the independent examination of, and expression of opinion

on, the financial statement of an enterprise by an appointed auditor in
pursuance of that appoint and in compliance with any relevant
statutory obligation.

AUDITOR:

The individual or partnership firm appointed to carry out an

audit of the financial statements of an entity.

AUDIT REPORT:

Any report, written by an auditor on a matter on which an opinion has

been sought within the terms of an au AUDITOR‟S REPORT:

This is another term for audit report.

 11

AUDIT EVIDENCE:

This is information obtained by an auditor inn arriving at the conclusion which

forms the basis of the auditor‟ audited.

INTERNAL AUDIT:

This is the audit function carried out within an organization of

evaluating and reporting on accounting and other controls on the
operations of the organization.

An audit of an accounting entity carried out by an auditor who is not

employed by that entity or by its manager and is as far as possible
independent of the person(s) who manage(s) the entity.

ACCOUNTABILITY:

This is the state or condition being accountable.

ACCOUNTABLE:

This is the required provision for the description, analysis and

evaluation of actions.

INTERNAL CONTROL SYSTEM:

This is the whole system of controls financially and otherwise

established by the management in order to carry on the business of the
enterprises in an orderly and efficient manner, ensure adherence to
management policy, and safeguard the completeness and accuracy of
the records, as regards to an organization.