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EFFECTIVENESS OF AUDIT REPORT ON THE
IMPR
FEDERAL PARASTATALS
OKORO, LIVINUS UGWUPG/M.Sc/10/54651
EFFECTIVENESS OF AUDIT REPORT ON THE
IMPROVEMENT OF FINANCIAL MANAGEMENT IN
FEDERAL PARASTATALS
FACULTY OF BUSINESS ADMINISTRATION
DEPARTMENT OF ACCOUNTANCY
Azuka Ijomah
Digitally Signed by: Content manager’s
DN : CN = Webmaster’s name
O= University of Nigeri
OU = Innovation Centre
i
OKORO, LIVINUS UGWU
EFFECTIVENESS OF AUDIT REPORT ON THE
OVEMENT OF FINANCIAL MANAGEMENT IN
INISTRATION
DEPARTMENT OF ACCOUNTANCY
: Content manager’s Name
Webmaster’s name
O= University of Nigeria, Nsukka
OU = Innovation Centre
ii
TITLE
EFFECTIVENESS OF AUDIT REPORT ON THE
IMPROVEMENT OF FINANCIAL MANAGEMENT IN
FEDERAL PARASTATALS:
A Study of Educational System
OKORO, LIVINUS UGWU PG/M.Sc/10/54651
A DISSERTATION PREPARED AND SUBMITTED TO THE DEPARTMENT OF ACCOUNTANCY, UNIVERSITY OF
NIGERIA, ENUGU CAMPUS,
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTER OF SCIENCE M.Sc DEGREE IN
ACCOUNTANCY
SUPERVISOR: DR. R.O. UGWUOKE
MAY, 2015
iii
DECLARATION
I, Okoro, Livinus Ugwu, a post graduate student in the
Department of Accountancy with registration number
PG/M.Sc/10/54651.
Declare work embodied in this dissertation is original and has
not, to the best of my knowledge, been submitted in part or in
full for the award of any other Degree or Diploma of this or
any other tertiary institution.
----------------------------------- OKORO, LIVINUS UGWU PG/M.Sc/10/54651
iv
APPROVAL This dissertation by Okoro, Livinus Ugwu with Registration Number PG/M.Sc/10/54651, presented to the Department of Accountancy, Faculty of Business Administration, University of Nigeria, Enugu Campus, for the award of Master of Science (M.Sc) Degree in Accountancy, has been approved by:
----------------------------- ---------------- Dr. R.O. Ugwuoke Date (Supervisor) ----------------------------- ---------------- Dr. (Mrs) Ofoegbu G.N Date (Head of Department)
v
DEDICATION To Almighty God who made it possible for me to accomplish this phase of journey. Also to my family for their love, care, concern and prayers I thank you all.
vi
ACKNOWLEDGEMENTS My unqualified gratitude goes to God Almighty, The Merciful and The Provider, who lavishly gave me the endurance, resilience, doggedness, insight and foresight to undertake this research work and to successfully complete it to the satisfaction of the Department of Accountancy, University of Nigeria, Enugu Campus. My sincere appreciation goes to my highly esteemed and respected supervisor, Dr. R.O. Ugwuoke for his personal interest, encouragement and meticulous efforts in directing and guiding me through this work. Despite his tight schedule, he still made out time to painstakingly go through my work and make useful suggestions that greatly enhanced the quality of this research. My appreciation also goes to my lecturers in the Department of Accountancy University of Nigeria, Enugu Campus for their love, support, assistance, and encouragement; most especially Prof. (Mrs) U. Modum a role model, I say a very big thank to you. I will not forget to mention the immense role of my mentor Mr. Obeta Charles who acted as a secondary supervisor to me and assisted greatly in the completion of this work. I want also to appreciate Dr. Mark of Nursing Sciences, Brother Asogwa Mathias, Ugwuja Emmanuel, Ezekpeazu Chika, my current and past Directors Prof. A.O. Solarin and Prof S.O. Ale both from National Mathematical Centre Abuja for their prayers and encouragement. I will not forget to thank my course mates Daniel, Nnenna and host of others too numerous to mention for their support and encouragement. My sincere and profound gratitude goes to my Godly and Lovely wife Ezinne Okoro Angela Ify who stood by my side despite all odds throughout this programme. Also I shall not fail to acknowledge my gracious lovely children Okoro Doris Nnenna, Pharm Okoro Anthony, Okoro Kelvin Ejike, Miss Okoro Faith Chimaobi, Master Okoro John Martins Uchechukwu. Also Cadet Ezema Sunday Valentine and Eze Lucy Chidera for their faithful understanding and support. I remain grateful to my late parents Mr/Mrs Okoro, without their moral, spiritual support and encouragement I never would have been to where I am today. Finally, I am also grateful to all those whose names were not mentioned, but have contributed in one way or the other to the success of this research work.
vii
ABSTRACT
The “Effectiveness of Audit Report on Improvement of Financial Management in Nigeria Federal Parastatals with emphasis on the educational system in Nigeria. The study aims at determining or examining the effectiveness of audit report in improvement of financial management in the Federal Parastatals particularly the Educational System in Nigeria. It is thus set out to achieve objectives among which are; (i) to identify the major challenges confronting auditors from giving effective audit reports (ii) to examine the extent to which auditors independence is infringed upon by the hospitality or public relation practices of some Parastatal of Federal Ministry of Education. It also set out to answer research questions including (i) what are the major challenges confronting auditor from giving effective reports to the Federal Parastatals in Education Sector in Nigeria (ii) what is the extent to which auditors independence is infringed upon by the hospitality or public relation. To properly guide the work, four research hypotheses were formulated: (i) wrong choice of audit firm, audit fees, lack of independence and registering of audit firms under different names constitute the major challenges confronting auditors in effective audit reports, (ii) non disclosures of classified information available to the auditors of Federal Parastatals in Education Sectors in Nigeria in their audit report significantly affects the effectiveness of this report among others. The survey research design was adopted in this study. The primary source of data was employed and the instrument of data collection was the questionnaire. The population of the study is made up accounting officers, internal audit staff and other staff of the studied parastatals. The Taro Yamane’s formula was used in selecting the sample size 476. The respondents was analysed using both descriptive and inferential statistics. Specifically, the hypothesis was tested using chi-square, multiple linear regressions, Pearson Product Moment Correlation Coefficient and Analysis of Variance (ANOVA). These were done through the application of the computer based statistical package for social sciences (SPSS) version 17.0 software. The major findings of this research includes normal or symmetrically distributed (Z = 1.250, p < 0.05) information from the Auditors of the federal parastatals that Wrong choice of audit firm, Audit Fees, Lack of Independence and Registering of Audit Firms Under Different Names, all constitute the major challenges confronting auditors in giving effective audit reports and normal or symmetrically distributed (Z = 1.869, p < 0.05) information from the Accounting Officers & other staff of the federal parastatals that Non-disclosure of classified information available to the auditors of federal parastatals in the education sector in Nigeria in their audit reports significantly affects the effectiveness of these reports, among others. The study concluded that management of public fund at the various Federal Parastatals in Education Sector in Nigeria is weak. It is therefore recommended that government of Nigeria should establish a supervisory body in auditing specially meant for monitoring and controlling the finances of its parastatals.
viii
TABLE OF CONTENTS
Title page --- --- --- --- --- --- --- --- i
Declaration --- --- --- --- --- --- --- --- ii
Approval page --- --- --- --- --- --- --- --- iii
Dedication --- --- --- --- --- --- --- --- iv
Acknowledgements --- --- --- --- --- --- --- v
Abstract --- --- --- --- --- --- --- --- vi
Table of contents --- --- --- --- --- --- --- --- viii
List of tables --- --- --- --- --- --- --- --- xii
List of figures --- --- --- --- --- --- --- --- xiv
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study --- --- --- --- --- 1
1.2 Statement of Research Problem --- --- --- --- 3
1.3 Objectives of the Study --- --- --- --- --- 3
1.4 Research Questions --- --- --- --- --- 4
1.5 Research Hypotheses --- --- --- --- --- 4
1.6 Scope of the Study --- --- --- --- --- --- 5
1.7 Significance of the Study --- --- --- --- --- 5
1.8 Limitations of the Study --- --- --- --- --- 6
1.9 Definition of Terms --- --- --- --- --- --- 7
1.9.1 Audit & Auditing --- --- --- --- --- --- 7
1.9.2 Audit Report --- --- --- --- --- --- 7
1.9.3 Financial Management --- --- --- --- --- --- 7
1.9.4 Parastatals --- --- --- --- --- --- --- 8
References --- --- --- --- --- --- --- --- 9
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Introduction --- --- --- --- --- --- --- 10
2.2 Conceptual Framework --- --- --- --- --- 10
ix
2.2.1 The Concept of Audit and Auditing --- --- --- --- 11
2.2.2 Defining Audit and Auditing --- --- --- --- --- 12
2.2.3 Distinctions between Financial Audit and a Review Service 13
2.2.4 Financial Accounting Auditors, Fraud and Investigation
Auditors and Forensic Accounting and Fraud Examinations 14
2.2.5 Financial Auditors --- --- --- --- --- --- 16
2.2.6 Fraud and Investigation Auditors --- --- --- --- 17
2.2.7 Forensic Accounting and Fraud Examination --- --- 18
2.2.8 Auditors’ Duties and the Concept of Audit Expectation
Gaps (AEGs) --- --- --- --- --- --- --- 19
2.2.9 Giving an Opinion on the Fairness of Financial Statements 20
2.2.10 National Universities Commission --- --- --- --- 23
2.2.11 National Mathematical Centre --- --- --- --- 24
2.3 Giving an Opinion on the Company’s Ability to Continue as
a Going Concern --- --- --- --- --- --- 26
2.3.1 Giving an Opinion on the Company’s Internal Control
System --- --- --- --- --- --- --- 26
2.3.2 Giving an Opinion on the Occurrence of Fraud --- --- 27
2.3.3 Audit Report --- --- --- --- --- --- 27
2.3.4 Basic Elements of an Audit Report --- --- --- --- 28
2.3.5 Report Title --- --- --- --- --- --- 28
2.3.6 Introductory Paragraph --- --- --- --- --- --- 29
2.3.7 Scope Paragraph --- --- --- --- --- --- 29
2.3.8 Executive Summary --- --- --- --- --- --- 29
2.3.9 Opinion Paragraph --- --- --- --- --- --- 29
2.4 Auditor’s Name --- --- --- --- --- --- --- 29
2.4.1 Auditor’s Signature --- --- --- --- --- --- 30
2.4.2 Types of Audit Reports --- --- --- --- --- --- 30
2.4.3 Requirements for Unqualified opinion --- --- --- 30
x
2.4.4 Qualified (unclean) opinion --- --- --- --- --- 31
2.4.5 Auditor’s Report containing a Qualified Opinion --- --- 31
2.4.6 Auditor’s Report containing an Adverse Opinion --- --- 31
2.4.7 Auditor’s Report Containing a Disclaimer of Opinion --- 32
2.4.8 Meaning and Framework of Public Financial Management 32
2.4.9 Theoretical Framework --- --- --- --- --- --- 35
2.5 Agency Theory --- --- --- --- --- --- --- 35
2.5.1 Two Perspectives of Accountability --- --- --- --- 37
2.5.2 Empirical Review --- --- --- --- --- --- --- 38
2.5.3 Gap in the Reviewed Literature --- --- --- --- --- 44
2.5.4 Summary of Literature Review --- --- --- --- --- 47
References --- --- --- --- --- --- --- --- 50
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction --- --- --- --- --- --- --- 53
3.1 Research Design --- --- --- --- --- --- --- 53
3.2 Area of the Study --- --- --- --- --- --- --- 53
3.3 Population of the Study --- --- --- --- --- --- 53
3.4 Sample Size Determination --- --- --- --- --- 54
3.5 Method of Data Collection --- --- --- --- --- 55
3.6 Validity and Reliability of Data Collection Instrument --- 55
3.6.1 Validity of the Data Collection Instrument --- --- --- 55
3.6.2 Reliability of the instrument --- --- --- --- --- 55
3.7 Method of Data Analysis --- --- --- --- --- 56
Reference --- --- --- --- --- --- --- --- 59
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION 4.1 Survey/Data Collection Report --- --- --- --- 60
4.2 Analysis of the Respondents’ Demographic Data Gender 61
xi
4.3 Analysis of the Respondents’ Responses Based on Research
Question --- --- --- --- --- --- --- --- 63
4.3.1 The Challenges Confronting Auditors from Giving Effective
Audit Reports on Federal Parastatal in the Education Sector in
Nigeria --- --- --- --- --- --- --- --- 63
4.3.2 Extent to which Auditors’ Independence is Infringed Upon 67
4.3.3 Information Available to Auditors but not Disclosed in
their Final Reports --- --- --- --- --- --- 70
4.3.4 Public Expectations and the Content of the Auditors’ Reports 72
4.4 Test of Hypotheses --- --- --- --- --- --- 75
4.4.1 Test of Hypothesis One --- --- --- --- --- 75
4.4.2 Hypothesis Two --- --- --- --- --- 77
4.4.3 Test of Hypothesis Three --- --- --- --- --- 79
4.4.4 Test of Hypothesis Four --- --- --- --- --- 81
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS 5.1 Summary of Findings --- --- --- --- --- --- 82
5.2 Conclusions --- --- --- --- --- --- 83
5.3 Recommendation --- --- --- --- --- --- 83
5.4 Recommendation for Further Studies --- --- --- 84
Bibliography
Appendix
xii
LIST OF TABLES
Table 3.1: Populations of the Study --- --- --- --- 53
Table 3.2: Reliability Statistics --- --- --- --- --- 56
Table 4.1: Survey/Data Collection Report Based on Questionnaire
Copies Administered --- --- --- --- --- 60
Table 4.2: Analysis of the Respondents’ Demographic Data
Gender --- --- --- --- --- --- --- 61
Table 4.3: Respondents’ Gender: Auditors --- --- --- 61
Table 4.4: Respondents’ Work Status: Accounting Officers &
Other Staff --- --- --- --- --- --- --- 62
Table 4.5: Respondents’ Work Status: Auditors --- --- 62
Table 4.6: Respondents’ Length of Service: Accounting Officers
& Other Staff --- --- --- --- --- --- 62
Table 4.7: Respondents’ Length of Service: Auditors --- --- 63
Table 4.8: Wrong Choice of Audit Firm --- --- --- --- 63
Table 4.9: Audit Fee --- --- --- --- --- --- --- 64
Table 4.10: Lack of Independence --- --- --- --- --- 64
Table 4.11: Registering of Audit Firms under Different Names --- 65
Table 4.12: Offer of Hospitality and Gifts --- --- --- --- 67
Table 4.13: Forced to Cooperate With High Cadre Officials --- 67
Table 4.14: Threatened of Losing Job --- --- --- --- 68
Table 4.15: Report Falsification --- --- --- --- --- 68
Table 4.16: Material Information for Effective Auditing Are
Hoarded --- --- --- --- --- --- 69
Table 4.17: Auditors rarely do Thorough Check of Account
Books --- --- --- --- --- --- 70
Table 4.18: Auditors Rarely Detect Untrue and Unfairness of
Account Books --- --- --- --- --- --- 71
xiii
Table 4.19: Auditors and Auditing Committee Members are Big
Bosses’ Pals --- --- --- --- --- --- 71
Table 4.20: Audit Reports Prepared by the Auditors Hardly
Reflect the True State of the Finances of
Government Parastatals --- --- --- --- 72
Table 4.21: Auditors Are Expected to Detect Frauds --- --- 73
Table 4.22: Expected to State Whether the Parastatal is
Financially Sound or not --- --- --- --- 73
Table 4.23: Not expected to be Friends of Chief Accountant or
Management Board --- --- --- --- --- 74
Table 4.24: Expected to take gift if offered but not in Anticipation
of Favourable Report --- --- --- --- --- 74
Table 4.25: Expected to bear the Liability of any Gross
Misappropriation Undetected --- --- --- --- 75
Table 4.26: Kolmogorov-Smirnov Z Test --- --- --- --- 76
Table 4.27: Combined Kolmogorov-Smirnov Z Test on Wcaf, Af,
Li, Rafudn --- --- --- --- --- --- --- 77
Table 4.28: Chi-Square Test Descriptive --- --- --- --- 78
Table 4.29: Chi-Square Statistic --- --- --- --- 78
Table 4.30: Kolmogorov-Smirnov Z Test --- --- --- --- 79
Table 4.31: Combined Kolmogorov-Smirnov Z Test --- --- 80
Table 4.32: Pearson’s Product Moment Correlation --- --- 81
xiv
LIST OF FIGURES
Fig. 4.1: Percentage Composition of Accountants to other Senior Officers --- --- --- --- --- --- 60
Fig. 4.2: Percentage Composition of Auditors to Other Senior Officers --- --- --- --- --- --- --- 60
Fig. 4.3: Summary of the Data Gathered on Auditors’ Challenges 66
1
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Proper financial management and accountability over public funds is a central
component of good governance. Public funds are meant to be used effectively and
efficiently to ensure that citizens are receiving the quality services for which the public
funds have been allocated (Okoh and Ohwoyibo, 2010). The bane of public sector
financial mismanagement in Nigeria since the oil boom years, (a period under which
there existed structurally weak control mechanism), have created a variety of loopholes
that have facilitated geometrically and sustained corrupt practices in the country up till
date. The plague has diffused itself into all parts of the country: private and public
business places.
As a watchdog for government throughout all its parastatals, departments for
internal auditors whose primary concern is to critique the books of accounts of the
parastatals and constantly report to the senate about the financial state of the corporations
or parastatals were set up.
The main objectives of auditors of Ministries/Departments or parastatals are to
ascertain whether: (a) All receipts of public money emanating from the operations of the
period under review are collected and properly accounted for; (b) The accounting system
in operation provides financial information that is reliable and free from material errors
to facilitate the preparation of the accounting and financial statements required by law.
The audit of business accounts did not just become common today but in the
nineteenth century. The enormous increase in trade in that period, which was fostered by
the discovery of steam power and by mechanical inventions, generally led to the
formation of numerous joint stock companies, and other corporate undertakings,
2
involving the use of large sums of capital under the management of a few individuals
(Akpomi & Amesi, 2009). Under these conditions, the advantages to be obtained from
utilizing the services of auditors became apparent to the public generally, and a great
increase in the practice of auditing resulted; as the present day forms the most important
part of a professional accountant’s practice (Walter, 2009). With the increasing
complexities in both public and private sectors, the duties of auditors became heightened.
These complexities were met with ostensible corruption, a major feature of developing
economies thereby threatening the independence, integrity and objectivity of the
auditors. As a result of the increase in the level of business activities, both in the public
and private sectors, it is now required by statute that activities of governmental and
corporate business organizations be audited. The implication of this requirement is to
ensure that those entrusted with funds are held accountable. Auditing therefore ensures
that accounts and records of organization show a true and fair view. Auditors do this by
thorough examination of the books of accounts of businesses and to confirm whether
there is appropriate approval and authorization for every transaction.
If auditors are not competent especially in bringing their skills to bear in a corrupt
environment, then the whole audit process is of no value. In Nigeria, as well as the
developed countries, Chartered Accountants in practice (Auditors) are seen as competent
but a number of recent events including corruption and failures of some banks and
companies have given rise to doubts in the minds of the business community (private and
public sectors). An interesting idea put forward by Abadi (2005), is that competence is
constantly being improved but at the same time economics has dictated that the time
spent on auditing is constantly being reduced even though modern laws, in accounting
systems and structure are steadily becoming more complex. It is against this backdrop
3
that this study is undertaken to find the extent to which the reports of the auditors can
help improve financial management at the Nigeria federal parastatals
1.2 Statement of Research Problem
The phenomenon of corruption, public funds misappropriation, looting and scandalous
events have deeply engulfed the country since the early 1980s and has persisted and
resisted all solutions crafted by successive governments, thus turning into a hydra-
headed monster so characterised of national terror impeding economic development.
Under Section 85(5) of the 1999 Constitution, the Auditor-General for the federation is
required within ninety days of the receipt of Accountant General’s financial statement to
submit copies of the accounts of the federation signed by the Accountant-General to the
National Assembly together with a certificate of audit and a report upon his examination
and audit of all accounts relating to public funds.
The problem however, is that in spite of this regular audit exercise expected to
cover even government parastatals, there remains a high level of inefficiency in the
management of public funds in Nigeria. This study identified the problem of high level
of inefficiency in the management of public funds despite regular audit reports, and this
has led to the collapse of several governmental parastatals in Nigeria such as
NITEL, NEPA, NRC, and NCC. It is thus aimed at examining the effectiveness
of audit reports on government parastatals in the education sector in enhancing efficiency
in the management of public fund.
1.3 Objectives of the Study
The main objective of this study is to determine the effectiveness of audit report on the
improvement of financial management in Nigerian federal parastatals, in the educational
sector. However the specific objectives are:
4
1. To identify the major challenges confronting auditors from giving effective audit
reports on the federal parastatals in the educational sector in Nigeria.
2. To examine the extent to which auditors independence is infringed upon by the
hospitality or public relations practices of the federal parastatals in the education
sector.
3. To assess the level of significance of classified information available to the auditors
but not disclosed in their final reports on the parastatals in the education sector.
4. To examine the level of significant of the gap between public expectation and content
of the auditor’s report on the parastatals in the education sector.
1.4 Research Questions
1. What are the major challenges confronting auditor from giving effective audit
reports on the federal parastatal in the education sector in Nigeria?
2. What is the extent to which auditors independence is infringed upon by the
hospitality or public relations practices of the federal parastatals in the education
sector.
3. What is the level of significant of classified information available to the auditors but
not disclosed in their final report on the parastatal in the education sector.
4. What is the level of significance of the gap between public expectation and actual
content of auditors’ report on the parastatals in the education sector in Nigeria.
1.5 Research Hypotheses
1. Wrong choice of audit firm, audit fess, lack of independence and registering of
audit firms under different names do not constitute the major challenges
confronting auditors in grouping effective audit reports.
5
2. Hospitality and public relations practices of federal parastatals in the education
sector in Nigeria do not significantly infringes upon the independence of auditors
of these parastatals.
3. Non-disclosure of classified information available to the auditors of federal
parastatals in the education sector in Nigeria in their audit reports do not
significantly affects the effectiveness of these reports.
4. There is no significant gap between the public expectation and actual content of
the audit reports on the federal parastatals in the education sector in Nigeria.
1.6 Scope of the Study
In terms of capacity and the extent of coverage in this study, three federal parastatals in
the education sector were covered with their headquarters in Abuja these include: The
Joint Admission & Matriculation Board [JAMB]; National University Commission
[NUC]; and the National Mathematical Centre [NMC]. The study though, exhaustively
reviewed many related extant journal publications so as to identify the gaps to be bridged
for essence of knowledge contribution, shall last for a minimum period of six months.
All research activities in terms of the pre-study survey, the actual survey – data
collection, sorting and analysis, and reporting were all managed within the forecast
duration.
1.7 Significance of the Study
This study is of importance to the following classes of beneficiaries.
Internal Auditors
This study is of significant paramount importance to the internal and external
auditors at both federal and state government parastatals in Nigeria. It shall help
to urge them (the auditors) of the better way to render their professional duties
6
despite the challenges they might be facing in carrying their basic auditing
functions.
Government Agencies
Another important significance of this study is that, government agencies who are
responsible for overseeing the activities of public or government institutions can
make use of the outcome of this type of work for policy formulation purposes.
Non-Governmental Organizations (NGOs) and Pressure Groups
Non Governmental Organization (NGOs) as well as Pressure Groups like
Nigerian Labour Congress (NLC) are not exempted from benefiting from the
findings of this type of study. The NGOs may find the outcome of the study
useful for their researches on national development while the pressure groups
(particularly those government workers at the parastatals studied) on the other
hand can be brought to the light of the statutory duties of different types of
auditors so that their expectations will not continue to be misconstrued with
auditors’ mere declaration of the true and fair view of the parastatals’ financial
statements.
Researchers
Finally, researchers cannot but benefit from the outcome of this proposed study
especially those authors whose studies shall be improved upon as well as those in
academic who may wish to carry out similar study in the future.
1.8 Limitation of the Study
The study was limited to three federal parastatals in the education sector in
Nigeria to wit; JAMB, NUC and NMC. These parastatals have been chosen due
to their role, scope of operation and proximity in location. The study was as well
limited to the period of 2002 to 2013.
7
1.9 Definition of Terms
Audit & Auditing
Audit is simply an evaluation of a person, organisation, system, process, enterprise,
project or product.
Auditing is defined as a systematic and independent examination of data, statements,
records, operations and performances (financial or otherwise) of an enterprise for a stated
purpose. The auditor perceives and recognizes the propositions before him for
examination, collects evidence, evaluates the same and on this basis formulates his
judgment which is communicated through his audit report.
1.9.2 Audit Report
This is a formal opinion, or disclaimer thereof, issued by either an internal auditor or an
independent external auditor as a result of an internal or external audit or evaluation
performed on a legal entity or subdivision thereof (called an "auditee"). The report is
subsequently provided to a "user" (such as an individual, a group of persons, a company,
a government, or even the general public, among others) as an assurance service in order
for the user to make decisions based on the results of the audit. An auditor's report is
considered an essential tool when reporting financial information to users, particularly in
business.
1.9.3 Financial Management
The term ‘finance’ in its simplest form means the art or science of procuring and utilising
funds or money while the term ‘management’ on the other hand means the planning,
organizing, directing and controlling of an activity. Based on these, the term financial
management however means the procurement and utilization of funds in such an
efficient and effective form or manner so as to accomplish the objectives of the
organization.
8
1.9.4 Parastatal
This is any government-owned corporation, state-owned enterprise, state enterprise,
government business enterprise, etc. In Nigeria, the Joint Admission and Matriculation
Board [JAMB], National Mathematical Centre [NMC], National University Commission
[NUC] which are institutions proposed to be studied here in this study are all federal
government parastatals.
9
REFERENCES
Abadi, D.A.T. (2005). Internal Auditing in Nigeria (First Edition). Ekiti: Sylbek
Accounting Estimates: The Joint Effects of Audit Report Content and Investor Type. A Dissertation submitted in Partial Fulfilment of the Requirements for the Degree of Doctor of Philosophy in Accountancy at the Graduate College of the University of Illinois, Urbana – Champaign
Akpomi, M.e., and Amesi, J. (2009). Behavioural Constraints on Practices of
Auditing in Nigeria. Educational Research and Review, 4(10), 465 – 469 Economic Development in Nigeria. International Journal of Investment and Finance, 3(1&2): 145 – 149. International
Kang, Y.J. (2012). Audit Committee’s Propensity to Challenge Significant
London: HFL Publishers Limited. NAIYEJU, J.K (2006). Federal Treasure Accounting Manual Policy and Procedure. Okoh, L. And Ohwonyibo, O. (2010). Public Accountability: Vehicle for Socio- Walter, W.B. (2009). Spicer and Pregler’s: Practical Auditing (15th ed.)
10
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Introduction
This chapter is divided into three main parts: the conceptual frameworks, theoretical
frameworks, and empirical reviews. Concepts relating to Audit, Auditing, Audit Report,
and Financial Management were conceptualized under the first part, theories relating to
the effectiveness or influence of audit reports on financial management were reviewed
under the second part, while existing studies and literature on audit report effectiveness
were critically reviewed in the third section of this chapter. Identified gaps from the
studies were subsequently discussed.
2.2 Conceptual Framework on Financial Management
Auditing, in its traditional disposition, is deeply rooted in financial statement audits.
It requires practitioners (Auditors) to express their opinions whether financial statements
prepared, in all material respects, are in accordance with an applicable reporting
framework. This is usually because business owners, investors, creditors, regulatory
agencies and other users of accounting information need a reliable report to make
informed decisions, and with auditing, they obtain a reasonable assurance that the
audited financial statement does not contain any misstatement or error and that, it is true
and fair. Today, according to Elliot (1998), there are sorts of decisions, decision makers,
and an infinite number of possible information sets in addition to historical cost-based
financial statements. To address the influence of audit reports in improving financial
management of Nigerian federal parastatals therefore, it is ideal to begin here by first
conceptualising the meaning of audit as differentiated from other similar concepts such
as review service, harness its nature and its types in terms of financial audits, fraud audit
and forensic accounting.
11
Also conceptualized here in this section are: the meaning and component of financial
management.
2.2.1 The Concept of Audit and Auditing
The term ‘audit’ historically was derived from the Latin word “audire” which means “to
hear” (Modogu, Ohonba, and Izedonmi, 2012:77). It commonly refers to accounting
profession and its practices. Though, its general definition is “the evaluation of a person,
organization, system, process, enterprise, project or product” (Gibbins, McCracken and
Salterio, 2007:387). Lerner and Tetlock (2009:255) specifically define it as a systematic
process or approach of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence
between those assertions and established criteria and communicating the results to
interested users.
An audit usually follows a structured documented plan. While the process of
carrying it out is referred to as auditing, in its actual process, accounting records are
analyzed by the auditors using a variety of Generally Accepted Techniques (GAPs).
Auditing is as old as accounting, evolved and grew rapidly after the industrial revolution
in the 18th century (Lerner and Tetlock, 2009). With the growth of most joint stock
companies, the ownership and management became separate, and shareholders who were
owners of the companies needed an audit report from an independent expert on the
accounts of the company managed by the board of directors. The main specific objective
of auditing has however, been to detect and prevent errors and frauds (Peecher, 2011).
An audit is an independent, objective and expert examination and evaluation of
accounting evidence (Abbott, Park and Parker, 2000) which must be planned and
structured in such a way that those carrying out the audit can fully examine and analyze
all important evidences. Auditors are fair and do not allow prejudice or bias to override
12
their objectivity. They maintain an impartial attitude and assess the reliability and
sufficiency of the information contained in the underlying accounting records and other
source data by:
� Studying and evaluating accounting systems and internal controls on which he
wishes to rely and testing those internal controls to determine the nature, extent
and timing of other auditing procedures; and
� Carrying out such other tests, inquiries and other verification procedures of
accounting transactions and account balances, as he considers appropriate in the
particular circumstances (Abbott, Park and Parker, 2000).
2.2.2 Defining Audit and Auditing
In view of the foregoing harnessed nature of the concept of audit and auditing, there
exists no single accepted definition of an audit or auditing per se except for the definition
given by some auditing reporting frameworks such as The International Standards on
Auditing (Hayes, Dassen, Schilder, and Wallage, 2005). Many authors have subscribed
definitions to the meaning of auditing. Archambeault and DeZoort (2001) for example,
define auditing as such an examination of books of accounts and vouchers of business, as
will enable the auditors to satisfy himself that the balance sheet is properly drawn up, so
as to give a true and fair view of the state of affairs of the business and that the profit and
loss account gives true and fair view of the profit/loss for the financial period, according
to the best of information and explanation given to him and as shown by the books; and
if not, in what respect he is not satisfied.
On the other hand defines auditing as an examination of accounting records
undertaken with a view to establish whether they correctly and completely reflect the
transactions to which they relate. In all, ISA 200 states that the objective of an audit of
financial statements is to enable the auditor to express an opinion whether the financial
13
statements are prepared, in all material respects, in accordance with an identified
financial reporting framework. The phrases used to express an auditor’s opinion are
“give a true and fair view” or “present fairly, in all material respects”, which are
equivalent terms.
Two problems with the ISA 200 definition are that, it restricts an audit to
examination of the financial statements meanwhile some auditors would believe that the
terms “present fairly” and “true and fair view” is not equivalent. Although the great
majority of auditing work today is financial auditing, operational auditing and
compliance auditing and are becoming more and more important everywhere. Some
auditors say “present fairly,” means in accordance with laws and regulations. “True and
fair”, they say, includes the possibility of deviating from law and regulation when that
deviation provides a “true” view (Hayes et al., 2005). A better, more general, definition
of auditing however is An audit is a systematic process of objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to ascertain
the degree of correspondence between these assertions and established criteria, and
communicating the results to interested users.
2.2.3 Distinctions between Financial Audit and a Review Service
In a financial audit, the assertions about which the auditor seeks objective evidence relate
to the reliability and integrity of financial and, occasionally, operating information
(Hayes et al., 2005). The examination of the objective evidence underlying the financial
data as reported is called an audit (Cohen and Wright, 2002). Although a review service
is less extensive than an audit (Okaro, 2009), it is essentially designed to enable an
accountant, without applying comprehensive audit procedures, to assess management’s
representations and to consider whether the financial statements appear to be in
conformity with generally accepted accounting principles (GAAP) (Gibbins and Newton,
14
1994). To perform a review therefore, the accountant must be familiar with the
company’s business and the accounting practices of its industry. Based on this
knowledge, the accountant inquires about the company’s accounting practices and
procedures, financial statements and other matters, and performs analytical procedures to
identify unusual items or trends. Performing such inquiry and analytical procedures
hence provide the accountant with a reasonable basis for expressing limited assurance
that there are no material modifications that should be made to the statement in order for
them to be in conformity with GAAP.
The objective of a review service differs significantly from the objective of an
audit of financial statements in accordance with generally accepted auditing standards
(GAAS) (DeZoort, Hermanson and Houston, 2003). The objective of a financial audit is
to provide a reasonable basis for expressing an opinion regarding the financial statements
taken as a whole. A review service does not provide a basis for the expression of such an
opinion because a review does not contemplate obtaining an understanding of the
internal control structure or assessing control risk; tests of accounting records and of
responses to inquiries by obtaining corroborating evidential matter through inspection,
observation or confirmation and certain other procedures ordinarily performed during an
audit. A review may bring to the accountant’s attention significant matters affecting the
financial statements, but does not provide assurance that the accountant will become
aware of all significant matters that could be disclosed in an audit (DeZoort et al., 2003).
2.2.4 Financial Accounting Auditors, Fraud and Investigation Auditors, and
Forensic Accounting and Fraud Examinations
In accounting lexicon, terms such as fraud auditing, forensic accounting, fraud
examination, fraud investigation, investigative accounting, litigation support, and
valuation analysis are not clearly defined. Some distinctions exist between fraud auditing
15
and forensic accounting. Fraud auditing involves a specialized approach and
methodology to discern fraud; that is, the auditor is looking for evidence of fraud. The
purpose is to prove or disprove that a fraud exists. Historically, forensic accountants have
been called in after evidence or suspicion of fraud has surfaced through an allegation,
complaint, or discovery. They are experienced, trained, and knowledgeable in all the
different processes of fraud investigation including: how to interview people (especially
the suspect) effectively, how to write effective reports for clients and courts, how to
provide expert testimony in court, and rules of evidence (Cohen and Wright, 2002).
Dicke (2002) refers to this definition of forensic accounting as fraud examination. In
recent years, the broadest of these terms in the antifraud profession is forensic
accounting, which typically refers to the incorporation of all the terms involved with
investigation, including fraud auditing; that is, fraud auditing is a subset of forensic
accounting (Singleton and Singleton, 2010).
Fraud investigation usually encompasses about the same thing as a fraud audit
except investigation typically involves a lot more nonfinancial evidence, such as
testimony from interviews, than a fraud audit. So fraud investigation includes fraud audit
but goes beyond it in gathering nonfinancial forensic evidence.
Litigation support refers to a forensic accountant assisting attorneys in
prosecuting or defending a case in the legal system (Singleton and Singleton, 2010). That
support can take on a variety of skills but ultimately is intended to conclude with the
forensic accountant offering an opinion in a court of law as an expert witness on whether
a fraud occurred.
Financial auditing is a wholly different term that needs to be distinguished from
forensic accounting and fraud auditing. Financial auditing typically refers to the process
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of evaluating compliance of financial information with regulatory standards, usually for
public companies, by an external, independent entity.
2.2.5 Financial Auditors
The term financial auditor broadly applies to any auditor of financial information or the
financial reporting process. They are those who work for public accounting firms and
perform audits of financial statements for public companies. This classification is the
most commonly used in this study when referring to auditors.
Financial auditors have expertise in their knowledge of accounting and financial
reporting (such as in generally accepted accounting principles [GAAP], or International
Financial Reporting Standards [IFRS]), auditing (generally accepted audit standards
[GAAS]), and how those Forensic Accountant and Audits standards apply to business
transactions (Okonkwo, 2004). As expressed in the GAAS literature, the most important
financial auditing attributes are independence, objectivity, and professional scepticism
(Hayes et al., 2005).
Financial auditors traditionally have been seen as, and to an extent have been
numbers oriented, and their processes have been driven by the audit trail (Cohen and
Wright, 2002). The financial audit procedures are designed to detect material
misstatements, and thus financial auditors focus on misstatements that singularly or in
the aggregate are large enough to be material. Fraud auditors and forensic accountants
are not constrained by materiality. The discipline of financial auditing has been thought
to be almost a checklist of items to complete.
In reality, judgment is crucial in financial auditing and has progressively
increased in the direction of more dependence on auditor judgment (Cohen and Wright,
2002). While most investors (shareholders of firms) require financial auditor’s judgment
to a large degree in assessing the performance of their companies; the auditors are most
17
often required to understand processes significant to financial reporting and to evaluate
management’s controls over those processes. Additionally, financial auditors are to
consider environmental, including soft, intangible, factors in that evaluation.
2.2.6 Fraud and Investigation Auditors
Fraud auditors are generally accountants or auditors who by virtue of their attitudes,
attributes, skills, knowledge, and experience, are experts at detecting and documenting
frauds in books of records of accounting, financial transactions and events. Their
particular attitudes include these beliefs:
� Fraud is possible even in accounting systems that have tight controls.
� The visible part of a transaction fraud may involve a small amount of money, but
the invisible portion can be substantial.
� Red flags of fraud are discernible if one looks long enough and deep enough.
� Fraud perpetrators can come from any level of management or society.
The skills fraud auditors require include all of those that are required of financial
auditors, plus the knowledge of how to gather evidence of and document fraud losses for
criminal, civil, contractual, and insurance purposes; how to interview third-party
witnesses; and how to testify as an expert witness (Gay, Schelluch and Reid, 1997).
Fraud auditors must know what a fraud is from a legal and audit perspective, an
environmental perspective, a perpetrator’s perspective, and a cultural perspective
(Peecher, Solomon and Trotman, 2011). They also need both general and specific kinds
of accounting experience. They should have a fair amount of experience in general
auditing and fraud auditing, but should have industry-specific experience as well (e.g.,
banking; insurance; construction; and manufacturing, distribution, and retailing) (Abbott
et al., 2000). Fraud auditing creates an environment that encourages the detection and
prevention of frauds in commercial transactions. In the broadest sense, it is an awareness
18
of many components of fraud, such as the human element, organizational behaviour,
knowledge of fraud, evidence and standards of proof, an awareness of the potentiality for
fraud, and an appreciation of the red flags (Beasley et al., 2000). In short, fraud auditing
is the process of detecting, preventing, and correcting fraudulent activities. While
completely eliminating fraud is the goal, it is usually not feasible (Singleton and
Singleton, 2010). The concept of reasonableness applies here, and this concept is often
associated with the fraud-related fields of financial accounting and auditing. Fraud
auditors should be able to thwart a reasonably preventable fraud.
Accounting-type frauds are usually accompanied by the modification, alteration,
destruction, or counterfeiting of accounting evidence. But accounting records can be
either intentionally or accidentally modified, altered, or destroyed, by human error or
omission. The first objective for the fraud auditor, then, is to determine whether a
discrepancy in accounting records is attributable to human error. If it is, there may be no
actual fraud. If the discrepancy (missing records, destroyed records, modified records,
counterfeit records, errors, omissions) cannot be attributed to accidental or human error,
further investigation should follow at an appropriate level.
2.2.7 Forensic Accounting and Fraud Examination
Forensic accountants may appear on the crime scene a little later than fraud auditors, but
their major contribution is in the translation of complex financial transactions and
numerical data into terms that ordinary laypersons can understand (Hayes et al., 2005).
This is necessary because if the fraud comes to trial, the jury will be made up of ordinary
laypersons. Areas of expertise of forensic accountants are not only in accounting and
auditing but in criminal investigation, interviewing, report writing, and testifying as
expert witnesses (Gibbins and Newton, 1994). They must be excellent communicators
and professional in demeanour.
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The involvement of the forensic accountant is almost always reactive; this
distinguishes forensic accountants from fraud auditors, who tend to be actively involved
in prevention and detection in a corporate or regulatory environment. Forensic
accountants are trained to react to complaints arising in criminal matters, statements of
claim arising in civil litigation, and rumors and inquiries arising in corporate
investigations. The investigative findings of the forensic accountant will impact an
individual and/or a company in terms of their freedom or a financial award or loss.
Abbott et al., (2000) refer to this person as a fraud examiner.
The forensic accountant draws on various resources to obtain relevant financial
evidence and to interpret and present this evidence in a manner that will assist both
parties. Ideally, forensic accounting should allow two parties to more quickly and
efficiently resolve the complaint, statement of claim, rumor, or inquiry, or at least reduce
the financial element as an area of ongoing debate. Objectivity and independence of the
forensic auditor are paramount for these purposes.
2.2.8 Auditors’ Duties and the Concept of Audit Expectation Gaps (AEGs)
When any accounting fraud is publicly unveiled in the accounting books of an
organization, the public usually blames the auditor. While this blaming behaviour is
described as audit expectation gap (AEG) in audit profession, further define it as the
difference between what the public expects from an audit function and what the audit
profession accepts the objective of auditing to be. The existence of an audit expectation
gap however is detrimental to the value of auditing and the well-being of the auditing
profession.
It is hence, of paramount importance to critically delve into those statutory duties
of auditors so as to know if their audit reports reflect them or help create or widen the
expectation gap. The duties of auditors as provided in Sec. 360(1),(2) and (5) of
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Companies and Allied Matters Act (2004, as amended) in preparing their reports is to
carryout necessary investigations and ascertain whether, proper accounting records have
been kept by the company; the company’s balance sheet and (if not consolidated) its
profit and loss account are in agreement with the accounting records and returns made as
well as whether the information given in the director’s report for the year for which the
accounts are prepared is consistent with those accounts and, if they are of opinion that it
is not, that should be stated in their report.
By inference, the duties of an auditor are expected to be reflected through the
adequacy of their audit reports. Any identified expected gap however could therefore
mean that the audit report prepared by the auditor may not help achieve the intended goal
(as in this study; improved financial management) for which the auditing exercise was
conducted.
Most users of audit services can broadly be classified as auditees (the board of
directors of the company) and third parties (shareholders, bankers, creditors, employees,
customers, and other groups). Each of these groups has its own set of expectations with
regard to an auditor’s statutory duties. Expectations were found with regard to the
following duties of auditors:
� Giving an opinion on the ‘true and fairness’ of financial statements;
� Giving an opinion on the company’s ability to continue as a going concern;
� Giving an opinion on the company’s internal control system;
� Giving an opinion on the occurrence of fraud;
2.2.9 Giving an Opinion on the Fairness of Financial Statements
Giving an opinion on the ‘true and fairness’ of financial statements is generally regarded
as auditor’s core business. Most national and international auditing guidelines are
concerned with this particular duty while Expectation Gap studies demonstrate that
21
public expectations are high in this respect. Basically, it seems that a large part of the
financial community (users of audit services) expects that financial statements with an
‘unqualified audit opinion’ are completely free from error. The inherent limitations of
auditing are not entirely accepted and or understood by all groups of users.
An audit report of an independent expert only assures users of audit services that the
accounts are proper and reliable. The outsiders can rely on the accounts if the auditor
reports that the accounts are true and fair. The accounts are said to be true and fair:
1. When the profit and loss shown in the profit and loss account is true and fair, and
2. Also when the value of assets and liabilities shown in the balance sheet is true
and fair.
What usually constitutes the ‘true and fair’ is not defined under any law. However the
following general guidelines may be laid down in connection with true and fair.
a) Conform to accounting principles: The books of accounts must be kept according
to the normally accepted accounting principles such as the concept of entity,
continuity, periodical matching of costs and revenue, accrual and double entry
system etc.
b) No window dressing or secret reserves: The accounts must show the financial
position and the profit or loss as they are. i.e. there is neither an overstatement
nor an understatement. There should be in other words neither window dressing
nor secret reserves. In window dressing the accounts are made in such a way as to
show a much better condition than the actual condition. The profit and the net
worth are overstated
The accounts are said to show ‘true and fair’ view when the accounts show only the
actual conditions as it is. i.e. the profit and the net worth are shown as they are.
In order to show a ‘true and fair’ view of an account, the auditor should ensure that:
22
i. The final accounts agree with the books of accounts.
ii. The provision for depreciation is proper.
iii. The closing stock is physically verified and valued properly.
iv. Intangible assets like goodwill, patents, preliminary expenses or other deferred
revenue expenses are written off properly.
v. Proper provision is made for bad and doubtful debts.
vi. Capital expenses is not treated as revenue expenses and vice versa.
vii. Capital receipts are not treated as revenue receipts.
viii. Effect of changes in rate of foreign exchange on value of assets and liabilities is
recorded in the books properly.
ix. Contingent liabilities are not treated as actual liabilities and vice versa.
x. Provision is made for all known losses and liabilities
xi. A reserve is not shown as a provision and vice versa
xii. Cut off transactions are recorded properly, so that all sales invoices are
matched with goods delivered and all purchase invoices are matched with
goods received.
xiii. Transactions are recorded on accrual basis, i.e. outstanding expenses, prepaid
expenses, income accrued and advance income are recorded properly.
xiv. Expected or anticipated gains are not credited to the profit and loss account.
xv. Effect of events after the balance sheet date on the value of an asset and
liability is disclosed in the accounts properly
xvi. The exceptional or non-recurring transactions are disclosed separately in the
accounts.
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3. Disclose all material facts: The books of accounts must disclose all material facts
regarding revenue, expenses, assets and liabilities. Material means important and
essential. The disclosure of important matters in the accounts helps the users in
taking business decisions. There should neither be suppression of vital facts nor
misstatements.
4. Legal requirements: In case of limited company the account must disclose the
matters required to be disclosed under the Companies and Allied Matters Act
(CAMA). The final accounts must be in the format prescribed by the Act.
5. Requirements of Institute of Chartered Accountants of Nigeria: The accounts
must also be in accordance with the various guidelines prescribed by the ICAN.
These guidelines are contained in the statements, standard and guidance notes
issued by the institute from time to time.
2.2.10 National Universities Commission
The National Universities Commission was established in 1962 as an advisory agency in
the federal government cabinet office. However in 1974, it became a statutory body.
The National Universities Commission (NUC) is a parastatal under the Federal Ministry
of Education (FME). The Commission has a Governing Council. In its over 47 years of
existence, the Commission has transformed from a small office in the cabinet office to an
important arm of government in the area of development and management of university
education in Nigeria.
The main functions of the Commission are outlined as follows:
i. Granting approval/accreditation for all academic programmes run in Nigerian
universities;
24
ii. Granting approval for the establishment of all higher educational institutions
offering degree programmes in Nigeria;
Ensure quality assurance of all academic programmes offered in Nigerian
universities; and
iii. Channel for all external support to Nigerian universities.
The Commission has twelve Departments; Department of Academic Standards,
Department of Inspection and Monitoring, Department of Management Support Services,
Department of Students Support Services, Department of Research and Innovations,
Department of Information and Communications Technology, Department of Finance
and Accounts, Department of Quality Assurance, Department of Physical Planning and
Development, Department of Open and Distance Education, Liason Office
Department and the Executive Secretary's Office. Each of the departments is headed by a
Director.
As a coordinating body, the Commission ensures it discharges its responsibilities
by recruiting adequate and relevant man power and appeals to the Universities for their
sustained support and understanding. The Commission also relies on support from the
Federal Government, State Governments and other stakeholders in its bid to improve on
the quality of tertiary education and graduates of the nation’s university system.
2.2.11 National Mathematical Centre
The National Mathematical Centre came into existence on January 1, 1988 through the
promulgation of decree no. 40 now Cap no. 58 of 2004 which was enacted as a decree on
December 12, 1988 given a corporate legal entity to the Centre, thus deriving her power
thereof as an enter-university centre of excellence in mathematical sciences.
25
This creates the enabling environment to stimulate national aspiration for
scientific epochal breaking through in national development. The Centre commenced her
operational activities on inception at the University of Nigeria, Nsukka but moved to the
Federal Capital Territory in July 1988 in the spirit of constructive pluralism which is the
process of enhancing equitable involvement and participation in all critical component
part of the country in her developmental stride.
Functions of the Centre
i. Train and develop the high level technocrats in mathematical sciences.
Encompassing the following critical components: Mathematics, Statistics,
Computer Sciences, and Theoretical Physics, others include Bio Mathematics,
Mental Arithmetic and Chemistry. This is mainly for Nigeria and African
Institutions.
ii. Create resource centre to serve National and International Communities as a focal
point for the advancement of research and training needs analysis always in the
mathematical sciences including its application in all science education.
iii. Stimulate collaborative framework among mathematical scientists in Diaspora
and among Nigeria scientists and also build effective coordinating matrices for
interactive synergy among young Nigerian scientists.
iv. Identify, groom and nurture young talents in the mathematical sciences and
expose same to international competitive environment for global learning and
impact.
v. Encourage and support activities leading to the improvement of teaching and
learning of mathematical sciences at all levels.
26
The National Mathematical Centre is funded by the Federal Government through the
Federal Ministry of Education and NUC. Also, it funds herself with internally generated
revenue.
2.3 Giving an Opinion on the Company’s Ability to Continue as a Going Concern
Perhaps the most disturbing events for the public’s trust in the audit profession are cases
where an unqualified audit report is issued shortly before a company’s bankruptcy or
become distressed. It is the auditor’s duty to determine whether the audited entity is able
to continue as a going concern. If there are serious doubts about this ability, both the
financial statements and the auditor’s opinion need to express these doubts in the audit
report. However, it is generally felt that auditors face a dilemma in this regard.
2.3.1 Giving an Opinion on the Company’s Internal Control System
The issue of testing and reporting on the quality of a company’s internal control system
has been recognized as one of the focal issues in auditing (Gibbins, Salterio and Webb,
2001; Gendron and Bedard, 2006). ISA 400 requires the auditor to obtain an
understanding of a company’s accounting and internal control systems, sufficient to plan
the audit and develop an effective audit approach. However, testing the adequacy of the
internal controls is not required (Singleton and Singleton, 2010). If the audit objectives
can be met more efficiently by substantive testing, it is acceptable not to examine the
internal control structure (Singleton and Singleton, 2010). Most expectation gap surveys
show high public expectations of the auditor’s role in testing whether a satisfactory
system of internal control is being operated whereas these expectations clearly exceed
the auditor’s statutory duties.
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2.3.2 Giving an Opinion on the Occurrence of Fraud
Audit expectation gap is frequently associated with fraud issues. Both governments and
the financial community usually expect the auditor to find existing fraud cases and report
them (Singleton and Singleton, 2010). The fact that this part of the expectation gap has
attracted so much attention is partly attributable to the nature of the concept of auditing.
As discussed earlier, fraud auditing is different from financial auditing likewise forensic
accounting. The knowledge of these is not fully lent out to audit services users or the
public. Where a financial auditor reports that the books of accounts of an enterprise is
‘true and fair’ and does not reveal or report occurrence of fraud in his report, the
expectation gap from the public or audit services users will emerge.
While the foregoing discussions are premised on harmonization of the duties of
auditors and public expectations from them, the next sub-section however shall explicitly
discuss the essentials of an audit report so as to discern its viability in improving
financial management of a corporation
2.3.3 Audit Report
An auditor's report is a formal opinion, or disclaimer thereof, issued by either an internal
auditor or an independent external auditor as a result of an internal or external audit or
evaluation performed on a legal entity or subdivision thereof (called an "auditee"). The
report is subsequently provided to the "user" (such as an individual, a group of persons,
accompany, a government, or even the general public, among others) as an
assurance service in order for the user to make decisions based on the results of the audit.
An auditor's report is considered an essential tool when reporting financial information to
users, particularly in business. Since many third-party users prefer, or even require
financial information to be certified by an independent external auditor, many auditees
rely on auditor reports to certify their information in order to attract investors, obtain
28
loans, and improve public appearance. Some have even stated that financial information
without an auditor's report is "essentially worthless" for investing purposes.
2.3.4 Basic Elements of an Audit Report
Accountants use audit reports to publish the data they collect during their fieldwork of a
company organization. A widely used report template is the standard audit report, which
must include seven elements to be complete.
According to (ISA 700, and Latham, 1999), an auditor’s report includes the following
basic elements:
� Report Title
� Introductory Paragraph
� Scope Paragraph
� Executive Summary
� Opinion Paragraph
� Auditor’s Name
� Auditor’s Signature
� Addressee
2.3.5 Report Title
The report title must include date of the audit and the addressee of the report. The date of
the report is usually the accountant’s last day of fieldwork, and the addressee is usually
the board of directors or stockholders of the organization. It is also important to include
the work independent in the title to set it apart from internal audits within an
organization.
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2.3.6 Introductory Paragraph
This is usually a boilerplate text that states an audit has been carried out, identifies the
financial documents used to perform the audit and places the important caveat that the
company’s management team is responsible for the accuracy of the financial statements.
It also determines what time frame is covered by the audit.
2.3.7 Scope Paragraph
This paragraph says the audit followed the rules and methods set by the Generally
Accepted Audit Standards and was designed to provide reasonable assurances that the
claims made by the financial statements are accurate. It also indicated the test methods
used by the auditors to test the accounting methods used by the company.
2.3.8 Executive Summary
This section includes a summary of the audit’s findings. The content of this summary is
determined by what the auditor considers to be important for the executive echelons of
the company. Unlike the next section, the executive summary does not provide much
opinion but focuses instead on expressing clearly the findings of the audit.
2.3.9 Opinion Paragraph
The opinion paragraph is used to report on the financial situation of the company or
individual audited and the methods and procedures used to reach a conclusion. It then
offers the auditor’s opinion on the financial health of the organization and its conformity
or nonconformity with the Generally Accepted Accounting Principles.
2.4 Auditor’s Name
The auditor must identify himself as the author of the audit by printing his name at the
end of the audit. If the auditor works for a specific firm, he must also include the name of
the company or certified accountant he works for.
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2.4.1 Auditor’s Signature
The auditor is held accountable for the results of his audit up to the date stated in the
audit’s title. This accountability is acknowledged by the signature of the auditor below
his name.
2.4.2 Types of Audit Reports
The Opinion expressed in the auditor’s report may be one of four types:
Unqualified, Qualified, Adverse or disclaimer of opinion.
� Standard Unqualified Opinion Auditor’s Report
The Auditor’s unqualified report should be expressed when the auditor concludes that
the financial statements give a ‘true and fair’ view (or present fairly, in all material
aspects) in accordance with the identified financial reporting framework. An auditor’s
report containing an unqualified opinion also indicates implicitly that any changes in
accounting principles or in the method of their application, and their effects, have been
properly determined and disclosed in the financial statements.
2.4.3 Requirements for Unqualified opinion
In an auditor’s report oh financial statements, an unqualified opinion is issued in a clear
and affirmative manner when the auditor is satisfied in all material aspects (Hopwood
Leiner and Young, 2012) that:
� The financial information has been prepared using acceptable accounting
policies, which have been consistently applied.
� The financial information complies with relevant regulations and statutory
requirements.
� The view presented by the financial information as a whole is consistent with the
auditor’s knowledge of the business of entity.
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� There is adequate disclosure of all material matters relevant to the proper
presentation of the financial information.
2.4.4 Qualified (unclean) opinion
An auditor may not be able to express an unqualified opinion when either of the
following circumstances exists and, in the auditor’s judgement, they are material to the
financial statements (Hopwood, Leiner and Young, 2012).
a) There is a limitation on the scope on the scope of the auditor’s work; or
b) There is a disagreement with management regarding the acceptability of the
accounting policies selected, the method of their application or the adequacy of
financial statement disclosures.
2.4.5 Auditor’s Report containing a Qualified Opinion
An auditor’s report containing a qualified opinion is issued when the auditor concludes
that an unqualified opinion cannot be expressed but that the effect of any disagreement
with management, or limitation in scope, is not so material as to require an adverse
opinion or a disclaimer of opinion. A qualified opinion should be expressed as fairly
presenting the financial statements “except for” the effects of the matter to which the
qualifications relates (Hopwood, Leiner, and Young, 2012).
2.4.6 Auditor’s Report containing an Adverse Opinion.
An adverse opinion is issued when the effect of a disagreement is so material and
pervasive to the financial statements that the auditor concludes that a qualification of his
report is not adequate to disclose the misleading or incomplete nature of the financial
statements (Okezie, 1994).
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Notice that the adverse opinion report has a third paragraph , before the opinion
paragraph, which is the paragraph discussing the disagreement. For example, if the
auditor has a disagreement with management as to an allowance for nonperforming
loans. It will be obvious from reading the opinion paragraph that an adverse opinion
report is likely to have a very negative effect on the readers of the report and the related
financial statements; therefore, such reports are issued only after all attempts to persuade
the client to adjust the financial statements have failed. The only other option available to
the auditor in this situation is withdrawal from the engagement.
2.4.7 Auditor’s Report Containing a Disclaimer of Opinion
An auditor’s report containing a disclaimer of opinion should be expressed when the
possible effect of a limitation on scope is so material an pervasive that the auditor has not
been able to obtain sufficient appropriate audit evidence and therefore is unable to
express an opinion on the financial statements. Whenever the auditor issues a report that
is other than unqualified, he should include a clear description of all the substantive
reasons that should be included in the report and a qualification of the possible effect(s)
on the financial statements. This information should be set out in a separate paragraph,
preceding the opinion or disclaimer of opinion and may include a reference to a more
extensive discussion, if any, in a note to the financial statements.
2.4.8 Meaning and Framework of Public Financial Management
Financial Management is an integral part of overall management. It is concerned with the
duties of the financial managers in the business firm. The term financial management,
according to, another most popular and commonly used definition of financial
management is given by which is the procurement of fund and their effective utilization
in the business. Also subscribed to the definition of financial management as an
application of general managerial principles to the area of financial decision- making,
33
given this definitions, it can be deduced that financial management is primarily based on
efficient use of available economic resources. The context from which this phenomenon
is studied in this current study is public/government institutions where profitability is
unlikely the primary goal for optimally managing finances. State framework for public
financial management reform (2010) asserts that public financial management (PFM)
supports the effective and accountable use of public resources and helps to underpin
fiscal discipline. Fiscal discipline means that there is effective control of the budget by
setting ceilings on expenditure. It requires overall expenditure control, without which it
is impossible to achieve effective prioritisation and implementation of policy priorities
and programmes.
The basic objectives of public financial management are:
1. to collect sufficient resources from the economy in an efficient and effective
manner that minimises harm to economic activity
2. to allocate resources in accordance with government priorities
3. to utilise resources in an effective an efficient manner to ensure that services are
delivered, and programmes implemented, cost-effectively.
Figure 2.1: Public Financial Management Cycle Source: State Framework for Public Financial Management Reform (2010)
Budgeting
Execution
Planning &
Budgeting
Accounting and
Reporting
Auditing
34
The Public Financial Management cycle (state framework for Public Financial
Management Reform, 2010) above shows the order of the different processes in the
framework for public financial management. These processes include the following
activities:
� Planning & Budget formulation: This involves effective planning on the use of
the public funds as well appropriate use of allocated funds
� Budget execution: management of financial operations (revenue, commitments
and payments, procurement, controls, and cash management)
� Accounting and reporting: proper keeping of records and
� Internal audit and evaluation
An efficient Budget Execution system requires that:
1. Budget implementation is carried out according to authorisations in the law
2. Adaptations/adjustments can be made during execution of the budget to address
significant unforeseen challenges or changes in the circumstances
3. Problems arising during implementation are resolved and
4. The raising and use of resources are managed efficiently and effectively.
The system of budget execution should ensure:
• Rigorous aggregate expenditure control and
• Effective and efficient use of resources according to budget priorities.
The main features of an efficient budget execution system are:
• Payment processes and internal controls that ensure probity, economy and
efficiency in managing public funds, assets and liabilities.
• A Cash Management System.
• Expenditures are correctly classified and reported, and
35
• Internal and external audit systems that will provide assurance those public
expenditure management procedures achieve the necessary standards of legal
compliance, efficiency and effectiveness.
While the foregoing describes what is expected of a typical public or
governmental institution such as the Nigerian federal parastatals studied here, in terms of
their financial management framework, discussion in the next section shall be based on
some theoretical approaches to the use of an effective audit report for improving the
public financial management framework.
2.4.9 Theoretical Framework
In this section, the theories that can be used to explain the likelihood of effects in terms
of improvement or otherwise that audit reports can have on the financial management of
Nigerian federal parastatals are discussed.
2.5 Agency Theory
According to the agency theory, a company consists of a nexus of contracts between the
owners of economic resources (the principals) and managers (the agents) who are
charged with using and controlling those resources (Jensen & Meckling, 1976 cited in
Sarens and Abdol Mohammadi, 2011:4). Agency theory posits that agents have more
information than principals and that this information asymmetry adversely affects the
principals’ ability to monitor whether or not their interests are being properly served by
agents.
Furthermore, an assumption of agency theory is that principals and agents act
rationally and use contracting to maximize their wealth. A consequence of this
assumption may be the ‘moral hazard’ problem (Jensen & Meckling, 1976), indicating
that in an effort to maximize their own wealth, agents may face the dilemma of acting
36
against the interests of their principals. Since principals do not have access to all
available information at the time a decision is made by an agent, they are unable to
determine whether the agent’s actions are in the best interest of the firm.
Applying this agency theory to this current proposed study, auditors especially,
the so called internal auditors are the ‘agents’ who are expected to act independently in
the best interest of members of the public whose funds the federal parastatals are using.
They are expected to constantly audit prepared an objective and critical audit report
which would show the ‘true and fairness’ of the books of the parastatals and in return,
can aid improvement in the management of finances of the parastatals. Despite this
fiduciary duty they owe the masses, government regulatory bodies and even the masses
do express concerns about the extent to which the auditors actually adhere to such duties.
A specific concern is their failure to challenge or validate the assumptions that underlie
significant accounting estimates of the management of the parastatals (NACD, 2010). It
is frequently emphasized that management of some firms compensates audit committee
members. And this economic bond may lead to conditions in which the internal auditors
here in this case, consciously or subconsciously, may try to please management of the
parastatals, even at the cost of masses’ interests or the regulatory agency (principal).
To reduce the likelihood of this problem, an external auditor may be summoned
to audit the accounts of any perceived mal-run parastatal and through this, it may be
difficult for the management of the parastatal to buy-in the external auditor or conceal
any material information needed by the auditor. The bone of contention here is that,
auditor report is intended to facilitate improved financial management if it critically
exposes the true state of the corporation but where the management creates an economic
bond with the auditor, the audit report will lack the intended authenticity.
37
2.5.1 Two Perspectives of Accountability
This method is adopted in Kang (2012). He observes that the theory of accountability
used in the accounting and psychological literature concerns how individuals cope with
different socio-economic pressures. Specifically, the theory predicts that individuals
(auditors) develop different social and cognitive strategies for coping with accountability
to obtain acceptance from, or avoid conflict with important interpersonal or institutional
audiences. In other words, the concept of accountability is typically viewed to have a
self-serving motivation. Meanwhile, this self-interest is not the only motivation
underlying accountability. Many researchers in the field of sociology and management
suggest that altruistic reasons can also motivate accountability (Dicke, 2002; Heinrich,
2007, Sinclair et al, 2010). For example, Dicke (2002) states that “stewardship theories
have been proposed as a basis for ensuring accountability in contracted human services.”
From this perspective, an internal sense of responsibility, rather than protection of self-
interest, is the core motivation underlying accountability.
Audit committee members are generally accountable towards protecting
shareholders’ interests, but they also have the incentive to minimize being accountable
for negative financial outcomes. While Kang (2012) sought to determine whether the
incentive to avoid such potential accountability (i.e., protection of self-interest) or the
internal sense of accountability towards protecting shareholders (i.e., altruistic
motivation) is the underlying mechanism of audit committee members’ behaviours, a
completely different perspective is where this current work views the scenario but
relative to Kang’s (2012) work.
38
2.5.2 Empirical Review
Academic researches on the effectiveness of audit reports in organizations seem to be
scarce up till date. Very few existing related studies were reviewed here in this current
proposed study. One of which is the study of Modogu, Ohonba and Izedonmi (2012)
which was carried out on “Challenges of Auditors and Audit Reporting in a Corrupt
Environment” using desk research survey design method. The study draws from the
rising spate of corruption in both private and public establishments in Nigeria which has
over the years assumed an enormous dimension. Modogu et al., (2012) observe in their
study that the increasing development of corruption has eroded public trust in financial
statements. Auditors who, in their duty to expressing professional opinion on the truth
and fairness of financials are ostensibly bedevilled with quantum of challenges which
result in the issuance of a clean bill of health to corruption-riddled establishments.
In the bid to critically examine the challenges the corruption poses to auditors and
audit reporting however, Modogu et al., (2012) sought to proffer formidable cures to
ameliorate the achilles heels and to redeem the auditing profession from impeding
collapse. The study concludes that auditors should be able to protect and prevent
intentional behaviour and actions that undermined the will of the people, waste of public
resources and activities that undermine accountability and transparency. This typically
involves assuring that the right kind of controls is in place. Also, auditors must have a
zero tolerance of corruption and should reduce improper payments each year that result
from fraud, abuse and payments errors.
Another important existing related study on audit report effectiveness is the study
of Kang (2012) which was carried out on “Audit Committee’s Propensity to Challenge
Significant Accounting Estimates: The Joint Effects of Audit Report Content and Investor
Type” using questionnaire based survey design method. Drawing on two perspectives of
39
accountability theory, Kang’s (2012) study sought the joint effect of audit report content
and investor type (i.e., primary shareholders of the firm – whether sophisticated or
unsophisticated) on audit committee members’ propensity to challenge management’s
significant accounting estimates. His findings indicate that audit committee members
engage in the highest level of questioning when sophisticated investors are the primary
shareholders of the firm and a standard, unqualified audit report is issued with no
additional information about management’s significant accounting estimate. By contrast,
their questioning level would be significantly lower when unsophisticated investors are
the primary shareholders of the firm and/or when the audit report includes an explanatory
paragraph about management’s significant accounting estimate. Kang’s further analysis
suggests that this pattern of results is more pronounced for audit committee members
who are designated as financial experts.
Some other extant studies on the effect audit report suggest that additional
disclosure in the audit report can be beneficial to users (Beasley, Carcello, Hermanson,
and Lapides, 2009; Fisher, 1990; Archambeault and DeZoort, 2001; Davis, 2007). Fisher
(1990) and Davis (2007) studies evident that public disclosures of materiality in the audit
report increase market efficiency, ultimately benefiting financial statement users. In the
same vein, the survey results of Manson and Zaman (2001) also document that various
disclosures in the audit report, such as disclosure of materiality, auditor’s assessment of
the going concern status, findings related to fraud, and the extent of reliance on internal
controls, can decrease expectations gap. These findings are relevant to this current
proposed study in explaining the fundamental effects that such materiality disclosures
can have on improving financial management in federal government parastatals in
Nigeria.
40
Another existing similar work on audit report, questions Audit Report Effect on
Financial Discipline, Integrity and Accountability using the Audit Reports of the
Tanzanian Ministry of Health and Social Welfare Fiscal Years 1999 – 2010.
Acknowledging that proper financial management and accountability over public
funds is a central component of good governance and that public funds are intended to be
used effectively and efficiently to ensure that citizens are receiving the quality services
for which public funds have been allocated, study drew from the major challenge of
Tanzania which is poor financial management of public institutions. Noting that the
office of the Controller and Auditor General (CAG) was established under Article 143,
subsection (5), of the Constitution of the United Republic of Tanzania 1977 (revised
2005) and Section 10 (1) of the Public Audit Act No. 11 of 2008, to oversee the accounts
of the government and other public bodies, which include the Ministry of Health and
Social Welfare (MoHSW).
In the audit reports, the CAG normally presents findings regarding the financial
statements of the entity and provides recommendations to improve the management of
public resources.
But of importance to note is the fact that the auditing exercise carried out by the
CAG usually uses public funds to see whether other public funds are managed well. And
to serve the intended purpose of the exercise, the results have to be taken seriously and
proper measures by both executive and parliament have to be taken to reduce the abuse
and misuse of public finds. In this regard, study sought to analyse the audit reports for
the Ministry of Health and Social Welfare (MoHSW) from 1999 to 2010 to see whether
the auditing by the CAG and Parliamentary reviews have had effect on the Ministry’s
financial management just as this current proposed study seeks.
41
There has been an unsteady progress by the MoHSW working on the issues that
are raised by the CAG. For instance, from 2007 to 2009, sums of 10 billion, 4 billion and
0.5 billion shilling were queried, respectively. This trend has been thwarted in 2010 due
to 21 billion shilling questioned by the CAG. Thus, notes that the CAG has been raising
serious concerns with regard to the misuse and abuse of public funds. But, unfortunately,
his findings have not received adequate attention by the accounting officers (in
MoHSW’s case, the Permanent Secretary) and, as a result, similar queries are recurring
annually. In all, study concluded that not all available resources to MoHSW have been
properly utilized for the intended purposes and priorities and that the Tanzanian
Government has not managed to allocate 15 percent of its total budget to Health as
stipulated in the 2001 Abuja Declaration which was signed by Tanzania. However, while
the ministry is inadequately funded, financial discipline has also not been adequately
practiced. Meeting the Abuja Declaration target is unlikely to yield improved health
outcomes if the money is not spent well. Citizens would like to ensure that their money is
being spent wisely on quality health services and that public officials are held
accountable for this spending.
Furthermore, carried out an empirical investigation of Audit Expectation Gap in
Nigeria using survey research design method, describing audit expectation gap (AEG) as
the difference between what the public expects from an audit function and what the audit
profession accepts as the objectives of auditing to be, these authors observe that the
existence of an audit expectation gap is likely to be detrimental to the value of auditing
and the well-being of auditing profession as the contribution of auditing may not be fully
recognized by society. While this has over the years stirred a number of professional and
regulatory reforms aimed at protecting shareholders who rely on the financial statements
for decision purposes and in spite of the existence of researches pointing to the
42
difference between what the public expects from audit and what the audit profession
accepts as the objective of auditing, spot that there is paucity of research on how to
address this issue in Nigeria. These authors drew on this by investigating whether audit
expectation gap actually exists in Nigeria and the perception of the concerned groups on
its existence. Their findings reveal that an audit expectation gap exists in Nigeria
particularly, on issues concerning auditor’s responsibility. It was observed that there are
significant differences in the perception of respondent groups on the existence of the
audit expectation gap in Nigeria. Okafor and Otalor (2013) similarly studied audit
expectation gap in Nigeria by seeking to ascertain the role of auditing profession in
narrowing the audit expectation gap, using self-administered questionnaire based survey
design method. The finding of the study shows that the Nigerian public is ignorant of the
duties of the auditor and this lack of knowledge can be responsible for unreasonable
expectations of the public from auditors. Based on the findings and conclusion, it was
recommended that the public need more education on the duties and responsibilities of
the auditor, and that a standard auditor’s report should be expanded to include disclaimer
clauses clearly showing that it is not a certificate or guarantee of the financial soundness
of the auditee. The authors further provide that it should be clearly stated in the audit
report that the auditor is not the Compliance Officer of the audited company and that the
auditor’s report should add that “the opinion expressed by the auditor should not be
construed to mean a guarantee of accuracy of the financial statements”.
Other similar existing empirical studies on audit expectation gap are extensive in
developed economies. A number of which were critically reviewed in study. These
studies (Gay et al., 1997; Hojskov, 1998; Porter, 1993; Best et al., 2001) also used survey
questionnaires to identify the nature of the gap or where the gaps are, impacts of the gap,
and how to reduce the gap. Different respondents were used in the studies to elicit their
43
opinion, for example, auditors, lawyers and judges (Lowe, 1994), investors (Epstein and
Geiger, 1994), shareholders (Best et al.,2001), chartered accountants, financial directors,
investment analysts, bankers and financial journalists (Humphrey et al., 1993; Porter,
1993), financial directors and users of corporate financial statement (Benau et al., 1993).
Low (1980) examined the expectation gap in Australia. The extent of auditors’ detection
and disclosure responsibilities concerning errors, irregularities and illegal acts as
perceived by auditors and non-auditor groups was investigated. It was found that both
groups differed significantly in their perceptions of the extent of auditors’ detection and
disclosure responsibilities, and that an expectation gap existed between the two groups.
Humphrey et al. (1993) examined the expectation gap by ascertaining the perceptions of
individuals of audit expectations issues through the use of a questionnaire survey
comprising a series of mini-cases. The respondents included chartered accountants in
public practice, corporate finance directors, investment analysts, bank lending officers
and financial journalists. The survey revealed a significant difference between auditors
and the respondents (represented by some of the main participants in the company
financial report process) in their views on the nature of auditing. The results confirmed
that an audit expectation gap exists, specifically in areas such as the nature of the audit
function and the perceived performance of auditors.
Mohamed and Muhamad-Sori (2002) revealed that the audit expectation gap
exists in Malaysia. The existence of the gap is due to a number of contributing factors
such as, uncertainties concerning the actual role of auditor; the satisfaction of clients
with services provided by the auditors; and the audit firm’s lack of independence and
objectivity.
A more comprehensive similar study was conducted by Fadzly and Ahmad
(2004) to examine the audit expectation gap among auditors and major users of financial
44
statements: bankers, investors, and stockbrokers. The study focused on the positive view
of the expectation gap, which compared auditors’ and users’ perceptions on the duties of
auditors.
To complement the findings of Fadzly et al. (2004), Lee and Palaniappan (2006)
and Lee et al. (2007) conducted a survey on audit expectation gap in Malaysia to
examine whether an expectation gap existed in Malaysia among the auditors, auditees
and audit beneficiaries in relation to auditors’ duties. In addition, the study analyzed the
nature of the gap using Porter’s framework. The results proved the existence of an audit
expectation gap in Malaysia.
Dixon et al. (2006) investigated the expectation gap between auditors and
financial statement users in Egypt. The study confirmed the existence of an expectation
gap in the nature of the audit function, the perceived performance of auditors, their duties
and role, their independence and the non-audit services. In a more recent study, Lee et al.
(2010) analyzed the nature of the audit expectation gap in Thailand using Porter’s (1993)
framework. The study revealed that the auditees and audit beneficiaries have an
expectation of auditors’ duties that is far in excess of that of the auditors themselves.
Their results confirm those of the previous study by Boonyanet and Ongthammakul
(2006) that the audit expectation gap exists in Thailand.
2.5.3 Gap in the Reviewed Literature
Amongst the few existing related studies that were reviewed here in this chapter, there
exist some perceived gaps which account for the necessity of this current proposed study.
First and foremost, the conclusions of Modogu et al.,(2012)’s study which draws from
the spate of corruption in Nigeria by studying Challenges of Auditors and Audit
Reporting in a Corrupt Environment, is baseless since it is not empirical. The study is
just like an ordinary essay. The empirical analysis of the views of auditors regarding the
45
challenges confronting them in such a corrupt environment was not done. This current
study shall help bridge this identified and analysing the challenges that auditors of
Nigerian federal parastatals may be facing since these challenges may have an impeding
influence on the nature or quality of audit reports the auditors can prepare regarding the
books of the parastatals and can jeopardize the desired improvement in their financial
management.
Another important gap identified from among the few existing related studies on
audit report effectiveness is from the study of Kang (2012). Apart from the fact that the
study was not carried out in Nigeria and its findings may need to be checked if it is also
appropriate or would be similar in Nigeria, Kang’s (2012) study only checked the joint
effects of audit report content and investor type (sophisticated and/or unsophisticated
primary shareholders).
In spite of the fact that audit committee members owe fiduciary duty to
shareholders, NACD (2010) observes that commentators and regulators have expressed
concern about the extent to which they (auditors) actually adhere to such duties. A
specific concern is their failure to challenge or validate the assumptions that underlie
significant accounting estimates and it is frequently emphasized that most firm
management compensates audit committee members. This economic bond may lead to
conditions in which audit committee members, consciously or unconsciously, may try to
please firm management, even at the cost of shareholder interests. Kang’s study
unfortunately, did not cover this line of thought. This current proposed work however
shall cover both the joint and relative effects of investor or regulator type (sophisticated
or unsophisticated) and the auditor’s auditing behavioural factor in terms of altruism or
self-centredness, on the nature of the audit report prepared at the Nigerian federal
parastatals. The significance of this identified area of research can help this current study
46
to model a regression equation that will describe the extent to which these two factors:
investor/regulator type and auditor’s auditing behavioural factor, given that all other
things remain equal, will explain how the parastatals’ audit reports will influence or
cause improvement to their financial management.
While the findings of Beasley, Carcello, Hermanson and Lapides (2009); Fisher
(1990); Archambeault and DeZoort (2001); Davis (2007); and Manson & Zaman’s
(2001) studies suggest that additional disclosure in audit report can be beneficial, they
only focus on how such disclosure will affect the users of the financial statement and the
market outcome, but do not cover how such disclosure may affect financial management
adjustment (improvement) of the organization in subsequent accounting years. This
current proposed study thus, seeks to extend this line of research by empirically
examining how additional disclosures in the audit reports of Nigerian federal parastatals’
accounting estimates can influence or cause improvement to their financial management
in subsequent accounting years or periods.
On Audit Expectation Gap studies reviewed here in this study, particularly the
ones that were carried out in Nigeria, some research gaps can as well be deduced. The
study is one. This study obtained its respondents only in Lagos state in order to study the
perception of members of the Nigerian public. Without any further doubt, it can deduced
that the findings of the authors’ study cannot in any way be used to generalise the
perception of Nigerian audit report beneficiaries at large and as a result, the study leaves
the gap of covering the entire country in order to justify whether AEG actually exists.
Meanwhile, the Okafor and Otarlor’s (2013) study which sought to ascertain the role of
the auditing profession in narrowing the audit expectation gap did not study what it
ought to study. The study ought to check the efforts of the auditing profession in
narrowing the expectation gap either through tertiary institution curriculum courses made
47
available for students or through the number of free auditing workshops/seminars that
Nigerian auditors have been able to organize so far. While this particular area of research
is not in any way one of the intents of this current proposed study, none of the existing
AEG studies have been able to check whether the extent of the gap found existing in
auditing expectation is responsible for inadvertent effect on financial management of
organizations. This current study however shall improve on study by checking the AEGs
in Nigerian federal parastatals and also find out if the extent of the gap can be
responsible for the extent of the improvement in the parastatals’ financial management.
2.5.4 Summary of Literature Review
A number of exiting related studies were reviewed here in this chapter. One of which is
the study of Modogu, Ohonba and Izedonmi (2012) which was carried out on the
challenges of auditors and audit reporting in a corrupt environment. The study draws
from the rising spate of corruption in both private and public establishments in Nigeria
which has over the years assumed an enormous dimension and in the bid to critically
examine the challenges the corruption poses to auditors and audit reporting however,
Modogu et al., (2012) sought to proffer formidable cures to ameliorate the achilles heels
and to redeem the auditing profession from impeding collapse. The study concludes that
auditors should be able to protect and prevent intentional behaviour and actions that
undermined the will of the people, waste of public resources and activities that
undermine accountability and transparency. This typically involves assuring that the
right kind of controls is in place. Another existing related study on audit report
effectiveness reviewed here in this study is Kang (2012) which was carried out on audit
committee’s propensity to challenge significant accounting estimates: the joint effects of
audit report content and investor type using questionnaire based survey design method.
Drawing on two perspectives of accountability theory, Kang’s (2012) study sought the
48
joint effect of audit report content and investor type (i.e., primary shareholders of the
firm – whether sophisticated or unsophisticated) on audit committee members’
propensity to challenge management’s significant accounting estimates.
His findings indicate that audit committee members engage in the highest level of
questioning when sophisticated investors are the primary shareholders of the firm and a
standard, unqualified audit report is issued with no additional information about
management’s significant accounting estimate. But by contrast, their questioning level
would be significantly lower when unsophisticated investors are the primary
shareholders of the firm and/or when the audit report includes an explanatory paragraph
about management’s significant accounting estimate. Kang’s further analysis suggests
that this pattern of results is more pronounced for audit committee members who are
designated as financial experts. Another existing similar work on audit report, questions
Audit Report Effect on Financial Discipline, Integrity and Accountability using the Audit
Reports of the Tanzanian Ministry of Health and Social Welfare Fiscal Years 1999 –
2010. The study drew from the major challenge of Tanzania which is poor financial
management of public institutions.
Furthermore, carried out an empirical investigation of Audit Expectation Gap in
Nigeria using survey research design method, their findings reveal that an audit
expectation gap exists in Nigeria particularly, on issues concerning auditor’s
responsibility. It was observed that there are significant differences in the perception of
respondent groups on the existence of the audit expectation gap in Nigeria. Okafor and
Otalor (2013) similarly studied audit expectation gap in Nigeria by seeking to ascertain
the role of auditing profession in narrowing the audit expectation gap, using self-
administered questionnaire based survey design method. The finding of the study shows
that the Nigerian public is ignorant of the duties of the auditor and this lack of
49
knowledge can be responsible for unreasonable expectations of the public from auditors.
Based on the findings and conclusion, it was recommended that the public need more
education on the duties and responsibilities of the auditor, and that a standard auditor’s
report should be expanded to include disclaimer clauses clearly showing that it is not a
certificate or guarantee of the financial soundness of the auditee. A host of other similar
existing empirical studies on audit expectation gap are extensive in developed economies
and were reviewed here in this chapter also.
50
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52
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53
CHAPTER THREE
RESEARCH METHOD
3.0 Introduction
This chapter covers the proposed methods to be adopted for this study. It includes the
research design for the study’s entire logical inquiry in terms of data collection, source
and types of data, population and sample size, validity and reliability of data collection
instrument, and finally, the methods for data analysis.
3.1 Research Design
Survey research design method was employed for this study just as some existing related
studies have done. The type of data required for the study is simply the justification for
choosing this type of method.
3.2 Area of the Study
This study was carried out at the main offices of three federal government parastatals:
Joint Admission and Matriculation Board (JAMB), National University Commission
(NUC) and National Mathematical Centre, all at Abuja.
3.3 Population of the Study
The population for this study is given in table 3.1 below as obtained from the three
federal parastatals in a pre-study.
TABLE 3.1: POPULATIONS OF THE STUDY JAMB NUC NMC Total Accounting Officers 48 21 18 87 Internal Audit Officers 29 13 11 53 Other Staff 117 133 86 336 194 167 115 476
Source: Human Resource Department of each Parastatal, 2013
54
As presented on table 3.1 above, the population of the staff of JAMB, NUC, and NMC
which would be covered in the course of this current study are 194, 167 and 115
respectively. This summed together gives 476.
3.4 Sample Size Determination
The required sample size for this study was determined through the use of the popular
Taro-Yamane (1964:88) formula which states as thus:
� = �
1 + �(�)
Where
n = required sample size, N = Population of the study, and e = tolerable error margin (at
5%)
To compute the sample size, N = 476; e = 0.05
� = 476
1 + 476(0.05)=
476
1 + 1.19=
476
2.19= 217.351598 ≈ 217
217 respondents were selected to take part in the survey for this study. Stratified
sampling technique is adopted to apportion the 217 among the three parastatals based on
their population.
Apportioning the sample size to the Parastatals
Using the formula
� =�
� x n where k = apportioned sample size to each parastatal,
a = population of each parastatal; A = Total Population; and
n = sample size determined
55
Jamb NUC NMC
� =���
��� x 217 = 88.44 ≈ 88 � =
���
��� x 217 = 76.13 ≈ 76 � =
��
��� x 217 =
52.43 ≈ 52
3.5 Method of Data Collection
The data required for the study were collected through the use of structured
questionnaire. The questionnaire shall be self-administered.
3.6 Validity and Reliability of Data Collection Instrument
3.6.1 Validity of the Data Collection Instrument
A research instrument is said to be valid if it measures what it purports to measure. There
are many ways this can be ascertained but in this proposed study, the researcher
considered both face and content validity methods as being appropriate. In achieving
these, few copies of the instrument were given to the research experts for validation.
While the instrument was vetted and certified valid (Face Validity), it was also critically
assessed to ensure that the content of the instrument measures what the overall study is
all about (Content Validity). Corrections and adjustments were made to enrich the
validity of the instrument.
3.6.2 Reliability of the instrument
Reliability of a research data collection instrument is the extent of response
reproducibility over a number of times the instrument is tested, or the extent to which the
responses obtained through each of the items on the instrument is internally consistent.
In a nutshell, it is the extent to which the instrument is capable of achieving reliable
responses from the respondent, via the data collection instrument. Cronbach Alpha
Coefficient method was used here in this study. The justification for using this method
and not any other, such as Test-retest was because of their inherent shortcomings which
56
Cronbach Alpha relieves. The researcher subjects the responses obtained from the pilot
survey to testing the reliability via SPSS (Statistical Package for Social Sciences) version
15.0, a Computer Aid Data Analysis Software Package. The below present the results of
the reliability test.
TABLE 3.2: RELIABILITY STATISTICS Cronbach's Alpha Cronbach's Alpha
Based on Standardized Items
N of Items
.97 .960 20 Source: SPSS version 15.0
In the table 3.2 above, the output of the reliability test reveals that the responses collected
through all the 20 items on the proposed data collection instrument are internally
consistent at 0.960 standardized alpha levels.
3.7 Method of Data Analysis
Both descriptive and inferential statistical analytical methods were utilized for this study.
The descriptive methods such as, Bar and Pie charts, frequency distribution, tables and
percentages, were used to analytically present the data collected from the respondents
across the three parastatals. The inferential statistical methods were used to test
hypotheses in the following order:
Hypothesis One
Chi-square (X2) was used to test this hypothesis. This method is a Probability
Distribution Function (PDF). For any given phenomenon whereby prior knowledge
about the state of nature is known but not specific or certain just as the challenges that
specifically militate against internal and external auditors at the federal government
parastatals from carrying out their professional service are not actually known. Chi-
57
square method is then used to determine whether there is a relationship between
Expected frequencies of responses regarding the phenomenon and the Observed
frequencies. If any significant relationship exists, it means that the hypothesised opinion
about the phenomenon is true and it will be accepted. In this case, therefore,
H0 will be rejected if |!"#$2 > !
% 㤲&2 |. Otherwise, it will be accepted
Hypothesis Two
Multiple Linear Regression was used to test this hypothesis. The justification for this
method is because of the need to check joint and individual effects of two independent
variables: auditor orientation and public sector regulator type (sophisticated or
unsophisticated). Except when occasion calls for an external auditor who would
thoroughly look into the books of the parastatals and produce a report viable to cause a
significant impact on the financial management of the parastatals, it is assumed that
some of the internal auditors of the parastatals are lukewarm either because there is no
pressure mounted on them by the regulatory agencies or that they have created a bond
with the management. Representing these on a proposed model, the below were used
() = * + +1,1 + +
2,2 + -
Where
( 뷰= Audit Report Nature (Authenticity, Accurateness, Originality, etc)
* = y-intercept value or constant term where all other factors remain constant
,1 = Regulatory Agency type (sophisticated or unsophisticated)
,2 = Auditor orientation (Altruistic or Corrupt – creating bond with management)
+1, +
2 = determinants of ,1and ,2
- = Stochastic terms, representing all other factors that may explain or determine good
Audit Report.
58
Decision Rule
H0 will be rejected if |/-value < 0.05| at the Fstatistic computed. Otherwise, accept it.
Hypothesis Three
Pearson’s Product Moment Correlation s(PPMC) was used to test this hypothesis. The
justification for this is that the method can help to ascertain the extent of relationship
between the disclosure of all material information in the audit report and the parastatals’
financial management statuses.
Decision Rule
H0 will be rejected if |/-value < 0.05|. Otherwise, accept it.
Hypothesis Four
One way Analysis of Variance (ANOVA) was used to test this hypothesis. As the name
implies, this method is primarily meant for test the difference or variance in any given
distribution but here in this study, the difference in the perception of the respondents
regarding the expected statutory duties of the auditors will be tested.
Decision Rule
H0 will be rejected if |/-value < 0.05| at the Fstatistic computed. Otherwise, accept it.
All the analyses were done through Statistical Package for Social Sciences (SPSS)
version 15.0.
59
REFERENCE
Yamane, T. (1967). Statistics: An Introductory Analysis, 2nd ed., New York: Harper and Row
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Survey/Data Collection Report
Out of the 217 copies of questionnaire administered on the staff of JAMB, N
NMC, only 203 copies were completed and returned. Others were not. Table 4.1 below
presents a better analysis of th
respondents.
Table 4.1: Survey/Data Collection Report Based on Questionnaire Copies Administered
Auditors Acctg Staff & Others
Total Copies Administered Copies Not Returned from Auditors Copies Not Returned Others
Copies Not Returned Copies Returned from AuditorsCopies Returned Others
Total Copies ReturnedSource: Field Survey, 2014
27.3%
19.0%
6.0%
4.6%
Fig. 4.1: Percentage Composition of Accountants to Other Senior OfficersFig. 4.2: Percentage Composition of A
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
Survey/Data Collection Report
copies of questionnaire administered on the staff of JAMB, N
NMC, only 203 copies were completed and returned. Others were not. Table 4.1 below
presents a better analysis of the report with the overall percentage response rate from the
Survey/Data Collection Report Based on Questionnaire Copies Administered
JAMB NUC NMC Total29 13.4% 13 6.0% 11 5.1% 59 27.3% 63 29.2% 41 19.0% 163
Total Copies Administered 88 40.7% 76 35.2% 52 24.1% 216
Copies Not Returned from 5 2.3% 0 0.0% 1 0.5%
Copies Not Returned Others 3 1.4% 4 1.9% 0 0.0% Copies Not Returned 8 3.7% 4 1.9% 1 0.5%
Copies Returned from Auditors 24 11.1% 13 6.0% 10 4.6%
56 25.9% 59 27.3% 41 19.0% 156Total Copies Returned 80 37.0% 72 33.3% 51 23.6% 203
25.9%
27.3%
19.0%
JAMB
NUC
NMC
11.1%
4.6%
JAMB
NUC
NMC
Fig. 4.1: Percentage Composition of Accountants to Other Senior Officers Percentage Composition of Auditors to Other Senior Officers
60
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
copies of questionnaire administered on the staff of JAMB, NUC and
NMC, only 203 copies were completed and returned. Others were not. Table 4.1 below
report with the overall percentage response rate from the
Survey/Data Collection Report Based on Questionnaire Copies
Total Percent 53 24.5%
163 75.5% 216 100.0%
6 2.8%
7 3.2% 13 6.0%
47 21.8%
156 72.2% 203 94.0%
61
The Tables and Figures presented above represent the analyses of the report on %
response rates from the survey held with the staff of federal parastatals in education
sector in Nigeria. Among the Accounting Officers & Other Staff, 25.9% success
response rate was obtained at JAMB, 27.3% from NUC and 19.0% from NMC, giving a
total percentage response rate of 72.2%. Among the Auditors, 11.1% success response
rate was obtained at JAMB, 6.0% from NUC and lastly, 4.6% from NMC. These
altogether gives a percentage response rate of 21.7%. The entire survey produced a
success response rate of 94.0%.
4.2 Analysis of the Respondents’ Demographic Data
Gender
TABLE 4.2: RESPONDENTS GENDER: ACCOUNTING OFFICERS & OTHER STAFF
JAMB NUC NMC Total % Male 39 41 27 107 68.6 Female 17 18 14 49 31.4
56 59 41 156 100.0
Source: Field Survey, 2014
TABLE 4.3: RESPONDENTS’ GENDER: AUDITORS
JAMB NUC NMC Total % Male 17 9 7 33 70.2 Female 7 4 3 14 29.8
24 13 10 47 100.0 Source: Field Survey, 2014
The gender distribution of the respondents both the Auditors and Accounting & Other
Staff captured for this study were presented on tables 4.2 and 4.3 above. 68.6% of the
Accounting & Other Staff captured are males while 31.4% others are females. As for the
Auditors, 70.2% are males while 29.8% others are females. In all, it can be deduced that
majority of the respondents that were captured for this study are males.
62
Work Status
TABLE 4.4: RESPONDENTS’ WORK STATUS: ACCOUNTING OF FICERS & OTHER STAFF
JAMB NUC NMC Total % Junior 27 31 26 84 53.8 Senior 23 24 13 60 38.5 Director 6 4 2 12 7.7
56 59 41 156 100.0
Source: Field Survey, 2014
TABLE 4.5: RESPONDENTS’ WORK STATUS: AUDITORS
JAMB NUC NMC Total % Junior 5 3 0 8 17.0 Senior 15 8 5 28 59.6 Director 4 2 5 11 23.4
24 13 10 47 100.0 Source: Field Survey, 2014
The work status of the respondents was presented on tables 4.4 and 4.5 above. 53.8% of
the Accounting Officers & Other Staff are junior workers, 38.5% are senior while 7.7%
others are Directors. As for the Auditors, 17.0% are junior workers, 59.6% senior
workers, while 23.4% others are Directors. Altogether, it can be deduced that majority of
the workers captured for Accounting & Other Staff are junior workers whereas majority
of the Auditors are Senior Workers. Implicatively, it shows that the type of data gathered
from the Auditors would to a statistically significant level, likely be genuine.
Length of Service
TABLE 4.6: RESPONDENTS’ LENGTH OF SERVICE: ACCOUNT ING OFFICERS & OTHER STAFF
JAMB NUC NMC Total % 1 – 9yrs 18 11 3 32 20.5 10 – 19yrs 23 27 21 71 45.5 20 – 29yrs 12 16 17 45 28.8 30yrs & Above 3 5 0 8 5.1
56 59 41 156 100.0 Source: Field Survey, 2014
63
TABLE 4.7: RESPONDENTS’ LENGTH OF SERVICE: AUDITORS JAMB NUC NMC Total %
1 – 9yrs 10 3 0 13 27.7 10 – 19yrs 9 6 4 19 40.4 20 – 29yrs 5 3 6 14 29.8 30yrs & Above 0 1 0 1 2.1
24 13 10 47 100.0 Source: Field Survey, 2014
The length of service in terms of the number of years which the respondents have spent
in civil service were presented on tables 4.6 and 4.7 above. 20.5% of the Accounting
Officers & Other Staff indicated that they have spent 1 – 9yrs in government service,
45.5% indicated 10 – 19yrs, 28.8% indicated 20 – 29yrs and 5.1% indicated 30yrs and
Above. As for the Auditors, 27.7% indicated that they have spent 1 – 9yrs in service,
40.4% indicated 10 – 19yrs, 29.8% indicated 20 – 29yrs while 2.1% others indicated
30yrs and Above. Majority of both the Auditors and the Accounting & Other Staff were
seen to have spent 10 – 19yrs in service. By implication, this shows that the respondents
captured for this study are not new in government’s service.
4.3 Analysis of the Respondents’ Responses Based on Research Questions Research Question 1 What are the major challenges confronting auditor from giving effective audit reports on the federal parastatal in the education sector in Nigeria?
4.3.1 The Challenges Confronting Auditors from Giving Effective Audit Reports on Federal Parastatal in the Education Sector in Nigeria
TABLE 4.8: WRONG CHOICE OF AUDIT FIRM JAMB NUC NMC Total %
Strongly Agreed 14 9 8 31 66.0 Agreed 7 4 2 13 27.7 Undecided 3 0 0 3 6.4 Disagreed 0 0 0 0 0.0 Strongly Disagreed 0 0 0 0 0.0
24 13 10 47 100.0
Source: Field Survey, 2014
64
Table 4.8 above presents the responses of the auditors as to whether ‘Wrong Choice of
Audit Firm’ is a challenge they do face in their course of giving effective audit reports on
the federal parastatals in education sector in Nigeria. Across the three parastatals
captured in the study, 66.0% of the entire auditors strongly agreed, 27.7% agreed while
6.4%others remained undecided. None of the auditors could deny this notion. Thus,
wrong choice of audit firm usually poses a serious challenge on these auditors.
TABLE 4.9: AUDIT FEE
JAMB NUC NMC Total %
Strongly Agreed 8 4 5 17 36.2 Agreed 9 7 5 21 44.7 Undecided 4 2 0 6 12.8 Disagreed 3 0 0 3 6.4 Strongly Disagreed 0 0 0 0 0.0
24 13 10 47 100.0 Source: Field Survey, 2014
The data presented on table 4.9 above also shows how much Audit Fee poses a challenge
on the Auditors here in this study as well. While 36.2% of the auditors strongly agreed to
this notion, 44.7% also agree but 12.8% remained undecided while 6.4% others
disagreed. In all, it shows that Audit Fee is frankly a challenge facing the auditors in
their course of giving effective audit reports.
TABLE 4.10: LACK OF INDEPENDENCE JAMB NUC NMC Total %
Strongly Agreed 11 9 9 29 61.7 Agreed 13 4 1 18 38.3 Undecided 0 0 0 0 0.0 Disagreed 0 0 0 0 0.0 Strongly Disagreed 0 0 0 0 0.0
24 13 10 47 100.0 Source: Field Survey, 2014
65
As to the issue of lack of confidence, the auditors demonstrated their reactions here on
table 4.10 above. 61.7% of them strongly agreed that they have no confidence in carrying
out their auditing service at the parastatals. 38.3% others agreed. None of the Auditors
could deny this. It shows therefore that the auditors truly are facing this challenge. They
have no confidence in carrying out their duty as auditors.
TABLE 4.11: REGISTERING OF AUDIT FIRMS UNDER DIFFER ENT NAMES JAMB NUC NMC Total %
Strongly Agreed 5 7 4 16 34.0 Agreed 17 3 6 26 55.3 Undecided 2 3 0 5 10.6 Disagreed 0 0 0 0 0.0 Strongly Disagreed 0 0 0 0 0.0
24 13 10 47 100.0
Source: Field Survey, 2014
Another demeaning factor posing a serious challenge on the auditors in their course of
giving effective audit report is the proliferating registration of audit firms under different
names. 34.0% of the auditors strongly agreed, 55.3% also agreed while 10.6% others
remained undecided. In all, it can be deduced that majority of the auditors are in support
that the proliferating rate at audit firms are being registered under different names are
posing a challenge on the auditors because many of them are inefficient but arranged for
in order to help management of parastatals to perpetrate corrupt practices.
66
Fig 4.3 above presents the summary of the responses given by the auditors [particularly those that strongly agreed and those that agreed] as
regards the challenges confronting them in giving effective audit report on the parastatals in the education sector in Nigeria. From the up-down
view of the chart, it can be deduced that the auditors strongly argued by giving such a high rated response in respect of the challenges facing
them.
89.4%
100.0%
80.90%
93.60%
0% 50% 100% 150% 200% 250%
Registering of Audit Firms Under Different Names
Lack of Independence
Audit Fee
Wrong Choice of Audit Firm
JAMB
NUC
NMC
Total
Fig. 4.3: Summary of the Data Gathered on Auditors’ Challenges
67
Research Question 2 What is the extent to which auditors’ independence is infringed upon by the hospitality or public relations practices of the federal parastatals in the education sector.
4.3.2 Extent to which Auditors’ Independence is Infringed Upon
TABLE 4.12: OFFER OF HOSPITALITY AND GIFTS
JAMB NUC NMC Total %
Strongly Agreed 14 10 8 32 68.1 Agreed 10 3 0 13 27.7 Undecided 0 0 2 2 4.3 Disagreed 0 0 0 0 0.0 Strongly Disagreed 0 0 0 0 0.0
24 13 10 47 100.0 Source: Field Survey, 2014
One of the ways through which the independence of the auditors are infringed upon is the
Gifts-Giving either prior an audit exercise or during auditing exercise. As it can be deduced
on table 4.12 above, it is shown that 68.1% of the auditors strongly agreed and 27.7% others
agreed. Only 4.3% could not decide. These represent only 2 auditors who might not want to
disclose for this study that truly, gifts-giving is a prevailing issue which infringes auditors’
independence at the parastatals in education sector in Nigeria.
TABLE 4.13: FORCED TO COOPERATE WITH HIGH CADRE OFF ICIALS JAMB NUC NMC Total %
Strongly Agreed 11 8 6 25 53.2 Agreed 9 3 2 14 29.8 Undecided 4 2 2 8 17.0 Disagreed 0 0 0 0 0.0 Strongly Disagreed 0 0 0 0 0.0
24 13 10 47 100.0 Source: Field Survey, 2014
In the same way, the auditors can be forced to cooperate with High Cadre Government
Officials. 53.2% of the auditors strongly attest to this, 29.8% also attested or agreed rather,
while 17.0% others remained undecided. None of the auditors could disagreed or deny the
68
notion. It means therefore, that the auditors sometimes could be forced to cooperate with
some high-cadre government officials.
TABLE 4.14: THREATENED OF LOSING JOB JAMB NUC NMC Total %
Strongly Agreed 3 5 2 10 21.3 Agreed 5 7 4 16 34.0 Undecided 3 1 3 7 14.9 Disagreed 7 0 1 8 17.0 Strongly Disagreed 6 0 0 6 12.8
24 13 10 47 100.0 Source: Field Survey, 2014
Also, as one of the ways through which auditors’ independence at the parastatals are
infringed upon, 21.3% of them strongly agreed that they are sometimes threatened of losing
their jobs, 34.0% also agreed but 14.9% remained undecided while 17.0% disagreed and
12.8% others strongly disagreed. This situation seems very controversial among the auditors
as it might not apply to them all which is why some of them disagreed. Nonetheless, over
50.0% of them can be deduced to agree.
TABLE 4.15: REPORT FALSIFICATION
JAMB NUC NMC Total %
Strongly Agreed 0 0 0 0 0.0 Agreed 11 3 2 16 34.0 Undecided 0 3 0 3 6.4 Disagreed 13 7 8 28 59.6 Strongly Disagreed 0 0 0 0 0.0
24 13 10 47 100.0 Source: Field Survey, 2014
Another area through which the auditors’ independence is infringed upon is through report
falsification. This is an important/salient area. While none of the auditors strongly agreed to
this notion, 34.0% of them agreed, 6.4% remained undecided, 59.6% disagreed and none
69
strongly disagreed. In all, it can be deduced that majority of the auditors disagreed to the
notion.
TABLE 4.16: MATERIAL INFORMATION FOR EFFECTIVE AUD ITING ARE HOARDED
JAMB NUC NMC Total % Strongly Agreed 19 9 3 31 66.0 Agreed 3 4 7 14 29.8 Undecided 2 0 0 2 4.3 Disagreed 0 0 0 0 0.0 Strongly Disagreed 0 0 0 0 0.0
24 13 10 47 100.0 Source: Field Survey, 2014
On table 4.16 above, 66.0% of the auditors strongly agreed that the material information for
effective auditing are usually hoarded from them. 29.88% also agreed while 4.3% others
remained undecided. None of the auditors disagreed. It shows therefore that the independence
of the auditors also is infringed through non-release of material information for them to carry
out effective auditing exercise and obviously, this would jeopardise their audit report.
Research Question 3
What is the level of significant of classified information available to the auditors but not
disclosed in their final report on the parastatal in the education sector.
‘The level of significant’ in this research question can only be handled through an Inferential
Test which would not be addressed here in this subsection but, the data collected for testing it
would only be presented and analysed here.
70
4.3.3 Information Available to Auditors but not Disclosed in their Final Reports
The Accounting Officials & Other Staff were the respondents from whom the required data
for this section were collected. They are the ones who know the financial atrocities [if any]
that are being perpetrated at their parastatals, knowing fully well that they would be detected
by the auditors and should be disclosed in their reports. Therefore, the data collected from
them in this respect are analysed here.
TABLE 4.17: AUDITORS RARELY DO THOROUGH CHECK OF A CCOUNT BOOKS
JAMB NUC NMC Total % Strongly Agreed 0 0 0 0 0.0 Agreed 3 5 2 10 6.4 Undecided 11 17 7 35 22.4 Disagreed 42 31 27 100 64.1 Strongly Disagreed 0 6 5 11 7.1
Total 56 59 41 156 100.0 Source: Field Survey, 2014
Table 4.17 above presents the opinions of the Accounting Officers &Other Staff of the
parastatals that were captured for this study. As regards whether the accounting information
available to the auditors but not disclosed in their final reports, none of the Accounting
Officer & Other Staff of the parastatals could strongly agreed that the auditors rarely do
thorough check of Accounting Books. 6.4% also agreed, 22.4% remained undecided, 64.1%
disagreed while 7.1% others strongly disagreed. Based on these opinions, it shows that,
majority of the respondents are not in support that the auditors rarely do thorough check of
Accounting Books. In other words, it means they [the Accounting Officers & Others Staff]
are confidently sure that the auditors usually do a thorough check of the paratatals’ books of
account but the question remains whether the information made available to them are
disclosed or otherwise in their report.
71
TABLE 4.18: AUDITORS RARELY DETECT UNTRUE AND UNFA IRNESS OF ACCOUNT BOOKS
JAMB NUC NMC Total % Strongly Agreed 1 0 0 1 0.6 Agreed 7 0 5 12 7.7 Undecided 15 11 7 33 21.2 Disagreed 33 29 21 83 53.2 Strongly Disagreed 0 19 8 27 17.3
Total 56 59 41 156 100.0 Source: Field Survey, 2014
Similar to the foregoing observation, table 4.18 above also presents the opinions of the
respondents as to whether the auditors rarely detect any untrue and/or unfairness of the
parastatals’ account books. While 0.6% of them strongly agreed, 7.7% agreed, 21.2%
remained undecided, 53.2% disagreed and 17.3% others strongly disagreed. Based on these,
it can be deduced that majority of the respondents are not also in support that the auditors
rarely detect untrue and unfairness of the parastatals books, which means that they do! but the
question still remains whether they [i.e. the auditors] do disclose these in their reports.
TABLE 4.19: AUDITORS AND AUDITING COMMITTEE MEMBER S ARE BIG BOSSES’ PALS.
JAMB NUC NMC Total %
Strongly Agreed 31 28 17 76 48.7 Agreed 17 18 21 56 35.9 Undecided 8 6 3 17 10.9 Disagreed 0 7 0 7 4.5 Strongly Disagreed 0 0 0 0 0.0
Total 56 59 41 156 100.0 Source: Field Survey, 2014
That the auditors and auditing committee at the parastatsls are pals to some big bosses, 48.7%
of the respondents strongly agreed, 35.9% also agreed, 10.9% remained undecided while
4.5% others disagreed. From these, it shows that majority of the respondents are very much in
support that there is a cordial relationship/friendship between the auditors and some big
72
Bosses which might be a reason for the disclosure or non-disclosure of material information
available to the auditors.
TABLE 4.20: AUDIT REPORTS PREPARED BY THE AUDITORS HARDLY REFLECT THE TRUE STATE OF THE FINANCES OF GOVERNMENT PARASTATALS
JAMB NUC NMC Total %
Strongly Agreed 27 32 23 82 52.6 Agreed 9 7 5 21 13.5 Undecided 11 9 7 27 17.3 Disagreed 7 11 6 24 15.4 Strongly Disagreed 2 0 0 2 1.3
Total 56 59 41 156 100.0 Source: Field Survey, 2014
Table 4.20 above presents the opinions of the respondents as to whether the audit reports
prepared by the auditors hardly reflect the true state of the finances of the parastatals. While
52.6% of the respondents strongly agreed to this notion, 13.5% also agreed, 17.3% could not
decide, 15.4% disagreed and 1.3% others strongly disagreed. In all, it can be deduced that
majority of the respondents are of the opinion that the Audit Report prepared by the Auditors
hardly reflects the true state of the parastatals’ accounts despite the information usually being
made available to them.
Research Question 4
What is the level of significance of the gap between public expectation and actual content of
auditors’ report on the parastatals in the education sector in Nigeria.
4.3.4 Public Expectations and the Content of the Auditors’ Reports
‘The level of significance’ in this research question can only be handled through an Inferential
Test which would not be addressed here in this subsection but in the Test of Hypotheses
section. Meanwhile, two things are involved here in this research question; Public
Expectation and the Content of the Auditors’ Report. In the foregoing subsection, the data
73
collected on the state of the Content of the Auditors’ Report as it does not reflect the true
state of the parastatals’ books of accounts have been presented and analysed. Thus, the data
collected on Public Expectation as regards those things that are expected of the Auditors were
presented and analysed here in this subsection.
TABLE 4.21: AUDITORS ARE EXPECTED TO DETECT FRAUDS JAMB NUC NMC Total %
Strongly Agreed 31 39 21 91 58.3 Agreed 22 20 20 62 39.7 Undecided 3 0 0 3 1.9 Disagreed 0 0 0 0 0.0 Strongly Disagreed 0 0 0 0 0.0
Total 56 59 41 156 100.0 Source: Field Survey, 2014
One of the expectations of the public about auditors generally is that they should be able to
detect fraud wherever it lies in the book they are auditing. Here on table 4.21 above, 58.3% of
the Accounting Officers & Other Staff who were captured for this study strongly agreed that
the auditors at the parastatals studied are expected to detect the frauds committed by top,
middle or lower officials whose custody public fund is kept. In the same way, 39.7% also
agreed while 1.9% others remained undecided. None of the respondents could disagree to this
notion hence, it shows that virtually all of the respondents are in support that the auditors are
expected to detect any fraud committed.
TABLE 4.22: EXPECTED TO STATE WHETHER THE PARASTAT AL IS FINANCIALLY SOUND OR NOT
JAMB NUC NMC Total % Strongly Agreed 19 32 13 64 41.0 Agreed 27 18 20 65 41.7 Undecided 7 7 8 22 14.1 Disagreed 3 2 0 5 3.2 Strongly Disagreed 0 0 0 0 0.0
Total 56 59 41 156 100.0 Source: Field Survey, 2014
74
Another expectation of the public as regard Auditors is to state whether the Parastatal is
financially sound or not. 41.0% of the respondents strongly agreed to this, 41.7% also agreed
while 14.1% remained undecided and 3.2% others disagreed.
TABLE 4.23: NOT EXPECTED TO BE FRIENDS OF CHIEF AC COUNTANT OR MANAGEMENT BOARD
JAMB NUC NMC Total % Strongly Agreed 7 4 0 11 7.1 Agreed 17 21 20 58 37.2 Undecided 14 13 9 36 23.1 Disagreed 13 15 12 40 25.6 Strongly Disagreed 5 6 0 11 7.1
Total 56 59 41 156 100.0 Source: Field Survey, 2014
7.1% of the respondents on table 4.23 above strongly agreed that the Auditors are not
expected to be friends with Chief Accountant or Management Board. In the same way, 37.2%
also agreed, 23.1% could not decide but 25.6% disagreed while 7.1% others strongly
disagreed.
TABLE 4.24: EXPECTED TO TAKE GIFT IF OFFERED BUT N OT IN ANTICIPATION OF FAVOURABLE REPORT
JAMB NUC NMC Total % Strongly Agreed 17 26 16 59 37.8 Agreed 21 19 25 65 41.7 Undecided 7 9 0 16 10.3 Disagreed 11 5 0 16 10.3 Strongly Disagreed 0 0 0 0 0.0
Total 56 59 41 156 100.0 Source: Field Survey, 2014
The idea of taking gift by the Auditors if offered was reacted to by the respondents. Their
reactions were presented on table 4.24 above. 37.8% of the respondents strongly agreed that
they (the Auditors) are expected to take the gift if offered but not in anticipation for a
favourable Audit Report. In the same way, 41.7% of the respondents agreed while 10.3%
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remained undecided and 10.3% others disagreed. None of the respondents could disagree
strongly. Altogether, it can be deduced that the respondents actually expect the auditors to
take any gift offered to them but not on the implied reason for a favourable auditing exercise.
TABLE 4.25: EXPECTED TO BEAR THE LIABILITY OF ANY GROSS MISAPPROPRIATION UNDETECTED
JAMB NUC NMC Total % Strongly Agreed 19 23 21 63 40.4 Agreed 24 12 11 47 30.1 Undecided 11 13 9 33 21.2 Disagreed 2 11 0 13 8.3 Strongly Disagreed 0 0 0 0 0.0
Total 56 59 41 156 100.0 Source: Field Survey, 2014
Finally, on table 4.25 above, the respondents indicated their expectation as regards bearing of
the liability of any undetected gross misappropriation of the parastatals’ funds by the
auditors. 40.4% of them strongly agreed, 30.1% agreed while 21.2% remained undecided and
8.3% others disagreed.
4.4 Test of Hypotheses
The data presented in the section 4.3 above are mere opinion survey reports analysed with
frequencies and in percentages. To arrive at a valid conclusion, there is hence a crucial need
for test of hypothesis (also known as Test of Significance) from which inferences about the
situation; phenomenon and/or the auditors studied would be drawn.
4.4.1 Test of Hypothesis One
H0: Wrong choice of audit firm, audit fess, lack of independence and registering of audit
firms under different names do not constitute the major challenges confronting
auditors in giving effective audit reports.
76
H1: Wrong choice of audit firm, audit fess, lack of independence and registering of audit
firms under different names constitute the major challenges confronting auditors in
giving effective audit reports.
To test this hypothesis, the data presented and analysed on subsection 4.3.1 above would be
used. On SPSS version 17.0, Kolmogorov Smirnov Z-Test was used to test the hypothesis
using the specified data. The method is statistically suitable for determining the normality of
the distribution of the data collected for each of the Challenges confronting the Auditors in
giving Effective audit Reports. The method would as well be used to test the level of
significance of the data.
Decision Rule
Reject H0 if |p < 0.05| at the computed value of Zcal otherwise, accept it.
TABLE 4.26: KOLMOGOROV-SMIRNOV Z TEST WCAF AF LI RAFUDN N 47 47 47 47 Normal Parametersa,,b Mean 4.5106 4.1064 4.6170 4.2340
Std. Deviation .74811 .86562 .49137 .63289 Most Extreme Differences Absolute .403 .260 .399 .304
Positive .257 .187 .278 .304 Negative -.403 -.260 -.399 -.249
Kolmogorov-Smirnov Z 2.763 1.780 2.736 2.083 Asymp. Sig. (p-value) .013 .004 .001 .000 Test is Normally Distributed at 5% level of significance WCAF – Wrong Choice of Audit Firm AF – Audit Fee LI – Lack of Independence RAFUDN- Registering of Audit Firms Under Different Names
77
TABLE 4.27: COMBINED KOLMOGOROV-SMIRNOV Z TEST ON WCAF, AF, LI, RAFUDN
Test Statistic N 47 Normal Parametersa,,b Mean 17.4681
Std. Deviation 2.43034 Most Extreme Differences Absolute .182
Positive .149 Negative -.182
Kolmogorov-Smirnov Z 1.250 Asymp. Sig. (p-value) .008
Tables 4.26 and 4.27 above present the result of the Kolmogorov-Smirnov Z test ran on
hypothesis one formulated for this study. On table 4.26, the data provided by the Auditors in
respect of the challenges confronting them in giving effective audit report were shown to be
normally distributed. The distribution of the data across each of the Challenging factors
(WCAF, AF, LI, and RAFUDN) shows that the opinions of the Auditors are symmetrical at p
< 0.05. Table 4.27 therefore shows the distribution of the condensed data of the challenges
and still, the Kolmogorov-Smirnov Z test shows it is normally or symmetrically distributed
(Z = 1.250, p < 0.05) hence, the null hypothesis [H0] would be rejected while the alternate
hypothesis [H1] which states that Wrong choice of audit firm, audit fess, lack of
independence and registering of audit firms under different names constitute the major
challenges confronting auditors in giving effective audit reports would be accepted.
4.4.2 Hypothesis Two
H0: Hospitality and public relations practices of federal parastatals in the education sector
in Nigeria do not significantly infringe upon the independence of auditors of these
parastatals.
H2: Hospitality and public relations practices of federal parastatals in the education sector
in Nigeria significantly infringes upon the independence of auditors of these
parastatals.
78
To test this hypothesis, the data presented and analysed in section 4.3.2 above were used.
Chi-Square (X2) method was used to test the hypothesis and reason was because of the need
to ascertain the relationship between what was Expected and what was Observed in terms of
the opinions of the Auditors as regards whether Hospitality and the Public Relation practices
of the Parastatals do infringe upon the Auditors’ independence.
TABLE 4.28: CHI-SQUARE TEST DESCRIPTIVE Offer of Hospitality Category Observed Freq. Expected Freq. Residual Strongly Disagreed 0 9.4 -9.4 Disagreed 0 9.4 -9.4 Undecided 2 9.4 -7.4 Agreed 13 9.4 3.6 Strongly Agreed 32 9.4 22.6 Total 47
TABLE 4.29: CHI-SQUARE STATISTIC Offer of Hospitality Chi-Square 80.340a Df 4 Asymp. Sig. (p-value) .014
Tables 4.28 and 4.29 above present the Chi-square test descriptive and statistic (results) ran
on hypothesis two. The expected and observed frequencies on whether Hospitality and Public
relations practices infringe the independence of the Auditors were presented through table
4.28. The test statistic result on 4.29 therefore shows that there is a significant (X2 = 80.340, p
< 0.05) association in the expected and observed opinions of the respondents which by
inference, it means that the offer of Hospitality to the Auditors as well as some excessive
public relations practices can infringe the independence of the Auditors. Thus, the null
hypothesis [H0] would be rejected while the alternative hypothesis [H2] which states that
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Hospitality and public relations practices of federal parastatals in the education sector in
Nigeria significantly infringes upon the independence of auditors of these parastatals would
be accepted.
4.4.3 Test of Hypothesis Three
H0: Non-disclosure of classified information available to the auditors of federal parastatals
in the education sector in Nigeria in their audit reports does not significantly affect the
effectiveness of these reports.
H3: Non-disclosure of classified information available to the auditors of federal parastatals
in the education sector in Nigeria in their audit reports significantly affects the
effectiveness of these reports.
To test this hypothesis, the data presented and analysed in subsection 4.3.3 above were used.
The data was gathered primarily on the opinions of the Accounting Officers & Other Staff as
to the Auditors’ non-disclosure of information made available to them. And also, to test the
level of significance of the data in order to know whether it would significantly affect the
effectiveness of the Auditors’ reports, Kolmogorov-Smirnov Z test was then used.
TABLE 4.30: KOLMOGOROV-SMIRNOV Z TEST Q1 Q2 Q3 Q4 Q5 N 156 156 156 156 156 Normal Parametersa,,b Mean 2.2821 2.2115 1.8397 2.3846 4.2051
S.D .68904 .84250 .79105 .94672 .89959 Most Extreme Differences Absolute .370 .304 .266 .318 .260
Positive .370 .304 .266 .318 .188 Negative -.271 -.228 -.221 -.208 -.260
Kolmogorov-Smirnov Z 4.626 3.800 3.321 3.972 3.251 Asymp. Sig. (p-value) .000 .000 .000 .000 .000 Test is Normally Distributed at 5% level of significance
80
Q1 – Auditors Rarely Do Thorough Check of Account Books
Q2 – Auditors Rarely Detect Untrue and Unfairness of Account Books
Q3 – Auditors and Auditing Committees are Big Bosses’ Pals
Q4 – Audit Reports prepared hardly reflect the true state of the finances of Government
Parastatals
Q5 – There is usually no Additional Disclosure of Material Information
TABLE 4.31: COMBINED KOLMOGOROV-SMIRNOV Z TEST Test Statistic N 156 Normal Parametersa,,b Mean 12.9231
Std. Deviation 3.70621 Most Extreme Differences Absolute .150
Positive .150 Negative -.068
Kolmogorov-Smirnov Z 1.869 Asymp. Sig. (p-value) .002
Tables 4.30 and 4.31 above present the result of the Kolmogorov-Smirnov Z test ran on
hypothesis three formulated for this study. On table 4.30, the data provided by the
Accounting Officers & Other Staff in respect of the non-disclosure of material information
were shown to be normally distributed. The distribution of the data across each of the
questions designed to capture the non-disclosure construct (Q1, Q2, Q3, Q4, and Q5) shows
that the data supplied are symmetrical at p < 0.05. Table 4.31 therefore shows the distribution
of the condensed data on the non-disclosure and still, the Kolmogorov-Smirnov Z test shows
it is normally or symmetrically distributed (Z = 1.869, p < 0.05) hence, the null hypothesis
[H0] would be rejected while the alternate hypothesis [H3] which states that Non-disclosure of
classified information available to the auditors of federal parastatals in the education sector in
Nigeria in their audit reports significantly affects the effectiveness of these reports would be
accepted.
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4.4.4 Test of Hypothesis Four
H0: There is no significant gap between the public expectation and actual content of the
audit reports on the federal parastatals in the education sector in Nigeria.
H4: There is a significant gap between the public expectation and actual content of the
audit reports on the federal parastatals in the education sector in Nigeria.
To test this hypothesis, the data presented and analysed in subsections 4.3.3 and 4.3.4 in the
foregoing sections were used. Pearson’s Product Moment Correlation [PPMC] was used to
test this hypothesis. The data that was analysed in subsection 4.3.3 captured the Content
Nature of the Auditors Report which also indicates Non-disclosure of Material Information;
while the data that was analysed in subsection 4.3.4 captured the Public Expectations from
the Auditing functions of the Auditors. PPMC here in this case would help determine if there
is any relationship between these two set of data.
TABLE 4.32: PEARSON’S PRODUCT MOMENT CORRELATION Content of the Reports Public Expectation Content of the Reports Pearson Correlation 1
p-value N 156
Public Expectation Pearson Correlation .957** 1 p-value .017 N 156 156
**. Correlation is significant at the 0.05 level.
Table 4.32 above presents the Pearson’s Product Moment Correlation test result on
hypothesis four above. The result shows that there is a significant relationship between the
two pairs of data correlated which indicates that a significant (γ = 0.957**, p < 0.05) gap
exists in the content nature of the auditors’ report and the expectations of the public. Based
on this result, the null hypothesis [H0] would be rejected while the alternate hypothesis [H4]
which states that there is a significant gap between the public expectation and actual content
of the audit reports on the federal parastatals in the education sector in Nigeria would be
accepted.
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CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings
This current study was done or carried out on the effectiveness of audit report on the
improvement of financial management in Nigeria federal parastatals. The objectives of the
study include; to identify the major challenges confronting auditors from giving effective
audit reports on the federal parastatals in the educational sector in Nigeria; to examine the
extent to which auditors independence is infringed upon by the hospitality or public relations
practices of the federal parastatals in the education sector; to assess the level of significance
of classified information available to the auditors but not disclosed in their final reports on
the parastatals in the education sector; to examine the level of significant of the gap between
public expectation and content of the auditor’s report on the parastatals in the education
sector. The findings of the study therefore revealed that;
i. there is a normally or symmetrically distributed (Z = 1.250, p < 0.05) information
from the Auditors of the federal parastatals that Wrong choice of audit firm, Audit
Fess, Lack of Independence and Registering of Audit Firms Under Different Names,
all constitute the major challenges confronting auditors in giving effective audit
reports
ii. Hospitality and public relations practices of federal parastatals in the education sector
in Nigeria significantly infringes upon the independence of auditors of these
parastatals (X2 = 80.340, p < 0.05).
iii. there is a normally or symmetrically distributed (Z = 1.869, p < 0.05) information
from the Accounting Officers & Other Staff of the federal parastatals that Non-
disclosure of classified information available to the auditors of federal parastatals in
83
the education sector in Nigeria in their audit reports significantly affects the
effectiveness of these reports.
iv. There is a significant (γ = 0.957, p < 0.05) gap between public expectations and the
actual content of the audit reports on the federal parastatals in the education sector in
Nigeria.
5.2 Conclusions
Based on the findings of this study, it is simple enough to comprehend the management of
public funds at the various federal parastatals in Nigeria as being weak. The ship of the
Management Board as well as that of the Auditors are moving in a covetous direction
whereby they operate collaboratively as the architects of the structure of the parastatals’
financial appropriation/misappropriation and also prepare a ready-made Audit Report for the
public and government to see.
5.3 Recommendations
Since there are many Auditing Firms registered under different Names. Some of them might
belong to some key persons who are also officials at the federal parastatals, and might be
arranged before the External Auditor to audit the books of the parastatal. While this
increasingly constitutes one of the challenges facing the Auditors in giving effective audit
reports, the only important recommendation afterward is that the government of Nigeria
should devise a supervisory body auditing institution specially meant for monitoring and
controlling the finance of its parastatals. By so doing, there would be a control measure or
machinery for checks and balances and the management board at the parastatals would not
have such collaboration on the auditing reports on the parastatals.
84
5.4 Recommendation for Further Studies
This study is not without some shortcomings which further similar may advance on. One
important future further study should focus critically on the assessment of the financial
management effectiveness of All government agencies, parastatals and ministries since this
current study could have capture all the ministries and parastatals. Another area of study
future similar studies should centre on is the study of Forensic Auditing and its impact in
identifying fraudulent activities that take place in government parastatals, ministries and
among government officials. Accountability of the Management Board of government
institutions is yet another impressive future study area so as to alleviate the menace of
corruption in Nigeria.
85
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APPENDIX I
Department of Accountancy,
Faculty of Business Administration,
University of Nigeria,
Enugu Campus.
Dear Respondent,
This questionnaire presented for your completion is exclusively for academic purpose. The
essence of this survey is to elicit your opinion on effectiveness of audit report on the
improvement of financial management. The research is in partial fulfilment of the
requirement for the award of Master of Science (M.Sc) degree in accountancy.
Thanks in anticipation of your co-operation.
Yours Faithfully,
Okoro Livinus Ugwu
90
APPENDIX
QUESTIONNAIRE COMPLETED BY AUDITORS
A. Respondent’s Demographic Data
Gender: Male Female
Age: 20 – 29yrs 30 – 39yrs 40 – 49yrs 50yrs & above
Marital Status: Single Married Separated Widowed
Education Status: OND/NCE BSc/HND Masters/PhD
Work Status: Junior Senior Director
Length of Service: 1 – 9yrs 10 – 19yrs 20 – 29yrs 30yrs & above
Subsequent sections contain questions worded with coded options: Strongly Agreed [SA], Agreed [A], Undecided [U], Disagreed [D], and Strongly Disagreed [SD]. You are hence, implored to complete each question as objectively as you can.
B. Respondent’s Encountered Challenges/Problems in Giving Effective Audit Report
1. Wrong choice of Audit firms affects one’s professional integrity at work. SA [ ] A [ ]
U [ ] D [ ] SD [ ]
2. Management accounting books and estimates are not easily questionable or challenged.
SA [ ] A [ ] U [ ] D [ ] SD [ ]
3. Accounting officers do get in the way of auditing services thoroughness with gifts. SA [ ]
A [ ] U [ ] D [ ] SD [ ]
4. Management Board of most government parastatals do collude with auditors to report
‘true and fair’ view of accounts. SA [ ] A [ ] U [ ] D [ ] SD [ ]
5. Non-complying auditor is usually threatened of job or live lost. SA [ ] A [ ] U [ ]
D [ ] SD [ ]
6. Accounting officers excessively delay books of accounts hence, constituting a delay for
auditors in constantly checking accounting status of the parastatals. SA [ ] A [ ]
U [ ] D [ ] SD [ ]
C. Respondent’s Statutory Duty Orientation
7. Government is not fair in dealing with national treasury, how much more lower cadre
officials. SA [ ] A [ ] U [ ] D [ ] SD [ ]
8. Auditors would need to compromise their professional integrity at times because
government does not sufficiently pay them. SA [ ] A [ ] U [ ] D [ ] SD [ ]
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9. Everybody is corrupt so, what is the essence of auditing? SA [ ] A [ ] U [ ] D [ ]
SD [ ]
10. One would need to join them if one cannot beat them. SA [ ] A [ ] U [ ] D [ ]
SD [ ]
11. No matter how corrupt management and officials of government parastatals are,
remaining unbending and altruistic about auditing call is the most priority. SA [ ] A [ ]
U [ ] D [ ] SD [ ]
D. Government Regulatory Body Structure
12. There is a strict measure against any unethical auditing practices if detected by
government regulatory body. SA [ ] A [ ] U [ ] D [ ] SD [ ]
13. There is constant check of audit reports of the parastatals by Auditor General of the
federation. SA [ ] A [ ] U [ ] D [ ] SD [ ]
14. The special audit exercise of the parastatals is seldomly initiated. SA [ ] A [ ] U [ ]
D [ ] SD [ ]
15. Since there is no penalty for any delay in the submission of the report of Auditor General
of the federation, internal auditors of the parastatals are also permitted to submit report
whenever it is ready or never. SA [ ] A [ ] U [ ] D [ ] SD [ ]
16. It is no legal offence for auditors to accept gifts of any kind from account officers or
member of management board if eventually discovered. SA [ ] A [ ] U [ ] D [ ]
SD [ ]
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QUESTIONNAIRE COMPLETED BY ACCOUNTING OFFICERS & OT HER
STAFF
E. Respondent’s Demographic Data
Gender: Male Female
Age: 20 – 29yrs 30 – 39yrs 40 – 49yrs 50yrs & above
Marital Status: Single Married Separated Widowed
Education Status: OND/NCE BSc/HND Masters/PhD
Work Status: Junior Senior Director
Length of Service: 1 – 9yrs 10 – 19yrs 20 – 29yrs 30yrs & above
Subsequent sections contain questions worded with coded options: Strongly Agreed [SA], Agreed [A], Undecided [U], Disagreed [D], and Strongly Disagreed [SD]. You are hence, implored to complete each question as objectively as you can.
F. Respondent’s Knowledge of Auditor’s Additional Disclosure of Material
Information on Audit Report
1. Auditors rarely do thorough check of account books. SA [ ] A [ ] U [ ] D [ ]
SD [ ]
2. They rarely detect untrue and unfairness of account books. SA [ ] A [ ] U [ ] D[ ]
SD [ ]
3. Auditors and auditing committee members are big bosses’ pals. SA [ ] A [ ] U [ ]
D [ ] SD [ ]
4. Audit reports prepared by internal auditors hardly reflect the true state of the finances of
government parastatals. SA [ ] A [ ] U [ ] D [ ] SD [ ]
5. Except on special auditing exercise, there is usually no additional disclosure of material
information on the reports prepared and released by internal auditors. SA [ ] A [ ]
U [ ] D [ ] SD [ ]
G. Respondent’s View or Assessment of Own Government Parastatal’s Financial
Management Statuses
6. Government parastatals are corruption houses. SA [ ] A [ ] U [ ] D [ ] SD[ ]
7. Thanks to the internal auditors, financial management of the parastatals is constantly put
to adequate check. SA [ ] A [ ] U [ ] D [ ] SD [ ]
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8. The internal auditors and the management board of the parastatals are the same. SA [ ]
A [ ] U [ ] D [ ] SD [ ]
9. The auditors accept gifts from account officers and management board. SA [ ] A [ ]
U [ ] D [ ] SD [ ]
10. Financial management at the government parastatals is sound to a considerable extent.
SA [ ] A [ ] U [ ] D [ ] SD [ ]
H. Respondent’s Perception of the Expected Duties of Auditors
11. The auditors are expected to detect the fraud committed by top, meddle and lower
officials whose custody public fund is kept. SA [ ] A [ ] U [ ] D [ ] SD [ ]
12. The auditors are required to state whether the parastatal is financially sound to continue
operating or government should shut it down. SA [ ] A [ ] U [ ] D [ ] SD [ ]
13. The auditors are not expected to be friends of accountants or management board so as to
enhance their propensity to challenge their financial estimates. SA [ ] A [ ] U [ ]
D [ ] SD [ ]
14. The auditors can take gifts if offered but not in anticipation of favourable audit report.
SA [ ] A [ ] U [ ] D [ ] SD [ ]
15. Auditors are meant to bear the liability of any gross misappropriation detected from the
account books of the parastatals. SA [ ] A [ ] U [ ] D [ ] SD [ ]
