THE EXTERNAL AUDITOR AND THE FINANCIAL STATEMENTS OF PUBLIC SECTOR IN NIGERIA
A Research Project Submitted By
OKELEKE, CHIDINMA EZINWA
Matric No_; RUN10-11/2987
To
The Department of Financial Studies,
College Of Management Sciences,
Redeemer’s University,
Km 46, Lagos-Ibadan Expressway, Redemption City, Mowe, Ogun State, Nigeria
In Partial Fulfillment of the Requirements for the Award of the Degree of Bachelors of Science (B.Sc.) Honours in Accounting
July, 2014.
DECLARATION
I, Okeleke Chidinma Ezinwa, hereby declare that this project titled “the External Auditor and the Financial Statement of Public Sector in Nigeria” was done entirely by me, under the supervision of Dr. Imeokparia Lawrence. This research project has never been used elsewhere in part or full for the fulfillment of the requirements for the award of B.Sc. Degree. All sources of scholarly information used for this project were duly acknowledged.
Okeleke Chidinma Ezinwa ...………………………………………....
Signature & Date
CERTIFICATION
I certify that this research project titled
The External Auditor and the Financial Statement of Public Sector in Nigeria
Was conducted and written by
……………………… …...…………………….
Student’s Name Matriculation Number
Under my supervisor
In partial fulfillment of the requirements for the award of the degree of Bachelors of Science (B.Sc.) in Accounting
In the college of management sciences, Department of Financial Studies,
Redeemer’s University, Redemption City, Ogun state, Nigeria.
………………………………………. ...……..……………………………
Signature & Date Signature & Date
Dr. Imeokparia Lawrence Dr. Onafowokan Oluyombo
Project Supervisor Head of Department
………………………………………
Signature & Date
External Examiner
DEDICATION
I dedicate this research work, to the Almighty God, who saw me through this journey, both financially and otherwise, whose grace and favour was abundant, and made it possible for me to see the end of this project successfully.
ACKNOWLEDGEMENTS
First and foremost, I humbly acknowledge God’s help throughout this work. It would not have been successful without Him. My special gratitude goes to you God.
I wish to acknowledge the most indispensable role my supervisor Dr. Imeokparia Lawrence played in this project. Your encouragement and support was what saw me through this research work. The research was only made better through your guidance, directions and contributions to the work. I cannot thank you enough for this. May the Almighty God reward you.
I also appreciate the efforts of all my lecturers in Accounting; Dr. A. Olagunju, Mr. Kenneth E. Okpala, Dr. J. Akinyomi, and most especially Dr. Lawrence Imeokparia for the knowledge impacted in me, all through my stay in Redeemers University, which also contributed to the success of this research work, and also their continuous encouragements and unforgettable words of advice.
I also wish to express my unreserved gratitude to my loving parents Mr. and Mrs. Okeleke. Your undying love and support, both financially and in all areas, kept me going. Your encouraging words served as a motivating factor in this research work.
My sincere gratitude also goes out to my friends Akinwekomi Folakemi, Ako-onwuzuruike Favour, Olayera Dayo, Olumide Tomiwa and Elekwa Nneoma for their support, encouragement and contributions to the success of this project. Words cannot express how thankful I am for your help.
I would also like to appreciate the staffs from NNPC, Ministry of Finance, CBN and other government parastatals who were helpful in answering the questionnaires used for this research. I cannot thank you enough for your understanding and cooperation during my research.
This acknowledgement would not be complete without appreciating the members of Redeemer’s University Choir, for your continuous support and fervent prayers. You were like a family to me. My sincere gratitude goes to you all.
God bless you all.
Okeleke Chidinma Ezinwa
July, 2014.
TABLE OF CONTENTS
TITLE PAGE………………………………………………………………………………………i
DECLARATION………………………………………………………………………………….ii
CERTIFICATION………………………………………………………………………………..iii
DEDICATION………………………………………………………….………………………...iv
ACKNOWLEDGEMENTS……………………………………………………………………....v
TABLE OF CONTENTS………………………………………………………………………..vii
LIST OF TABLES……………………………………………………………………………….xii
ABSTRACT…………………………………………………………………………………….xiv
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND TO THE STUDY…………………………………………………………..1
1.2 STATEMENT OF PROBLEM………………………………………………………………..4
1.3 RESEARCH OBJECTIVES…………………………………………………………………..6
1.4 RESEARCH QUESTIONS……………………………………………………………….......7
1.5 STATEMENT OF THE HYPOTHESIS………………………………………………….......7
1.6 SIGNIFICANCE OF THE STUDY…………………………………………………………..8
1.7 SCOPE OF THE STUDY……………………………………………………………………..9
1.8 LIMITATIONS OF THE STUDY…………………………………………………………....9
1.9 DEFINITION OF TERMS………………………………………………………………......10
References
CHAPTER TWO-LITERATURE REVIEW
2.0 INTRODUCTION…………………………………………………………………………...13
2.1 THEORETICAL FRAMEWORK…………………………………………………………...13
2.1.1 THE POLICEMAN THEORY………………………………………………………….....13
2.1.2 THE LENDING CREDIBILITY THEORY……………………………………………….14
2.1.3 LIMPERG’S THEORY OF INSPIRED CONFIDENCE………………………………….14
2.1.4 AGENCY THEORY………………………………………………………………….........16
2.1.5 THE INFORMATION THEORY………………………………………………………….20
2.1.6 THE INSURANCE THEORY……………………………………………………………..21
2.1.7 ACCOUNTABILITY THEORY…………………………………………………………..21
2.1.8 THE ASSURANCE THEORY…………………………………………………………….22
2.1.9 POSITIVE ACCOUNTING THEORY………………………………………………........23
2.1.10 LEGITIMACY THEORY………………………………………………………………..24
2.1.11 STEWARDSHIP THEORY……………………………………………………………...25
2.2 EMPIRICAL REVIEW……………………………………………………………………...26
2.3 CONCEPTUAL FRAMEWORK……………………………………………………………37
2.3.1 CONCEPT OF EXTERNAL AUDITING….......................................................................37
2.3.2 CONCEPT OF FINANCIAL STATEMENTS…………………………………………….39
2.3.3 THE CONCEPT OF AUDITOR’S INDEPENDENCE…………………………………...42
2.3.4 CONCEPT OF PUBLIC SECTOR AUDITING…………………………………………..45
2.3.4.1 PUBLIC SECTOR AUDITORS………………………………………………………....47
2.3.5 CONCEPT OF GOOD PUBLIC GOVERNANCE………………………………….........50
2.3.6 CONCEPT OF PUBLIC SECTOR FINANCIAL MANAGEMENT……………….........52
2.3.7 CONCEPT OF PUBLIC ACCOUNTABILITY AND CORRUPTION CONTROL IN
NIGERIA………………………………………………………………………………….54
References
CHAPTER THREE-METHODOLOGY
3.1 INTRODUCTION…………………………………………………………………………...64
3.2 RESEARCH DESIGN……………………………………………………………………….64
3.3 POPULATION………………………………………………………………………............64
3.4 SAMPLE SIZE………………………………………………………………………............65
3.5 SAMPLING TECHNIQUE………………………………………………………….............65
3.6 SOURCE OF DATA COLLECTION……………………………………………………….66
3.7 RESEARCH INSTRUMENT………………………………………………………………..66
3.7.1 PILOT STUDY…………………………………………………………………….............66
3.7.2 VALIDITY AND RELIABILITY………………………………………………………....66
3.8 METHOD OF DATA ANALYSIS AND PRESENTATION……………………….............67
3.8.1 REGRESSION ANALYSIS……………………………………………………….............67
3.8.2 STANDARD ERROR OF REGRESSION………………………………………………...68
CHAPTER FOUR-DATA PRESENTATION, ANALYSIS, AND DISCUSSION OF FINDINGS
4.0 INTRODUCTION………………………………………………………………………...…69
4.1 PRESENTATION OF DATA………………………………………………………………..70
TABLE 4.1.1 DISTRIBUTION OF SEX OF RESPONDENTS………………………...............70
TABLE 4.1.2 DISTRIBUTION OF AGE OF RESPONDENTS………………………………..70
TABLE 4.1.3 DISTRIBUTION OF RESPONDENT’S WORKING EXPERIENCE…………..71
TABLE 4.1.4 DISTRIBUTION OF RESPONDENT’S ROLE IN THE ORGANISATION…...71
TABLE 4.1.5 EDUCATIONAL QUALIFICATIONS OF RESPONDENTS………………......72
TABLE 4.1.6 QUESTION SIX………………………………………………………………….72
TABLE 4.1.7 QUESTION SEVEN……………………………………………………………...73
TABLE 4.1.8 QUESTION EIGHT………………………………………………………………74
TABLE 4.1.9 QUESTION NINE………………………………………………………………..74
TABLE 4.1.10 QUESTION TEN………………………………………………………………..75
TABLE 4.1.11 QUESTION ELEVEN…………………………………………………………..76
TABLE 4.1.12 QUESTION TWELVE………………………………………………………….76
TABLE 4.1.13 QUESTION THIRTEEN………………………………………………………..77
TABLE 4.1.14 QUESTION FOURTEEN……………………………………………………….77
TABLE 4.1.15 QUESTION FIFTEEN…………………………………………………………..78
TABLE 4.1.16 QUESTION SIXTEEN………………………………………………………….79
TABLE 4.1.17 QUESTION SEVENTEEN……………………………………………………...79
TABLE 4.1.18 QUESTION EIGHTEEN………………………………………………………..80
TABLE 4.1.19 QUESTION NINETEEN………………………………………………………..81
TABLE 4.1.20 QUESTION TWENTY………………………………………………………….82
4.2 HYPOTHESIS TESTING…………………………………………………………………...82
4.2.1 TESTING OF HYPOTHESIS ONE……………………………………………………….82
TABLE 4.2.1.1 MODEL SUMMARY FOR HYPOTHESIS ONE……………………………..83
TABLE 4.2.1.2 ANOVA FOR HYPOTHESIS ONE……………………………………………83
TABLE 4.2.1.3 COEFFICIENTS FOR HYPOTHESIS ONE…………………………………..83
4.2.1.1 INTERPRETATION OF HYPOTHESIS ONE…………………………………….…...83
4.2.1.2 DECISION……………………………………………………………………………....84
4.2.2 TESTING OF HYPOTHESIS TWO……………………………………………………...84
TABLE 4.2.2.1 MODEL SUMMARY FOR HYPOTHESIS TWO…………………………....85
TABLE 4.2.2.2 ANOVA FOR HYPOTHESIS TWO………………………………………….85
TABLE 4.2.2.3 COEFFICIENTS FOR HYPOTHESIS TWO………………………………....85
4.2.2.1 INTERPRETATION OF HYPOTHESIS TWO………………………………………..85
4.2.2.2 DECISION……………………………………………………………………………...86
4.2.3 TESTING OF HYPOTHESIS THREE…………………………………………………...86
TABLE 4.2.3.1 MODEL SUMMARY FOR HYPOTHESIS THREE…………………………87
TABLE 4.2.3.2 ANOVA FOR HYPOTHESIS THREE………………………………………..87
TABLE 4.2.3.3 COEFFICIENTS FOR HYPOTHESIS THREE……………………………….87
4.2.3.1 INTERPRETATION OF HYPOTHESIS THREE………………………………………88
4.2.3.2 DECISION……………………………………………………………………………..88
4.3 DISCUSSION OF FINDINGS…………………………………………………………….89
CHAPTER FIVE-SUMMARY, CONCLUSION AND RECOMMENDATION
5.0 INTRODUCTION…………………………………………………………………………93
5.1 SUMMARY OF FINDINGS………………………………………………………………93
5.2 CONCLUSION………………………………………………………………………….....94
5.2.1 CONCLUSION OF HYPOTHESIS ONE……………………………………………….94
5.2.2 CONCLUSION OF HYPOTHESIS TWO………………………………………………95
5.2.3 CONCLUSION OF HYPOTHESIS THREE……………………………………………96
5.3 IMPLICATION OF FINDINGS…………………………………………………………..97
5.4 RECOMMENDATIONS………………………………………………………………….98
5.5 CONTRIBUTIONS TO KNOWLEDGE………………………………………………....100
5.6 SUGGESTIONS FOR FURTHER RESEARCH…………………………………………101
References
Bibliography
Appendix
LIST OF TABLES
TABLE 4.1.1: DISTRIBUTION OF SEX OF RESPONDENTS
TABLE 4.1.2: DISTRIBUTION OF AGE OF RESPONDENTS
TABLE 4.1.3: DISTRIBUTION OF RESPONDENT’S WORKING EXPERIENCE
TABLE 4.1.4: DISTRIBUTION OF RESPONDENT’S ROLE IN THE ORGANISATION
TABLE 4.1.5: EDUCATIONAL QUALIFICATIONS OF RESPONDENTS
TABLE 4.1.6: QUESTION SIX
TABLE 4.1.7: QUESTION SEVEN
TABLE 4.1.8: QUESTION EIGHT
TABLE 4.1.9: QUESTION NINE
TABLE 4.1.10: QUESTION TEN
TABLE 4.1.11: QUESTION ELEVEN
TABLE 4.1.12: QUESTION TWELVE
TABLE 4.1.13: QUESTION THIRTEEN
TABLE 4.1.14: QUESTION FOURTEEN
TABLE 4.1.15: QUESTION FIFTEEN
TABLE 4.1.16: QUESTION SIXTEEN
TABLE 4.1.17: QUESTION SEVENTEEN
TABLE 4.1.18: QUESTION EIGHTEEN
TABLE 4.1.19: QUESTION NINETEEN
TABLE 4.1.20: QUESTION TWENTY
TABLE 4.2.1.1: MODEL SUMMARY FOR HYPOTHESIS ONE
TABLE 4.2.1.2: ANOVA FOR HYPOTHESIS ONE
TABLE 4.2.1.3: COEFFICIENTS FOR HYPOTHESIS ONE
TABLE 4.2.2.1: MODEL SUMMARY FOR HYPOTHESIS TWO
TABLE 4.2.2.2: ANOVA FOR HYPOTHESIS TWO
TABLE 4.2.2.3: COEFFICIENTS FOR HYPOTHESIS TWO
TABLE 4.2.3.1: MODEL SUMMARY FOR HYPOTHESIS THREE
TABLE 4.2.3.2: ANOVA FOR HYPOTHESIS THREE
TABLE 4.2.3.3: COEFFICIENTS FOR HYPOTHESIS THREE
ABSTRACT
Financial statements are known to give information to shareholders and the general public on the activities of the organisations, but due to the presence corruption and mal-practices, especially in the public sector, they have begun to lose credibility, which would be misleading to investors and other users. It therefore led to the introduction of external auditor, to serve as a check on these activities, expressed in financial statements. This study examined the relationship between the external auditor and the financial statements of public sector in Nigeria. The study adopted a cross-sectional survey design with a total population of 250 senior staffs, out of which 100 were auditors (internal). A sample of 154 staffs was taken from both senior staffs and internal auditors. The primary source of data collection was used to collect data from respondents using a well-structured and tested questionnaire, which was presented using frequency tables and simple percentages. Data was analyzed using Regression Analysis through the SPSS version 21. The study revealed a significant relationship between the quality of financial statement and the illiteracy of government official with (p=0.00 i.e. p< 0.05), and auditor’s engagement, with (p=0.00 i.e. p<0.05), but revealed an insignificant but positive relationship with auditor’s independence, with (p=0.664 i.e. p>0.05). This study concluded that there is a significant and positive relationship between the quality of financial statements and the illiteracy of government officials, auditor’s engagement, and auditor’s independence. The study recommends proper training and education of both external auditors and the public sector officials on the importance of independence in their work, and the effect of corruption on the Nation, respectively. It also recommends that there should be another system of checks on the public sector activities asides from the external auditors.
