THE PROBLEMS ENCOUNTERED BY EXTERNAL AUDITORS IN AUDITING NIGERIAN COMPANIES
(A CASE STUDY OF AKINTOLA WILLIAMS AND CO. CHARTERED ACCOUNTANT, ENUGU)
ABSTRACT
This work is a partial fulfillment of the requirement for the award of Higher National Diploma in Accountancy.  It is also designed in such a way as to help readers understand the problems encountered by external auditors in auditing Nigerian companies, their causes, their effects on the work of auditors and the possible solutions to eradicate these problems.
Chapter one was designed to give an overview of the research work.  This chapter of the project dealt with the background of study, statement of hypothesis, significance of the study and scope then limitations.  Also covered here is the definition of technical terms.
Chapter two was a review of previous work of other people on related literature and studies.  Under this section, previous literature on the definition of auditing, types of auditing, qualification of auditors, appointment of auditors, removal & resignation of auditors and the problems of external auditors in auditing Nigerian companies were discussed.
In chapter three, the procedures or methodology adopted for carrying out the research was described.  It highlighted the source of data, the research instrument and location of data.
Chapter four shared the actual presentation and analysis of the research obtained.  The result of the research findings were presented in the stable terms and analysed.
In chapter five, the summary of the findings recommendations and conclusion were covered.  In fact the work has been an interesting one and will be of great help to its audience.
LIST OF TABLES
CLASSIFICATION OF AUDITORS
QUESTIONNAIRE RESPONSE ANALYSIS CHI-SQUARE ANALYSIS
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1              Background of study
1.2              Statement of problems
1.3              Purpose of study
1.4              Research questions
1.5              Research hypothesis
1.6              Significant of the study
1.7              Scope and limitation of the study
1.8              Definition of terms
CHAPTER TWO
2.0              REVIEW OF RELATED LITERATURE
2.1              Definition of auditing
2.2              History of auditing
2.3              Objectives of auditing
2.4              Types of auditing
2.5              Qualification of auditors
2.5.1        Institute of chartered accountants of Nigeria (ICAN)
2.5.2        Association of national accountants of Nigeria (ANAN)
2.6              Appointment of auditors
2.7              Removal of auditors and redress available to them
2.8              The problems of external auditors in Nigerian companies
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1              Sources of data
3.2              Location of data
3.3              Population size and sample selection
3.4              Method of data presentation
3.5              History of Akintola Williams & Co
CHAPTER FOUR
DATA PRESENTATION & ANALYSIS
4.1              Presentation and analysis response questionnaires
4.2              Oral interview
4.3              Testing of hypothesis
CHAPTER FIVE
FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.1              Summary of findings
5.2              Recommendations
5.3              Conclusion
Bibliography
CHAPTER ONE
INTRODUCTION
1.1              BACKGROUND OF THE STUDY
Auditing has been a very important aspect of the accounting profession since the statement of business activities from a sole proprietorship to large public enterprises.  Experts rank, if the number one instrument of financial reporting.  It forms the bedrock of placing reliance on the report presented by the stewards of companies on the state of affairs of the companies.
Many groups are interested to be assured of their interests being protected in the business organizations.  The owners of the business (shareholders) having been concern to be guaranteed the management is performing its duties effectively and efficiently.  Their ultimate aim is to receive as much returns as possible from the capital they invested in the business.
On its own part, the government is interested in knowing whether the profit & loss shown in the financial statement is correctly done for the purpose of tax assessment.
The companies advisers (the legal, financial analysts) also make use of the auditors report to advice the management.  The legal adviser interprets the legal implications of some information disclosed in the financial statement.  Also, the financial analyst uses the result shown by the auditors to advise the clients on the best source of fund to embark on, where to invest and how much to invest in each alternative.  The competitors may also be attracted to merge with the auditors clients through the report issued by him.
However, the auditors can always be seen as the watchdog of the entire economy by representing the interest of all these groups.  Their peculiar position therefore calls for a conducive atmosphere, but, it is unfortunate that most external auditors face serious problems in performance of their duties.  In any case, this research work tends to investigate into the nature and causes of these problems and also solutions to them.
1.2              STATEMENT OF PROBLEMS
There are many problems facing external auditors in Nigeria.  Auditors in Nigeria, even the most successful ones find it very difficult to audit Nigerian companies as a result of business activities, illiteracy, moral laxity lack of adequate technical skill and training.  This work studies these problems, their causes, effect and remedies.       
1.3              PURPOSE OF THE STUDY
The aims of embarking on this study are:-
1.                  To ascertain the nature of the problems the external auditors encounter in auditing Nigerian companies.
2.                  To identify the causes of these problems
3.                  To ascertain the effects of these problems on the work of auditors.
4.                  To recommend measures that could enable external auditors to overcome the problems identified.
5.                  To recommend measures to be adopted by Nigeria to enhance the auditing of their business organizations.
1.4              RESEARCH QUESTIONS
In carrying out this work, the following questions were in the mind of the researcher.
1.                  What is the nature of the problems of external auditors in auditing Nigerian companies?
2.                  What are the causes of these problems?
3.                  What are the effects of such problems in the work of external auditors?
4.                  What are the possible measures to be taken to overcome these problems?
1.5              RESEARCH HYPOTHESIS
There are different opinions about the problems of external auditors in auditing Nigerian companies.  Some experts are of the view that they do not have any problems in auditing Nigerian companies while others contend that they do have.  As a result of these opposing ideas, two types of hypothesis were employed to facilitate this research work.  They are started as follows:
i.                    Null hypothesis (H0) external auditors do not have problems in auditing Nigerian companies
ii.                  Alternative hypothesis (Hi) external auditors have problems in auditing Nigerian companies
1.6              SIGNIFICANCE OF THE STUDY
It is a true saying that people can suffer for lack of knowledge.  If auditors are not aware of the problems they will encounter in the performance of their duties they will invariably not be able to guard against them.  This work saves as an eye opener to draw their attention to these problems and the ways to tackle them.
Again, it enables the government to know how it can play its role in crating better auditing atmosphere in the Nigerian companies.
Furthermore, it is expected that this should study the contributions of directors of the Nigeria business enterprise towards a better auditing environment in their companies.
This study will also form a good reference material for any other student who wants to write on a related topic in future.
1.7              DEFINITION OF TERMS
Auditor:         A person who examine the books of accounts and voucher of an organization in such a way as to enable him express an opinion as whether the account shows a true and fair view of the state of affairs of the organization in a particular period.
Internal auditor:-      This is a person employed in an organization that has the responsibility of reviewing the operation and records of the business of that organization.
Client: The company or business organization audited by the extern al auditors.
Permanent file:          The permanent file usually contains documents and matter of continuing relevance of the operation and financial statement of the company or other organization whose account are being audited.  The item includes:                                                                                                                                                           a.         Rules and regulations governing the enterprise memorandum and articles of association, partnership agreement, stock exchange regulation, building society rules where necessary, statutory material governing the conduct, account and audit of the organization being audited.
b.         A brief description of the nature of business actually carried on and the registered office.
c.         An organizational chart showing various departments and sections, the names of responsible officials showing lines of responsibility.
d.         List of accounting records and documents and the officials responsible for them.
c.         A outline history of the organization.  Reference should be made by share capital, prospectuses, reserves, acquisition of business etc.
d.         Clients internal audit and accounting instructions
e.         The copy of the letter of engagement which documents the terms of appointment of the auditor.
f.          List of directors, their shareholders and services contract.
g.         The internal control questionnaire format which can be reviewed and updated.
h.         A list of the company’s advisors – bankers, solicitors, insurance brokers, stock brokers etc.
Current file:   The current file contains documents, which relate to the current year’s audit.  The documents in the current file would include:-
a.         A copy of the financial statement being audited authenticated by directors’ signatures.
b.         A description of the internal control system in the form of an internal control questionnaire flow charts designed suit the system.
c.         An audit programme duty updated.
d.         A record showing queries raised during the audit and representation made.
e.         Schedules relating to the years accounts, such as schedule of debtors, creditors assets etc.
f.          Check list for compliance with statutory disclosure requirement, auditing standards accounting standards etc.
g.         Relevant information in the minutes of directors and shareholders meetings.
h.         Letters of confirmation from debtors, banks stock brokers etc.
i.          A schedules for each item in the balance sheet each schedule should highlight appropriate disclosure and verification.
 j.         A schedule for each item in the profit and loss account and what it constituted.
k.         A schedule of important statistics.  These include sales composition, employment, liquidity ratios, gross and net profit ratios.
Internal check:          Internal check is defined in the statement of auditing as the allocation of authority and work in such a manner as to afford checks on the routine transactions of day-to-day work by means of the work of one person being proved independently by another or the work of a person being complementary to that of another.
However, the importance of internal check in any commercial enterprise cannot be over-emphasized.  It is an essential part of internal control in a typical large business organization.  It requires some certain things which include.
a.         The arrangement of duties among staff or departments in such a way that no one is in a position to carryout the work of a particular operations alone in which fraud is possible.
b.         Other automatic checks which form part of the routine system.  Internal check is characterized by its prime objectives, the prevention or early detection of errors and fraud.
Internal check, as a matter of necessity starts from allocation of authorities and responsibilities in such a manner that one person alone does not see a transaction through from the commencing stage to the completing or final stage.
We can buttress our point by making reference to wages under this circumstances, an internal check would involve:
a.         One staff preparing the pay sheets.
b.         A superior official re-checking and confirming the correctness of the calculations & rates.
c.         Another staff preparing the payment voucher for the salary cheque.
d.         A different person writing out the cheque
e.         Two other persons signing the cheque
f.          Some other personnel cashing the cheque and effecting salary payments which will be signed for by the recipients and
g.         Another senior official soon after salary payment examine and verify any unclaimed wages.
In a situation where the internal check is effective and efficient.  It will require collusion between at least two persons, before fraud can be committed and this, in itself minimizes the instances of fraud.  However, an error made by one person is likely to be detected and corrected when another personnel re-checks and verifies independently.
Auditors report:        The auditors report shall state whether in the auditor’s opinion the annual account have been properly prepared in accordance with the companies and Allied Matter Decree and whether the account show a true and fair view.