ABSTRACT
The
research titled “Effect
of external auditing expenditure on the profitability of Nigeria Banks”
highlights the relevance of external auditing in improving performance of
Nigerian banks. The cardinal objective of this study is to ascertain the effect
of external auditing expenditure on the profitability of Nigerian banks. The
study aims at achieving the following specific objectives which includes:
ascertaining the effect of external audit expenditures on profit after tax of
Nigerian banks and examining the effect of external audit expenditure on return on
shareholders' funds of
Nigerian banks. The
study adopted the ex-post facto research design. The empirical research used
secondary data sourced from First Bank of Nigeria annual reports and
statistical bulletins of the Central Bank Nigeria. The time series for the
study covered a period of 2002 to 2016. Simple regression model was employed
for the study while the hypotheses formulated were tested using version 20 of the Statistical
Package for Social Sciences software. The result of the study show that
external auditing expenditure has negative and non-significant effect on the
profit after of commercial banks in Nigeria and external auditing expenditure
has negative and non-significant effect on the return on shareholder funds of
commercial banks in Nigeria. This work recommend that auditors should maintain
a degree of independence to guarantee quality assurance that could provide the
much needed protection of depositors finds and other shareholders interest in
the bank.. We recommend also that further research should be carried out on
this topic with an enlarged scope capturing more than one commercial bank in
Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The word “audit” is derived from a Latin
word “audire” which means “to hear”. In the olden days, whenever the owner of a
trade suspected “a foul play” by his store keeper, he sent for certain
independent persons to resolve the issue. The person goes to the store keeper
and “hears” whatever he has to say in regards or connection with the accounts
in dispute. This person from his vast knowledge and simple experience of
similar situations would be able to tell, if all the explanations given form
any discrepancies in the record which were adequate and credible. These
individuals of integrity are whom we today call auditors. In societies marked by divisions of
expert labour, external auditing is promoted as a trust engendering technology
with the capacity to promote a certain kind of social order (Power, 1999).
Accountants, as auditors, have cemented their status and privileges on the
basis of claims that their expertise enables them to mediate uncertainty and
construct independent, objective, true and fair accounts of corporate affairs
(Sikka, 2009). It has been argued, however, that such claims are not good
indicators of corporate performance, because capitalist economies are
inherently prone to crises (O’Connor, 1987; Sikka, 2009). Furthermore, the
claims of expertise are frequently affected by unexpected corporate collapses,
fraud, financial crime and the general crisis of capitalism (Baker, 2007;
Sikka, 2009; Sikka et al , 2009) Since 2007, major Western economies have been
experiencing a deepening banking and financial crisis arising from subprime
lending practices by banks, which in turn has restricted the availability of
credit and has led to what has been described as the ‘credit crunch’ (Sikka et
al , 2009). Some commentators have attributed this economic crisis to the
unethical practices of corporate bank managers and to the inability of auditors
to expose such anti-social practices from previous audits (Broad Street
Journal, 21 October 2009; Sikka, 2009). Some auditors may have failed to comply
with expected standards. If a company fails shortly after being audited, the
auditors may be blamed for conducting an inferior audit (Dopuch, 1988). Thus,
whenever there is a financial scandal, it must be questioned whether the
auditors carried out their duties and obligations with due care and diligence.
Merkling
(1976) in Omokhudu & Omoye (2012) define the agency relationship as a
contract under which one party (the principal) engages another party (the
agent) to perform some services on their behalf with the principal delegating
decision making authority to the agent.
As
such the owners or share holders of most banks are not part of the daily
operations of the organizational activities look forward to the realization of
their goals.
There
are however, other interest groups who depend on the organization to realize
their own respective goal. The suppliers, stock brokers, lenders, government
and so on are all part of the stakeholders, since these owners are not involved
in the daily operations of the business, they may be doubtful of what the
management may present to them as report of the organizations performance for
the purpose of reliance on the management report, the stakeholders need
confirmation report, or assurance by an independent party known as the external
auditor.
In
the light of this, customers need the assurance of the external auditors, who
are greatly depended upon, since they are expected to adopt the attitude of
professional skepticism.
This
suggests that even though the auditors are not mainly, finding out fraud in the
financial report, they should recognize the possibility of its existence.
This
is one of the pronouncements in ISA 240 which was further made stronger and
actionable by the introduction of the Sarbanes Oxley of 2002.
There
are so many problems which surrounded this, on the strength of this multiple
problems, it is pertinent to have proper examination of the responsibilities of
the external auditors to public and private companies to know the effects of
non- compliance by the auditors on the corporate performance of an
organization. Unarguably, stakeholders look up to the external auditors as one
who has the professional competence and whose advise or opinion is held
sacrosanct for investment decision.
Though
the duties of the auditor of the public companies are expressly stated, it is
pertinent that an agreement letter which states the duties to be performed be
given to auditor of banks;
Statutory
requirement or engagement letter becomes the springboard on which the
organization success or failure is viewed visa-avis the auditor’s action. More
importantly is that the stakeholders especially depositors in the banks still
look up to the external auditors' reports to assure them of the safety of their
deposits and answers other going concern questions on the banking industry
.Because of the perception of the stakeholders on the responsibilities of
external auditors in this regard, this study seeks to review the effect of
external auditing on the profitability of Nigeria company in assisting banks
increase their deposits thereby enhancing value creation to stakeholders.
1.2 Statement
of the Problem
External
audit functions are seen as powerful tool that could aid corporate performance.
The sensitive nature of banks especially in Nigeria has put more demand on
external audit reports as most depositors look up to the yearly assurance
reports affirming and reaffirming the viability or otherwise of the banks. In
the early 1990's Nigeria experienced the collapse of almost 80% of her first
generation banks like the Cooperative and Commerce bank(CCB), African
Continental Bank (ACB), Orient Bank and a host of others
(Onyekwelu &Ugwuanyi, 2014).
Reports have it that a good number of depositors lost their deposits, other
forms of investments in the banks and even lives. Again, between 2008 - 2009,
the Central Bank of Nigeria in a bid to save the banking public floated the
Asset Management Company of Nigeria (AMCON) to rescue about five banks in
Nigeria which were declared weak whose assets and depositors' funds were in the
negative balance. Undoubtedly, these banks had external auditors who had
conducted annual auditing on their accounts and certified the banks as being
healthy. It appears that only few studies have been carried out on the effect
of external expenditure on the profitability of banks especially in Nigeria.
There is therefore the necessity for closing this literature gap; hence, the
rationale for this study.
1.3 Objectives of the Study
The
cardinal objective of this work is to find out the effect of external
expenditure on the profitability of Nigeria Company.
The
specific objectives of this study are as follows
- To ascertain the effect of external
audit expenditure on profit after tax of First Bank of Nigeria plc.
·
To
examine the effect of external audit expenditure on return on shareholders' funds on deposit growth of First Bank of Nigeria plc.
1.4
Research Questions:
This
study is guided by the following research question
- What is the effect of external
audit expenditure on profit after tax of First Bank of Nigeria plc?
·
What
is the effect of external audit expenditure on return
on shareholders' funds
on deposit growth of First Bank of Nigeria plc?
1.5
Research Hypotheses :
The
following hypothesis will be tested during the study:
H01: External audit expenditure does not have
significant effect on profit after tax of First
Bank of Nigeria plc. .
HA:
External audit expenditure has
significant effect on profit after tax of First Bank of Nigeria plc.
H02: External audit expenditure has negative
effect on Return on shareholders' funds on deposit
growth of First Bank of Nigeria plc.
HA: External
audit expenditure has positive effect on Return on
shareholders' funds
on deposit growth
of First Bank of Nigeria plc.
1.6 Significance of the
study
Audits can improve a company’s efficiency and profitability by
helping the management better understand their own working and financial
systems. The management, as well as shareholders, suppliers and financer, is
also assured of risks in their organization and effective system is put in
place to handle them.
It also helps to uncover inaccuracies and discrepancies within an
organization’s records which may be indications of weak financial organization
or even internal fraud, although fraud detection is not the main purpose of an
audit.
Other researchers, who will also want to work on the same or
similar topic, might need a base from which to start their work.
1.7 Scope
of the study:
The scope of the study centered on the effect of
external auditing expenditure on the profitability of First Bank of Nigeria plc. The geographical area of the study is South East
Nigeria. The study is restricted to commercial banks precisely First of bank of
Nigeria plc (2002-2016).
In carrying out a research of this nature, it is not uncommon to
encounter a number of constraints in the course of completion of this study.
Some of the limitations of the study include;
Financial constraint: The huge
cost involved in carrying out a complete study is too much and cannot be
affordable by the student.
Time constraint: The time
required for this research work was not enough. This is because the research
was done at the same time a serious academic work was going on in school.
Attitude of respondents: Some of
the respondents refuse to answer the questions asked to them while some refuse
out rightly to grant interview. This poses limitation to the completion of the
work.
Data gathering restriction:
The difficulty of gathering data was compounded by the reluctance on the part
of the respondents to divulge relevant and important information relating to
the study, just like information which were available on the internet were
mostly restricted to registered members.
The researcher’s inability to hold talk
with all the auditors and bank managers whom she tended to have interviewed on
issue relating to banks with regards to the roles of external auditors. The
refusal of some university libraries and polytechnic libraries to conduct a
library research on the above topic. Lastly, our ill-equipped library, which
provided little or no information on this topic, is worth mentioning.
1.9 Definition of Terms
1. Auditing: ‘The independent examination of the financial examination of the
financial statements of an organization with a view to expressing an opinion as
to whether these statements give a true and fair view and comply with the
relevant statutes and the international financial Reporting Standards”.
2. Auditor: This is a person
appointed to examine the accuracy of the accounts and records of a business
organization and to report on the financial aspect at a particular time.
3. Audit report: This is a statement issued by the auditor of an enterprise at the
end of an audit assignment, in which the auditor expresses his opinion on the
financial statement prepared by the directors of an enterprise.
4. Bankruptcy: This is a situation where an unincorporated business i.e. sole
proprietorship and partnership has been legally declared as not being able to
meet its short term obligation as at when due.
5. Financial report: This is a statement that shows the summarized business
transactions and the financial position of an organization for the period under
consideration.
6. GAAP: General accepted
accounting principle.
7. Stewardship accounting:
Stewardship accounting is the process whereby managers of a business, account
or report to the owners on the state of affairs of the business.
8.
Audit evidence:
Are all the relevant and reliable data or information obtained and
recorded by the auditor in arriving at conclusion of the Audit work bases is
independent opinion on financial statement.
9. Verification: This
means establishing the existence, ownership, valuation, and presentation of
assets and liabilities at the balance sheet date.
10. Fraud: Fraud
is referred to those acts, which include
the use of deception to obtain an illegal or unjust financial advantage and is
also all international his statements in or omission of accounts or disclosure
from an entity’s accounting records of financial statements.
================================================================
Item Type: Project Material | Attribute: 51 pages | Chapters: 1-5
Format: MS Word | Price: N3,000 | Delivery: Within 30Mins.
================================================================
No comments:
Post a Comment