MANAGERIAL AUDIT EFFICIENCY AND PERFORMANCES IN SMALL AND

MEDIUM ENTERPRISES IN RIVERS STATE

(A Study of Tizeti Network Limited, Oil Chem Limited, Epoxy Oilserv Nigeria Limited

and Equity Petroleum Services Nigeria Limited)

NAME?

MATRIC NO:
S

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENT FOR THE AWARD OF MASTERS DEGREE IN ACCOUNTING

DEPARTMENT OF ?
INSTITUTION

2021
 CERTIFICATION

This is to certify that this project was carried out by NAME with the Matriculation

Number ??? in the Department of Accountancy, Faculty and school.

2
 DEDICATION

The project is dedicated to God Almighty who has given me wisdom, strength and

ability to be able to complete my studies successfully in Institution.

3
 ACKNOWLEDGEMENT

I am indebted to the University of ?? for the one in a lifetime opportunity given to me to

produce this study. I appreciate the University for the Lectures and assigned tutors who took
their time to feed vast knowledge into me as an individual. I must also thank my dissertation
supervisor for his positive criticisms, patience and assistance throughout this dissertation
especially having to dedicate time at this time of COVID 19. Lastly, I am profoundly grateful
to my family and friends for their unwavering support from the beginning of this program till
the end.

4
 ABSTRACT

This study examined managerial audit efficiency and performances of SMEs in

Rivers State. The study aimed at how audit procedures affect the activities of SMEs
and the challenges encountered by auditors while undergoing audit procedures in
SMEs. The goal of the study was to examine the significant impact of managerial
audit and its efficiency on the performances of SMEs. Analysis was carried out using
simple percentage to analyse the responses of the questionnaire while regression
statistics was used to test the hypotheses formulated with the aid of the statistical
packages for social sciences (SPSS) VERSION 21.0. The research design
employed was survey research design was employed and questionnaire was used
as the research instrument. Moreover, simple random sampling technique was used
to select one hundred (100) respondents among staff of Tizeti Network Limited, Oil
Chem Limited, Epoxy Oilserv Nigeria Limited and Equity Petroleum Services Nigeria
Limited where the questionnaires were administered with the use of google forms.
From the data analysis and research findings, the following conclusions can be
empirically made:
There is a positive relationship between managerial audit efficiency and
performance and SMEsin Rivers state. To this effect, managerial audit procedures
and implementation of any SME is significantly determined by its capability to
understand and acknowledge the need for managerial audit to achieve desired
growth in such enterprise. The results also indicate that SMEs with low managerial
auditing performance expand less than SMEs with high managerial auditing
performance. There is a moderate relationship between managerial audit efficiency
and SMEs (r = 0.583). The relationship is statistically significant (Sig. = 0.000) at
0.05 level of significance and the moderate effect of managerial audit efficiency
explains 0.5% variance in SMEs. There is positive and moderate relationship
between SMEs performance and the economy and the moderating effect of SMEs
performance explains 0.52% variance in the economy, above and beyond the
variance by SMEs performance.
There is a positive relationship between challenges in auditing in SMEs and
efficiency of managerial audit. The challenges of audit have a moderate effect on
efficiency of managerial audit with Regression coefficient = 0.53 and p = 0.000 <
0.05. SMEs need to strategically overcome these challenges in order to improve
their managerial auditing. There is a significant positive relationship between need
for managerial audit in SMEs and performance of managerial audits. With a strong
regression coefficient = 0.87and sig= 0.000 which means that SMEs have identified
and acknowledged the need for proper managerial audit in their enterprise as a
means to expand and grow their businesses. Based on the findings from this study,
a thoughtful and invested blueprint or action plan on managerial audit efficiency can
influence strongly SMEs performance which will ultimately increase sales. Since the
need for managerial audit was identified as having a significantly strong relationship
with SMEs, business owners should economically invest in improving their
managerial audit processes.

5
Table of Content

Front Page 1

Certification 2

Dedication 3

Acknowledgement 4

Abstract 5

Content Page 6-9

CHAPTER ONE 10-16

Background of The Study 10

1.1 Introduction 10-13

1.2. Statement of problem 13-14

1.3. Objectives of the study 14

1.4. Research questions 14-15

1.5. Statement of Hypotheses 15

1.6 Significance of the Study 15-16

1.7 Scope of the Study 16

1.8 Conclusion 16

CHAPTER TWO 17-41

Literature review 17

2.0 Introduction 17

2.0.1 About the Selected SMEs 17-19

2.1 Managerial Audit 19-20

2.2 The Functions of Auditing 20-21

2.3 Small and Medium Scale Enterprises (SMEs) 21-23

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2.4 Overview of Nigeria’s SMEs 23-25

2.5 Need for Auditing Among Small and Medium Scale Enterprises 25-27

2.6 Impact of Managerial audit on SMEs 27-28

2.7 Challenges of SMEs in Nigeria 28-30

2.8 Challenges Facing Auditing of SMEs 30-32

2.9 Methods of Financing for SMEs in Nigeria 32-34

2.11 Funding Schemes Available for SMEs from the Nigerian Government 34-36

2.11 Theoretical Review 36-39

2.12 Empirical Review 39-41

CHAPTER THREE 42-46

3.0 Methodology 42-43

3.1 Research Design 43

3.2 Population 43-44

3.3 Sampling Size and Sampling Technique 44

3.4 Method of Data Collection 44

3.5 Research Instrument 45

3.6 Validity and Reliability of Instruments 45

3.7 Method of Data Analysis 45-46

3.8 Ethical Consideration 46

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CHAPTER FOUR 47-70

Data Analysis and Interpretation 47

4.0 Chapter Overview 47

4.1 Descriptive Findings 47-49

4.2 Descriptive Analysis of Data 49

4.2.1 Restatement of Objective and Research Question One 49-51

4.2.2 Restatement of Objective and Research Question Two 51-54

4.2.3 Restatement of Objective and Research Question Three 54-56

4.2.4 Restatement of Objective and Research Question Four 56-58

4.3 Restatement of Hypothesis 59

4.3.1 Restatement of Hypothesis one 59-61

4.4.1 Restatement of Hypothesis two 61-63

4.4.3 Restatement of Hypothesis three 64-66

4.4.4 Restatement of Hypothesis four 66-68

4.5 Summary of Research Hypothesis and Test Results 68-70

CHAPTER FIVE 71-75

Summary, Conclusion and Recommendations 71

5.0 Chapter Overview

71

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5.1 Summary 71-

72

5.2 Conclusion 72-

73

5.3 Recommendations 74

5.4 Implications of Findings 75

5.5 Areas for Further Research 75

References 74-83

Appendix 84-88

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 CHAPTER ONE

Background of The Study

1.1 Introduction

The importance of small-scale business and its financing to any economy cannot be

underestimated as they serve as a basic survival tool and index of development,

wellbeing of the people and engine oil for growth, (Abe, 2015). For these small

businesses to function effectively, there is need for them to be adequately managed

and monitored in order to have a well sited structure, personnel management,

financing options and the use of accounting information are key areas that every

small-scale business owner must take cognizance of in while providing information

for an audit process so they can have an effective management system, (Alizadeh,

2011). Owners of small-scale businesses find it hard to forge a business ahead due

to so many hindering factors like lack of access to adequate capital, funds

mismanagement, improper accountability measures put in place, etc. In order to help

small scale to grow and be accountable in their businesses, there is need to have a

proper checks and balance system in their audit system so as to know the ups and

lapses while proffering solutions to where dim fit, (Said Suwaidan & Qasim, 2010).

An auditing system is termed to be an orderly and efficient scheme that provides

complete, concise and accurate accounting information and also have regulatory

provisions and policies in order to make calculative decisions, (Christopher, et al.

2009). The uniqueness of small and medium scale businesses calls for careful

10
consideration in the design of accounting systems as these systems show, analyse,

sort, correct records and files in order to show the financial position of the business

at a glance over a period of time. Auditing services in any SME business is very

important for them in order to run their operations, it gives a road map for their

financial and human resources, (Fearnley, and Hines, 2003). Every department and

personnel in a SME business be it the store keeper, accountant, human resource

personnel, janitor amongst others must be accountable for all they do, they must

keep accounting records in order to use them strategically and stay ahead of

competitors. Financial statements are not just for big organisations, all businesses

must keep them and show evidence for business operation. In order to audit small

businesses, the core books of account needed are statement of financial position,

statement comprehensive income, income statement (Profit and Loss account) or

cash flow statement Izedonmi (2000). According to Collis, J. (2008) the statement of

financial position, statement of comprehensive income and cashflow statement all

show a report of a company’s profit or loss at a particular period of time in an audit

proceeding.

The accounting of SME businesses are tax records, accounting software, invoicing

systems, cashflow systems and so on. These businesses have financial goals just

like the bigger ones hence the need for them to be audited by professionals so they

can advise them on how to meet their financial goals, (Berger et. Al., 2006). For

them to be audited properly, they have to engage the service of a professional

accountant who is in the auditing businesses. The small-scale audit can be private,

financial or management audit depending on the aspect of their business they

determine to examine. According to Izedonmi 2000, a financial audit can be defined

as a thorough and careful analysis of an organisation’s past financial records in order

11
to evaluate and verify their position so as to give an unqualified opinion. This type of

audit can help businesses to detect fraud or fund mismanagement that can cause

future financial problems. Management audit on the other side is used by firms to

detect managerial problems in the organisation so as to form strategic opinions for

growth and make decisions.

Collis, J. (2012) opined that, for a small business, their management audit is

important to an auditor as it gives recommendations for making managerial

improvements and improve performances of the business. There are imperative

inquiries intended to help the entrepreneur or supervisor unscrupulously and

sincerely assessing qualities and shortcomings and characterizing openings and

expected challenges in his business. Another part of the audit of a small-scale

business is strategizing, (Campbell, 2009). The possible chances for expanded deals

and benefits for the business ought to be recognized. New items, new business

sectors, or new areas could produce more business for the independent company If

the board has the ability to contact them.

Small scale businesses portray an important role in the growth and development of

the Nigerian economy, (Olatunji 2013). In Nigeria, the growth and development of

these sector of business has been faced with neglect and lack of knowledge of

auditing, book keeping and accounting services. Over the years, there has been

argument for and against the relationship between accounting, audit services and

business enterprises while identifying their success rate, (Olatunji 2013). Audit

services are very important factors to the success of small-scale enterprises as they

form part of the successive and influencing factors that help them grow and identify

their target scope. Oseifuah, 2013 stated that most small businesses in Nigeria still

do not succeed as a result of inadequate management expertise on finance,

12
strategy, management and overall administration. It is no news according to them

that some SMEs cannot boast of an accurate account record and system in all of

their years of operation, some of these organisations hire half-baked professionals

and still underpay them hence they do not get the job done as expected. In the

absence of a proper account and audit knowledge, it won’t be an easy task for SMEs

to make provision for an appropriate administrative management and proper

financial record in Nigeria, (Olatunji 2013). Some of the failures of SMEs can be

traced to the lack of an adequate accounting system, improper record keeping,

underpaid staff, inexperienced staff etc. in the workplace. Onaolapo 2011 opined that

audits of SMEs have shown to be top of the most worrisome and tasking audit

process for professionals due to the inadequacy of their internal control. Statutory

demands aside, SMEs do not rarely give serious attention to their process of

accounting hence the inadequacy and ineffectiveness of the whole process. This is

ultimately one of the reasons for the collapse of their going concern (Mukaila and

Adeyemi, 2011). The objective of this research is to examine managerial audit

efficiency and performance and its impact on SMEs in Rivers State.

1.2. Statement of problem

Small and Medium Enterprises (SMEs) is undoubtedly the most important sector of

any economy not just in the higher rate of people employed but in its contribution to

the Gross Domestic Product, tax revenue and fast dissemination of technology.

According to previous research, it was observed that despite the SME’s contribution

to the development of the Nigerian economy, there are still notable problems that

restrict their potentials to grow especially in the areas of risk management, internal

control, book-keeping, risk assessment and auditing.

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Audit in small and medium scale enterprises has shown to be one of the most

tasking and stressful for professionals due to their incomplete records and

inadequacy to properly put internal control in place. Auditing in any business is very

important and cannot be overemphasized. International Standards on Auditing

(ISAs) requires every entity and their environment to be closely monitored and

examined same as their internal control. As auditors, they are required to get through

to how management select and curb risk which is part of audit assessment. The

audit of SMEs can be tough especially in this part of Nigeria (Rivers state) where

they have little access to financial information and low proximity (Olatunji, 2013).

Various empirical studies have indicated that audit is important to any business,

however, audit not well handled by professionals can be a big issue for firms as any

unfair opinion given can either make or mar the business. This study shall examine

the literature gap by examining the impacts of managerial audit efficiency and

performance on small and medium scale enterprises in Rivers state, Nigeria.

1.3. Objectives of the study

The specific objectives of study are:

a. To examine the impact of inadequate financial records on managerial audit of

Small and Medium Scale Enterprises in Rivers, Nigeria.

b. To ascertain the impact of regulatory policies on Small and Medium Scale

Enterprises in Rivers, Nigeria as contributors to the economy.

c. To examine the effect of poor transition from traditional auditing mechanisms

to digital auditing mechanisms on the performance of Small and Medium

Scale enterprises in Rivers, Nigeria.

d. To ascertain the importance of non-managerial audit function on the growth

and performance of SMEs in Rivers, Nigeria.

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1.4. Research questions

Based on the research objectives, the study will ask the following questions:

a. What is the impact of inadequate financial records on managerial audit of

Small and Medium Scale Enterprises in Rivers, Nigeria?

b. What is the impact of regulatory policies on Small and Medium Scale

Enterprises in Rivers, Nigeria as contributors to the economy?

c. What is the effect of poor transition from traditional auditing mechanisms to

digital auditing mechanisms on the performance of Small and Medium Scale

enterprises in Rivers, Nigeria?

d. What are the effects of non-managerial audit performance on Small and

Medium Scale enterprises in Rivers, Nigeria?

1.5. Statement of Hypotheses

In realization of the afore-mentioned objectives, the following hypotheses will be

tested.

H1: There is no significant relationship between inadequacy of financial records and

the managerial auditing of Small and Medium Scale Enterprises.

H2: There is no significant relationship between regulatory policies on small and

medium scale enterprises performance.

H3: There is no significant relationship between poor transition from traditional

auditing mechanisms to digital auditing mechanisms on the growth and performance

of SMEs.

H4: There is no significant relationship between non-managerial audit performance

and SMEs.

1.6 Significance of the Study

15
This study is of great importance to SME owners and managers in their strategic

decision-making on effective and proper managerial audit process, financial audit,

internal control practices, which assist them to improve their performance. In

addition, SME owners and managers may use the study recommendations to make

improvements on their book keeping and accounting systems. This study is also of

value to policy makers including Government of Nigeria, auditors and accounting

bodies to develop policies on managerial audit for SMEs. Finally, this study is of

importance to future and present researchers who will find this study finding useful in

their area of study especially on SMEs’ managerial audit and performance.

1.7 Scope of the Study

The essence of this study is to ascertain the correlation between managerial audit

efficiency and its impact on the performances of small and medium enterprise and

how to improve on it to achieve effective productivity and performance. The scope of

the study covers selected small and medium enterprises in Rivers State.

The population of the study covers small and medium scale enterprises in Rivers

State whereby stratified random sampling technique will be used to get opinions of

the subject matter.

1.8 Conclusion

In the chapter one, different issues were discussed from the background details of

the topic to the research aims and objectives in order to have a view point of what

will be entailed in the course of the research. The research also provides some

background information on SMEs and the different definitions accorded to them by

different regulatory bodies in Nigeria based on their number of employees, capital,

16
etc. The focus is on SMEs in Rivers, Nigeria. The next chapter is the literature review

and it shall throw light to all topics related to the research variables

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter focuses on different and existing literary works from different authors

and past reports on management audit, its efficiency and its impact on SME’s

performances with the purpose of understanding the myriad approaches and ideas

of this study area. The chapter also outline theoretical literature audit, the

determinants of SME’s performances, importance of managerial audit efficiency on

SMEs, empirical literature and lastly a summary of the chapter.

2.0.1 About the Selected SMEs

Epoxy Oilserv Limited

Epoxy Oilserv is a company with international status operating in Nigeria, West

Africa and an office in the United States of America, with offices locations in all major

Nigeria cities, covering the remaining part of Nigeria with their capable distributors,

They know the importance of creating value for their stakeholders, hence, the

implementation of processes and procedures directly in compliance with ISO

17
9001:2008, They strive to be the best in all they do, with best intentions to limit

emphasis on profit only,  but more on value creation. Epoxy Oilserv Nigeria Limited

marine division is a division of the company involved in the supplies of Bunker fuels,

Lubricants and cleaning chemicals to marine vessels operating within and outside

Nigeria territorial waters, they occasionally have vessels and barges for sale and

hire.

Tizeti Network Limited

Tizeti is the Next Generation Internet Provider in Nigeria that is leveraging the large

bandwidth capacity available with wireless and plummeting cost of solar panels to

create a low capex/opex network of owned and operated towers to offer

undisruptive, customer-friendly pricing for unlimited internet. We are a fast-growing

NCC licensed Internet Service Provider and top provider of UNLIMITED INTERNET

in Lagos and expanding coverage to Eastern and Southern Nigeria as well as other

West African countries. In April 2019, Tizeti launched her VOIP service - WifiCall -

which its app reached over 8,000 downloads at the end of July 2019. The VOIP

service also serves more than 20 organizations' internal/external communications

system (July 2019). Expanding our vision further across Africa, Tizeti launched Tizeti

Network Ghana Limited (GhanaWiFi.com) in July 2019, beginning operations in

Accra.

Equity Petroleum Services Nigeria Limited

Equity Petroleum Services Nigeria Limited is a wholly indigenous oilfield services

company specializing in high quality technological solutions for the oil and gas

industry primarily in the field of Well Intervention, Slickline and other related

upstream activities. EPSNL is committed to safe conditions while providing quality

services for total customer satisfaction. EPSNL is licensed by Department of

18
Petroleum Resources to provide services to Oil and Gas Industry in the following

areas:

 Drilling Services – cementing and pumping services

 Production / well intervention services – slickline, coiled tubing and

pumping/stimulation

 Onshore Pipeline Maintenance Services – pipeline production facility

maintenance

OilChem Group

Oilchem Group is a diversified business organisation with hard-earned reputation for

excellent business practices, service quality, service delivery and high-performance

products. Our excellent business operations create value and superior financial

results for our clients and stakeholders. Oilchem strives for world-class performance

and cost-effective operations Incorporated in September 2006 as Oilchem Drilling

Fluids Ltd, today Oilchem Group operates in South Asia, Middle East and Nigeria;

We provide drilling and completion fluids engineering services to the national,

independent and international Oil and Gas Companies. Oilchem is in business to

create value and achieve superior financial results for her customers and

stakeholders. Their Areas of activities encompass:

 Drilling/Completion Fluids - Products and Engineering Services

 Fluids Quality Assurance and Control - work vessel surveys, Marine logistics

 Oil Well Completion-Tools and testing - Well Clean-Up and Brine Filtration

 Chemical and Allied Products - Mineral Ore Milling and Packaging.

2.1 Managerial Audit

Definition of audit is different among scholars.

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According to Bigg 1971 from Spicer and Pegler (1976)’ book, "Auditing is seen as

an act of examining the books of accounts and vouchers of business, in order to help

auditors to make unqualified opinions 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 particular financial

period being analysed, according to information and explanation given to him and as

provided by the books". From Allee and Yohn’ view, “auditing is an analysis of

accounting books and records done with the aim of establishing whether they

completely, correctly and expressly reflect the transactions of a business as stated.

Again, “Auditing is the systematic and thorough analysis of financial statements,

records and related operations to determine adherence to generally accepted

accounting standards, principles, management policies and stated requirements.”

-R.E. Schlosser.

Audit is an effective tool for the management of any organisation as it is recognised

as the component used for checks and balance in every organisation whether private

or public and also assess their overall activities, effectiveness on strategies and

performances. According to Okezie 2004, audit is a separate function and entity of

an organisation which is used to assist management’s effectiveness in their

discharge of responsibilities while being accountable.

Rittenberg and Schwieger (1997) stated that managerial audit’ importance in today’s

global organisation can not be underestimated as it assists management in

evaluating controls and operations. Venables, 1991 also stated managerial audit

leads to proper organisation, control on finances, staffing and strategic presentation

of decisions in the organisation.

2.2 The Functions of Auditing

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Audit determines the accuracy of financial statements prepared by any organisation

by thoroughly examining their annual financial statements as provided in order to

arrive at an opinion, (Adeniyi, 2004). Audit is used in organisations to analyse the

principle of going concern. For every organisation, there has to be certainty that the

firm can still be in business for the next financial year, to be able to ascertain this,

audit process is used and an opinion is given as a report to the company. (Cohen

and Sayag, 2010) accepted that the going concern is a concept that assumes that

the reporting entity will continue in operation for the foreseeable future, and that it will

be able to realize assets and discharge financial obligations in the normal course of

operations. Managerial audit is a function that can be used to detect any fraud

activity in the operation of a firm. Managers in an organisation may be fraudulent

through overriding internal control but with the use of audit procedures based on

General Accepted Auditing Standards, frauds can be detected and analysed.

Alzeban, and Gwilliam, (2014) opined that managerial audit is an independent

appraisal function established by the management of an organization for the audit of

the operations, finances and accounting system of an organization, (Olaoye et al,

2012). Millichamp (1986) also opined that managerial audit is a procedure carried

out by an organisation where the engagement of external consultants is sought in

order to carry on the business of the enterprise in orderly and efficient manner,

ensure adherence to management policies, safeguard their assets and secure as far

as possible the completeness and accuracy of records, (Igbinosun, 2011).

2.3 Small and Medium Scale Enterprises (SMEs)

There are different definitions that can be ascribed to the definition of SMEs in

Nigeria and same as other countries but these definitions can be associated to

SMEs’ size, capital invested, amount of turnover annually realised, investment in

21
 terms of assets and their number of workers employed. According to Folabi Folusho

2015, defining SMEs based on asset’ value, in the situation of a slump in the

economic condition, the impact it will have on employees’ turnover will be greater

than that of the value of SMEs’ assets, living condition of the populace and the

African continent as a whole. According to The Federal Ministry of Industries, SMEs

are defined as organisations with their operating assets less than =200 million and

with less than 300 employees. Technically, SMEs in Nigeria are divided into 3;

Medium Scale Enterprises, Small Scale Enterprises and Medium Enterprises. Below

is a tabulated format of their definitions as given by different financial institutions in

Nigeria based on assets value, employees number and annual turnover.

Asset Value
Annual Turnover y (=’m) No of Employees
(=’m)
SS Institution/Class
Institution/Class. MSE ME MSE SSE ME Institution/Class. MSE
E .
Federal Ministry Federal Ministry <20 N/A Federal Ministry
<200 <50 N/A <50 <200
of Industry of Industry 0 of Industry
N/A <15 N/A
Central Bank <150 <1 Central Bank <1 Central Bank <150
0
NERFUND N/A <10 N/A NERFUND N/A <10 N/A NERFUND N/A
NASSI N/A <40 <1 NASSI N/A <40 <1 NASSI N/A
<15
NASME <150 <50 <1 NASME <50 <1 NASME <150
0
Tabulated form of Nigerian Institutions definition of SMEs

Table 1. Source: World Bank, SME Country Mapping 2001

MSE – Medium Scale Enterprises

SSE – Small Scale Enterprises

ME – Medium Enterprises

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NERFUND - National Economic Reconstruction Fund

NASSI – Nigerian Association of Small-Scale Industries

NASME – National Association of Small and Medium Enterprises

SMEs are vital to most economies across the world, especially developing and

emerging economies. The World Bank states that formal SMEs contribute up to 60%

of total employment and up to 40% of national income (GDP) in emerging

economies, and these statistics would be significantly higher if it took into account

informal SMEs. Moreover, the World Bank also estimates that 600 million workers

will enter the global workforce over the next 15 years, mainly in Asia and Sub-

Saharan Africa. From this projected estimate, four out of five new jobs are expected

to be generated by SMEs. Furthermore, a World Bank Group study suggests that

there exist approximately 400 million MSMEs the jobs of Small and medium

endeavours (SMEs) in the advancement of a country's economy can't be thought

little of. This is because of its commitment to advantages of different angle like; work

manifestations, information overflow, monetary multipliers, advancements driver and

market section improvement in an economy.

Notwithstanding the empowering quantities of SMEs and the high rate they involve in

the Nigerian economy, the commitment they make to the economy's GDP is less

reassuring when contrasted with Banji, (2010) perception that SMEs contribute 1%

of GDP contrasted with 40% in Asian nations and half in the Europe and US. Having

these statistics in mind, one would naturally expect that SMEs would be highly

favoured with regards to having access to capital. SMEs sprout mostly from

emerging economies and the government of such countries put in earnest efforts to

secure capital for such start-ups.

23
2.4 Overview of Nigeria’s SMEs

Nigeria remains a country with very high potential but an equally high inertia to

develop. The country is blessed with abundant supply of enormous human,

agricultural, petroleum, gas, and large untapped solid mineral resources and Etim,

2010 opined that these different resources should be handled with subtlety in order

to achieve all round success in the economy. Since her freedom from British

standard in 1960, the nation has experienced many years of political flimsiness and

this has carried with it an atmosphere of social pressure and a flighty market for

business. The race for a success in the growth and development of SMEs is one of

the factors that has led the Nigerian government to support and promote SMEs

because of their contribution to reduction in unemployment rate and economic

development. The importance of SMEs in the economy cannot be underrated as

they contribute a great impact to the Nigerian economy even though they face

myriads of challenges. They have been able to assist in poverty alleviation motives

of the government while being supported via various means by different sectors of

the economy. According to Lekhanya, (2016: 109), pushing funds into SMEs in

Nigeria has been a constant and never to die issue in the nation and it serves as a

major hinderance for them to compete favourably and meet up with high demands in

the market. One of the most vital contributors to an organisation’s success is capital

because it is the most solid foundation it requires to make it stand and compete

favourably in order to gain ground and larger market share among competitors.

Nigeria remains a country with very high potential but an equally high inertia to

develop. The country is blessed with abundant supply of enormous human,

agricultural, petroleum, gas, and large untapped solid mineral resources (Obadan,

2003). Since her freedom from British standard in 1960, the nation has experienced

24
many years of political flimsiness and this has carried with it an atmosphere of social

pressure and a flighty market for business.

The race for a success in the growth and development of SMEs is one of the factors

that has led the Nigerian government to support and promote SMEs because of their

contribution to reduction in unemployment rate and economic development. The

importance of SMEs in the economy cannot be underrated as they contribute a great

impact to the Nigerian economy even though they face myriads of challenges. They

have been able to assist in poverty alleviation motives of the government while being

supported via various means by different sectors of the economy. Pushing funds into

SMEs in Nigeria has been a constant and never to die issue in the nation. SMEs’

performance in Nigeria has not been one to provide a 100% desired expectations or

impact on the growth and development of the economy as a result of the numerous

setbacks they face Nwachukwu (2012). Ogbuabor, Malaolu, and Elias (2013) also

stated that different opportunities that can add to the growth of SMEs in Nigeria

contribute to their competitive advantage.

Modugu and Eragbhe (2013) opined that SMEs contribute to more than ninety

percent of a country’s private sector and are the main source of job opportunities in

developing countries. They play an important role in economic development and

poverty alleviation.

2.5 Need for Auditing Among Small and Medium Scale Enterprises

A careful look at SMEs operational activities shows that their owners are mostly into

daily management of the firm. They exercise all forms of control personally without

interference from external bodies, (Wamae, 2005). Nevertheless, business does not

have an option but to make decisions that involves management and controls at

some point when they can no longer make all organisational and operational

25
decisions (Atrill & McLaney, 2009). This phase is a vulnerable and important

breaking point for management as they may keep going on and not head back

anymore whether it result into success or failure of the system (Baker Tilly, 2010). In

this period, managerial audit is not a bad idea to chip in as it can be value adding to

the firm’s controls and operations (Onaolapo et al, 2011). It can help to identify

management and system issues while also providing regulatory oversight.

Managerial audit in SMEs will help to draw the attention of the firms’ directors and

regulators to the fact that their roles and responsibilities under cooperate legislation

and business going concern gives them the need to be able to prevent bankruptcy or

insolvency of the company, (Barra, 2010). Auditing the financial books of SMEs

helps them to curb any form of fraud or bankrupt incident that might want to occur

thereby helping them to be futuristic. Managerial audit helps to protect the domain

and business practice of SMEs by certifying them fit to conduct business and

declaring them non-bankrupt (Wood & Sangster, 2008). In order to conduct a proper

audit, there is need for the provision of accurate books of account, this process helps

SMEs to have proper books, keep accurate and concise records, ensure there is no

errors in their books, prevent contra entries and not have just a cashbook as

explained by Olatunji (2013) and Olaoye (2012).

Audit in the real sense help SMEs to identify their relevant and real problems that

may have been occurring in their accounting system. After an audit system, they are

able to identify their strength and weaknesses while working on their threats in order

to use as an opportunity against their competitors in order to get the best possible

result, (Bruce et. Al. 2011). If there is any case of fraud or mismanagement of funds

whereby an employee of a SME commits any of these financial crime, managerial

audit will help to uncover these acts. It will reveal how and where the organisation

26
got it wrong and how they can put measures to reduce or avoid risk of fraud. Another

impact of managerial audit on SMEs is that it will help them to improve and boost

their accounting procedures and practice so that they can serve the purpose they

were created for in the economy (provision of employment opportunities, poverty

alleviation, contribution to GDP among others) (Ariyo, 2008). The procedure reveals

to these firms, different practices and accounting software available that can be used

to ensure an effective and efficient management because most times SMEs do not

have or can’t outrightly afford a designated accountant. Managerial audit guide

SMEs aright on their tax liabilities and accounting procedures, they help with advice

on filing of tax returns and ensuring they also use the right books of account.

Management audit gives SMEs a credible status on their tax status, financial records

in a credible manner thereby giving stakeholder a positive impression of the

company and the willingness to continue investing, (Campbell, 2009).

2.6 Impact of Managerial audit on Small and Medium Scale Enterprises

(SMES)

A careful look into many SMEs operation reveals that owners are involved in daily

management of the business, they exercise financial and other controls personally

instead of using professionals who can look into their books of account and make

calculative decisions about their going concern (Abdul-Ganiyu, 2017). However,

when the business grows to a point where the owner can no longer make all the

operational decisions, they are forced to put in management and controls. During

this period an audit can add considerable value in identifying controls, management

and system issues as well providing regulatory oversight. The needs of other parties

who are also interested in the financial position of an SME is another major need for

SMEs Audit (Michael, 1993). For example, the tax office obtains assurance from an

27
audited set of financial statement provided with a tax return, (Olaoye, 2012). Banks

and finance providers are always influenced by the existence or otherwise of audited

financial information when considering funding application (Adeniyi. 2004). Evidence

of audit delivers the message that there has been regular external oversight by an

independent expert into the affairs of the SME.

An external audit of a SME draws to the attention of the SME’s directors, the need to

understand their roles and responsibilities under cooperate legislation and

particularly regarding the need to maintain their business as a going concern and to

give due consideration to the prevention of insolvent trading, (Mbroh, 2013). An

independent audit indicates to all stakeholders that an independent expert has

examined these business practices, thereby giving them some protection in respect

of these considerations. In terms of books and records keeping, (Wood & Sangster,

2008) observed that many small businesses can have all the information they want

by merely keeping a cashbook and having some form of records, not necessarily in

double entry system (Vickery and Menders, 1979; Olaoye, 2012). This according to

Olatunji (2013) is an aberration and requires a conversion to double entry system for

a meaningful Auditing (Adebisi and Azeez, 1999, Onaolapo et al, 2011).

2.7 Challenges of SMEs in Nigeria

As a result of the structure of the Nigerian financial structure, large business

organisations tend to be favoured more from the lending procedure and policies laid

down by commercial banks. These acts make it hard for SMEs to have access to

loans and other financial facilities to grow their business. It makes it hard for them to

get bank advance or overdraft from banks. In the Nigerian banking sector today,

collateral seem to be the major guarantee for loan approval for any interested

28
business and this has been an hinderance for SMEs. Ekwem, (2011) stated that the

challenges encountered by SMEs in Nigeria are some of the factors that hinder their

growth in the economy. Onugu (2005) also stated that their performances in the

country have been on the low side due to these challenges encountered especially in

the financing aspect where Not all of them have the facilities to go ahead with loan

process. The following are related challenges faced by SMEs in Lagos State and the

country as a whole;

 Lack of Infrastructural and social facilities

Infrastructure is key to every business environment no matter how independent they

are. Several defects in infrastructure affect SMEs in the country ranging from Bad

roads, lack of portable water system, poor electricity and no provision of a stable

political system (Iwok, 1977). Nigerian banks blame their inability to assist SMEs on

poor infrastructure. The more these businesses make provision for these facilities,

the more their profit and revenue is affected thereby causing a change in their

revenue flow. Their inadequate access to enough supply of water, telephone system,

good transportation system etc, has been an hinderance to their success and

effective performance in the economy (Osamwonyi & Tafamel, 2010).

 Lack of proper marketing and strategic planning

Majority of SMEs in Nigeria do no9t engage in adequate strategic planning measures

and blame their low profit rate on poor sales without checking out their marketing

strategies and skills and mapping out a plan that will help them achieve their

objectives. Brush et al. (2009) opined that SMEs are usually embattled with lack of

access to information and good communication skills to market their effort and

implement sales.

29
  Down sliding Macroeconomic Environment

The Nigerian economic situation has drastically moved from friendly to an unfriendly

one as a result of the government’s fiscal disciplines. Political instability and

irregularity in the rules, regulations and policies of the government is another major

factor hindering the growth and development of SMEs. Onugu (2005) also stated

that SMEs in Nigeria are handicapped as a result of the government’s policies and

fluctuation in the economic system.

 Inability to differentiate personal capital from business revenue

Asides poor book keeping acts, majority of SMEs in Nigeria still find it hard to

separate their personal expenses from business expenses. Olatunji (2013) stated

that most of the SMEs in Nigeria use personal money for business use and vice

versa. They fail to draw a line between these two and this is problem emanate from

the inability to keep proper record of business and personal transactions separately.

Some of these SMEs does not even have corporate bank accounts for business

hence they use their personal accounts thereby mixing up their personal and

business gains together. Yusuf (1997) and Ishak & Omar (2012) also shared their

opinion, they opined that managing an organisation’s funds is the main problem

facing SMEs today and they are having these issues as a result of lack of access to

financial facilities where most banks find it uneasy to give loan facilities to SMEs

because they do not want to take the risk and the uncertainty that they will be

refunded.

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  Financial hinderance

Abor and Quartey (2010) posit that SMEs are prone to myriads of challenges but the

most common one is financial constraint. Their growth has so far in Nigeria been

hindered by lack of access to enough financial facilities to enable them grow and

compete favourably in the market. A large number of them are in a bad busines

shape as a result of less financing and inadequate credit facilities (Fatai, 2011).

2.8 Challenges Facing Auditing of Small and Medium Scale Enterprises

One of the many great difficulties encountered by auditors occur when auditing

SMEs. This is as a result of many factors arising from the part of these SMEs. Most

SMEs are of the mentality of hiring staff and underpaying them. With this, they end

up hiring low quality accounting staff thereby making them vulnerable to financial

risks like fraud, (Iopev, et. Al. 2012). Professional accountants are known for their

high requirements in ethics and integrity. It is a well-known fact that accounting work

requires individuals with great sense of responsibility, integrity, honesty, skilled and

qualified personnel. Ineffective personnel put in this position will perform poorly

thereby giving auditors issues during audit process. Most SMEs do not engage in

training and development sessions, this is very important for professionals as they

need to grow and keep learning, lack of training for these professionals will not help

them to be up to date with International financial standards, change in accounting

principles and other update in the account and audit field. This may lead to technical

error and operational distort for SMEs (Bamiduro, 2003).

Most SMEs have been found to lack transformation and growth in learning new

regulatory principles of accounting and audit, they lag behind in financing their

computer literacy and use of application software, (Abeygunasekera, 2013). This

31
result to confusion in the use of accounting principles, a huge clash in new and old

principles between organisation’s accountants and auditors during audit and leads to

irregularity in audit report (Ojala, Niskanen, Collis and Pajunen, 2014). SMEs have a

not so good accounting system, from start stage to the implementation of their basic

system and this does not sit well for a sector that serves as a surviving system to

any economy (Aremu, 2011). They lack professionalism in their inventory and

financial system. This has always proved to be a problem for auditors seeing that

they are never up to date. Their accounting system lacks standardisation, procedural

management and institutionalisation, this portrays SMEs to not have a standard

basis of accounting, (Ariyo, 2008).

Accounting agencies are sometimes hired by SMEs or the make use of their internal

account department but most times, auditors have found this to be an incomplete

independent system. These firms do not have proper independent authority

departments. They leave financial functions to so many departments and individuals

to handle later causing problems for external auditors in identifying cost centres and

drivers. Another very key problems that arise n SMEs which have huge effect son

the finance of SMEs is the insecurity and insincerity of their owners. They fin it hard

to disclose accurate information on cost of production and other items. This will only

give their accountants permission to compose incomplete records and cashbooks.

Some of these SMEs in the Nigerian economy especially those in rural areas are

known to avoid tax thereby making their credibility to be questioned, (Isimoya, 2005).

Another focal point to note is that SMEs operate a centralised accounting

management, this has impact on lower operations carried out. They lack

specialisation, accounting theory, make use of vertical management model and

incomplete financial operations. All these causes confusion for auditors as financial

32
records is not in one specific place, they are provided with little information and this

is the ultimate determinant of audit success or failure, (Oseifuah, 2013).

2.9 Methods of Financing for SMEs in Nigeria.

Financing SMEs today is considered as a means of growth and development

strategy for economic growth and stability. Joseph, (2013) explained that potential

entrepreneurs in Nigeria face several financial associated challenges like high

interest rate on loans while Osalor, (2012) opined that Nigerian SMEs are rarely

given attention by commercial banks because they are concerned about their risk.

Accessibility to finance for business purpose is key to any organisation no matter

their size, this will ensure they grow and develop as the business world evolves. A

financially stable firm will be able to compete favourably in the market and achieve

larger market share. It will also help them to improve their productivity level and

efficiency. Sources of finance for SMEs in Lagos state will be described in 3

categories and they are;

 Personal Savings

This is seen as the sum of money or fund left from removing the cost a business

owner’s consumption and expenditure from the total of disposable income at a

particular period of time. Gélinas, 1998; Pretorius & Shaw, 2004; Terungwa, (2012)

stated that finances for SMEs can be in the form of internal or external means

whereby personal savings of SME They tend not to use formal means of finance

from external bodies but make use of trade credit from their suppliers, reinvest their

33
profits or do not share their profit. These activities they engage in is one of the

reasons they have not been growing at a fast pace forgetting that they can only

attain a strong business position with a string financial source.

 Informal source

This type of means of finance for business does not demand serious documentation

or paperwork. It is not compulsory SMEs provide collateral securities instead it could

be finalised on a word of mouth or mutual simple agreement. These sources of

finance could be from friends, relatives, angel investors etc. Riding (2006).one of the

advantages of the informal means of finance is that it has encouraged the growth of

SMEs in Nigeria.

 Formal Source

A formal source of finance is defined as the official financial institutions established

by the law of a country to engage in financial activities and entrusted with the

responsibilities of helping SMEs grow, develop and thrive in the harsh business

world through the provision of financial facilities with collateral securities involved.

This is why a formal source of finance is different from the informal one. A formal

source of finance comprises of development banks, the bank of industry (BOI),

commercial banks and merchant banks. For instance, in Lagos state, the

government have different loan schemes for SMEs in order to facilitate their growth

e.g., Lagos State Emergency Trust Fund (LSETF) was established to help SMEs

with funds to grow their business and assist in the fight against poverty eradication.

Nigeria’s financial system does not in any way lack supply of liquidity, but the

banking institutions make it hard and difficult for SMEs to have access to loans.

Migiro (2005) cited from a study researched on by Bank of England (2001) that

34
means of finance from external factors for SMEs in the UK shifted and was not

stable in the 90s whereas the Sub-Saharan African regulate their activities on credit

facilities in the market in order reduce information cost. For instance, in the Nigerian

financial sector, First Bank of Nigeria is one of the prominent banks that gives SMEs

support like their firstmonie project for retail banking.

2.11 Funding Schemes Available for SMEs from the Nigerian Government.

Lagos state has the highest number of SMEs due to its urban nature, the population,

calibre of inhabitants, the recreational and city-like factors in the state. Almost every

individual in other state wants to come to Lagos to start up business and grow one

because they believe and have the notion that the state is a land of opportunity. The

government is in the know of this which is why they incorporate several schemes to

support business owners, private investors and angel investors are also not left

behind. The following agencies and schemes are the different ways the Nigerian

government has been supporting the growth and development of SMEs in the

country:

 Nigerian Industrial Development Bank (NDIB) – the institution was established

in 1964 and is faced with the responsibility of bringing both local and foreign

skills, local and foreign funds in order to grow and develop new industries and

expand the old ones.

 Nigerian Agricultural and Cooperative Bank (NACB) – it was founded in 1972

so as to provide assistance in ensuring availability of finance for agricultural

projects that are viable having passed the project viability test thereby

enhancing the growth and development of agriculture in the economy.

35
 National Economic Reconstruction Fund – this body was set up by the Decree

no. 25 of 1988 as a means of funding scheme targeted at joining the space

between the provision of local and foreign funds to SMEs. It was established

by the federal government to make provision of long-term loans between 5 –

10 years available to SMEs at reasonable interest rates.

 Community Banks (CBs) – the community bank was founded and started

operation in the year 1990 with the aim of providing standard financial

services for the rural environment same as macro- enterprises in the urban

community. These banks in the Nigerian economy were self-sustaining in

nature, managed, financed and owned by community development

associations (CDAs), cooperative societies, unions in towns etc, they provide

financial services to the members of their community.

 Nigerian Agricultural, Cooperative, and Rural Development Bank (NACRDB),

now Bank of Agriculture (BOA) – it was established in October 2000 from the

combination of Peoples Bank of Nigeria (PBN), Family Economic

Advancement Programme (FEAP) and Nigerian Agricultural and Cooperative

Bank (NACB). This institution is jointly owned, managed and financed by

Central Bank of Nigeria (CBN) and Federal Ministry of Finance Incorporated

(MOFI) with share ownership of 40% to 60% respectively. Their main aim is to

assist SMEs and agriculture with financial aid.

 Bank of Industry – the BOI is a financial institution formed from the merging of

Nigerian Industrial Development Bank (NIDB), Nigerian Bank for Commerce

and Industry (NBCI) and National Economic Reconstruction Fund

(NERFUND). It was established in the year 2000 to make provision of credit

facilities to the industrial sector of the economy. They make provision for

36
 financial assistance available for set up of small, large and medium projects

including strategy diversification, expansion of businesses and modernisation

of old establishments as well as rehabilitation projects.

 Nigerian Bank for Commerce and Industry (NBCI) – it was founded by Decree

22 of May 197 with the responsibility of providing equity capital funds through

loans to SMEs.

2.11 Theoretical Review

Different theories shall be used to explain the demand and importance of managerial

audit efficiency and performance on SMEs. Some of them are known in research

while others are perception based. These theories are:

 Policeman’s Theory – the theory explains that auditors are liable for

searching, analysing and preventing fraud. Back in the early time of 20 th

century, this theory was what has been use. Of recent, the main area of focal

view of auditors has been concentrated on providing reasonable assurance

and verifying trueness and fairness of financial statements. Nevertheless, the

detection of fraud is still very relevant in the accounting and audit field just

immediately after events of financial statement frauds have been revealed.

The pressure of audit increase as the responsibilities of auditors in detecting

fraud increase too.

 Lending Credibility Theory - Porter, 1990 propounded this theory and it is

seen from the management viewpoint whereby the author suggested that

financial statements of entities should be used by management to enhance

stakeholder’ faith in them. Stakeholders use judgemental procedure to make

financial decisions with financial statements and are obliged to have faith in

37
 the claim that audited financial statements are truth and fair in matters of

economic situation in the company they want to invest in. regardless of the

lending credibility theory, efficient market theory states that audited financial

statements does not necessarily form a basis for them to make investment

decisions regarding a company.

 Theory of Inspired Confidence – this theory was propounded by Dutch

Professor Theodore Limperg in the late 1920s. According to Limperg institute,

they addressed the demand and supply for audit services. The need for audit

services is a direct implication if the participation of interested parties of an

organisation in their organisation. These interested parties are known to

request for accountability from the management of the organisation and in

return they invest in the company. They get evidence of accountability from

the publication of periodic financial reports. An audit is seldom required to

prove the credibility of these financial information provided by the

management as they may be biased and there is no means to monitor these

financial statements. Limperg also suggest that auditors should try to meet up

with the expectations of the public. Carmichael, 2004 stated that Limperg’s

theory stays relevant in the development of audit function.

 Agency Theory - Watts, R & J. Zimmerman stated in this theory that auditors

are selected and put to work for the sole interest of both management and the

third parties (investors). An organisation is seen to be a clan of contract with

several groups making contribution towards the company at given price.

Management coordinates contracts and groups then optimise them. This

theory depicts a contract among an organisation owner and their top

management who are working with the organisation as agents to render

38
 services on behalf of their owners by delegating decision making authorities to

managers (Ahmad, 2011). These authorities given to managers may be

negatively used hence the presence of audit committees to help organisations

enhance their performance while management also carry out their procedures

as planned (Watts, 1979).

 Institutional Theory – this theory shows how authoritative designs and

practices are formed through changes incited by regularizing pressures,

including both outer and interior sources like laws and guidelines, or by the

callings (Zucker, 1987; Mihret et al., 2010). Essentially, Arena and Azzone

(2007) distinguished the accompanying outside powers that sway the two

people and organisation. Al-Twaijry et al. (2003) embraced the isomorphic

point of view to research inner audit in Saudi Arabia, and the institutional

hypothesis is utilized to clarify their discoveries with respect to the foundations

of interior audit and the part of the public authority in advancing their turn of

events. Likewise, Arena and Azzone (2006) engaged, on the coercive

isomorphism, to research the improvement of inner audit in six Italian

organizations as a different contextual analysis. Their discoveries affirmed

that the reception and improvement of inside audit were affected by the

coercive, mimetic and regulating pressures. All the more as of late an

examination by Arena and Azzone (2007), in view of audit including 364

Italian organizations, tracked down that the isomorphic pressing factors

fundamentally affect the organizations' help of inside checks and balance.

2.12 Empirical Review

The basic part of computers in current business prompt undertakings to take

exceptional measures to secure their data frameworks and guarantee their exact and

39
safe capacity. The mix of robotized and non-computerized methods with the intention

of ensuring data frameworks is called the act of auditing. Data frameworks audit

incorporates the strategies, the arrangements and the methods that give data

confirmation and security, assets defence, information respectability support, and

consistence with law and guidelines. Additionally, these methodologies figure out

how to relieve chances worried about the utilization of data innovation by

associations, and to limit the harm caused from computer mistakes electronic

wrongdoing and security penetrates. Rezaee and Reinstein, (1998) contemplated

the effect of educational innovation on inspecting exercises. Their examination was

fixated on the main points of interest of SAS No. 80 that offer evaluator's direction to

get adequate proof so they assess their customers' data frameworks. Rezaee and

Reinstein (1998) contended that data innovation added to the rearrangements of

data passage into the exchanges and the general cycles. Additionally, as per

Rezaee and Reinstein, (1998) because of data innovation, the assessment of the

connected controls and results turned out to be more basic. To aggregate adequate

proof and hence settle on educated choices, answers should be given to specific

inquiries, like where to search for that proof, what auditing cycles to mull over and

how to assess these cycles. Meredith and Akers (2003) led an audit to examine

whether counselling influences the autonomy of the inner audit work. They studied

241 (CEOs) and inspected their sentiments on inward audit's association in

frameworks advancement, and especially they analysed whether such inclusion sets

in peril the autonomy of inner inspectors and if evaluators should go about as

specialists for frameworks improvement projects. The outcomes uncovered that what

intrigues CEOs more is the upkeep of inside audit capacity's autonomy regardless of

whether the inward examiners go about as specialists. Respondents were indifferent

40
about inner audit's inclusion in the arranging and configuration stages and didn't

uphold its contribution in the turn of events, execution and upkeep stages. The

aftereffects of the correlation of discernments among CEOs and Chief Audit

Executives (CAEs) uncovered that there are huge contrasts between these two

classifications with respect to their assumptions. Presidents believed autonomy to be

the main matter, while CAEs underlined the requirement for inner evaluators to go

about as experts. Hadden et al. (2003) investigated the IT capabilities and exercises

of audit councils, inward and outside inspectors with respect to IT hazard the

executives. The consequences of the investigation recommended that audit panels

seem to offer restricted management of IT-related dangers, while they do accept that

they should play a more dynamic part in this field. Concerning inner inspectors, the

outcomes uncovered that their association in data innovation oversight was

evaluated as "better than expected", while the particular contribution of the outer

evaluators was appraised as "moderate". After one year, Huntonet al. (2004) did an

exploration to analyse, comprehend and evaluate the degree to which monetary

auditors and data frameworks auditors can distinguish the audit chances related with

ERP frameworks. The outcomes uncovered that monetary examiners are less keen

on ERP hazards contrasted with data frameworks audit trained professionals, while

the subsequent ones question monetary inspectors' capacity to distinguish chances

related with ERP frameworks, something which could affect audit quality. The

dangers of automated bookkeeping data frameworks (CAIS) in Saudi organizations

were inspected by Abu-Musa (2006).

According to Montgomery 1990, their findings showed that complying with

accounting standards is very important for financial audit in SMEs because they

make provision for guidelines on how account and financial statements should be

41
prepared, analysed and presented in order to promote its content and facilitate

thorough understanding from auditors’ end. The goal is to prevent any form of

confusion or misunderstanding between management and auditors during audit

process. Should management refuse to comply with audit rules and procedures, this

could create difficulties and tough time for auditors when giving their opinion on the

trueness and fairness of their financial statement.

CHAPTER THREE

METHODOLOGY

Research Philosophy

42
According to Mark Saunders, research philosophy is the aura that surrounds

opinions, assumptions and beliefs based on new and developing knowledge. For the

purpose of this research, the positivism research philosophy shall be employed

because it focuses on facts, quantity and fundamental laws.

Research Approach

The research shall follow an objective approach in order to gather data from selected

population sample so as to be able to analyse data. The research approach shall

follow a deductive one in order to portray a traditional and natural scientific view

Saunders, et al. (2009).

Research Strategy

The research strategy for this dissertation shall be used in order to ensure the

research questions are addressed in a valuable way, Saunders, et al. (2009) stated

that the survey strategy is used to collect a large amount of data from a sample. The

data for this research shall be collected quantitatively in order to analyse them with

the use of inferential statistics.

According to arxiv.org, research methodology concerns the scientific way of

analysing, describing and experimenting data in order to find facts about a

phenomenon. Rajasekar et. al. (2006), explained research as a logical fact-finding

search into the unknown, it is used to source for useful data on a topic which are

analysed and used to formulate answers to questions. This chapter includes the

means used in the collection of data for this research study. It also covers the

research methodology including the research design, characteristics of the research

population, sampling size and sampling technique, method of data collection,

43
research instrument, and validity of research instrument, reliability of research

instrument, method of data analysis, model specification and ethical consideration.

3.1 Research Design

A research design is used to make provision for framework in a study and the choice

of research approach is of importance here. This design determines the importance

of data gathered for a study and how it will be obtained with different intertwined

decisions Survey research design was adopted for this study. Survey research

design was adopted for this study. The output of research design is to increase and

add to knowledge afresh then develop theories while gathering evidence to prove

research opinions (Sekaran, 2006). Survey research design was adopted for this

study This research design is justified on the ground of its capacity for collecting

large data and because it could make use of questionnaire focusing on very large

population. This allows the researcher to create information for precisely answering

the how, what, who, where and when questions concerning managerial Audit

efficiency and its impact on SMEs performances. Besides, the data structures

created through the survey method when considering the whole population helps the

researcher to make inferences about the target population as a whole.

3.2 Population

The population of a study is the target audience of the researcher, it will be difficult to

make use of the whole population hence the need for the researcher to make use of

sample out of the population. The target population of this study is three selected

SMEs in Rivers as they contribute largely to the economy of the country and face

several bottlenecks which includes access to finance and sustaining capital. The

research will be focusing on four SMEs in Rivers, Nigeria (Tizeti Network Limited, Oil

44
Chem Limited, Epoxy Oilserv Nigeria Limited and Equity Petroleum Services Nigeria

Limited) in order to have a well-defined population and prevent a porous data at the

end of sourcing for them. All the SMEs being used as sample are located in Rivers

State while they also have trade channels all over Nigeria.

3.3 Sampling Size and Sampling Technique

Purposeful sampling technique was chosen and used in the selection of the selected

SMEs in Rivers State. Enumeration method will be used to determine the sampling

size.

3.4 Method of Data Collection

Kumar, R. (2011), stated the importance of research methodology in the book a

step-by-step guide for beginners. The study made use of primary data. The adoption

of this source will enhance empirical analysis and provide appropriate answers to the

research questions and assist to achieve the research overall and specific

objectives. Primary data will be elicited with a well- structured, tested and validated

questionnaire which will be administered on SMEs’ owners who have direct

knowledge on managerial audit and its efficiency for their businesses. The

researcher administered the data electronically using Google Form due to the rules

and regulations of companies and government on the covid-19 global pandemic.

3.5 Research Instrument

For the purpose of this study, questionnaire was chosen. A well-structured

questionnaire was developed with validity and reliability tests. Items that measure

SMEs’ cost of capital and financial performance was adapted. A 5-point summated

rating scale (Likert-type scale) will be for all sections, except section A on

45
respondents’ demographic date, with calibration of SA - Strongly Agree, A -Agree, N

– Neutral, SD - Strongly Disagree, D - Disagree. Values of 5, 4, 3, 2 and 1

respectively were assigned in a descending order to each calibration in measuring

the responses. Likert-type scale was used so as to enable the researcher easily

compare responses among individual respondents.

The questionnaire will be divided into two sections. Section A measures the

respondents’ demographic data; gender, age range, academic and professional

qualifications and length of business ownership. Section B will be sub divided into

four different sections that measures each of the constructs in Managerial Audit

efficiency and its impact on SMEs performances under different headings.

3.6 Validity and Reliability of Instruments

A total of 100 questionnaires will be collected from respondents to gather

information. The researcher shall consult the supervisor to test the validity and

reliability of the structured questionnaires in order to approve them for distribution.

3.7 Method of Data Analysis

The data gathered from these companies will be categorized into precise observed

trends and relationships were recognized and subjected to interpretation. Descriptive

statistics will be used in analysing the data gathered with the aid of Statistical

Package for Social Sciences (SPSS) version 21. Simple linear regression will be

used to analyse the data from the study because they are very reliable in the study

of relationship and influence of moderating variables on the relationship between

variables. It also helps to understand how the typical value of the dependent variable

changes when any one of the independent variables is varied while other

46
independents variables are held constant. The five hypotheses earlier formulated

constituted the basis of arrangement of tables for analysis. The hypotheses were

structured to focus on the operational variables used in designing the research

questions.

3.8 Ethical Consideration

The protection of respondents and subjects in a research work is important and vital

to the purpose of the research, confidentiality of participants is key Orb A. et al.

(2001). The originality of this study will be confirmed by the researcher as all effort is

made to ensure it ethically reflects findings from literature and empirical studies. No

part of the study is plagiarized from any study. The participants in the survey will be

allowed to participate voluntarily and the purpose of the study will be made clear to

them. Concerted effort will be made to ensure anonymity and confidentiality of

information provided by all respondents and all information or data gathered from the

study will be used purely for the purpose of the study. A summary of findings and

recommendations of the study will be made available to sampled organizations and

Government agencies on request at no cost to them.

CHAPTER FOUR

DATA ANALYSIS AND INTERPRETATION

4.0 CHAPTER OVERVIEW

47
This chapter presents the results and discussion of the study findings. The chapter

begins with a presentation of the response rate. Descriptive analysis was done on

each of the study variables followed by the findings from the descriptive statistics.

Inferential statistics of regression analysis was then done. The chapter ends with the

discussion of the study findings. The Statistical Package for Social Sciences (SPSS)

version 21 was used to process the data to get inferential results while excel was

used to present descriptive results. Tables were used to present the summarized

findings.

4.1 Descriptive Findings

Table 4.1: Demographic profile of the respondents (In percentage)

Demographic Frequency Percentage of responses

antecedents
Age Group:
20-30 42 42%

31-40 23 23.0%

41-50 28 28.0%

51 and above 7 7.0%

Highest Level of
Education:
13 13%
PHD
26 26%
Masters
43 43%
HND/B.sc
14 14%
ND
4 4%
O’level
Gender:

Female 51 51.0%

Male 49 49.0%

48
 Work Experience:

1-5 years 46 46.0%

6-10 years 34 34.0%

11-15 years 17 17.0%

16 years and above 3 3.0%

Table 4.1 shows the demographic information of respondents in summary. Looking

at the age-group of the respondents, 42 persons were between 20-30 years of age

making up 42% of the total sample size, age group 31-40 years received 23

respondents while 28 respondents were 41-50 years of age and 51 and above were

7 respondents. The total number of respondents on age group is summed up to 100.

From the same table, the level of education of respondents was shown from the

highest level of education to the lowest level of education. 13 respondents were PHD

holders making up 13% of the total sample size, 26 respondents were Master’s

Degree holder while the highest number of respondents in this demographic is

HND/B.sc holders which makes up 43% of the total sample size. 14 respondents

were National Diploma holders and 4 respondents were O’level holders. The table

also shows the gender frequency of respondents and out of 100 total sample size,

51 respondents were female and 49 respondents were male. Lastly, the table shows

the number of years respondents have worked in their respective positions. The

highest frequency shows that 46 respondents have 1-5 years’ work experience and

34 respondents have 6-10 years of work experience. 11-15 years of work experience

was selected by 17 respondents while 3 respondents show that they have over 16

years of work experience.

4.2 Descriptive Analysis of Data

49
 The researcher presents the descriptive analysis of variables to answer the research

questions. In the descriptive analysis, dependent and independent variable was

analysed. For interpretation, Strongly Disagree was represented by SD, Disagree by

D, Neutral by N, Agree by A, Strongly Agree by SA. The detailed results of the

analyses are arranged in tables as follows.

4.2.1 Restatement of Objective and Research Question One

Research Objective One: To examine the impact of inadequate financial records on

managerial audit of Small and Medium Scale Enterprises in Rivers, Nigeria.

Research Question One: What is the impact of inadequate financial records on

managerial audit of Small and Medium Scale Enterprises in Rivers, Nigeria?

Table 4.2: Respondents perceptions on managerial audit efficiency

Keywords: Strongly Disagree (SD), Disagree (D), Neutral (N), Agree (A), Strongly

Agree (SA).

MANAGERIA Strongly Disagre Neutra Agre Strongl Mea Standard

L AUDIT Disagre e (D) % l (N) % e (A) y Agree n Deviatio
EFFICIENCY e (SD) % % (SA) % n
Inadequate 4 1 1 25 69 4.54 0.904
financial
records affect 4% 1% 1% 25% 69%
audit efficiency
in audit
process.
Irregular 2 0 2 20 76 4.68 0.709
managerial
audit can 2% 0% 2% 20% 76%
affect the
going concern
of a business
Managerial 3 0 2 28 67 4.56 0.808
audit is
important for
business 3% 0% 2% 28% 67%
performance

50
efficiency and
growth.
The absence 1 3 4 25 67 4.54 0.797
of managerial
audit in
businesses 1% 3% 4% 25% 67%
can lead to
loss of market
share and
liquidation.
Managerial 2 2 0 30 66 4.56 0.783
audit helps in
evaluating
proper 2% 2% 0% 30% 66%
controls and
operations.
Managerial 0 1 2 28 69 4.65 0.575
audit leads to
proper
organization,
control on
finances, 0% 1% 2% 28% 69%
staffing and
strategic
presentation of
decisions in
the
businesses.
Source: Field Survey, 2021

Data in Table 4.2 gives detailed analysis of managerial audit financing. The table

indicates that by combining responses under strongly agreed and agreed, most [94

(94%)] of the respondents agreed that inadequate financial records affect the audit

efficiency in audit processes of their company 96 (96%) of the respondents

concurred that irregular managerial audit can affect the going concern of the

business, 95 (95%) respondents agreed that managerial audit is important for

business performance efficiency and growth while 92 (92%) claimed that the

absence of managerial audit in businesses can lead to loss of market share and

liquidation which can cause a business to bankrupt. The results also show that 96

(96%) of the respondents agreed that managerial audit helps in evaluating proper

51
controls and operations and 97 (97%) assert that managerial audit leads to proper

organization, control on finances, staffing and strategic presentation of decisions in

the businesses.

Table 4.2 shows that the mean scores of the respondents’ perception about

managerial audit efficiency variables were ranging between 4.54 and 4.68 with

standard deviation ranges from 0.575 to 0.904. The results indicate that there is a

wide agreement among the respondents on managerial audit efficiency based on the

five-point Likert-type scale in the questionnaire. Consequently, Table 4.2 reveals that

the most vital statement that affects efficiency of managerial auditing of SMEs in

Rivers state appears to be irregular managerial audit can affect the going concern of

a business with the highest mean of 4.68 and low standard deviation 0.709, while

inadequate financial records can affect audit efficiency in audit process was the least

vital statement that affects efficiency of managerial audit with lowest mean of 4.54

and highest standard deviation of 0.904.

4.2.2 Restatement of Objective and Research Question Two

Research Objective Two: To ascertain the impact of regulatory policies on Small and

Medium Scale Enterprises in Rivers, Nigeria as contributors to the economy.

Research Question Two: What is the impact of regulatory policies on Small and

Medium Scale Enterprises in Rivers, Nigeria as contributors to the economy?

Table 4.2: Respondents perceptions on Small and Medium Enterprises (SMEs)

Performances

Keywords: Strongly Disagree (SD), Disagree (D), Neutral (N), Agree (A), Strongly

Agree (SA).

52
Small and Strongly Disagre Neutra Agre Strongl Mea Standard
Medium Disagre e (D) % l (N) % e (A) y Agree n Deviatio
Enterprises e % (SA) % n
(SMEs) (SD) %
Performance
s
SMEs 1 1 1 31 66 4.60 0.667
contributes to
Gross
Domestic 1% 1% 1% 31% 66%
Product, tax
revenue and
fast
dissemination
of technology.
Economic 0 3 3 40 54 4.45 0.702
situation
affects SMEs'
potentials to
grow
especially in 0% 3% 3% 40% 54%
the areas of
risk
management,
internal
control, book-
keeping, risk
assessment
and auditing.
Lack of proper 1 4 6 37 52 4.35 0.845
facilities and
strategic
planning 1% 4% 6% 37% 52%
affects the
performance
of SMEs.
SMEs lack 1 8 9 32 50 4.22 0.980
transformation
and growth in
learning new 1% 8% 9% 32% 50%
regulatory
principles of
accounting
and audit.
SMEs lack a 2 9 5 34 49 4.20 1.030
standard basis
of accounting
which affects 2% 9% 5% 34% 49%
their financial
position.

53
Source: Field Survey, 2021

Data in Table 4.2.2 shows detailed analysis of Small and Medium Enterprises

(SMEs) Performances. The table indicates that by adding responses under strongly

agreed and agreed, most [97 (97%)] of the respondents agreed that SMEs

contributes to Gross Domestic Product, tax revenue and fast dissemination of

technology which affirms its importance as contributors to the development of the

economy. 94 (94%) of the respondents concurred that economic situation affects

SMEs' potentials to grow especially in the areas of risk management, internal control,

book-keeping, risk assessment and auditing which shows how external regulatory

policies can affect internal activities of SMEs, 89 (89%) respondents agreed that lack

of proper facilities and strategic planning affects the performance of SMEs which

affirms that basic facilities needed in the business environment is important to ease

doing business. 82 (82%) claimed that SMEs lack transformation and growth in

learning new regulatory principles of accounting and audit which limits their usage of

proper auditing tools while 83 (83%) of the respondents agreed that SMEs lack a

standard basis of accounting which affects their financial position.

Table 4.2.2 shows that the mean scores of the respondents’ perception about Small

and Medium Enterprises (SMEs) Performance variables were ranging between 4.20

and 4.60 with standard deviation ranges from 0.667 to 1.030. The results indicate

that there is a wide agreement among the respondents on Small and Medium

Enterprises (SMEs) Performances based on the five-point Likert-type scale in the

questionnaire. Consequently, Table 4.2.2 reveals that the most agreed statement

that affects performance of SMEs in Rivers state appears to be acknowledging that

SMEs contribute to Gross Domestic Product, tax revenue and fast dissemination of

technology with the highest mean of 4.60 and low standard deviation 0.667, while

54
 SMEs lack a standard basis of accounting which affects their financial position was

the least agreed statement on how regulatory policies affect SMEs performance with

lowest mean of 4.20 and highest standard deviation of 1.030.

4.2.3 Restatement of Objective and Research Question Three

Research Objective Three: To examine the effect of poor transition from traditional

auditing mechanisms to digital auditing mechanisms on the performance of Small

and Medium Scale enterprises in Rivers, Nigeria.

Research Question Three: What is the impact of regulatory policies on Small and

Medium Scale Enterprises in Rivers, Nigeria as contributors to the economy?

Table 4.2.3: Respondents perceptions on Challenges of Auditing SMEs

Keywords: Strongly Disagree (SD), Disagree (D), Neutral (N), Agree (A), Strongly

Agree (SA).

Challenges of Strongly Disagree Neutra Agree Strongl Mean Standard

Auditing SMEs. Disagree (D) % l (N) % (A) % y Agree Deviation
(SD) % (SA) %
SMEs do not engage in 5 4 4 36 51 4.24 1.055
training and
development sessions
and it affect their 5% 4% 4% 36% 51%
knowledge of updated
accounting and audit
standards.
SMEs lag behind in 1 7 2 41 48 4.29 0.895
financing their computer
literacy and use of
application software
thereby causing
confusion in the use of 1% 7% 2% 41% 48%
accounting principles, a
huge clash in new and
old principles between
organization’s
accountants and
auditors during audit

55
and leads to irregularity
in audit report.
SMEs lack 3 4 8 36 49 4.24 0.976
professionalism in their
inventory and financial
system as they are 3% 4% 8% 36% 49%
never up to date which
gives auditors issues.
Accounting agencies 0 5 7 37 51 4.34 0.816
are sometimes hired by
SMEs or the make use
of their internal account
department but most 0% 5% 7% 37% 51%
times, auditors have
found this to be an
incomplete independent
system.
SMEs leave financial 2 3 9 26 60 4.39 0.920
functions to so many
departments and
individuals to handle
thereby causing 2% 3% 9% 26% 60%
problems for external
auditors in identifying
cost centres and
drivers.
SME owners find it hard 3 4 6 36 51 4.28 0.965
to disclose accurate
information on cost of
production and other 3% 4% 6% 36% 51%
items which leads to
compilation of
incomplete records.

Table 4.2.3 shows results of the descriptive statistics of opinions of respondents on

challenges of auditing SMEs in Rivers state. The results reveal that majority (87%) of

the respondents agreed that SMEs do not engage in training and development

sessions and it affects their knowledge of updated accounting and audit standards,

89 (89%) agreed that SMEs lag behind in financing their computer literacy and use

of application software thereby causing confusion in the use of accounting principles,

a huge clash in new and old principles between organization’s accountants and

56
auditors during audit and leads to irregularity in audit report, 85 (85%) indicated that

SMEs lack professionalism in their inventory and financial system as they are never

up to date which gives auditors issues. Moreover, majority (88%) of the respondents

agreed that accounting agencies are sometimes hired by SMEs or they make use of

their internal account department but most times, auditors have found this to be an

incomplete independent system, 86 (86%) reported that SMEs leave financial

functions to so many departments and individuals to handle thereby causing

problems for external auditors in identifying cost centres and drivers. In addition, the

results depicted that majority (87%) agreed that SME owners find it hard to disclose

accurate information on cost of production and other items which leads to

compilation of incomplete records.

Table 4.2.3 finally shows that the average scores of respondents’ perception about

challenges of auditing SMEs variable items were ranging from 4.24 to 4.39, with

standard deviation ranges from 1.055 to 0.816. This result indicates that there is

strong agreement among respondents on the challenges of auditing SMEs variable

items.

4.2.4 Restatement of Objective and Research Question Four

Research Objective Four: To ascertain the importance of non-managerial audit

function on the growth and performance of SMEs in Rivers, Nigeria.

Research Question Four: What are the effects of non-managerial audit performance

on Small and Medium Scale enterprises in Rivers, Nigeria?

Table 4.2.4: Respondents perceptions on Need for Managerial Audit in SMEs

57
 Keywords: Strongly Disagree (SD), Disagree (D), Neutral (N), Agree (A), Strongly

Agree (SA).

Need for Managerial Strongly Disagree Neutral Agree Strongl Mean Standard
Audit in SMEs Disagree (D) % (N) % (A) % y Agree Deviation
(SD) % (SA) %
Audit is needed in 2 2 3 32 61 4.48 0.822
SMEs in order to
promote and add value 2% 2% 3% 32% 61%
to a firm’s controls and
operations
Managerial audit is 1 3 5 30 61 4.47 0.810
needed to help identify
management and 1% 3% 5% 30% 61%
system issues while
also providing
regulatory oversight.
Managerial audit in 2 1 5 33 59 4.46 0.809
SMEs draws attention
of a business’
regulators to their roles
and responsibilities 2% 1% 5% 33% 59%
under cooperate
legislation and
business going
concern so as to
prevent bankruptcy or
insolvency.
Managerial Audit helps 0 5 1 36 58 4.47 0.758
SMEs to curb any form
of fraud or bankrupt
incident thereby 0% 5% 1% 36% 58%
helping them to be
futuristic.
Managerial audit helps 2 1 6 34 57 4.43 0.820
to protect the domain
and business practice
of SMEs by certifying 2% 1% 6% 34% 57%
them fit to conduct
business and declaring
them non-bankrupt.
Managerial Audit helps 0 0 6 37 57 4.51 0.611
SMEs to have proper
books, keep accurate 0% 0% 6% 37% 57%
and concise records
and ensure there are
no errors in their
books.

58
Table 4.2.4 shows results of the descriptive statistics of opinions of respondents on

the need for Managerial Audit in SMEs in Rivers state. The results reveal that

majority (93%) of the respondents agreed that audit is needed in SMEs in order to

promote and add value to a firm’s controls and operations, 91 (91%) agreed that

managerial audit is needed to help identify management and system issues while

also providing regulatory oversight while (92%) of the respondents indicated that

managerial audit in SMEs draws attention of business regulators to their roles and

responsibilities under cooperate legislation and business going concern so as to

prevent bankruptcy or insolvency. Moreover, majority (94%) of the respondents

agreed that managerial audit helps SMEs to curb any form of fraud or bankrupt

incident thereby helping them to be futuristic, 91 (91%) reported that managerial

audit helps to protect the domain and business practice of SMEs by certifying them

fit to conduct business and declaring them non-bankrupt. In addition, the results

depicted that majority (94%) agreed that managerial audit helps SMEs to have

proper books, keep accurate and concise records and ensure there are no errors in

their books.

Table 4.2.4 finally shows that the average scores of respondents’ perception about

the need for Managerial Audit in SMEs variable items were ranging from 4.43 to

4.51, with standard deviation ranges from 0.822 to 0.611. This result indicates that

there is strong agreement among respondents on the need for Managerial Audit in

SMEs variable items.

59
4.3 Restatement of Hypothesis

4.3.1 Restatement of Hypothesis one: There is no significant relationship

between inadequacy of financial records and the managerial auditing of Small

and Medium Scale Enterprises.

To test the hypothesis, the simple linear regression analysis was used. The

results are presented in Table 4.3.1

Table 4.3.1: Moderated Simple Regression Model Summary for Managerial

Audit Efficiency

Mode R R2 Adjuste Std.Error Change statistics

l d R of the R square change F change dF1 dF2 Sig.

Square Estimate
a
1 0.583 0.340 0.333 2.174 0.340 50.492 1 98

.000

Table 4.3.1 shows the moderating effect of inadequate financial records on the

managerial audit efficiency of SMEs. The Table 4.3.1 Model 1 shows that R = 0.583,

R2 = 0.340 and Sig = 0.000. The R2 indicates that 34% of the variance in the

Managerial Audit Efficiency can be accounted by financial records level of SMEs.

The result also indicates that the inclusion of the interaction term resulted into an R2

change of 0.340, [F (98) = 50.492, p < .05], showing presence of significant

moderating effect. In other words, the moderating effect of inadequate financial

record gained 3.4% variance in the managerial audit efficiency, above and beyond

the variance by performance of the SMEs. In general, the amount of change in R2 is

a measure of the increase in predictive power of a particular dependent variable or

60
variables already in the model. Thus, the null hypothesis (H01) inadequate financial

records have no significant moderating effect on managerial auditing of Small and

Medium Enterprises (SMEs) was rejected at 5% significance level.

Table 4.3.2 Moderated Simple Regression Model Coefficients for Managerial

Audit Efficiency

Model Unstandardized Standardized t Sig.

Coefficients Coefficients
B std.error Beta
(constant) 7.833 2.092 3.744 0.000
totalMAE 0.537 0.076 0.583 7.106 0.000

In Table 4.3.2, Model 1 indicates that managerial audit efficiency was statistically

significant (p < .05; Beta value = .583). The interpretation of the regression

coefficient for the interaction term is that there is significant relationship between the

inadequate financial records and the managerial audit efficiency of SMEs in Rivers

state. The results indicate that SMEs with high inadequate financial records produce

poor managerial audits and SMEs with low inadequate financial records produce

substantial managerial audits. The results led to the deduction that there is a

significant moderating effect of inadequate financial records on managerial audit

efficiency.

The finding of this study is in consonance with existing literature and theories. For

instance, according to Okezie (2004), managerial audit is a separate function and

entity of an organization which is used to assist management’s effectiveness in their

discharge of responsibilities while being accountable. Rittenberg and Schwieger

(1997) views managerial audit in today’s global organisation as a function that

cannot be underestimated as it assists management in evaluating controls and

61
operations. The finding is also reinforced by Igbinosun (2011), which affirms that

completeness and accuracy of financial records can be used to safeguard assets

and adherence to management policies. This can also be backed by the 95% of

respondents that asserted that managerial audit is important for business

performance efficiency and growth.

4.4.1 Restatement of Hypothesis two: There is no significant relationship

between regulatory policies on small and medium scale enterprises

performance.

To test the hypothesis, the simple linear regression analysis was used. The

results are presented in Table 4.4.1

Table 4.4.1: Moderated Simple Regression Model Summary for regulatory

policies on SMEs

Mode R R2 Adjuste Std.Error Change statistics

l d R of the R square change F change dF1 dF2

Square Estimate Sig.

a
1 0.526 0.277 0.270 2.282 0.277 37.199 1 98

.000

Table 4.4.1 shows the moderating effect of regulatory policies on the managerial

audit efficiency of SMEs. The Table 4.4.1 Model 1 shows that R = 0.526, R2 = 0.277

and Sig = 0.000. The R2 indicates that 27% of the variance in the regulatory policies

can be accounted by managerial audit efficiency level of SMEs. The result also

indicates that the inclusion of the interaction term resulted into an R2 change of

0.277, [F (98) = 37.199, p < .05], showing presence of significant moderating effect.

62
In other words, the moderating effect of external regulatory polices gained 2.7%

variance in the internal activities including managerial audit efficiency and

performance, above and beyond the variance by performance of the SMEs. In

general, the amount of change in R2 is a measure of the increase in predictive

power of a particular dependent variable or variables already in the model. Table

4.4.1 Model 1 shows that R = 0.526 a, R2 = 0.277. The R indicates that 52.6% of the

variance in the regulatory policies can affect the internal activities including

managerial audit of SMEs. R indicates a moderate relationship between regulatory

policies and SMEs performance with 0.526 index. Thus, the null hypothesis (H02)

there is no significant relationship between regulatory policies on small and medium

scale enterprises performance was rejected at 5% significance level.

Table 4.4.1 Moderated Simple Regression Model Coefficients for SMEs

performance

Model Unstandardized Standardized t Sig.

Coefficients Coefficients
B std.error Beta
(constant) 12.587 1.664 7.567 0.000
totalMAE 0.460 0.075 0.526 6.099 0.000

In Table 4.4.1, Model 1 indicates that regulatory policies on SMEs was statistically

significant (p < .05; Beta value = .526). The interpretation of the regression

coefficient for the interaction term is that there is significant relationship between the

external regulatory policies and the SMEs performance including managerial audit.

The results indicate that SMEs with high influence of regulatory policies produce

better managerial audits and SMEs with low influence of regulatory policies produce

63
poor managerial audits. The results led to the deduction that there is a significant

moderating effect of regulatory policies on managerial audit efficiency of SMEs.

Finding from this hypothesis test support extant literature in SMEs overview and

management in relation to auditing and regulatory policies. For example, Wamae

(2005) posited that SMEs exercise all forms of control personally without interference

from external bodies. This shows that managerial audit can be done in SMEs without

external regulatory policies. According to Olatunji and Olaoye (2021) for SMEs to

conduct a proper audit, there is need for the provision of accurate books of account,

this process helps SMEs to have proper books, keep accurate and concise records,

ensure there is no errors in their books, prevent contra entries and not have just a

cashbook, proving that there is low effect of external regulatory policies on the

efficiency and performance of managerial audit of SMEs in Rivers state.

4.4.3 Restatement of Hypothesis three: There is no significant relationship

between poor transition from traditional auditing mechanisms to digital

auditing mechanisms on the growth and performance of SMEs

To test the hypothesis, the simple linear regression analysis was used. The

results are presented in Table 4.4.3

Table 4.4.3: Moderated Simple Regression Model Summary for challenges of

audit on SMEs growth and performance

Mode R R2 Adjuste Std.Error Change statistics

l d R of the R square change F change dF1 dF2

64
 Square Estimate Sig.
a
1 0.534 0.285 0.278 2.274 0.285 38.671 1 98

.000
Table 4.4.3 shows the moderating effect of challenges in auditing on the managerial

audit efficiency of SMEs. The Table 4.4.3 Model 1 shows that R = 0.534, R2 = 0.285

and Sig = 0.000. The R2 indicates that 28% of the variance in the challenges in audit

can affect managerial audit efficiency level of SMEs. The result also indicates that

the inclusion of the interaction term resulted into an R2 change of 0.278, [F (98) =

38.671, p < .05], showing presence of significant moderating effect. In other words,

the moderating effect of challenges such as the transition from traditional financial

record keeping to digital record keeping gained 2.8% variance in the managerial

audit efficiency and performance of SMEs, above and beyond the variance by

performance of the SMEs. In general, the amount of change in R2 is a measure of

the increase in predictive power of a particular dependent variable or variables

already in the model. Table 4.4.3 Model 1 shows that R = 0.534 a, R2 = 0.285. The R

indicates that 53.4% of the variance in the challenges in audit can affect the

managerial audit efficiency of SMEs. R indicates a moderate relationship between

challenges of audit and SMEs performance with 0.534 index. Thus, the null

hypothesis (H03 there is no significant relationship between poor transition from

traditional auditing mechanisms to digital auditing mechanisms on the growth and

performance of SMEs was rejected at 5% significance level.

Table 4.4.1 Moderated Simple Regression Model Coefficients for Challenges of

Audit

Model Unstandardized Standardized t Sig.

65
 Coefficients Coefficients
B std.error Beta
(constant) 13.562 1.474 9.203 0.000
totalMAE 0.351 0.057 0.534 6.219 0.000

In Table 4.4.1, Model 1 indicates that challenges of audit on managerial audit

efficiency of SMEs was statistically significant (p < .05; Beta value = .534). The

interpretation of the regression coefficient for the interaction term is that there is

significant relationship between challenges of audit and managerial audit efficiency

for SMEs. The results indicate that SMEs with high challenges in auditing produce

poor managerial audits and SMEs with low challenges in auditing have substantial

managerial audits performance. The results led to the deduction that there is a

significant moderating effect of challenges in auditing on managerial audit efficiency

of SMEs.

The finding in this hypothesis supports existing literature that SMEs without accurate

financial and managerial audit cannot contribute substantially to the economic

growth of the country. This is further affirmed by Ekwem, (2011) who stated that the

challenges encountered by SMEs in Nigeria are some of the factors that hinder their

growth in the economy. Yusuf (1997) and Ishak & Omar (2012) also shared their

opinion, that managing an organisation’s funds is the main problem facing SMEs

today and they are having these issues as a result of lack of access to financial

facilities where most banks find it uneasy to give loan facilities to SMEs because

they do not want to take the risk and the uncertainty that they will be refunded. This

can be a major challenge in auditing as SMEs will not be able to differentiate

personal funds from business funds.

66
The findings also show that the transition from traditional auditing practices to

modern and digital practices is a challenge for SMEs. This is also affirmed by

Abeygunasekera (2013) that most SMEs have been found to lack transformation and

growth in learning new regulatory principles of accounting and audit, they lag behind

in financing their computer literacy and use of application software.

4.4.4 Restatement of Hypothesis four: There is no significant relationship

between non-managerial audit performance and SMEs.

To test the hypothesis, the simple linear regression analysis was used. The

results are presented in Table 4.4.4

Table 4.4.4: Moderated Simple Regression Model Summary for need for

managerial audit on SMEs growth and performance

Mode R R2 Adjuste Std.Error Change statistics

l d R of the R square change F change dF1 dF2

Square Estimate Sig.

1 0.877a 0.768 0.766 1.287 0.768 325.298 1 98

.000

Table 4.4.4 shows the moderating effect of need in managerial audit efficiency of

SMEs. The Table 4.4.3 Model 1 shows that R = 0.877, R2 = 0.768 and Sig = 0.000.

The R2 indicates that 76% of the variance in the need for managerial audit efficiency

level of SMEs is analysed. The result also indicates that the inclusion of the

interaction term resulted into an R2 change of 0.768, [F (98) = 325.298, p < .05],

showing presence of significant moderating effect. In other words, the moderating

effect of the need for managerial audit efficiency gained 7.6% variance in the

67
managerial audit efficiency and performance of SMEs, above and beyond the

variance by performance of the SMEs. In general, the amount of change in R2 is a

measure of the increase in predictive power of a particular dependent variable or

variables already in the model. Table 4.4.3 Model 1 shows that R = 0.877 a, R2 =

0.768. The R indicates that 87.7% of the variance shows that there is need for

managerial audit for SMEs. R indicates a high relationship between the need for

managerial audit and SMEs performance with 0.877 index. Thus, the null hypothesis

(H04) there is no significant relationship between non-managerial audit performance

and SMEs was rejected at 5% significance level.

Table 4.4.4 Moderated Simple Regression Model Coefficients for Need for

Managerial Audits

Model Unstandardized Standardized t Sig.

Coefficients Coefficients
B std.error Beta
(constant) 4.435 1.016 4.364 0.000
totalMAE 0.678 0.038 0.877 18.03 0.000

In Table 4.4.4, Model 1 indicates that the need for managerial audit efficiency for

SMEs performance was statistically significant (p < .05; Beta value = .877). The

interpretation of the regression coefficient for the interaction term is that there is

significant relationship between need of managerial audit efficiency for SMEs. The

results indicate that SMEs that acknowledge the need for managerial audits perform

better in keeping managerial audits and SMEs with low acknowledgement on the

need for managerial audits keep poor managerial audits. The results led to the

68
deduction that there is a significant high effect on the need for managerial audits for

SMEs.

From this finding, one can see that the need for managerial audits for SMEs is very

vital in producing accurate financial records. Mbroh (2013)’s position backs this

finding by stating that an external audit of a SME draws to the attention of the SME’s

directors, the need to understand their roles and responsibilities under cooperate

legislation and particularly regarding the need to maintain their business as a going

concern and to give due consideration to the prevention of insolvent trading. Thus,

proving that a financial audit can prevent bankruptcy of the SME.

4.5 Summary of Research Hypothesis and Test Results

Table 5.2: Summary of Research Findings

Research Objectives Research Hypothesis Decision Results

Objective 1: Hypothesis 1: Null Hypothesis

To examine the impact of There is no significant Rejected

inadequate financial relationship between

records on managerial inadequacy of financial

audit of Small and records and the

Medium Scale managerial auditing of

Enterprises in Rivers, Small and Medium Scale

Nigeria. Enterprises.
Objective 2: Hypothesis 2: Null Hypothesis

To ascertain the impact of There is no significant Rejected

regulatory policies on relationship between

Small and Medium Scale regulatory policies on

Enterprises in Rivers, small and medium scale

69
Nigeria as contributors to enterprises performance.

the economy.
Objective 3: Hypothesis 3: Null Hypothesis

To examine the effect of There is no significant Rejected

poor transition from relationship between poor

traditional auditing transition from traditional

mechanisms to digital auditing mechanisms to

auditing mechanisms on digital auditing

the performance of Small mechanisms on the

and Medium Scale growth and performance

enterprises in Rivers, of SMEs.

Nigeria.
Objective 4: Hypothesis 4: Null Hypothesis

To ascertain the There is no significant Rejected

importance of non- relationship between non-

managerial audit function managerial audit

on the growth and performance and SMEs.

performance of SMEs in

Rivers, Nigeria.

70
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.0 CHAPTER OVERVIEW

This chapter summarizes the previous sections of the study, conclusion from findings

and recommendations were also summarized to drive home the research objectives,

methodology, findings, recommendations, contributions to knowledge, limitation of

the study, implication of finding and suggestions for further studies.

5.1 Summary

71
The study set out to examine the impacts of managerial audit efficiency and

performance on small and medium scale enterprises in Rivers state, Nigeria.

Chapter one of the study detailed the background of the study, statement of problem,

objectives of the study, research hypothesis, research questions, scope of the study,

and significant of the study.

In chapter two, the researcher evaluated relevant literatures which obviously are not

exhaustive. Literatures that are useful, practical, and are of great value to this

research work were studied as well with contributions from industry experts and

scholars in financial auditing. Also, in operationalizing this research topic, the

concepts of auditing and overview of SMEs in Nigeria were respectively broken

down into components. The reviewed literature was classified under theoretical,

conceptual and empirical review with a view to covering the entire research scope.

Specific theories on financial auditing were reviewed and discussed with reference to

the how it affects SMEs in Nigeria. Finally, the identified gaps in literature have been

scholarly discussed.

In chapter three, the researcher described the methodology used in attaining the

study objectives, how the research hypotheses were empirically determined and the

research design adopted, the study population and sample frame and its

characteristics. Types and sources of data were also identified and procedure in

testing these hypotheses and accomplishing the study objectives were defined. The

research instrument, questionnaire design, methods of data collection and analysis,

and presentation of data were shown.

Chapter four presents the results and discussion of the study findings. The chapter

begins with a presentation of the response rate. Descriptive analysis was done on

72
each of the study variables followed by the findings from the descriptive statistics.

Inferential statistics including regression analysis was then done. The chapter ends

with the discussion of the study findings. The Statistical Package for Social Sciences

(SPSS) version 21 was used to process the data to get inferential results. Tables

were also used to present the summarized findings.

The last chapter summarizes chapters one to five of the study, conclusion from

findings and recommendations were also summarized to drive home the research

objectives, methodology, findings, recommendations, contributions to knowledge,

limitation of the study, implication of finding and suggestions for further studies.

5.2 Conclusion

From the data analysis and research findings, the following conclusions can be

empirically made:

There is a positive relationship between managerial audit efficiency and performance

and SMEs in Rivers state. To this effect, managerial audit procedures and

implementation of any SME is significantly determined by its capability to understand

and acknowledge the need for managerial audit to achieve desired growth in such

enterprise. The results also indicate that SMEs with low managerial auditing

performance expand less than SMEs with high managerial auditing performance.

There is a moderate relationship between managerial audit efficiency and SMEs (r =

0.583). The relationship is statistically significant (Sig. = 0.000) at 0.05 level of

significance and the moderate effect of managerial audit efficiency explains 0.5%

variance in SMEs. Managerial audit was therefore seen as a key tool that SMEs

need to adopt in their business operations. Without managerial audit, it will be

73
difficult for enterprises to separate personal spending and savings from corporate

spending and savings.

There is positive and moderate relationship between SMEs performance and the

economy and the moderating effect of SMEs performance explains 0.52% variance

in the economy, above and beyond the variance by SMEs performance.

There is a positive relationship between challenges in auditing in SMEs and

efficiency of managerial audit. The challenges of audit have a moderate effect on

efficiency of managerial audit with Regression coefficient = 0.53 and p = 0.000 <

0.05. SMEs need to strategically overcome these challenges in order to improve

their managerial auditing.

There is a significant positive relationship between need for managerial audit in

SMEs and performance of managerial audits. With a strong regression coefficient =

0.87and sig= 0.000 which means that SMEs have identified and acknowledged the

need for proper managerial audit in their enterprise as a means to expand and grow

their businesses.

5.3 Recommendations

To use managerial audit in SMEs, business owners should constantly seek financial

opinions and honestly map out their position in the market share. Their financial

department in terms of record-keeping of income and expenditures, accountability

and transparency in spending and savings, investment plan, working capital and

expansion strategies.

Special attention should also be paid to the drivers of financial and auditing

operations such as the need for managerial audit, challenges to encounter, tools and

74
techniques in preparing managerial audit, and performance of SMEs. An Enterprise

‘A’ who intend to increase or double sales of previous year must carefully analyse

their financial report make it available for auditing and also observe that of its

competitors. This is necessary in order to evaluate its spending and determine best

course of actions moving forward. Without an existing managerial audit of the

enterprise, such business with the determination to grow and expand will find it

difficult to actualize its vision as there will be no financial backing to its operations.

Based on the findings from this study, a thoughtful and invested blueprint or action

plan on managerial audit efficiency can influence strongly SMEs performance which

will ultimately increase sales. Since the need for managerial audit was identified as

having a significantly strong relationship with SMEs, business owners should

economically invest in improving their managerial audit processes. The researcher

recommend that SMEs should pay good attention to the managerial audit efficiency

with a view to making informed decisions about the business objectives and sales

growth target.

5.4 Implications of Findings

Based on the rapid increase of SMEs in Rivers state which has brought competition

as discussed in the statements of the problem section of this study, adoption of this

study will provide a meeting point for most players and their hard-earned revenue

can be better deployed to more economical initiatives that will drive the achievement

of the desired performance. Players in the industry can also come together to form a

formidable advocacy voice to influence Government policy formulation and

regulations as they affect the industry.

75
5.5 Areas for Further Research

Future researchers should also conduct similar study in other sectors, such as large

firms and telecommunication where competition is equally stiff. Other variables of

auditing such as financial accountability, and whistleblowing policies should also be

examined by future researchers. Future researchers should explore the use of

secondary data as against primary data for similar study. This will further assist to

assess the influence of outcomes of responses. Similar studies will also be of value

to small and medium scale enterprises (SME) as the level of completion in that

industry is equally intense.

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APPENDIX

QUESTIONNAIRE

UNIVERSITY OF PORTHARCOURT

FACULTY.

DEPARTMENT

84
 MANAGERIAL AUDIT EFFICIENCY AND PERFORMANCES IN SELECTED

SMALL AND MEDIUM ENTERPRISE IN RIVERS STATE.

Dear Respondent,

I am a Post Graduate student of department in the aforementioned institution. I am

currently carrying out a research project on "Managerial Audit Efficiency and

performances in selected small and medium enterprise in Rivers State" as a part of

the prerequisite requirements for the partial fulfilment of Master of course of study.

Please endeavour to provide candid answers and be rest assured that your

response will be strictly confidential.

Thank you.

First name, last name

SECTION A: DEMOGRAPHIC INFORMATION

Instruction: Please answer the statement below by ticking (√) the option which best

describes your agreement.

1. In which age group do you belong: 20 – 30 ( ) 31 – 40 ( ) 41 – 50

( ) 51 and above ( )

2. What is your highest level of Education: O Level ( ) National Diploma ( )

HND/BSC ( ) Masters ( ) PhD ( )

85
 3. Gender: Male ( ) Female ( )

4. How many years have you worked in your current position: 1 – 5 ( ) 6 – 10 ( )

11 – 15 ( ) 16 and above ( )

SECTION B

Using the scale below, please answer the statement below by ticking the options that best

satisfy your response to the following statements as it relates with your experiences and

practices towards managerial audit efficiency, SME's performances, Challenges of SMEs in

Audit and Need for Managerial Audit in SMEs. The scaling is SA - Strongly Agree, A -Agree,

N – Neutral, D - Disagree SD - Strongly Disagree. The scaling is in ordinal form where 5

points implies highest score and 1 point implies lowest score.

S/N Managerial Audit Efficiency SD D N A SA

1 Inadequate financial records affect audit efficiency

in audit process.
2 Irregular managerial audit can affect the going

concern of a business
3 Managerial audit is important for business

performance efficiency and growth.

4 The absence of managerial audit in businesses

can lead to loss of market share and liquidation.

5 Managerial audit helps in evaluating proper

controls and operations.

6 Managerial audit leads to proper organization,

control on finances, staffing and strategic

presentation of decisions in the businesses.

Small and Medium Enterprises (SMEs) SD D N A SA

Performances
7 SMEs contributes to Gross Domestic Product, tax

revenue and fast dissemination of technology.

8 Economic situation affects SMEs' potentials to

grow especially in the areas of risk management,

86
 internal control, book-keeping, risk assessment

and auditing.
9 Lack of proper facilities and strategic planning

affects the performance of SMEs.

10 SMEs lack transformation and growth in learning

new regulatory principles of accounting and audit.

11 SMEs lack a standard basis of accounting which

affects their financial position.

Challenges of Auditing SMEs SD D N A SA
12 SMEs do not engage in training and development

sessions and it affect their knowledge of updated

accounting and audit standards.

13 SMEs lag behind in financing their computer

literacy and use of application software thereby

causing confusion in the use of accounting

principles, a huge clash in new and old principles

between organization’s accountants and auditors

during audit and leads to irregularity in audit

report.
14 SMEs lack professionalism in their inventory and

financial system as they are never up to date

which gives auditors issues.

15 Accounting agencies are sometimes hired by

SMEs or the make use of their internal account

department but most times, auditors have found

this to be an incomplete independent system.

16 SMEs leave financial functions to so many

departments and individuals to handle thereby

causing problems for external auditors in

identifying cost centres and drivers.

87
 Need for Managerial Audit in SMEs SD D N A SA
17 Audit is needed in SMEs in order to promote and

add value to a firm’s controls and operations

18 Managerial audit is needed to help identify

management and system issues while also

providing regulatory oversight.

19 Managerial audit in SMEs draws attention of a

business’ regulators to their roles and

responsibilities under cooperate legislation and

business going concern so as to prevent

bankruptcy or insolvency.
20 Managerial Audit helps SMEs to curb any form of

fraud or bankrupt incident thereby helping them to

be futuristic.
21 Managerial audit helps to protect the domain and

business practice of SMEs by certifying them fit to

conduct business and declaring them non-

bankrupt.
22 Managerial Audit helps SMEs to have proper

books, keep accurate and concise records and

ensure there are no errors in their books.

88