Topic: Auditing and Financial reporting relevance to corporate governance

1.1 Introduction

The hinge of this study will be to analyze the management principle of corporate governance
within the context of auditing and financial reporting. This study will present the background of
the study and the problem statement with the aim of clearly articulating the need for this study.
The objectives and corresponding research questions will present a guiding framework for the
study at hand.

1.2 Background of the Study

Financial reports represent the basic ways for companies to report on the success of their
business and financial and property conditions for external interested parties (Nobes, 2014). The
companies that want to invest in other countries or collect funds in the international capital
market have to compile financial reports understandable for business partners and investors.
Therefore, the financial reports have to be made according to the accounting standards accepted
in most developed countries.

Corporate governance is one of the key elements in economic efficiency and growth
improvement, as well as investor trust increase. Corporate governance offers the structure with
company goals set and allocate the resources to achieve the goals and performance monitoring
(Tricker and Tricker, 2015). Adequate business management should provide the appropriate
encouragement for the board of directors and management to focus on the goals of interest for
the company itself as well as its shareholders. Muller (2017) postulates that the existence of the
appropriate system of corporate governance, within individual companies and the economy as a
whole, helps in providing a certain level of trust necessary for the market economy to function in
the appropriate way. This study will delve into the concept or principle of corporate governance
in order to get a better understanding of its importance in corporate culture.

Corporate governance can be enhanced by increasing corporate accountability and maximizing

sustainable wealth creation (Davies, 2016). Tricker and Tricker (2015) attributes recent examples
of massive corporate collapses to weak systems of corporate governance and emphasized the
need to develop and reform this system at international levels. Davies (2016), concluded that
corporate governance is a critical factor in economic development and financial market stability.
Otieno et al (2015) are of the opinion that corporate governance deals with issues of
accountability and advocating for the implementation of guidelines and mechanism to protect
shareholders.

According to Morgan (1979), as cited by Davies (2016), internal audit was considered a
monitoring function that is the policeman and watchdog of an organization. The role of
shareholders’ is to engage directors and auditors to satisfy that the appropriate governance is in
place. Institute of Internal Auditors (IIA), defines internal auditing as an independent, objective
reassurance and consulting activity intended to add value and develop an organization’s
operations by assessing and refining risk management, controls and governance procedures.
According to Nobes (2014), the function of internal audit activity has now developed and
expanded to that of compliance work, risk management, and control governance. Internal audit
now plays a serious role in improving corporate governance in organizations (Nobes, 2014).
Internal audit is conducted in different environments which vary in size and structure. However,
the IIA has set mandatory guidance on how audits should proceed.

Auditor's work is directly influenced by the company's computerized environment, mainly

because opportunities and new risks are created, and thus, new rules regarding security and
acceptable gaps are needed. In that sense, the auditor must appeal to some specific instruments
and techniques meant to assist him/her in every stage of his/her audit mission (Elefterie, 2016).

1.3 Problem Statement

In a developing economy such as Zimbabwe, the need to focus corporate governance has
increased particularly in the wake of economic collapse and financial crisis. Issues concerning
corporate governance are receiving increased attention since an organization’s corporate
governance affects both its economic performance and ability to access long term low
investments (Mordelet, 2009).

Corporate governance is a major discussion in the world because of the frequent corporate
financial scandal (KPMG, 2004). Corporate failures and scandals have imposed the demand for
reforms and for improved regulations particularly on governance matters (Power,
2000).Organizations that exhibit good corporate governance have easier access to world’s capital
markets and enhances investors’ confidence (Price Waterhouse Coopers, 2007).

Kipngetich (2012) sought to find out how risk based auditing related to corporate governance in
Kenya. The study concluded that there was a relationship between corporate governance and
audit practices. Some of the audit practices like risk management and assessment, planning and
auditing standards increased accountability and transparency. The study recommended that
institutions should enhance audit practices to increase effective and efficient corporate
governance.

Mutave (2014) studied the relationship between audit function and corporate governance and
found out that risk management had the greatest effect on corporate governance. In addition,
internal controls, audit committees and consulting also had an effect on corporate governance. It
recommended that institutions should implement corporate governance practices in their daily
activities but did not state what the activities to be implemented were.

In a study carried out by Chacha (2000), he found out that International Standards on Auditing
and financial reporting represent best international practices were not practiced by auditors in the
conducting of quality auditing. This was as a result of management interference which proved to
be a major challenge in the audit process.

This study will explored ways in which corporate governance has an effect on financial reporting
and auditing, and vice versa.The above studies focused on the relationship between audit
functions and auditors and corporate governance. The focus of this study places financial
reporting as one one of the variables, together with the role of auditors and audit committees in
enhancing corporate governance, and mostly how corporate governance can enhance financial
reporting and auditing as well.

1.4 Research Objectives

 To determine the role of accounting personnel and auditors on corporate governance.

 To determine the relationship between financial reporting and corporate governance.
  To recommend ways in which corporate governance can be enhanced through auditing
and financial reporting.

1.5 Research Questions

 What is the role of accounting personnel and auditors on Corporate Governance?

 What is the relationship between financial reporting and Corporate Governance?
 What can be done to enhance Corporate Governance through auditing and financial
reporting?

1.6 Research Hypothesis

Good corporate governance positively affects financial reporting and auditing roles

1.7 Significance of the Study

1.7.1 to the student

 The research will enhance knowledge about auditing, financial reporting and
corporate governance within Zimbabwean business to the student.

 The research will be a foundation for further researches and advanced studies on
corporate governance and finance.

 The research will be an opportunity for the researcher to convert the learnt theory into
practice as this will also help the researcher to appreciate how to gather information,
analyze and present it in the process of coming up with strategic and advanced
business decisions.

 The research will give the researcher a strong comprehensive understanding on how
accounting principles and corporate governance can be managed and enhanced by
businesses and institutions in Zimbabwe and other developing countries.
1.7.2 The Business Sector

 It is hoped that the findings will go a long way in assisting the business sector in
Zimbabwe in making relevant and desirable revisions on its corporate and
institutional governance strategies.

 The business sector will unquestionably benefit especially by tapping from some of
the ideas and findings of this research study as it will contain various concepts being
applied by both local and international organizations within the sector. The research
will also contain recommendations at its conclusion.

 It will assist various organizations within the financial sector in achieving better
operational results from a thorough knowledge of auditing, financial reporting and
governance, and their application.

 The research will enable the financial sector to have an insight on the overall qualities
corporate of governance and the effect it has on the survival and growth of the
industry

1.7.3 The University

There are a number of issues or gaps that this study will try to fill. It’s the researchers’ intention
to bring out new issues that should form part of new knowledge that this study endeavours to
project. Indeed reference to this study by educators, colleagues and universities should continue
to jolt minds to continue inquiries on this subject of corporate governance within small
businesses in the timber industries. Therefore the research is important to the university in that it
will provide citable material that will improve the body of knowledge within its repository

1.8 Assumptions
  The researcher had access to relevant information to the study

 Regulations pertaining to access of electronic media did not change during the study
period.

1.9 Delimitations

Theoretical scope - The study will be focused on how auditing and financial reporting has an
effect on corporate governance and vice versa.

Methodological scope -The study will adopt a pragmatic research design making use of both
primary secondary data sources.

1.10 Limitations

 The researcher made use of exploratory design hence results would be different if the
same research is done using descriptive research design.

 Time- the time that the researcher had to complete the study was about 4-6 months,
thus it was difficult for the researcher to get all the necessary information given a
short time.

1.11 Research Methodology

Research methodology is a systematic way arranged or set up to address a particular problem

(Flick, 2015). Various steps, procedures, and strategies are employed as part of the process of
gathering and analyzing data (Lewis, 2015). These methods show how this study will be
conducted. This section will present various aspects such as the research design, research
approach, methods of data collection and the target population, among other things.

1.13 Research Design

Cresswell and Cresswell (2017) postulate that a research design includes a set of decisions that
serve the master plan which specifies the methods and procedures for collecting and analyzing
data for problem-solving. It is the grand plan set up to find solutions to a research question
(Flick, 2015). According to Lewis (2015), it provides the framework of the research process
which involves collecting data and then analyzing it. Research design integrates the various
components of a study in a coherent and logical way so that the research problem is correctly
addressed. There are three types of research designs commonly used namely exploratory,
descriptive and causal research designs. In this research, the descriptive and exploratory methods
will be used. Challenges faced by the researcher and ethical considerations will also be
discussed.

1.13.1 Descriptive Survey

The researcher will use a descriptive research design. The descriptive survey helps in the
clarification of events or situations. The descriptive survey has not received wide coverage in
terms of scientific studies. Cresswell and Creswell (2017) argue that descriptive studies involve
making choices that are guided by the researcher’s paradigm, access, and pre-understanding. The
researcher will adopt this descriptive survey because it gives an opportunity to clarify the
research problems which is one of the major calls for a research. The descriptive survey also
allows great flexibility which reduces the risk of bias and attains true results and it will also
enable the researcher to identify areas for further research. However, the descriptive survey is a
bit costly. Also, there is a limitation that the researcher will be dealing with a smaller group
which has a risk of bias also considering the fact that the emphasis will be on estimation rather
than testing. In addition, this type of research design has the ability to display qualitative and
quantitative data statistically such that the pros and cons of both will cover-up for each other.

This research design will be used because it is more reliable and also minimizes chances of bias
since it is inclusive in nature (Lewis, 2015). The research design is helpful since it necessitates
the research to provide solutions to all research questions that were controlling the research
objectively and efficiently. This implies that the descriptive research design enables the
researcher to describe quantifiable data that could be used in future as a statistical reference by
other researchers targets consumers in the retail industry through data analysis.

1.13.2 Exploratory Research Design

The author will also utilize the exploratory research design for this study. Its main aim is to
gather as much information about the research problem as possible and getting fresh ideas about
the study. New data found during the research can also push the student towards altering the
direction of his or her study (Lewis, 2015). It is used when the aim of the study is to get full
knowledge so as to reveal the problem and get ideas about the study. The exploratory research
aims at exploring research questions, finding out the nature of the problem and help in the
understanding of the problem under study. This research type is often used to tackle new
problems on which little or no previous research has been done (Flick, 2015).

1.13.3 Pragmatism

In carrying out this study the researcher will be guided by the pragmatic philosophy. According
to Creswell and Cresswell (2017), pragmatic philosophy refers to the combined use of
quantitative and qualitative modes of inquiry. Pragmatism philosophy arises out of actions,
situations, and consequences and is also known as the “triangulation” or the “mixed method”,
which involve the act of merging several research methods to study one item. The researcher
chose the pragmatic paradigm framework in conducting this research because it focuses on
“what” and “how” the research problem under investigation. The assumption is that reality is
built differently by different persons hence it is not committed to any one system of philosophy
and reality. The researcher will draw from both qualitative and quantitative and will be free to
choose the methods, techniques, and procedures of the research. Secondly, the researcher chose
the pragmatic philosophy because it is centered on the understanding of the research problem
which looks at the impact of leadership style on organizational culture.

1.14 Instruments for Data collection

The research will be based on both primary and secondary methods of collecting data which
include surveys, interviews, questionnaires, and published information and journals.

1.14.1 Interviews

Flick (2015) define an interview as a data gathering technique in which respondents are asked
questions to discover their views about a particular subject. Personal interviews will be used in
this research. The interview questions will consist of both structured and unstructured questions.
Unstructured questions will help in getting comprehensive answers from the interviewed
managers. They will also help the interviewed managers to fully express their views on
employee motivation in the workplace. Firstly, interviews are flexible because questions can be
adjusted according to the situation and research requirements and needs. Interviews also allow
the researcher to pick up on non-verbal communication elements that provide deeper knowledge
and answers for the researcher (Lewis, 2015). Interviews also have the added advantage of
flexibility – the interview has the opportunity to adjust questions on an assessment of the subject
and the total situation in the direction that suits the requirements of the research. Interviews also
allow both parties to build a rapport which often leads to more understanding and information
being shared.

1.14.2 Questionnaire

A questionnaire is a set of questions arranged in a predetermined manner for data collection.

Mostly the questionnaires questions are closed-ended because of how easy it is to categorize and
summarize data gathered using the method. Flick (2015) defines a questionnaire as a document
containing questions designed to solicit or provide information appropriate for investigation and
analysis.

The questionnaire will consist of both open-ended questions and closed-ended questions. Closed-
ended questions are questions designed to limit respondents with fewer options of answers.
Closed-ended questions will help the researcher to save time since it is faster and easier for
respondents to indicate their answers. Also, closed-ended questions can help in making a
comparison of answers easier for the researcher. However, closed-ended questions limit
respondents in fully reflecting their views about the question. Open-ended questions are those
questions that designed to get comprehensive answers from the respondents. Open-ended
questions assisted in giving respondents independence to formulate responses. This will give
them opportunities to be creative. However, they are likely to time-consuming for the
respondents to fill.

1.15 Target Population

Lewis (2015) defines the target population as the collection of objects or the whole group of
individuals that possess information that the researcher are interested in and of which inference is
to be made. Flick (2015) defines the population as the entire set of individuals or objects that
have common characteristics as defined by the sampling criteria established for the study.
Cresswell and Cresswell (2017) state that a population is an entire group from which some
information is required to be ascertained.

Table 1.1 Target Population of Harare City Council

Category Total
Management 200
Employees 3000+
 Total 3200+
Source: Author

1.16 Sample

Kotler (2003) defines a sample as a process in which respondents are chosen. Stubbs (2011)
postulates that a sample is a set of elements drawn from the research population to represent the
same for the sake of investigation. A sample is a subgroup with similar characteristics that are
used to represent the total population. Cooper and Chindler (2005) are of the view that a sample
must contain all the attributes of the total population in order to be a representative. Field (2007)
argues that a sample size must be at least 30% of the total population. Saunders (2012) is of the
view that since the research has a time limit, sampling enables the researcher to save time and
money. This is because it will be expensive and time-consuming to involve the total population.

1.16.1 Sample Technique: Convenience Sampling

The convenience sampling method is a non-probability sample selected from readily available
respondents. Convenience sampling is a statistical tool or method of drawing representative data
by choosing people (target) basing on their availability or ease of volunteering. The sample units
are selected if they meet certain criterion, such as availability at a certain time, ease of access as
well as geographical proximity to the area under study. The researcher will use her knowledge in
choosing sample units. Selection criteria involve giving questionnaires to anyone who enters the
store. The technique was chosen because it is relatively easy to administer and is prone to less
bias.

1.17 Sample Size

Hair et al., (2006) define sample size as a selected small number of elements from a large
defined collection of elements and with the assumption that the evidence collected from a minor
group will permit a conclusion to be made about the represented large group.

Table 3.2

Target Population Sample Size

 Management 30
Employees 100
Total 130

As shown in table 3.2 above a total of 130 Harare City Council employees will be used as the
sample size for this study. It includes 30 managers and 100 employees. These will be selected
from various departments of the institution.

1.18 Data presentation and analysis

The analysis of data will comprise descriptive statistics, which will cater for the analysis of the
quantitative data that was collected. Data collected from the various business people and officials
will be carefully examined for the purposes of presenting data. Tables will be utilized for this
purpose because they serve as a clear and concise way of data presentation (Adams et al., 2008).
The researcher will seek to strike a balance between data and theoretical commentary in order to
provide a clearer meaning of the data according to Saunders (2009). This will allow for results to
be clearly explained using percentages, graphs, and commentary. These in turn allowed for ease
in comparing the data.

1.19 Time Frame

The researcher intends to carry out the study as summarized in the table below

Month Activity
May 2018 Research Proposal Approval
Jun 2018 Data Collection
July 2018 Data Interpretation & Analysis
August 2018 Research Write Up
September 2018 Final Draft Presentation

1.20 Resource Budget

In carrying out the research, expenses are inherent and below is a summarized Cash Budget to
sustain the study.

Expense Estimated Cost

Data Collection 70.00
Traveling 30.00
Airtime, Internet surfing, Telephone 20.00
Printing and stationery 30.00
TOTAL 150.00

1.21 Project Outline

The study is comprised of five chapters, starting chapter one which serves to introduce the study.
It includes the background of the study, statement of the problem, research objectives, and the
research questions, significance of the study, limitations, and delimitations of the study, the
outline of the chapters and chapter summary.

Chapter two analyzes and synthesizes the literature relevant to the objectives of the study.
Numerous authors who have researched and presented on information technology and internal
audit and their impact are relied upon to provide an extensive literary account that will make the
concepts clearer whilst providing a good basis for this study.

Chapter three focuses on the methods that were used to conduct this research. This chapter also
contains further information about the case study organization and its population, the research
design, the sampling techniques used and statements about the validity and reliability of the data
gathered. It also states how the collected data will be presented and analyzed in the following
chapter.

Chapter 4 presents and discusses the findings obtained from the questionnaires and interviews.
The probable reasons for the data collected are given by the researcher with reference to the
literature review in chapter two in order for a more thorough explanation.
Finally, chapter five presents a summary of the study, conclusions, and recommendations. The
summary gives a brief highlight of everything discussed during the whole study. The conclusion
mainly discusses the results of the study whilst linking them to the theoretical analysis contained
in chapter two. Based on the findings in chapter four, the recommendations are then formulated
to complete the study. Areas of further research are also stated according to the results of this
study.

1.21 Summary

The research is presumed to have a positive contribution to local authorities that have adopted
the use of Information Technology in their daily operations. The results, where applicable, may
be used as avenues or basis for the developing or revising of the manner in which local
authorities adopt the accounting software they can use. Also, the results may be used to further
explore and conclude on emerging issues in the global market on Information technology and
accounting procedures.

In this first chapter, the researcher was outlining the purpose of the project, research work to be
carried out as well as the approach to be used to ensure timely completion of the research project

References

Nobes, C., 2014. International classification of financial reporting. Routledge.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
Oxford University Press, USA.

Muller, R., 2017. Project governance. Routledge.

Davies, A., 2016. Best practice in corporate governance: Building reputation and sustainable
success. Routledge.

Otieno, K., Mugo, R., Njeje, D. and Kimathi, A., 2015. Effect of Corporate Governance on
Financial Performance of SACCOS in Kenya. Research Journal of Finance and
Accounting, 6(2), pp.48-58.