ENHANCING CORPORATE ACCOUNTABILITY THROUGH

EFFECTIVE AUDIT SYSTEM

(A Case Study of Sheffeild Risk Management Limited Owerri Imo State)

TABLE OF CONTENTS

Title page-

-
-

-i

Certification -

-ii

Dedication-

-iii
Acknowledgement -

-iv

Abstract-

-v

Table of contents- -

-
-

-vi

CHAPTER ONE

1.0

Introduction-

-1

1.1
Background of the study -

-1

1.2

Statement of problem-

-5

1.3

Objectives of the study -

-6

1.4

Research Hypothesis- -
-

-7

1.5

Significant of the study -

-7

1.6

The Scope Of The Research -

-7

1.7

Limitations Of The Study -

-
-

-8

1.8

Organzation Of Study -

-9

1.9

Definition of terms-

-10

CHAPTER TWO
1.0

Review of related literature- -

-13

1.1

What is an Audit? -

-13

1.2

Who is an Auditor? -

-
-

-15

1.3

Qualification of an Auditor-

-16

1.4

Appointment of an Auditor - -

-16

1.5

Objectives Of Auditing -

-
-

-17

1.6

Audit Test -

-17

1.7

Audit test-

-21

1.8

Justification For Auditing -

-

-24

1.9

Standard of reporting -

-26

1.10

Internal Control Concept

-27

1.11

Characteristics of satisfactory system of internal control-

-28
1.12

Relationship between internal Auditing and internal

control- -

-29

1.13

Importance of internal control in Auditing -

-30

1.14

Internal Auditing defined -

-
-

-31

1.15

Qualities of internal Auditors -

-33

1.16

Independence of internal Auditors -

-35

1.17

Measuring the performance of an internal Auditor-

-36

1.18

Relationship between internal and external Auditors- -

-37

1.19

Co-operation of internal and external Auditors- -

-
-38

1.20

Fraud defined-

-39

1.21

Types of fraud- -

-39

CHAPTER THREE

RESEARCH METHODOLOGY

2.0
Introduction- -

-44

2.1

The Research design - -

-44

2.2

Sources of Data-

-45
2.3

Population and sample size- -

-45

2.4

Data collection/instruments-

-45

2.5

Validity of resources- -

-47

2.6

Method of data Analysis-

-
-

-47

2.7

Library Research-

-48

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1

Introduction-

-
-

-50

4.2

Data Analysis-

-52

4.3

Test of Hypothesis-

-63

4.3.1

Test of Hypothesis number I-

-

-63

4.3.2

Test of Hypothesis number ii-

-68

4.3.3

Test of Hypothesis number iii-

-70
viii

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDDATIONS

5.1

Summary of findings - -

-74

5.2

Conclusion

-76
5.3

Recommendations-

-76

5.4

Bibliography-

-79
CHAPTER ONE

INTRODUCTION

Accountability in both public and private section has being an issue that is worth
discussing due to its paramount and colossal impact to the overall performance
of an organization.

It (Accountability) has to do with reporting back action, task carried out by an

individual to the authority who apportioned such function.

BACKGROUND OF THE STUDY

Accountability is the process or act of reporting back to a higher authority, body

or individual the actions taken by a steward. It enables the person or persons
reported to determine if the steward has acted or performed the assigned duties
properly and satisfactory. It plays a major role in the success or failure of any
business, particularly when the business is not managed by its owner.

Initially most business set-ups were managed by their owners. The owners‟
manager was the sole financial contribution to the enterprise. But with the
development in the scale and scope of business, a huge capital beyond that
affordable by the sole individual or a family was needed. Consequently
contributors (hereafter called shareholders) were required to raise the funds for
the business. The emergence of these shareholders led to the divorce of the
owner managers from the management of the business as all of them cannot be
directors at the same time. This the management of business was entrusted to
the hands of people who have no financial claims to the business and the
shareholders were sceptical about this particularly as the law does not permit
them individually to go through the books of the company in their desire to keep
abreast of the performance of the directors.
2

This skepticism aroused the need for surveillance over the activities of the non-
owner managing directors. This bid to fulfil the later led to the engagement of
third-party (an Auditor) to perform an audit of the company‟s accounts.

Audit has since them received a lot of definitions and/or then received a lot of
definitions and/or interpretations both from accounting bodies and auditors and
their non-the-like. Justifiable is to say that audit has suffered a lot of
misinterpretations. Most of the misgiving interpretations see it as being armed at
fraud and error detection. But audit essentially involves much more than that.
One of the most involved and of course the most acceptable definitions so far is
that issued by the consultative council of accountability bodies (CCAB) which
sees audit as “the independent examination and expression of opinion on the
financial statement of an enterprise by an appointed auditor in pursuance of
statutory obligation (Howard 1982:1).

Deductively, an audit is the objective scrutiny of someone‟s work or

presentation by a third party (an auditor) who is different from the users and the
preparing of the presentation. The general essence of audit is to ascertain
compliance of the firm‟s records and operational policies with usefulness of
acceptability of and the dependability on the firm‟s financial statements.

Accountability as explained above has suffered some misconceptions,

surprisingly in the hands of those who should have understood it better. Most of
the lay men conceptual understanding of accountability relates it to

„communicating about monetary matters (Odon, 1999:7) but accountability goes

beyond that. According to the Webster encyclopaedia dictionary of English
language (1995:110), accountability is defined as “the state of being
accountable, answerable, liable or responsible” the same dictionary goes further
to define accountable as “liable to pay or make good in case of loss; responsible
to a trust, liable to be called to account, put in another way an much more
3

related to the context in the articles Aba times of fourth September 1999
captioned “accountability in the third republic” it says

Accountability connotes answerability and stewardship, by answerability is

meant answering for one‟s actions and decisions (odon1999:7)

Stewardship according to the article means service; it means that every leader
should be responsible to the people who reposed trust in him.

For accountability to be accorded its rightful place in an organization the writer

believes that there is a high need for proper internal control measure and in
addition, efforts should be made to ensure that company accounts are subjected
to external and independent audits after each financial period.

The bible also records in chapter 25 verse 14-30 of saint Matthew gospel, the
story of a rich man who went on a far journey entrusting the affairs to his
servants and who when he returned, required the servants to answer
individually, for their stewardship to the business while he was away. It in the
same manner that it is required of the chief executives and directors of a
company who are quite different from the real owners of the business to answer
for their stewardship of the funds and property entrusted to them by the
shareholders. It is desire for accountability that gave rise to what we know today
as audit- a mechanism through which the shareholders are made abreast of the
true and fair picture of the activities of the directors and chief executive of the
company
4

THE HISTORICAL BACKGROUND OF SHEFFIELD RISK

MANAGEMENT LIMITED, OWERRI

Sheffield risk management limited is located within the industrial layout area of
Owerri, it is established as a private limited liability company, it is an
incorporated company.

The company is an insurance brokerage firm that serves as an intermediary

between the insurer and the insured; they also serve as underwriter of insurance
policies. The insurance policies in which Sheffield risks management limited act
as intermediary between the insurer (insurance company) and the insured (client)
or consultant to each or both include Life insurance, Car insurance, Burglary
insurance, Motor vehicle insurance etc.

OWNERSHIP STRUCTURE

According to the memorandum of understanding signed by the stake holders of

Sheffield Risk Management, the company has its ownership structure as shown
below out of the start-up capital of twenty two million naira

(₦22,000,000).
Shareholders

% Of shareholding

Nominal value (₦)

Mr. David Okolie

50

11,000,000

Barr Obumneme

Okonkwo

22

4,840,000

Mrs. Mary Nwosu

18

3,960,000

Barr O. Oluchukwu

1,320,000

Mr Okey Elendu

880,000
5

BOARD OF DIRECTORS

Going by the memorandum and article of association of the company, it has

provision for six member board which comprises of the chairman, general
manager, company‟s secretary, marketing manager, company‟s accountant,
company‟s P.R.O.

This composition has been maintained throughout the company‟s existence

1.2 STATEMENT OF PROBLEM

The increasing wave of fraud and embezzlement of public funds by high

officers and chief executives in the private and public companies brought to the
lime light some misconceptions of what the job of an auditor is and what audit is
all about. To the uninformed, the auditor is a wizened individual who wears the
traditional green eyeshade and sleeve garters.

They will expect to find him perched on top a high stool counting money,
meticulously adding long columns of figures and gaining his sole pleasure in
life from the apprehension of luckless person whose books failed to balance or
whose cash account proved to be short (harword 2002:135).
According to Pratt (1998:1), were you to ask the average man in the street about
the auditor‟s job, he will probably tell you that he prevent fraud, press our
layman further, he may paint you a picture of a rather gray individual who
buries himself in ledger, emerging only from time to time to produce sets or
figure which are not important anyway

Such are the image that the auditor has attracted but they are incorrect in the
sense that “the auditor‟s primary responsibility is neither to prevent fraud nor to
produce figures” (woolf 1982:12)
6

The problems are:

Mismanagement of enterprises by directors and top management who in most

cases have no real financial stake in the business.

Because of the fact that the directors and top managers have no financial claims
to the business or its enterprise, they tend to exhibit the highest level of truancy
to work and are generally indifferent to the progress of

the company. Most them regrettably choose their moments for putting the
company into liquidation of little or no cost to them, by diverting the funds and
assets entrusted into their care for their personal uses.

And without the misappropriation being detected not the culprit being brought
to book the auditor expresses an opinion of “a true and fair view” of the
perpetrated fraud. The problem is that this attitude has dented considerably the
professional image of audit. To most employees of the auditor, the effect is
“there is no need for auditors as it has failed to detect fraud”.

And to the few informed ones the question constantly asked is “how
independent is the independent auditor?”

1.3 OBJECTIVES OF THE STUDY

Having had the problem stated, the objectives of this study which are stated in
null form are:

To ascertain the role of independent audit towards accountability in an

organization

To determine whether independent audit can enhance managerial ability;

To determine if independent audit can control fraud and embezzlement.

7

1.4 RESEARCH HYPOTHESES

In order to complete this study successfully the following hypotheses have

been formulated in null form:

Independent audit does not enhance accountability in an organization.

Fraud and embezzlement will not decrease if independent auditors do their work
properly

Mismanagement is not due to lack of accountability.

1.5 SIGNIFICANCE OF THE STUDY

The misconception of the function of audit has, no doubt, eroded in most minds
the confidence and reliance on creditors‟ report and has dented the credibility
with which the audit profession was known.

The researcher has, therefore taken to this study for the need to show
management and directors that reliance on auditor‟s report will help to enhance
their performance. The studies will contribute to knowledge by bringing the
opinion of many experts in one text and this make it easier for readers to have a
broader knowledge of the subject without having to go through several texts.

Finally the thesis will become a reference material for other student who will
carry out further studies in the field.

1.6 THE SCOPE OF THE RESEARCH

The study will mainly focus on the company selected as a case study i.e.
Sheffield Risk Management Limited, Owerri. The researcher would go beyond
desk search into field to sample the opinion of workers, officers as well as chief
8

executive. These would be accomplished through the construction and issuance

of questionnaire to the potential respondents and also through oral interviews.

The researcher intends to convince the misinformed minds about the relevance
of independent auditing as a tool for enhancing accountability. To do this only
well informed individuals will be consulted during the primary data collection
stage.

The scope of the study will be limited to the statutory role of the auditor. The
auditors power and rights, lead liability, ethics and types opinion. The study will
also cover intend control as a very important variable in accountability. Further
aspects and functions of internal audit will also be covered.

1.7 LIMITATIONS OF THR STUDY

In the course of this research work, problems of various natures were

encountered, which in no small measure constituted some “Road block” to the
progress of the study. Among the militating factors are the following:

Non-return of completed questionnaire by some respondents: some of the

respondents did not return their response of the questionnaire irrespective of the
researcher‟s series of reminder letters. Their reasons ranged from forgetfulness
to lack of chance to attend to the questionnaire.

Piecemeal collection of information: information was collected in piecemeal

from management due to bureaucracy among others.

Reluctance in releasing information on even oral interviews. The researcher was

looked upon as a spy in disguise who has come from their competitors to x-ray
what they called their “top secrets” and “blue prints” As a result; comprehensive
data were not easily collected notwithstanding the researcher‟s letter of
introduction.
9

Time: This was not a good friend of the researcher. The time allocated to this
study was very insignificant compared to the volume of the work involved. This
time constraint was further companied by the existence of other class room
work.

Funds: Money was another constraint to the research work. Most often, the
researcher ran out of funds and had to delay the work for money to come in.

Exeat: Considering the school system, time spent on the search for permission to
leave school as regards to the research study is yet another factor that ate deep
into the very fabric of time allocated for this study, hence it is considered as a
limiting factor to the progress of the study.

1.8 ORGANZATION OF STUDY

In order to realize the aim and objective of this study the write-up was divided
into five chapters not only for an intensive study but also for the convenience
and better understanding of the information by users.

Chapter one of the research work covered an introduction to the study: the
statement of problem objectives of the research; the limitation encountered by
the researcher during the study: Organization of the study and the operational
definition of terms used in the study.

Chapter two covered an interview of current and related literature.

Chapter three dealt with the methods and procedures used by the researcher in
conducting the study.

The analysis of the data collected by the researcher is treated in chapter four.
10

The fifth chapter dealt on the researcher‟s findings/observations,

recommendations to the information user and a conclusion of the entire work
based on the researcher findings, observations and tests.

1.9 DEFINATION OF TERMS

Some terms used in this study which may not be clearly understood by some
readers are hereby defined.

Audit:

This is the dependant examination of a financial statement by an auditor

expressing an opinion about the true and fair view of the financial statement and
state of affairs of the enterprise.

It is the independent examination of, and expression of opinion on, the financial
statement of an enterprise by an appointed auditor in pursuance of that appoint
and in compliance with any relevant statutory obligation.

AUDITOR:
The individual or partnership firm appointed to carry out an audit of the
financial statements of an entity.

AUDIT REPORT:

Any report, written by an auditor on a matter on which an opinion has been

sought within the terms of an auditor‟s appointment.

AUDITOR‟S REPORT:

This is another term for audit report.

11

AUDIT EVIDENCE:

This is information obtained by an auditor inn arriving at the conclusion which

forms the basis of the auditor‟s opinion on the financial statement being
audited.

INTERNAL AUDIT:

This is the audit function carried out within an organization of evaluating and
reporting on accounting and other controls on the operations of the organization.

An audit of an accounting entity carried out by an auditor who is not employed

by that entity or by its manager and is as far as possible independent of the
person(s) who manage(s) the entity.

ACCOUNTABILITY:

This is the state or condition being accountable.

ACCOUNTABLE:

This is the required provision for the description, analysis and evaluation of
actions.
INTERNAL CONTROL SYSTEM:

This is the whole system of controls financially and otherwise established by the
management in order to carry on the business of the enterprises in an orderly
and efficient manner, ensure adherence to management policy, and safeguard
the completeness and accuracy of the records, as regards to an organization.

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