CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The origin of auditing is as a result of the separation of ownership from control. It is instituted to protect the interest of the owners by ensuring that financial statements are justifiable. Because of the separation of ownership from control, it becomes necessary of those managers entrusted with the owners of financial and economic resources to present their financial reports to their employer. The reports presented might contain errors, omission, and frauds or even refuse to disclose relevant information. For these reasons, the owners may hold some reservations about the credibility of the managers’ reports.

For the owners to be satisfied and even for the managers to be justified to establish and maintain their integrity, it becomes necessary to invite an independent party, one who is not involved with either party to examine the reports for the purpose of expressing an opinion as to the truth and fairness of the reports. The independent party’s duty is not just mere examination of the accounts from which the financial statements were prepared, rather, it include collection of all relevant information thought necessary to satisfy section 360

(3) of companies and Allied Matters Decree (CAMD) 1990. It is obvious that the owners may not be skillful enough or have time to go through this reports in order to assure themselves that the report presented contain no errors or omissions. This independent party is known as AUDITORS or professional accountants. They go extra miles in order to ensure that the financial statement contains no errors, omissions or frauds or where it exists, they detect it. These become their statutory duties or liabilities to organization that invited them.

In the past, investors rely solely on the advice given to them by their financial consultants rather than analyzing the financial statements by themselves. Today there has been a great change on that direction. Many stakeholders including the Government focuses on the financial statements as one of their most reliable source or instrument of assessing the viability or otherwise of companies. Below are some of the interested parties: 1. Owners or share holders of companies

1. Creditors and debenture holders.

2. Employees of organizations

3. Government agencies

4. Accountants and

5. The general public

One question which these managers seem to ask when they report to the owners is: can the owners believe the report? Since the report may contain errors, non-disclosure of frauds, and some omission, thereby misleading.

The panacea to this problem of misleading financial statements lies in appointing independent auditors to investigate the accounts and reports. It is therefore the responsibility of these auditors to ensure that they discharged their duties according to the law. Since it is a liability on the auditors, they should exercise reasonable care and skill to enable them form an unbiased opinion based on their findings.

Auditors are liable under different laws: the common law; the civil law; and the criminal law.

1.2 STATEMENT OF THE PROBLEM

The liability of an auditor appointed by the owners or shareholders of any organization is to ensure that the financial statement prepared from the books and records of that enterprise portrays the actual position of that entity. It is also the auditors’ liabilities to report to the owners of the business whether the financial statement show a true and fair view of that organization and also comply with the relevant laws, these liabilities / duties are spelt out by an Act governing the activities of companies in Nigeria. The Act is known as Companies and Allied Matters Decree (CAMD) 1990. Section 360(1)

stated their duties as to investigate all relevant books and documents to enable them give an unbiased opinion. Section 360(3) gives them their rights of access to the documents, while section 368(2) gave enough clue as to what might be their punishments when they go astray.

In view of these facts, there is a popular belief that with the appointment of an auditor in any business organization, the objective (s) of that enterprise, to a great extent, may be achieved. This belief however, appears not to stand the test of time since an auditor is supposed to be a watch-dog, considering the rate of business failures irrespective of the presence of auditors in many business organizations today.

Since the engagement of auditors in business organizations seem not to bring about achievement of organizational goals, one may begin to enquire as to, what might be the cause of such anomalies; whether the cause could be that some auditors are not qualified before going into practice or that some of them are influenced by the managers for selfish interest. More still, whether they exercise enough independence or not well remunerated. The writer argues that none of the above factor is enough for an auditor to compromise his integrity and repute. For an auditor to certify a financial statement which might contain some errors, omissions or even frauds, thereafter misleads the owners of the company and the interested public is a serious offence that demands adequate punishment.