IMPEDIMENT TO INTERNAL AUDIT EFFICIENCY IN PUBLIC ENTERPRISES. (A CASE STUDY OF SOME SELECTED PUBLIC ENTERPRISES)

CHAPTER ONE

INTRODUCTION

OVERVIEW

The concept of auditing derived its origin from the need of some system of checks upon persons, whose business was to record the receipt and payment of money on behalf of others. In the early stage of civilization, the method of accounting were so crude and the number of transactions to be recorded so small, as a consequence, everybody was able to check for himself all his transactions, but as soon as the ancient states empires acquired some coherence organisations a system of checks was applied to their public accounts, as evidenced by extant records.

The word audit was gotten from a Latin word “AUDIRE“ meaning to hear, started when ownership was separated from the  administration. These was first seen in Ancient Greece , where governmental accounting records for the  monarchs, were certified true and  fair only after a  public hearing in  which the accounts were read aloud to the  hearing of the people based on the  type of  response given either affirmation or  denial. The monarch either affirmed by saying I hear or reject by being silent in those days the prime qualification of an auditor was reputation men known for their integrity and independence.

From the medieval times, there was a great expansion in  exploration and  international trade involving Europe in  dealings, with the  east and  the  America. The entrepreneurs who undertook these venture rarely possessed the  necessary financial means that consequently led to them depending on wealthy merchants, bankers and even royalty, as in the  case of  Christopher Columbus. In England, Queen Elizabeth 1, gave active financial support to those involved in the  international trade. This grew i.e expanded into companies that led to;

The British companies Act of 1844, which provided for compulsory audit both internally and externally. This also led to a major event in the United States of America, the establishment of the American Institute of certified professional Accountants (AICPA) in 1896.

This development led to the issuance of a joint publication by the  American Institute and  the  federal Trade Commission in 1918, “Approved method for  preparation of the  balance sheet” this  document was the  first formal declaration of “generally accepted accounting principles” which has been amended till date.

In the  nineteenth century, the  British also established the  Institute of Chartered Accountants in England and  Wales (ICAEW) in  1980, during The  times, auditing was concerned primarily with the  detection of  fraud which was generally moved towards the  goal of  determining, whether the  financial statement gives a true and fair view of the  financial position operating results and  changes in  financial positing results. This shift was in emphasis as a response to the  needs of the  millions of new investors in  the corporate society.

This latest shift was a  result of the  dramatic increase in the  number of  lawsuits charging management fraud that that has gone undetected by independent auditors. Which led to the  introduction of the  auditors right to examine the  books and  records to obtain all the  information and  explanation necessary for giving a report on the  truth and  correctness of the  companies balance sheet.

Audit are of different types, there are of four broad types namely:

Statutory audits:- These are audits carried out by statutes, because  the  law requires it to be  done like in the S.331 of companies and  allied matters act 2004.

Private audits:- Is an audit conducted into a firm’s affairs by independent auditors because the  owners desire it, not because the  law requires it these includes audits of sole traders and  partnership.

Internal audit:- Is an audit conducted  by an employee of  a business or an outside contractor into any aspect of its affairs.

Other:- They  are specific or  specialized audit of management environmental matters e.t.c.

1.2 STATEMENT OF THE PROBLEM

It is crystal clear that management view an internal auditor as the watch dog who is out to protect and safeguard the assets and liabilities of the  organization. Notwithstanding, the staff sees the  internal auditor as  an enemy who may want to prevent them from defrauding and carrying out obnoxious acts. They never want any correction from their mistakes or errors.

However, the  internal auditor needs independence to be  able to work more effectively and  to form an  opinion without interference.

To achieve this  an  auditor needs to be  professionally qualified, that is a  member of a  professional body with knowledge of  principle of  accounts the  body includes:

Institute of Chartered Accountants of  Nigerian ICAN and  Association of national Accountants of  Nigeria (ANAN)

The  auditor has come to stay because of the numerous services, he  renders to the  organization for  instance, the  auditor ensures that operations of the  company are well controlled and  effective ensuring at the  same time that internal control systems are effective and  efficient.

A good internal audit department will provide positive contribution to the fulfillment of organizational goals and objectives. Due to many impediments like lack of independence and management interference, internal audit has not been able to achieve these laudable objectives.

OBJECTIVE OF THE STUDY

The primary objective of an internal audit  is to assure the  management that the  internal checks and  control system are effective in  design  and  operation.

The research objectives is aimed at a  study on.

Nigerian Television  Authority and

Nigeria Petroleum Development Company (NPDC) respectively. Both in Benin City, Edo  State

RESEARCH QUESTIONS

The  following research questions are hereby formulated to guide the  study.

Does poor staffing of the internal audit affect the efficiency of the depart of the department?

In what ways does, undue influence under the efficiency of internal audit?

Are auditors responsible for the hindrance in of  internal audits?

RESEARCH HYPOTHESIS

In order to be able to achieve the  objectives of this  study the  following hypothesis is  hereby formulated and  present for testing.

H0:Non-recognition of the internal audit independence

is  not an impediment to its efficiency

H0: The  large size of  public enterprise is  not an

impediment to its efficiency

H0: Poor staffing of the  internal audit department is not an  impediment to its efficiency.

LIMITATIONS TO THE STUDY

An ideal research work is one which is capable of attaining an overall and  thorough coverage of  the  entire areas of  study however, this  will not be possible due to some limitations thus:

Time: The  major constraint on this  study is the  time allowed for the  completion of the  study the  short nature of the  semester will actually affect the  project.

Finance:- Another limitation is finance because not much work has been done in this  area. There are few journal and  book in the  libraries. However the  cost of  getting this few journals and  books is high.

Surfing the  internet for  materials is  quite expensive as well, thus  the  research was done on a  limited budge.

It is  a general consensus that is was against management policy to give out internal document to outsider for  any reason unless under special circumstance. Therefore the  analysis would be  made based on the  questionnaire results, facts gathered during interview, discussion global criticles on the  internet, as well as personal observations made during the  work.

DEFINITION OF TERMS

Audit:-it can be  defined as the  examination of books, accounts, vouchers for business to enable the auditor confirm that the  information presented show the true and fair view of  the  financial statement.

Internal Auditor:- is  a type of  audit carried out by the employees, which is  intended to prevent  fraud and  ensure compliance with  board directives and  management policies.

An Auditor:- is  a  independent person that performs an  audit, who is also a  professional accountant.

External Auditor:- are chartered accountants who has passed their professional exams and  are members of an independent body, contracted to perform audit in  organizations.

Internal Control:- This  is the  whole system of control set-up by organisations to safeguard their assets, liabilities and  financial records.

Internal check:- This  is the daily or  routine work of the  organisation to ensure that errors are reduced to the  barest  minimum.

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