AUDIT INDEPENDENCE AND FINANCIAL REPORTING QUALITY: NIGERIAN EVIDENCE FROM DEPOSIT MONEY BANK.
Chapter one
Introduction
1.1Background of the study
The audit reports of firm operations are intended to provide the users of such reports with relevant, reliable and comparable information to permit informed decision (Kamaruzaman, Mazlifa, & Maisarah, 2009). However, Johnson (2005) argued that an annual report can never be completely free from bias, since economic phenomena presented in annual reports are frequently measured under conditions of uncertainty using estimates and assumptions. Although complete lack of bias cannot be achieved, a certain level of accuracy is necessary for financial reporting information to be decision useful (IASB, 2008). This audit function according to the Agency theory is to provide a monitoring mechanism that can curtail the excesses of managers/stewards (Dang, 2004).
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondences between the information and the establish criteria (Arens, Alvin, Shailer and Fielder, 2011). Messier (2008) in his own view asserts that auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between assertion and established criteria and communicating the results to interested user. The audit of accounts in the corporate sector by an independent auditor is obligatory by statutes which define the duties, rights and powers. This is essential because of the separation of ownership from the management in the corporate sector. The owner needs someone who can keep a professional watch on the management and to whom they can trust for the reliability of the accounts since the prerogative of preparing the financial statement is that of the management. In order for users of the financial statement to gain assurance that the financial statement data are being reported and measured properly and also fairly presented, independent certified auditors audit the financial statement and express an opinion on the statements. Thus the reliability of the financial reports is premised on the assumption that the certified auditor is not influenced by their clients or other bodies. Where financial reports are not credible, investors and creditors would have little or no confidence in them. Auditors must therefore be independent both in fact and appearance. Auditor’s independence is seen as the backbone of the audit profession. It forms an integral part of the financial reporting process and a necessity for adding value to all audited financial reports. Audit independence is an important ingredient in audit practice. Izedonmi (2000) stated that independence is of the mind, characterised by Objectivity and Integrity on the part of the auditor, hence independence is fundamental to the reliability of auditors’ reports. The issue of auditor’s independence as an essential platform for quality audit is not disputable. The past decade has witnessed a growing interest in research bothering on auditor‘s independence. This is not unconnected to the very many corporate collapses and scandals that hit the world’s business environment and has kept corporate managers, business owners and investors of all type on the edge in ensuring adherence to standard accounting and management practices. Nigeria is not left out in the drive towards compliance to acceptable norms and practices hence the need to ascertain what drives reliability of financial reports. This has made firms in Nigeria to adopt standard accounting practices that have increased the preservation of auditor’s independence and enhance credibility of financial reports
Statement of the problem
To carry out an audit in a manner that meets the reasonable expectations of users of audited financial statements, it is essential that the work is performed with due regard for audit independence (Bahram, 2007). The audit firm and the auditor must not be compromised and they must not compromise quality to achieve financial or non-financial benefits. The decline in the confidence in financial reporting and auditing arising from corporate collapses and audit failures in a number of countries including Nigeria is the background of reforms in audit independence and quality control. The consequence of this has been greater regulation of the profession in an attempt to restore public and investor confidence in corporate financial reporting.
AUDIT INDEPENDENCE AND FINANCIAL REPORTING QUALITY: NIGERIAN EVIDENCE FROM DEPOSIT MONEY BANK.