AUDITING OF SMALL AND MEDIUM ENTERPRISES IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

The principle purpose of independent auditing is to form an opinion on the accuracy, reliability and fairness of representations in the financial statements of enterprises and to make this available to external users (Okwena, Okioma, and Onsongo, 2010). According to Hayes, (2005)report the next definition of auditing: “Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent, independent person.” Small business (i.e. not more than 10 shareholders) purchases auditing services mostly because they would like to acquire credit from banks. It has been established that bankers seek audited financial statements in their lending decisions (Okwena, Okioma, and Onsongo, 2010). An external auditor is an audit professional who performs an audit in accordance with specific laws or rules on the financial statements of a company, government entity and other legal entities or organization and who is independent of the entity being audited.

(Institute of internal auditors) The concept of SMEs varies from one country to another depending on the indicators used, (Kitindi, Iwsi and Mganya, 2000).The first criteria, based on the number of employees, defines SMEs as those enterprises below a certain number of workers (i.e. can range from less than 10 to less than 50 employees).The second criterion defines the SMEs as the degree of legal formality, and has been used to distinguish between the formal and informal sectors. Here, Micro, small and medium enterprises (MSMEs) are considered as enterprises which are not registered and do not comply with the legal obligations concerning safety, taxes and labour laws. The third criterion defines SMEs as based on the limited amounts of capital and skills per worker. Aritho, (2010) categorize the micro, small and medium enterprises as follows: a micro enterprise as one with 1-5 workers, a very small enterprise with 6-9 workers and a small enterprise as one with less than 30 workers, and medium enterprise having as many as 250 workers.