ENHANCING PUBLIC CONFIDENCE IN AUDIT REPORT OF FINANCIAL INSTITUTIONS: THE ROLE OF AUDITOR’S INDEPENDENCE

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The preparation of stewardship report from the accounting point of view is the role of the management who oversees the affairs of the business organization on behalf of the owners usually the shareholders. This stewardship report represents the financial statements covering the operating performance and the financial position of a company. It is usually prepared by the directors and addressed to the shareholders as a fulfillment of their agency responsibility. Suffice to say that if all the facts concerning financial transaction were properly and accurately recorded and if the owners were properly and accurately recorded, and if the owners and managers of business enterprises were entirely honest and sufficiently skilled in matters of accounting and recording, there would be little need for independent auditing. However, human nature being as it is, there probably will always be a need for the auditor (www.crfonline.org/orc/cro-11,int ml). Dependable financial information is essential to be very existence of our society. The credit professional making a decision of our society: the credit professional making a decision to grant trade credit, the investors making a decision to buy or sell securities, the banker deciding revenue based on income tax returns, all are relying upon information provided by others. In many of these situations, the goals of the providers of information run directly counter to those of the users of the information.

Implicit in this line of reasoning is recognition of the social need for independent auditors, individuals with a professional competence and integrity who can tell us whether the information on which we rely constitutes a fair picture of what is really going on. Good accounting and financial reporting and society in allocating its resources in the most efficient manner. The contribution of the independence auditor is to give credibility to financial statement. Credibility in this usage means that the financial statements can be believed; that is, they can be relied upon by outsiders, such as trade creditors, bankers, stock holders, government and other interested third parties. According to the Oxford Advanced Learner’s Dictionary of English, Credibility can be defined as “The quality of being generally accepted and trusted. Audited financial statements are now the accepted means by which business corporations report their operating results and financial position. The word audit when applied to financial statements means that the balance sheet, statements of income and retained by an audit report prepared by independent public accounts, expressing their professional opinion as to the fairness of the company’s financial statement (www. Crfonline.org/cro/cro-11. intml). On the other hand, the oxford Advanced Learner’s Dictionary of English, 5th Edition defined Confidence as “The feeling that you can trust, believe in and be sure about the abilities or good qualities of some thing or somebody. Audit competence can only be achieved if public confidence on audit reports can be improved significantly. Both credibility and confidence go hand in hand and each variable impacted on each other to achieve the audit quality and competence the users of financial statement desired. However, management failure arising from co-operate governance failure over the years majorly contributed to the loss of credibility in audit reports. The solution to this problem of credibility in financial and audit reporting lies in appointing an independent person and public confidence in audit reports is enhanced when the profession encourage high standards of performance and conduct on the part of all practitioners’.