Tuesday, 18 September 2012

CHALLENGES FACING THE MODERN AUDITING IMPERATIVE FOR CORPORATE AND PUBLIC ACCOUNTABILITY


INTRODUCTION
Auditing, both in the public and corporate Sector is an independent examination of, and an expression of an opinion on the financial statements of governments by a duly appointed person(s) in accordance with all relevant statutory obligation. In other words, auditing does not concentrate on fraud detection alone, but rather, to look at the financial and non-financial activities of an organization in terms of management, procedure, systems and statutory requirements to test the compliance level in term of operation with the overall aim of preventing fraudulent activities of public officers.
Individual firms of accountants have refined their approach to auditing from time to time and the professional accountancy bodies in various countries have published guidelines to their members on auditing procedures. Auditing is as essential in the public sector as it is in the private sector. Section 85 of the 1999 Constitution states that there shall be an Auditor-General for the Federation.

An audit is an independent examination of the financial statements of an organization with a view to forming an opinion as to the truth and fairness of the statements. Audits everywhere are undertaken to lend credibility to financial statements for use of people other than those who prepared them.



CHARACTERISTICS  OF MODERN AUDITING
1.  Execute a wide range of audits and reviews in a diverse and highly computerised organisation;
2.  Provide an independent, objective assurance and consulting service to management, with the principal aims of evaluating and improving the effectiveness of risk management, control and governance processes;
3.  Make recommendations on increasing operational efficiency, having regard to value for money auditing;
4.  Agree the annual audit plan with the Chairman prior to approval by the Audit Committee;
5.  Report quarterly and as requested to the Audit Committee and to the Chairman or any person with equal position;
6.  On a day to day functional basis, the Internal Auditor reports to the Chairman or any person with equal position;
7.  Any other appropriate duties as may be defined from time to time by the Chairman.








FACTORS AFFECTING MODERN AUDITING IMPERATIVE FOR CORPORATE AND PUBLIC ACCOUNTABILITY
The following are factors affecting modern auditing for corporate and public accountability:
·       Economic Forces
    An auditor must evaluate how current economic conditions affect a company. For example, a company's growth may be down, but if the economy is in a recession, this dip in growth may be acceptable. Conversely, in a robust economy, a company that is not experiencing growth may be in worse trouble than if the lack of growth were in a flat economy. The auditor may wish to look into the balance sheet and financial supporting documents to see if the company report has taken this external factor into account.
·       Social and Cultural Forces
    The culture a company operates in can affect it. If the auditor finds that a shift in public tastes is affecting the market share of the company, this must be taken into account when evaluating the company's sales projections. For example, the tobacco industry has experienced a shift in attitudes toward smoking over several decades. An auditor should check to see if the company has factored in social changes in its estimates.
·       Political, Governmental and Legal Forces
    When government begins to crack down on industry practices, the auditor can take this change into account. The auditor may find that one of the biggest sources of income for the company may come from an area that is coming under greater legal restrictions. This could negatively affect that company's revenues in the future. On the other hand, a company that is in an industry that is being deregulated may be positioned for a strong growth period. The auditor's position should be that the company must make realistic projections based on the legal environment.
·       Technological Forces
    Many a company got caught in the switch from analog to digital products. Film companies stopped making film and moved into digital imaging. An auditor can take into account changes in technology when evaluating a company. Sales and revenue projections may rely on an existing technology that is changing or being phased out. The auditor would know that the company's outlook and expenditures must consider this changing technology.
·       Demographic Forces
    Changing demographics can positively or negatively affect a company. For example, if aging baby boomers are seeking luxuries, the auditor can evaluate a luxury products company in that light. If young people no longer like talking on the phone, a phone company auditor can question the company outlook in light of the changing tastes among certain demographic groups.
·        Fraudulent financial reporting and audit failures
    Various corporate collapses occurred in the late 1990s and early 2000s many of which were the result of fraudulent financial reporting, and these resulted in significant losses for creditors and serious hardship for shareholders. Many of these business failures were also seen as audit failures, and the auditing profession stood accused of not performing its ‘watchdog function' effectively and with objectivity.
·         New legislation, regulations and standards
    The response by governments and regulators to the corporate collapses and perceived audit failures gave rise to various new statutory requirements, regulations and standards that were aimed at strengthening the auditors' independence and improving the quality of their work.















CHALLENGES FACING THE MODERN AUDITING IMPERATIVE FOR CORPORATE AND PUBLIC ACCOUNTABILITY
Factors such as the volume of transactions, information technology, globalization and the constant increase in the complexity and number of laws, regulations and standards governing entities and their auditors have all impacted drastically on the evolving role of the registered auditing profession. The corporate collapses, business failures and fraudulent financial reporting scandals of the late 1990s and early 2000s led to a very turbulent time and resulted in a credibility crisis for the auditing profession. One of the consequences of this was the demise of Arthur Andersen and the resultant decrease in the number of big audit firms from five to four.
A further consequence was the drastic interventions by governments, regulators and the auditing profession itself, which have given rise to various and onerous new laws, regulations and standards that govern financial reporting and the auditing thereof. This is described as follows by Knechel, et al. (2007:xiii):
 The period 2000 through 2006 has been a very turbulent time for the auditing profession, a period that witnessed numerous scandals and their aftermath (Enron, WorldCom, Parmalat), strident calls for changes in the way that auditors practise their profession, and regulatory initiatives that significantly change the way the profession is governed. Long-held attitudes and customary practices have been challenged and found to be deficient by the media, the investing public, and those charged with regulating financial reporting and auditing. Issues of auditor independence, the role of corporate governance, the responsibilities of management, the appropriateness of consulting services, and the overall professional obligations of auditors have all been discussed and debated by a broad array of interested groups and individuals. As a result, this period has probably resulted in more substantive changes to the auditing profession than any other period in modern day business history.
The above developments also gave rise to the risk of a Big Four auditing firm domination of the audit market, and the possible effect that a collapse of one of these remaining firms poses to the effective functioning of the audit market.


   









REFERENCES

Ahmed, M., 2011. PPP for Infrastrutural Development- The Nigerian
Experience. ICRC.
Anyanwu, F.N., 2001. Audit Profile: Office of the Auditor General for
the Federation of Nigeria. International Journal of Government Auditing, 28(2), pp.13-14.
Auditor General, N., 2006. Achieving Public Sector Outcomes with
Private sector Partners. Accounting, Auditing & Accountability Journal, 24, pp.824-847.
Maimako, S.S., 2005. The Role of Financial Contrl Institutions in
Promoting Financial Accountability in the Public Sector. Nigeria: University of Jos
Salawu, R.O. & Agbeja, O., 2007. Auditing and Accountability
Mechanism in the Public Sector. The InternationalJournal of Applied Economics and Finance, 1, pp.45-54.
S.A.S (2009), Government Financial Reporting and Public
Accountability in Nigeria, Auditing: Challenges and Management.

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