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AUDIT EXPECTATION GAP:
THE PERCEPTION OF ICAN MEMBERS
The study examined audit expectation gap: the perception of ICAN members. The sample comprised of twenty five selected senior workers (directors and managers). Data were collected using the questionnaire method. The data was analyzed using multiple regression analysis and‘t’ test statistical techniques. The analysis revealed a positive and significant impact between each pair of independent with dependent variables. We therefore, concluded that there is a positive and significant relationship between audit expectation gap and ICAN Members (qualified personnel) based on the findings and conclusions above, the study recommended that ICAN should commence immediate implementation of some of the endorsed methods within it purview. These include strengthening the work of tis public practices sections, stricter enforcement of its professional ethics rules, adding pep to its mandatory training programmes and strengthening of its disciplinary procedures. ICAN should seek to promote legislation in the areas of the appointment, remuneration and the removal of auditors as these have important implications for the independence of the auditor. For example, as recommended by respondents audit committee and non-executive directors should have a bigger say in the appointment of auditors. ICAN should seek to bridge the gap which this study revealed between the position of its leadership and the followership in respect of mandatory rotation of auditors. ICAN should initiate a process of dialogue among the stakeholder groups including the government, the academia, investors and others towards bridging the audit expectation gap ICAN should consider whether continued professional rivalry between it and other recognized professional accounting bodies best serves as the long-term interest of the profession in Nigeria. The alternative as a responsible and leading professional accounting body is to steer is followership to a process of cooperation with other recognized bodies without compromising the ICAN BRAND. This is the experience in the U.K. ICAN in addition to sponsoring research should have a strong research desk in the institute to study contemporary contentious research issues like mandatory rotation of auditors and separation of audit engagements from provision of other services in the context of our cultural peculiarities. Government should tread with caution on the issue of imposing a solution from outside the profession in respect of the audit expectation gap problem. Deriving from this study, ICAN MEMERS are not in support of this approach. It is all too easy to throw away the baby with the bath water. Government should create an enabling environment for an all stakeholders, dialogue and should make its own input in the light of the findings of this work. Deriving from the findings government should create a enabling macroeconomic and socio political environment that extols the virtues of integrity in all aspects of national life. This will have a positive impact on attempts at solution to the audit expectation gap problem. Investors, members of the public and other interest groups should arm themselves with this study in other to follow and contribute meaningfully towards ameliorating the audit expectation gap problem.
TABLE OF CONTENTS
Title Page i
Cover Page ii
Table of content viii
List of Table ix
List of Figure x
1.1 Overview 1
1.2 statement of the problem 6
1.3 purpose/objective of the study 7
1.4 research question 8
1.5 research hypothesis 8
1.6 significance of the study 9
1.7 definition of terms 10
1.8 scope and limitations of the study 11
1.9 organization of the study 12
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Introduction 15
2.2 nature and structure of the expectating gap 16
2.3 dimensions of the audit expectation gap 23
2.4 causes of performance gap of audit failure 27
2.5 fresh impetus to the audit expectation 30
2.6 some current methods in sue aimed at the audit
expectation gap. 32
2.7 fresh initiatives method at the audit expectation
2.8 encouragement of join audits, audit competition 38
2.9 shows the key features and advantage of joint audit 39
2.10 introduction of mandatory rotation of auditors 40
2.11 establishment of financial reporting council 43
2.12 composition of an active audit committee made up
of non-executive director who are and knowledge in
financial matters 44
2.13 separation of audit services 46
2.14 punish company management who mislead their
2.15 establishment of government oversight to body to
regulate audit practice 51
2.16 introduce forensic and value for money audits 54
2.17 economic shareholders to attend annual general
Meeting and ask difficult questions 55
2.18 bridging the audit expectation gap the perception of
Chartered accountant experience of other countries 56
2.19 theoretical summary 59
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 introduction 65
3.2 research design 65
3.3 sampling/ sample size determination 67
3.4 data collection method 69
3.5 operational measure of the variable 70
3.6 data analysis techniques 71
3.7 validation and reliability of instruments 74
CHAPTER FOUR: PRESENTATION, ANALYSIS AND INTERPRETATION OF RESULTS
4.1 Introduction 77
4.2 presentation of empirical data 77
4.3 descriptive analysis of questionnaire 79
4.4 inference and decisions 87
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 summary of findings 92
5.2 conclusions 96
5.3 recommendation 97
List of Table
1.1 OVERVIEW OF THE STUDY
Meigs (1971), Ogunnleye (2002), and Whitting (2004) opined that in own complex and highly industrialized society, the communication of financial and other economic data is vitally important. Our economy is characterized by large corporate organization which have gathered capital from millions of investors and while control economic resources spread throughout the country or even throughout the world. Top management in the corporate headquarters is remote from the operations of company plants and branches and must rely on financial reports and other communities of economic data to control its far flung resources.
The millions of individuals who have entrusted their savings to corporations by investing in securities rely upon annual and quarterly financial statement for assurance that their invested funds are being used honestly and efficiently.
Audit expectation gap is the gap between the role of an auditor as understood by the auditor and the users of financial statement. It is a gap between what the auditor is doing and what the society expects them to do, creating the impression that the statutory objective of audit is not meeting the social needs of the populace. The functions performed by the accounting profession are vital to the growth and stability of the financial market, whether at the global level or at the local level (Egbiki, 2006, 56-57). An audit has been defined as an examination of the financial statement of an enterprise by an independent expert (the auditor) with a view to attesting that such financial report (in his opinion)show that a true and fair view of the state of affairs of that enterprise for the period under review.
The contribution of the auditors is to provide credibility to information. This means that the information can be believed and that it can be relied upon by outsiders. The outsiders include shareholders and government regulators. Others are creditors and customers. Usually these third parties use the information to make various economic decisions. An example of this decision is whether to invest in the organization. Economic decisions are made under conditions of uncertainty as there is always a risk that the decision maker will select the wrong alternative and incur a significant loss.
The credibility added to the information by the auditors, actually reduces the decision makers’ risk. Therefore auditors reduce information risk, which is the risk that the financial information used to make a decision is materially misstated. The legal position is that an audit is carried out to enable an auditor form an opinion as to the truth and fairness of financial statement presented to him by his client’s management and to report accordingly. The accuracy of a company’s accounts is the sole responsibility of the directors.
However, the accounting profession in Nigeria and other climes has been under intense pressure due to rising public expectations.
These expectations have been fuelled largely as a result of demise of some financial institutions in the late 80’s to early 1990’s and very recently for banks that failed to meet the statutory minimum recapitalization to the tune of #25 billion. In the light of these developments the heat was turned on accountants as members of the public sought whom to blame. The wide spread news of financial scandal and false reporting rife in the collapsed institutions have cast the organizational controls and auditors in very poor light.
It has also tended to undermine the confidence of the public in the profession to detect and prevent corporate abuses. Audit failures have been blamed, partly, on greed on the part of auditors. In defense, auditors have often replied that they are not primarily responsible for detecting frauds and errors. However, shareholders, depositors and most of the general public remain unimpressed as they query the value of a watchdog that cannot bark let alone bite.
Most people cannot seem to accept the legally defined status. They would wish to see an auditor’s certification as an assurance that all that needs to be known about the financial transactions of a company have been disclosed to the auditor. In the same vein an auditors signature should be taken to mean that all is well with the health of the institution concerned and that there has been no fraud or other malfeasance. This, however, is often not the case. Two components of the audit expectation gap have been identified-communication gap and performance gap. Communication gap has to do with what the auditors think is their role and what the members of the public perceive should be the role of auditors. Performance gap, on the other hand, occurs when public expectations are reasonable but the auditor’s performance does not fulfill them. This means that there is a short fall in the auditor’s performance. (Okafor, et al, 2009, p11).
In the past, attempts have been made to bridge the gap by the profession. For example attempts have been made to educate users of the limitations of the modern audit process.
As part of the process of educating the user of audited accounts, the modern audit report usually tries to delineate clearly the respective responsibilities of the directors of a company and that of the auditor in respect of audited financial statements. The profession has also tightened the noose on self-regulation bringing to book erring members of the profession. The mandat4ory continuing professional education whereby members of professional accounting bodies are compulsorily required to attend professional seminars has also ensured that member’s skills are updated and honed up.
However, like a sore thumb, the gap appears to have remained as wide as ever. At the local level, the recent scandal in Cadbury Nigeria Plc whereby profits were overstated by a whopping sum of over #13billion, and the subsequent indictment of the accounting firm of Akintola Williams Delloite for audit failure, has further aggravated the expectation gap conundrum.
The international community has not been spared either. The collapse of the energy giant Enron the United States of American in 2002 as a result of what was obviously a case of audit failure and wobbly accounting standards has again ignited a global search for tools to at least narrow the expectation gap.
The literature is awash with fresh suggestions and initiatives aimed at tackling the problem of expectation gap. ICAN MEMBERS are a very important stakeholder group in the search for a solution to the expectation gap problem. Their cooperation or lack of it can have a tremendous effect on the solution or otherwise of the problem. This work is therefore an attempt to document in Nigeria, the perception of ICAN MEMBERS as to the initiative for bridging the audit expectation gap problem.
1.2 STATEMENT OF RESEARCH PROBLEM
The global search for a solution to the audit expectation gap problem has becomes strident. The credibility of the accounting profession appears to be at its lowest ebb. In the United States of American, the profession has lost its self-regulatory status. In this circumstance, the profession is bestirring itself and the result is a welter of fresh suggestions and initiatives aimed at solving the expectation gap problem. Some of the suggestions appear mundane while some others at best appear controversial. One U.K. research study even concluded that expectation gap problem cannot be eliminated. There is the belief that accountancy profession has resisted change in auditing for so long that it was unlikely to change of its own initiative. In the light of the above, what is the perception of ICAN MEMBERS in Nigeria as to the fresh suggestions and initiatives aimed at addressing the expectation gap problem?
1.3 PURPOSE/OBJECTIVES OF THE STUDY
This study has the general purpose of ascertaining audit expectation on perception of ICAN members (qualified personal) other specific objective of this study are as follow:
i. To evaluate the impact of audit independence on perception of ICAN members
ii. To identified the impact of audit report on perception of ICAN members.
iii. To analysis the impact of standard audit procedures no perception of ICAN members.
iv. To make recommendations based on the findings of the study.
1.4 RESEARCH QUESTIONS
This study will be approached in such a way that it will, among others, answer the following questions.
1. What level of impact does audit expectation gap exert on perception of ICAN members (qualified personnel)?
2. Is there any impact between audit independence and perception of ICAN members (qualified personnel)?
3. Can there be an impact between audit report and perception of ICAN members (qualified personnel)?
4. Does standard audit procedures have any impact on perception of ICAN members (qualified personnel)?
1.5 RESEARCH HYPOTHESES
To achieve the above objectives, the following hypotheses are formulated for the research study.
H01: There is no significant impact between audit expectation gap and ICAN member (qualified personnel).
H02: There is no significant impact between audit report and perception of ICAN members (qualified personnel)
H03: There is no significant impact between audit report and perception of ICAN members (qualified personnel)
H04: There is no significant impact between standard audit procedure and perception of ICAN member (qualified personnel).
1.6 SIGNIFICANCE OF THE STUDY
According to Ironkwa (2011) significance of the study should be “practical and theoretical” it is therefore pertinent, to assert that this study would be in immense importance to different groups of persons, organizations and even the government.
First, the result of the study world be relevant to members of the public especially these that wish to know the various issues in ICAN.
Secondly, outcome or result of this study will be used in promoting the financial performance, accounting standards, audit independence and audit report of ICAN members.
Thirdly, this study will become valuable and a point of references to potential researchers and investors in the oil and gas companies in Rivers State.
Lastly, this study will contribute to the body of knowledge in the accounting discipline. Thus, the findings will stimulate further research in this area. To students and other researchers, the study will enhance their theoretical and practical knowledge of ICAN.
1.7 DEFINITION OF TERMS
The following operational terms germane to this study are hereby defined:
1. The institute of Chartered Accountants of Nigeria. The first professional accountancy body in Nigeria chartered by an Act of parliament in 1965 and charged with regulating.
2. ICAN MEMBERS: These are members of the institute of Chartered Accountants of Nigeria.
3. Rival accountancy professional in Nigeria. These are members of other. Accountancy bodies in Nigeria notably members of the The Association of National Accountants of Nigeria.
4. MCPE; Mandatory Continuing Professional Education whereby members of the Institute of Chartered Accountants of Nigeria are compulsory required to attend professional seminars in order to keep abreast of development in Accountancy profession.
5. ICAN Disciplinary Tribunal: A quasi-judicial body charged with trying erring members of the institute of Chartered Accountants of Nigeria.
1.8 SCOPE AND LIMITATIONS OF THE STUDY
The scope of this study is on the perception of ICAN MEMBERS in Nigerian on the thorny issue of bridging the audit expectation gap give fresh initiative in this regard.
This study will focus on Nigeria. According, ICAN Members in Nigeria will be the target of this study and will be sought at MCPE’S, Zonal and annual conferences.
Particular care will be taken to ensure that ICAN Members from the various ethnic and interest groups are covered in the sample. As Abuja has become the melting point of Nigeria’s ethnic groups, the researcher will, among others, sample the opinion of ICAN MEMBERS gathering in Abuja either for MCPE or Annual Conference. The study is being carried out in 2008: In a research wok of this nature difficulties are bound to be encountered. There was paucity of local literature as the researcher was threading on an area that has not been over flogged. Finance constituted another problem limiting the ability of the researcher to travel more extensively in search of relevant data and opinion.
Some ICAN MEMBERS filled the questionnaires in a hurry, because of their busy schedules, thus affecting the quality of their answers. Time was of the essence in this research and this also affected the researcher. On the whole, however, the researcher was still able to use his wealth of experience to navigate successfully through the difficulties and produce a work that will stand the test of time.
1.9 ORGANIZATION OF THE STUDY
The study was organized into five chapter, chapter on examined the background of the study, statement of the problem, purpose of the study, research question, hypotheses, significance of the study, limitations of the study, definition terms etc.
Chapter two deals with a review of related literature is also explain the corporate governance literature, concept and institutional investment as well as contextual variables adopted in the study.
Chapter three highlighted the Research Methodology used in the study, which include among others the research design, sampling procedure/sample size determination, methods of data collection and analysis validity and reliability of research instrument and measurement of variable.
Chapter four focused on the empirical aspect of the study that is, the detailed data presentation, analysis, and discussion of the finding.
Chapter five rounded off the study with summary, conclusion and recommendations.