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AUDIT
EXPECTATION GAP:
THE PERCEPTION
OF ICAN MEMBERS
ABSTRACT
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
Declaration iii
Dedication iv
Certification v
Abstract vi
Acknowledgment vii
Table of content viii
List of Table ix
List of Figure x
CHAPTER
ONE-INTRODUCTION
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
gap 35
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
auditors 49
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
Bibliography
Appendix 1
List of
Table
CHAPTER ONE
INTRODUCTION
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.
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