THE IMPACT OF AUDIT IN THE PROFITABILITY OF PUBLIC LIMITED LIABILITY COMPANIES: A STUDY OF SOME SELECTED MANUFACTURING COMPANIES IN NIGERIA.





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THE IMPACT OF AUDIT IN THE PROFITABILITY OF PUBLIC LIMITED LIABILITY COMPANIES: A STUDY OF SOME SELECTED MANUFACTURING COMPANIES IN NIGERIA.



CHAPTER ONE
INTRODUCTION
1.1   INTRODUCTION
Auditing is a branch of financial management concerned with assessing the internal financial status of a business. Audits are evaluations of the financial capability of a company. Companies prepare financial statements of their activities, which represent their overall performance. These financial statements are evaluated by auditors, who assess them according to the industry’s generally accepted standards. They are examined for accuracy and fairness in their reporting. Companies are expected to pass their audits, as the results are very important to the company’s reputation and success.
Audits are very valuable to external company affiliates, such as shareholders and investors, because they provide an extra reassurance of their choice in investments when issues arise. (Thomas, 2008.12).

Internal controls are put in place to keep the company on course toward profitability goals and achievement of its mission, and to minimize surprises along the way. They enable managements to deal with rapidly changing economic and competitive environments, shifting customer demands and priorities, and restructuring for future growth. Internal controls promote efficiency, reduce risk of asset loss, and help ensure the reliability of financial statements and compliance with laws and regulations.
Because internal control serves many important purposes, there are increasing calls for better internal control systems and report cards on them. Internal control is looked upon more and more as a solution to a variety of potential problems.
In recent past, a significant number of studies on audit have accumulated, despite a background of intensive studies on this topic, something remain lacking, a comprehensive study of the impact of audit on the profitability of public limited liability companies within Nigeria bottling company of Nigeria.
Auditing is a vital part of accounting. Traditionally, audits were mainly associated with gaining information about financial systems and financial record of a company or a business. However, recent auditing has begun to include non-financial subject areas, such as safety, security, information systems performance, and environmental concerns.  (The IIA Research Foundation, 2004)
Audits are performed to ascertain the validity and reliability of information; also to provide an assessment of a systems internal control. The goal of an audit is to express an opinion on the person/organization/system (etc) in question, under evaluation based on work done on a test basis.
Due to practical constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements a concept influenced by both quantitative (numerical) and qualitative factors.
As audit must adhere to generally accepted standards established by governing bodies. These standards assure third parties or external users that they can rely upon the auditors opinion on the fairness of financial statements, or other subjects on which the auditor expresses and opinion.
Audit becomes a problem when the generally accepted standards established by the governing bodies are not adhered to. The avoidance of the adherence of the audit standard could lead to the perpetuation of fraud which could affect the profitability of the firm.
1.2   STATEMENT OF THE PROBLEM
Every organization exists to achieve a set of objectives. In pursing these objectives, it has a lot of factors that are working in favour or against its mission. Its survival lies absolutely on how it responds to or uses these factors to its own advantage. In the present day competitive market, one of the greatest concerns of organizations is seeking means of survival.
In order for any organization to survive, it has to be able to use the available scarce natural and human resources at its disposal optimally. An organization needs not only to be effective but also efficient so as to overcome the challenges ineffective audit pose on its operation. The impact of audit on the life of organization in business cannot be neglected.
Severally, we hear of companies that have fraud issues, and some threatened the closure and sack of most officials involved, a typical example is the issue of the bank audit.
In most organizations fictitious profits are declared even when they are run on deficit. It is a clear issue that one of the prominent issues that lead to bank crisis in Nigeria, was when the central bank governor (sansin lamido sanisu) brought the issue of auditing the banks.
The poor management of the audit department in companies has led to lose millions of naira if not billions by the companies; production reduced employee’s salary and welfare uncertain. These and similar problems are the like that audit neglect can create.
Within the organization, ineffective internal control system can also begin to constitute threat to the organization, where a person start and end a financial transaction. Hence there is need for constant monitoring and a proper division of labour.
In some extreme situations, some companies have folded because they were unable to handle the problems associated with fraud some have spent millions of naira trying to trap their fraudsters. Indeed numerous are the problems associated with audit.
All the above issues predispose us to the problems in the manufacturing industry which we will look into in this study. We are to investigate the relationship that exists between audit and organizational profitability in the manufacturing industry. In doing this, we will consider any possible implication audit variables: financial control and administrative control can have on an organization’s, gross profit margin, net profit margin, return on investment, operating expense ratio, return on equity.
In doing that the audit should not be under looked. Previously, the functions of the audit committee were handled by the finance or executive committees or the full board. As more organizations have formed audit committee, this committee has come to handle a growing list of role and responsibilities, which has a major impact on how organizations view governance and fiscal transparency. (Frank L.K, 2009.10).
1.3   PURPOSE OF THE STUDY
The purpose of this study is to investigate the impact of audit in the profitability of public limited companies.
This work is undertaken to realize the following objectives.
1.     To examine the extent effective administrative control affects gross profit margin.
2.     To investigate how effective administrative control affect net profit margin of a manufacturing industries.
3.     To determine the extent effective administrative control affects return on investment of manufacturing industries.
4.     To examine the extent administrative control affects operating expense ratio.
5.     To investigate if effective administrative control has effect on the company’s return on equity.
6.     To examine the extent effective financial control affects gross profit margin.
7.     To investigate how effective financial control affect net profit margin of a manufacturing industries.
8.     To investigate how effective financial control affects return on investment.
9.     To investigate if effective financial control affects has effect on the operating expenses ratio.
10.   To investigate if effective financial control has effect on the company’s return on equity.
1.4   RESEARCH QUESTIONS
Based on the above state purpose for the study, the following research questions are considered fitting here:
i.      Does our companies have well defined audit procedure practice and policies?
ii.     Does effective administrative control affects a firm’s gross profit margin?
iii.    Does effective administrative control system affect the company’s net profit margin?
iv.    Does effective administrative control system affects the company’s return on investment?
v.     Does effective administrative control system affects a manufacturing firms operating expense ratio?
vi.    Does effective administrative control system affects the company’s return on equity?
vii.   Does effective financial control affect the company’s gross profit margin?
viii.  Does effective financial control affect the company’s net profit margin?
ix.    Does effective financial control affects the company’s return on investment?
x.     Does effective financial control affects a manufacturing firms operating expense ratio?
xi.    Does effective financial control affects a firm’s return on equity?
1.5   RESEARCH HYPOTHESES
In order to verify the information contained herein, we need to propound some hypotheses to enable us ascertain the extent to which our assumption agree or disagree with facts available in our Nigeria organizations.
H01: Effective Administrative control does not significantly effective gross profit margin.
H02: effective Administrative control does not significantly affective net profit margin.
H03: Effective Administrative control does not significantly affective return on investment.
H04: Effective Administrative control does not significantly affective operating expenses ratio.
H05: Effective Administrative control does not significantly affective return on equity.
H06: Effective financial control does not significantly affective gross profit margin.
H07: Effective financial control does not significantly affective net profit margin.
H08: Effective financial control does not significantly affective return on investment.
H09: Effective financial control does not significantly affect operating expense ratio.
H010: Effective financial control does not significantly affect operating expense ratio.
1.6   SIGNIFICANCE OF THE STUDY
The present day worldwide economic recession has posed a serious challenge to every organization to seek for means on how best to utilize available human and scare material resources, to achieve its organization goals. How to realize this has remained a problem that no one answers lays to rest. It calls for an integration of various useful approaches.

1.7   SCOPE OF THE STUDY
This work wills to some extent X-ray the meaning of effective audit and profit in general, a number of public limited liability companies in the manufacturing sector, specially the study will focus mainly on brewery manufacturing companies.
1.8   LIMITATION OF THE STUDY
In the execution of this research, different difficulties were faced. The first constraint was the uncooperative attitude of some respondents in supplying accurate responses to question they were asked. Again, the disappearance of some books and journals in the organizations denied this work of some materials which when referenced would have added more value to the findings.
1.9   DEFINITION OF TERMS
C.A.E.: The Chief Audit Executive
Auditing: Is a branch of financial management concerned with assessing the internal financial status of a business.
Internal Control: can be described as any action taken by an organization to help enhance the likelihood that the objectives of the organization will be achieved.
Quality Audit: Quality audits are performed to verify conformance to standards through review of objective evidence. A system of quality audits may verify the effectiveness of a quality management system.
Internal Auditing: Is an independent, objective assurance and consulting activity designed to add value and improve an organizations operations.
 1.10 ORGANIZATION OF THE STUDY
This work is divided into three chapters. Chapter one centres on the introduction to the work what is aimed at in the study. In it we look at the overview, statement of problem, purpose of the study, research questions, limitation of the study, significance of the study, definition of terms, and organization of study.
        Chapter two dwells on literature review. Here relevant literatures are used to give an understanding of what the topic of study is all about. The terms; audit, profitability and other related issues are discussed. Chapter three treats the research methodology. Here we looked at the research design, sampling procedure, questionnaire, data collection, method operational measures of variables and data analysis techniques.




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