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THE ROLE OF AUDITING IN ENSURING ORGANIZATIONAL EFFECTIVENESS
CHAPTER ONE
BACKGROUND OF THE STUDY
Corporate performance management is the area of business
intelligence involved with monitoring and managing an organizations performance
such as revenue, returns in investment, overhead, operational cort etc. Price
Walter house Cooper (2012) noted that it provides the avenue for translating a company’s strategy into
measurable targets, in monitoring and evaluating how the company is doing.
Corporate performance management gives management, investors, and other
stakeholders a real time picture of how the organization is actually in line
with its corporate targets so that corporate actions can be taken where
necessary.
Margaret (2011) pointed out that it encompasses strategic
planning, budgeting, forecasting, work fork, reporting, modeling, scenario planning, profitability analysis, key
performance indicate monitoring and consolidation as it addresses both
financial and generating activities of the business entity.
The key
performance indicators according to Massey (2011), means the company’s progress
as they relate to its goals and strategy and are usually enshrined in the
financial statement of such companies. Harper (2012) and institute of centered
accountant of Nigeria (2009) defined the financial statement as a formal record
of the financial activities of a business, person or other entities; relevant
information about the reporting entity are presented therein the financial
statement and in a structured and easily understandable manner, having the
following components.
Statement of financial position showing report on assets,
liabilities and equity
Statement of comprehensive income and expenses (Known as
profit and loss statement)
Statement of cash flow
Statement of comprehensive changes in equity
Notes to the financial statement.
The very
essence of financial statement is deeply routed in the companies and Allied
matters Act (2004:5331) which states that “every company shall keep proper
accounting record and such records shall be sufficient to show and explain the
transactions of the company and shall be such to:
Disclose with reasonable accuracy, at anytime, the financial
position of the company and
Enable the directors ensure that the financial statements
prepared comply with the requirement of the Act with regard to form and
content.
Information
emaciating from the financial statements are so vital that it helps a wide
range of users such as shareholders, government, financial institutions,
employees, creditors/suppliers, media, the general public etc. in making economic
decisions.
Kleinschmidt
(2007) pointed out that the very fact that ownership of companies differ from
management, their trust is not enough to guarantee the accuracy of such
financial statements prepared by management as they emphasized tend to conceal
the following:
Weak internal control mechanism
Presence of material misstatement and on errors that tend to
depict a financial position different from what actually exist in the company.
Non compliance to statutory, accounting professional guidelines/requirements.
Fraud, other financial irregularities as many be perpetuated
by management and on employees of the companies.
On account of the above challenges, the need for an
independent appraisal of the state of affairs in any company cannot be over
emphasized. Little Wonder Paul (2009) was quoted to say that “an audit can be
compared to an annual checkup with the doctors, the auditor being the doctor
while the company is the patient” in the same vein, section 359(1) of the
companies and Allied Matters Act (2004) mandated and the need for auditing of
companies individuals and on government accounts to guarantee a reasonable
level assurance that the financial statement are true and fair, represent state
of affairs at the company. This, Okezie (2008) pointed out helps to reduce or
settle disputes that might otherwise arise regarding acceptance of the annual
reports and accounts of companies.
In the lights
of the foregoing, the researcher shall examine auditing, not just as a concept
but also as an exercise, with a view to determining its place as the backbone
of organizational effectiveness.
STATEMENT OF THE PROBLEM
Modern-day organizations are increasingly facing performance
driven challenges that tend to erode the confidence placed on the financial
statements prepared by management of these companies (Bamidele, 2009).
In charting
the course for other scholars, Okozie (2008) frowned at the problems trailing
the absence of auditing which, when unattended to, could hamper the quality,
form, disclosure requirements of financial statements. These are;
Presence of weak interval accounting control system which
tends to give unwarranted forous to some dubious company management and or
employees
Material misstatement of crucial assets liability or capital
item. This, in turn, leads to financial statements that do not fairly and truly
represent the state of affairs at the company.
Gross violation of statutory provisions, professional
guideline as well as weak level of corporate government which if uncorrected,
may bring down heavy fines in the company by the various regulatory /
professional bodies.
The unattractiveness of company’s shares due to unaudited
nature of its account which might scare off investors.
Wikipedia (2012) posited that auditing as a vital part of
accounting which provides an assessment of a company’s internal control, seeks
not only to solve the above mentioned challenges but also to provide an
assurance that financial statements are of the highest quality which would
impact on the effectiveness of such reporting entity.
OBJECTIVE OF STUDY
The following are the key objectives the researcher proposes
the study / research to active.
To use auditing as a means of evaluating the effectiveness of
a company internal control system.
To disclose any firm of material misstatement that may exist
in the account of a company through they activity of auditing.
To help companies ascertain their level of compliance to both
statutory, professional disclosure requirement with a view to correcting
variances.
To use as a tool to prevent fraud, embezzlement of funds in
organizations.
To improve the investment potentials of companies through the
mechanism of auditing.
To determine if auditing is really the backbone of
organizational effectiveness or not.
RESEARCH QUESTION
Asika (2001) defined research questions as the set of
questions which the research hopes in mind that the study would give answers to
this research work shall answer the following questions:
Can auditing truly evaluate company’s internal control
system?
Would auditing ensure a reduction, if not elimination of
fraud, embezzlement in company’s annual reports?
Is auditing really the backbone of organizational
effectiveness
Can auditing improve the investment potentials of companies?
STATEMENT OF HYPOTHESIS
Ho: Auditing can not
truly evaluate company’s internal
control system
Hi: Auditing can
truly evaluate company’s internal control system.
Ho: Auditing would
not ensure a reduction (if not elimination) of fraud, embezzlement of funds and
materials misstatement in company’s annual reports.
H1: Auditing would ensure a reduction (if not elimination) of
fraud, embezzlement of funds and material misstatement in company’s annual
reports.
Ho: Auditing cannot improve the investment potentials of
companies.
H1: Auditing can improve the investment potentials of
companies.
Ho: Auditing is not
the backbone of organizational effectiveness
H1: Auditing is the backbone of organizational effectiveness.
SCOPE OF THE STUDY
The thrust of this project work on the role auditing plays in
ensuring organizational effectiveness. The researcher demonstrated this by
critically x-raying the conditions necessitating the adaption of auditing in
firms. The data primary data was constrained to specially designed
questionnaires, administered to employees of;
Mr. Bigg’s (subsidiary of VAC PLC), Asaba
First City Monument Bank PLC, Asaba
Dav Notch Ltd Asaba
The secondary data utilized were textbooks online resources,
journals etc.
It is imperative to note here in that the research id
constrained to Asaba Metropolis of Delta State, Nigeria and shall base its
assessment of 5 years operations of the companies so selected.
SIGNIFICANCE OF THE STUDY
The research is expected to make reasonable impact in the
following areas.
Enlighten bothprivate and public companies regulatory agency
as well as its audience in the impact of auditing in organizational
effectiveness.
Educate the researcher’s audience in the concept of auditing
so as to increase their awareness level.
It would serve as a base for future researchers who may want
to dive into the world of auditing as their research area
It would proffer workable recommendations based of research
findings, so as to solve organizational challenges.
LIMITATION OF THE STUDY
These are the apparent difficulties experienced by the
researcher which tend to water down the overall quality of the study: these
are;
The time frame for carrying out the research work is too
short studies of the nature take longer duration that what the researcher used.
The number of sample was inadequate
The research base of Asaba is inadequate. This, if not for
financial constraints, would have been increased.
Sourcing of literature of the study was quite difficult.
ORGANIZATION OF THE STUDY
The project works cover 5 distinct chapters, in line with
approved format of the faculty of management sciences.
Chapter one introduces the project work at hard, this chapter
gives the audience a quick run down of what to expect in other chapters of the
project.
Chapter two review relevant literatures surrounding auditing
in order to enrich the researcher’s work.
Chapter three projects the research methodology adopted by
the researcher in a bid to collect, analyze, interpret and prevent data.
Chapter four analyses the data collected usually an agreed
data analysis method.
Chapter five concludes the study by giving discussion of
findings, recommendation as well as areas of future studies.
SUMMARY
The researcher, under this chapter, has taken an in-depth
review of the concept “with a view to
establishing its importance in organizations, conditions warranting its
introduction into the scheme of workings of modern day companies to achieve the
crucial objectives of the study, important research questions were asked,
hypothesis stated etc.
In essence, the chapter under review gives the audience a
quick, though comprehensive, sketch of the project work.
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