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THE IMPACT OF AUDIT
REPORT ON INVESTMENT IN FINANCIAL INSTITUTION
ABSTRACT
This project derived concern for the need to understand the
impact of audit report on investment in a financial institution. In modern
world, some financial institution finds it very difficult to expand and
increases in growth. It is due to the report submitted by the audit that viewed
the financial statement of the company to the shareholders or investors. If the
financial statement viewed a profitability company, it will attract and
motivate the potential shareholders and investor to take a decision of investment
in the company. Audit report creates a confidence in the mind of the
shareholder. Audit report is important I making decision. This research
provides solutions to these problems affecting any financial institution. Also,
this work provides information collected through document and questionnaire
that revealed the impact of audit report on financial institution. The data
collection was done on tale and simple percentage was employed in the data
analysis. The research revealed the benefit of audit report to any financial
institution to take a viable decision on investment. It was recommended that
potential benefit of auditing should be realized by strengthening auditor’s
independency.
CHAPTER ONE
INTRODUCTION
1.1 GENERAL DESCRIPTION OF THE AREA OF STUDY
Most business established nowadays, are not managed by the
owners (shareholders), but by the others appointed by the owners. This practice
is known as “stewardship”. Also, the owners who appoint the Directors to look
after their property will be concerned to know what has happened to their
property. Therefore, the Directors have the report and account for the
responsibilities entrusted to them, by the shareholders. This process of
reporting and accounting is done by means of financial statement.
The financial statements are produced annually, and take the
form of an “Annual Reports and Account” which includes; profit and loss
account, and Balance sheet, and also other statements (which are Director’s
report and Auditor reports). The problem which has risen on Director Report to
shareholders, means can the shareholders believe the report? The report may
have errors, fraud and false information’s.
The solution to the above problem that the owners may have
with the Director, lies in appointing on independent person called an “Auditor”
to investigate the reports and report his finding to members of the firm. So,
at the end of Audit process, he will present a statement to the members of the
company stating his opinion whether it show a true and fair view or not. This
statement represented by the Auditor is the “Audit report”.
The audit report is the end product of the Audit and it is
very essential because it explains what the auditor did and views his opinion.
Furthermore, it is the belief of all the accountants that the process of
accountability is not complete without an audit, and for an audit to be
meaningful, the one perfuming it must be independent.
Base on this, the shareholders will have to rely on the audit
report in making their investment decision for them to do this correctly; they
have to analyze the financial statement of the firm in which they wish to
invest. And since some of these investors do not have the knowledge of
accounting and how to analyze financial statement, they need expect to do these
for them. Therefore, they will rely on the report produced by the auditor in
making their investment.
1.2 STATEMENT OF THE PROBLEM
An Audit report adds credibility and increase confidence
financial statement of an organization. The primary aim of the audit is for the
auditor to state that they do not.
In most cases, today, the intended effect to the auditor’s
report is not clean and the effect it does produced are not well-know. Also
audit reports are widely ignored and often misunderstand by alt of people.
Apart from these problems, there are misconception views about auditors. Some
see auditors as toothless watch-days and fraudsters and therefore do not
believe in the report produced by them.
Also there is ignorance of the importance of carrying out an
audit process on financial statement which might contain errors and fail to
disclose fraud. Thus, it is as a report of these problems that the researcher
took up this research topic in order to emphasis on the need and importance of
carrying out audit process as to educate the enlighten share holders and
potential investors.
1.3 OBJECTIVE OF THE STUDY
The main objective of this research is to examine the extent
to which audit report have impact on the investors in the financial institution
with reference to Oceanic Bank PLC.
The study attempts to examine, among other things, the aim
and objectives of an audit process and also the need and importance of
considering the audit reports of a particular firm before making investment
decision.
By so doing, it is hope that this study will be of great
benefit to shareholders and potential investors especially those who want to
invest in oceanic Bank Plc.
1.4 RESEARCH QUESTION
It is essential to state the problems associated with this
research as it is of good great importance in understanding the target work
itself.
Although, the existence of auditor for various financial
institutions the main aim of giving confidence to the owners of these
institution and potential investors. But the questions that arise are to what
extent are the issuing of audit report to their investors and the confidence
the investors have upon the audit report rendered e the auditor. Hence the
questions relating to the research work are:
What are the impacts of audit report on financial
institution?
What are the purposes of audit report on financial
institution?
What are the benefits of audit reports to shareholders of
Oceanic Bank Plc?
1.5 HYPOTHESIS OF THE RESEARCH
Hypothesis One:
Hi: There is
significant relationship between audit reports and investment.
Ho: There is no significant relationship between audit report
and investment decision.
Hypothesis Two:
Hi: The addition of a standard audit report to set of
financial statement will significantly have impact on investor’s behavior.
Ho: The addition of a standard audit report to a set of
financial statement will not significantly have impact on the investor’s
behavior.
1.6 SIGNIFICANT OF THE STUDY
Significance of this study is that it will be of immense
benefit to shareholders and potential investors who are involved in making
investment decision.
There are frequent collapses of investment decision in
Nigeria. One of the factors that contributed to this failure is lack of good
audit report. Therefore, this study will be useful to shareholders and
potential investor who has interest to invest, so that they will find audit
report as an important tool for their investment.
Also, this study will also serve as guild for researcher who
may like to know more on report writing. It is hope that the conclusion and
recommendations drawn from this study will serve as an important reference for
individual, firm and general who wish to invest.
1.7 LIMITATION OF THE STUDY
This research project like any other projects was subjects to
some limitations. One of the limitations is unwillingness to provide vital
information needed for the project by the staff of the company being studied.
There is also the limitation of time constraint. This project is directed at a
particular target, which is to meet my graduation requirements. This project
has to e accomplished within the particular target date otherwise it will lose
its potency.
1.8 SCOPE OF THE STUDY
This project is concerned with the basis requirement for
issuing audit reports and impact of audit reports on investment in a financial
institution, Oceanic Bank Nigeria Plc as particular references.
The scope of this study will include the content of audit
report, the preparation of audit report and its importance to the shareholders
and the institution. T6he study also cover the type and impact of audit reports
on financial institutions.
1.9 DEFINITION OF
TERMS
Audit: An audit is the independent examination of an
expression of opinion on the financial statement of an enterprise by an
appointed auditor in pursuance of that appointment and incompliance with the
relevant laws and regulations.
Auditor: An auditor is an independent person usually a
chartered or certificate accountant who is appointed by an enterprise to carry
out an audit process and expressed his opinion on financial statement of that
enterprise.
Audit Report: An
audit report is a statement issued by the auditor to the members of an
enterprise expressing his opinion on the financial statement of that
enterprise.
Financial Statement:
These are statements which are viewed as framework for capturing and
organizing financial information and usually include the profit and loss
account, balance sheet and cash flow statements.
Auditee:This is the firm or organization whose financial
statements are being audited.
Stewardship Accounting: This is the process whereby the
manager of a business account or report to the owners of the business.
Investment Decision: This is the allocation of capital or
funds to long-term assets, which would yield benefit in the future.
Audit Evidence: This
is the amount of document and other forms of information needed to support an
auditor’s professional opinion on a set of financial statement of that
enterprise.
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