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ENHANCING PUBLIC CONFIDENCE FINANCIAL
REPORTING: THE ROLE OF CORPORATE GOVERNANCE
Abstract
In other to
understand the significance of financial reporting, one is required to be well
versed in the theory and practice of accounting and corporate governance. This review of literature is organized in
stages or sections addressing the topic in one way or the other. The first
stage is the concept of corporate
governance, a synopsis of financial reporting, that places emphasis on
the historical development of audit report, then the various audit standards,
which members of the professional accounting bodies are expects to company with
when producing an audit reports. Included in the auditor’s general standard are
competence, independence, care and integrity of the auditor. The credibility of
the financial report depends to a large extend on the factors and if the users
of the reports should doubt anyone of those standard required the complete
relevance on the audit report may be questioned. Therefore, since the standards
may affect an audit and subsequently the financial report, they may be examined
to the extent of their effect.
The third stage is the audits standard and
evaluation, which include adequate planning and supervision, compliance with
rules and regulations, internal control system and evident. The auditing
standard and guideline “audit report” and “audit report to management” issued
by the auditing practice committee (UK) required the auditor to report to
monitors (statutory report) and to the management who instituted the report.
Therefore to report audit work to an
organization such as Consolidated Breweries Nig. Plc, a limited liability
company the auditors are required to produce two reports which are domestics
report and the statutory report. The domestic report is communicated to
management to address each of weakness and suggestions of improvement. The
statutory report is communicated to the shareholders of the organization. Such
35g (1) companies and Allied Matter Act (CAMA) 2004 provided that the report
shall contain statement as to the matters mentioned in schedule 6 of the Act.
For the purpose of the project we shall be
guided by the sub – headings provided by the auditory standard procedures such
as form and distribution timeliness, accounts and financial report. Although he
is reporting primarily to the management, the in terms / auditor white work
form basis for a sound independent external audit has also been considered
under the investigation function.
The activities of the internal auditor
constitutes “a protective and constructive service to management” (Okolo 2007:
34), protections in the sense that the internal auditor guards against errors,
fraud, waste and decision from established policies and objectives, and
assessment of the various aspects of the operation ad make recommendations for
improvements. The internal auditor is therefore a tool for management.
2.1 The Concept of Corporate Governance
In a converging world where the gospel of free
markets and democracy is resonating more than ever before, and given the far-
reaching impact of companies’ operations on the wealth of nations, its bio-
diversity and the distribution of economic well- being; it is becoming
increasingly clear that the governance of companies, corporations, family owned
businesses, small and medium scale enterprises and business associations must
matter, as does political governance. According to Oladele (2006) Corporate Governance would entail,
relationships between the shareholders and the company, the exercise of
corporate powers by the two main organs of the company- the Board and the
Annual General Meeting and executive management generally, directors’
responsibilities for accountability and rectitude, more so as detailed by
different statutes and regulations. James (2009) added that honest and fair
trading by corporations, fair and equitable treatment of shareholders, minority
shareholders alike, transparency and credible disclosure standards, products
that take cognizance of the health of consumers, corporate citizenship and the
business judgment rule are the core areas of corporate governance.
From the foregoing, it is clear that corporate
governance is an all- encompassing concept that seeks to guarantee and
institute credible bedrock governance standards, in the creation of wealth, in
the light of the primacy that corporations have come to assume in privately-
led economies. In support, Karugor Gatamah, Executive Director of Kenya’s
Private Sector Corporate Governance Trust, sees good Corporate Governance as
the lifeblood of a prosperous society.
2.2 Synopsis on Financial Reporting and
Development of Audit Report
The history of auditing in its primitive or
traditional form can be traced back to ancient time in Egypt. According to
(Howard 2000: 1), modern approach to auditory as it exists today was a
development of the later 19th century. An increased complexity of modern
commerce which call for high degree of skill and discernment has greatly
expanded the scope of the auditors operation (Emeya, 2003: 17 – 19), here, the
independent auditor examined the accounts of business entity in such a detail
as will enable the auditor to form an opinion as to their accuracy, truth and
fairness. The opinion founded by the auditor and contained in the audit report
must be in compliance with the companies and allied matters ACT – 2004. The
opinion must be addressed to the shareholders who institute the audit and who
the auditors are directly responsible to under statutes.
According to Milky, (2008: 2) audit work
resulted from the practice of stewardship accounting system. In the circumstances,
the need arose from some means by which shareholders might be satisfied that
the accounts reported to them by their board of director did show an objective
view of the financial position and result of the company.
From this reason therefore, developed the
practices of appointing an auditor whose duty was to verify on behalf of the
shareholders the account presented by the directors and to report thereon. In
early history of auditing, the main qualification of an auditor was reputation,
he was blamed when fraud were committed by members of staff. A man of high
integrity, moral balance and independence of mind was usually honoured as an
auditor and technical ability being regarded as secondary, with growth in the
auditing standard and guidelines of the U.K’s professional accounting bodies.
The statutory recognition given I.C.A.N guides the members of the body the
license to practice auditing.
2.3
Objective of Financial Reporting
A balanced report is one that meets
standardized audit requirement. It has to be fair in reporting objectively
every information about the company’s financial activities. As contained in the
contents of the auditors report, the report is guided or governed by:
(i).
Statue regulating the existence and operation of the company. In
Nigeria, such loans include companies and allied matters Acts, 2004; Bank and
Other Financial Institutions Act (BOFIA) 1991, the Insurance Act 2003 etc.
(ii).
the audit standard.
The auditing standard is considered below:
Land down by auditing standard: the auditing
standard requires that auditors report should state clearly.
i.
Title identifying the address
ii.
The financial statement audited
iii.
Respective responsibilities of directors and the auditors.
(iv).
Basis of auditors opinion.
(v).
auditors opinion
(vi).
Signature of the auditors.
(vii). Data of the auditors report.
According to section 359(1) of CAMA 2004, the
auditor shall report to the members of the company but where the company is
quoted in the Nigeria stock exchange, the auditor will as well report to the
members of the company and audit committee.
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