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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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