The Role Of External Auditors In Fraud Detection

THE ROLE OF EXTERNAL AUDITORS IN FRAUD DETECTION

ABSTRACT

Considering the important role that external auditors is playing in detection of fraud in the banks and other establishments in Nigeria economy, fraudulent activities in Nigeria banking systems in this recent years has been identified to contribute a lot in Nigeria economic meltdown. In this study, effort was made on how this fraud can be detected and eliminated. Taking first bank of Nigeria plc in Enugu as a case study, this study was aimed at finding out the role of external auditors in fraud detection which is badly affecting our economy and ways of preventing it. In order to get this research project done, primary data was base on the direct questionnaires and interviews. Emphasis was laid more on the administration of questionnaires and interview as a major source of primary data. The manager of first bank of Nigeria plc was interviewed on the role of external auditors play in fraud detection. Secondary data was obtained from journals and textbooks.

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENT

Title page                                                                     i

Approval page                                                                     ii

Acknowledgement                                                         iii

Dedication                                                                    vi

Abstract                                                                       vii

Table of content                                                            viii

CHAPTER ONE

INTRODUCTION                                                          1

1.1      Background of the study                                          3

1.2      Statement of problem                                              5

1.3      Objective of the study                                             6

1.4      Research questions                                                 6

1.5      Significance of the study                                         7

1.6      Scopes of the study                                                8

1.7      Limitations of the study                                           9

1.8      Definition of terms related to the research topic          10

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1     Underlying theories on Definition of fraud                  13

2.2     Types of fraud                                                        13

2.3     Auditors rights, duties and powers                                   15

2.4     Roles of auditors                                                    18

2.5     The auditor and fraud detection                                22

2.6     The liability of auditors                                           24

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1      Research design                                                     30

3.2      Area of study                                                         30

3.3      Population of the study                                            31

3.4      Sampling method                                                   31

3.5      Research instrument                                               33

3.6      Validity and reliability of research instrument                    33

3.7      Sources of data                                                      34

3.8      Method of investigation                                           35

CHAPTER FOUR

PRESENTATION AND ANALYSIS OF DATA

4.1      Presentation and analysis of result                                   36

 

 

 

 

 

 

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1      Summary of findings                                               47

5.2      Conclusion                                                            49

5.3      Recommendations                                                  51

Bibliography                                                         

Appendix I                                                             54

Appendix ii                                                            55

 

 

CHAPTER ONE

INTRODUCTION

An audit is an independent examination by a statutory appointed person called the auditor to investigate an organization, it’s records and the financial statements prepared from them, and thus form an opinion on the accuracy and correctness of the financial statements. The primary aim of an audit is to enable the auditor to say “these accounts show a true and fair view or of course, to say that they do not.

That an auditor has the responsibility for the preventing, detecting and reporting of fraud, other illegal acts and errors is one of the most controversial issues in auditing, and has been one of the most frequently debated areas amongst auditors, politicians, media regulators and the public.

This debate has been especially highlighted by the collapse of both small and big corporations across the world.

Auditing guideline lay the responsibility for preventing and detecting fraud firmly on the shoulders of management. The fraud cases that most catch the public attention invariably involve management, and the public perception is often that the auditor has failed in his duty.

The auditor’s professional responsibilities are clear. He should have a reasonable expectation of detecting material mis-statements in financial statement. Serious fraud usually involves materials mis-statements, so in general, auditors should have a reasonable expectation of finding it.

Auditors should also wish to detect fraud because of the client service. Irrespective of whether there is a duty on the auditor to detect fraud, the auditor provides a good service if he succeeds in identifying it.

1.1      BACKGROUND OF THE STUDY

External auditing which is the function of statutory auditors is the process of reviewing the accounting and manufacturing books of a company by a certified public accounting firms (Inyiama, 2010).  This task is performed quality and annually, consistent with the reporting cycle for public investment. Companies professional accountants performs this function to enhance the credulity of information about a subject matter which conforms in all materials respects with suitable criteria (law) Millichamp and Taylor (2008). External auditing function is carried out by an external auditor who is approved by the shareholders of the organization and for whose interest the (external auditor) represents. This follows that the external auditors report are key to measuring the performance of public investments in companies as the quality assurance reports attracts deposit while a negative of deposits (Inyiama, 2012).

A company auditor is expected to carry out activities as will enable him form a opinion as to:

a.   Whether adequate accounting records have been kept by the company and return adequate for performance, the audit have been received from branches not visited by the auditor.

b.  Whether the companies’ individual account are in agreement with the accounting records and return.

c.   Whether the company’s direction remuneration report is in agreement with the accounting record and returns (Millichamp and Taylor, 2008).

If the auditor fails to obtain all the information and explanation which to the best of his knowledge and believe are necessary for the purpose of his audit, he shall state fact in his records/report. The above are part of the requirement for auditors to exercise reasonable care and skill in the performance of his job but the exact extent of his skill and care required of him have not been defined (Aguolu, 1981). Many decided cases have been put forward to show when auditors are liable in the light of their responsibilities, but even such cases have not provided a perfect guide. This is so because of the carrying circumstances and provides when the cases where decided.

1.2      STATEMENT OF PROBLEM

This study explores the financial report users perceptions of the extent of fraud in Nigeria and of auditors responsibilities in detecting fraud. It also investigates the perceived extent of the related audit procedures. The study also aims to ascertain whether the report users perceptions of the auditors responsibilities on fraud detection are consistent with those of the auditing profession as expressed in auditing standards in Nigeria.