CHALLENGES AND PROSPECTS OF INTERNAL AUDIT IN NIGERIA BANKS

CHALLENGES AND PROSPECTS OF INTERNAL AUDIT IN NIGERIA BANKS

(A STUDY OF ACCESS BANK)

ABSTRACT    

The study focused on the “Challenges and Prospects of Internal Audit in Diamond Bank PLC. The main purpose of this study is to determine the challenges and prospects of internal auditors in Nigerian Banks. This work made use of two specific objective, two research question and also two hypotheses. The study conducted a survey research design .Questionnaires was self-distributed among the senior managers and auditors. The population was made up of eight (8) senior managers and internal auditors in Diamond Bank PLC. Simple percentage and T-test were used to run my data analysis ,the finding is that internal auditing as a profession faces significant challenges that makes them not to have enthusiasm towards their profession. From the study, the following recommendations were made: Management should have quality technology and materials available for internal auditors.  Management should provide training ground for internal auditors.

CHAPTERONE

INTRODUCTION

1.1 Background to the Study

It is said that finance is the mainstay of an economy without finance there will be no investment and capital to start up a business and also no meaningful development could be done without finance and proper management, as a result of that diamond bank has a system of control which ensures smooth running of their bank of which internal auditing is an integral part.

Internal auditing ensures that all activities of the organization are carried out employee according to laid down procedures, the introduction of new technologies e.g. the invention of computerized internal audit system which posed challenges to the internal audit system and internal audit staff and their duties the prospect of this challenges is to update their knowledge and adjust to the current practice and also to overcome those challenges in the face of manipulation and also to perpetrate fraud is desirable, more so the requirement of new auditing  standards will make staff of internal audit to update their knowledge and adjust to the current practice. Auditing is a key factor in controlling every kind of organization with financial and economic aspect serve as a sort of check and balances and administrative procedure of any organizational set up.

The need to maintain effective and efficient internal audit system, cannot be over emphasized especially in a period like this, when Nigeria government is making effort towards ensuring that wastage, privilege, misappropriation and checked or avoided to ensure that asset are being secured.

As one of the cornerstone of a career in accounting internal auditor gives strong understanding of the financial faces and processes, many may view it as a mundane and repetitive job but what they do not realize is the challenges and complexity that comes with job which are: shortage of talent, distinguishing yourself from the crowd, developing your career and market outlook.           

Diamond bank plc as a private ltd liability company on March 21 1991 was incorporated on December 20 1990.Ten years later, in February 2001 it became a universal bank. In January 2005 following a highly successful private placement share offer which substantially raised the bank equity base diamond bank became a public LTD company. Since then 1990, diamond bank has challenged the market environment by introducing and setting new bench mark through international standard.

They bank also have a strong cooperate banking ethics that is helping fuel the growth across Nigeria through supporting many businesses. It serves over 150000 business including cooperate client as well as Micro Small and Medium Scale (MSME).it is also the first Nigerian bank to operate in francophone west Africa

The Carlyle group, the global alternative asset manager became a significant share holder in November 2014 following its 1.47 investment in bank. The auditor came across many challenges while carrying out their duties but with some prospect that can be able to carry out their duties effectively and efficiently.

1.2 Statement of problem:

Robert (2016) observed that there are several big challenges facing the internal audit as a whole some of them represent opportunities as well as obstacles to overcome. The difficulty in filling internal audit positions with talented candidates for example has led to increase in pay to many internal auditors the internal auditors perform their duties successfully also enhance good internal audit control as well as maintain some standard of good services which their client have engaged their services, there is need for utilization of effective management functions, However this internal auditors face some challenges while carrying out their duties such a Robert 2016 noted this challenges.

Proper document are not given to them on time.

They are not adequately equipped.

lack of requisite system

inability to adequately recommend and establish production method

It should be noted that a lot of studies have been conducted on the challenges of internal auditors in diamond bank as a whole but It is hoped that this study will contribute to debate and perhaps shed further light on the impact of reducing the challenges audit faces in diamond bank so as to make the working environment conducive for them while carrying out their duties and also to reduce the challenges auditors faces while carrying out their duties in an efficient and orderly manner.

1.3      Objectives of the Study:

The main objective of this study is to find out the challenges and prospect of internal audit in Nigerian banks. The specific objectives are to ascertain the challenges faced by internal auditors in Nigerian Banks. To ascertain the prospect of internal audit in Nigerian Banks.

1.4      Research Question

What are the challenges faced by internal auditors in Nigerian Banks.

What are the prospect of internal audit in Nigerian Bank comply with banks complies with bank management policies and regulation.

1.5       Research Hypotheses:

H0 There is no significant challenges faced by internal auditor in Nigerian Banks.

H1There is significant challenges faced by internal auditor in Nigerian Banks

H0 There is no significant prospect of internal audit in Nigerian Banks

H1There is significant prospect of internal audit in Nigerian Banks

1.6       Significance of the Study:

They significance of the study form the contribution it will add to knowledge on the often debated topic of evaluation challenges and prospect of internal audit. This work will be of great benefit to:

Researchers and student: because it reveals the relevance of auditors and for student it also contributes significantly to the internal auditing debate.

Auditors: it will be useful to auditors because it tells them about their challenges and how to face them and also prospect toward them carrying their duties.

Management of Banks: the study is to help management appreciate auditors and understand the challenges the face in carrying out their duties, so also to provide prospect for auditors so that they can help to improve audit facilities or technology and so that  they will make the work enjoyable and they wouldn’t want to risk losing billions of money.

Government: agencies, companies, bankers researchers student who might be interested in knowing about the concept challenges and prospect of internal auditors it will cover the whole aspect of internal audit the objectives, types, reliance and prospect etc this huge amount of information will be an indispensable material to the above mentioned beneficiaries.

Public:It will also help the public in the sense that they will able to know the statues of the company so that they can make decision on either to invest in the company or not so as to avoid risk.

1.7       Scope of the Study:

It was the wish of the researcher to cover many areas of the banking sector but for the purpose of this study the researcher is only restricted to the role of auditors in detection, prevention and control of fraud in banking sector with the case study of diamond bank plc.

1.8       Limitations of the Study:

The researcher encountered a lot of hindrances and problems while carrying out this work. The major limitation was pressure of time in terms of academic work and demand of the research. The researcher was combining academic work with activities relating the research. Finance to source relevant materials was also a major hindrance. However these problems did not affect the quality of the research   

1.9       Definition of Terms:

Auditor:   An auditor is a person usually professional, appointed by banks to audit its financial statement and therefore make an opinion on the truth and fairness of the financial statement Auditor in this study refers to the internal auditors

Bank: A organization or place that provide financial services Bank in this work refers to as diamond bank Financial Statement: This is a form of annual report and accounts that includes a statement of comprehensive income and loss, statement of financial position and also other statement including directors report and cash flow statement, finance statement in this work refers bank financial statement.

DETERMINANTS OF AUDIT FEES IN LISTED FOOD AND BEVERAGES FIRMS IN NIGERIA

 DETERMINANTS OF AUDIT FEES IN LISTED FOOD AND BEVERAGES FIRMS IN NIGERIA

ABSTRACT

Corporate managements induce auditors through fees to alter the financial performance and position of their entities. These practices led to the studies on the determinants of audit fees in developed and developing economies. This study examined the determinants of audit fees of listed food and beverages firms in Nigeria. Correlational research design was employed on a sample of nine (9) listed food and beverages firms in Nigeria for a period of ten (10) years (2004-2013). Panel regression techniques of estimation were used in the analysis. The study found after controlling for firm profitability a significant positive relationship between audit firm size, auditor tenure, firm size and audit fees of listed food and beverages companies in Nigeria during the period covered by the study. The study in particular found that audit firm size has significant positive impact on audit fees of listed food and beverages firms in Nigeria. The study also found that auditor tenure has significant positive influence on audit fees. Moreover, the study found that client firm size has a significant positive impact on the audit fees of listed food and beverages firms in Nigeria. While firm complexity is found to be positive but statistically insignificant. The study concludes that audit firm size, auditor tenure and client firm size are significant determinants of auditor fees in the Nigerian food and beverages sector. The study, therefore, recommends that the regulators of the food and beverages firms in Nigeria should improve the guidelines for employing the services of external auditors and their remuneration, and consider firm size, auditor size and tenure as well as the firm profitability among the factors in the determination of auditors’ fees.

CHAPTER ONE

INTRODUCTION

1.1       Background to the study

Audit fee determination has become a fundamental area of audit research in recent times; especially following after the classical cases of audit failure experiences in Enron and other corporations. The disturbing dimension resulting from ex-post analysis and discourses of these cases of corporate failure is that often times the client had been given a “clear bill of health” and an unqualified auditor’s opinion by the auditor. This therefore suggests that there had been incentives for the maintenance of an ongoing relationship between auditor and client and the auditor independence as well as audit quality had to become the opportunity cost for the survival of the interest of both clients and the auditor.

The search for explanations for the auditor’s performance, the level of auditor independence and the audit quality has seen audit fee evolving as a critical factor and this is well documented in the literature (Simunic1980 Gist, 1995). Audit fee is an important issue and has a significant effect on auditor’s performance, their independence and more particularly audit failures. Thus, audit fee research may be seen as a subset of the general research areas concerned with issues of audit fee determination, auditor independence and audit quality. Audit fee is concerned with the determination of remuneration for audit services that relates directly and primarily to the audit function. Succinctly put, it deals with the determination of audit remuneration from the early work on the pricing of audit services to understanding the basic economics of fee determination.

Corporate performance comes with several implications for audit fees. Firstly, companies reporting high levels of profits will be subject to rigorous audit testing in order to relate revenues and expenses and this entails more audit fees (Joshi and Al-Basaki, 2000). Also, some ability to pay largely influences the audit firm choice, it suggests that better performing companies may want to have audit services of the big 4 and this may signal more audit fee expenses. However, there is also the argument that under-performing companies are more likely to control their overheads and this would result in less audit work (Chan, McDonald & Miller, 2004). In relation to firm complexity, the theoretical expectation generally is that since audit fees are dependent on how much time auditors have to spend for an audit engagement, more complex firms will thus be associated with higher audit fees. Using listed food and beverages firms in Nigeria, the study objective is to provide empirical evidence on the relation between determinants of audit fees and the fees paid to auditors.

1.2       Statement of the Problem

There are several studies conducted on the determinants of audit fees in developed economies such as Butterworth and Houghton (1995), Palm rose, (1986), Taylor and Simon (1999). However, the findings have not been unanimous conclusive across researchers. The evidence from these studies revealed the presence of mixed findings in the literature which suggests that the issues involved on the auditor pricing and the determination of auditor remuneration are far from being settled empirically. Theoretically, the amount of fees for audit services that a client firm pays to it is audit firm reflects the level of audit work the latter has to perform in the auditing process. The definition of this level of work embodies the auditor’s assessment of the process’s complexity and the desired level of risk. In other words, all other things considered, if an auditor wishes to decrease the risk of issuing a clean opinion when there are materially relevant distortions in the client’s financial statements, he generally acts on the nature, extent and timing of audit procedures, which naturally influence the final amount of required fees.

An interesting recent finding is that audit fees reflect the client’s future performance, because auditors have access to some information that contains forward- looking judgments (e.g. uncollectable receivables, obsolete inventory, pension and warranty costs) (Stanley, 2011). Moreover, the disclosed audit fee is also found to be related with errors in forecasts of earnings made by financial analysts, which could indicate a superlative precision in the predictions of auditors when compared with the predictions of financial analysts. The potential usefulness of this evidence is a sign embed in the disclosed audit fee of the firm’s future economic condition. Also empirical tests provide evidence on the negative relationship between firm performance and audit fees. Specifically, increases (decreases) in operating performance are connected with` decreases (increases) in audit fees. However, while previous studies viewed firm performance in relation to audit fees, there are some factors such as firm size, auditor tenure, firm complexity and audit firm size that could potentially determine the fees paid to auditors. These variables have not been adequately researched, especially in developing economy like Nigeria. In addition, most of the empirical studies conducted on the determinants of audit fees have been done in developed countries and to the best of my knowledge no single work has been done in the domain of food and beverages firms in Nigeria. This calls for the need for empirical evidence on the issues especially from developing economies and hence the need and relevance of the study.

1.3      Objectives of the Study

The main objective of the study is to examine the determinants of audit fees of listed Food and Beverages firms in Nigeria. The specific objectives include to;

1. Investigate the influence of complexity on audit fees of listed Food and Beverages firms in Nigeria.
2. Determine whether firm size impacts on audit fees of listed Food and Beverages firms in Nigeria, and
3. Examine the effect of audit firm size on audit fees of listed Food and Beverages firms in Nigeria.
4. Investigate the effect of auditor tenure on audit fees of listed Food and Beverages firms in Nigeria.

1.4      Research Questions

For the purpose of this study, the following research questions will be addressed:

1. How does complexity Influence audit fees of listed Food and Beverages firms in Nigeria?
2. To what extent does firm size impact on audit fees of listed Food and Beverages firms in Nigeria?
3. What is the effect audit size on audit fees of listed Food and Beverages firms in Nigeria?
4. How does audit tenure impact on audit fees of listed Food and Beverages firms in Nigeria

1.5      Statement of Hypotheses

In line with the objectives, the following hypotheses are formulated.

H01: Audit firm size has no significant influence on Audit fees of listed Food and Beverages firms in Nigeria.

H02: Auditor tenure has no significant impact on audit fees of listed Food and Beverages firms in Nigeria.

H03: Firm size has no significant effect on Audit fees of listed Food and Beverages firms in Nigeria.

H04: Complexity has no significant impact on Audit fees of listed Food and Beverages firms in Nigeria.

1.6      Significance of the Study

The study is of immense value to the following stakeholders and the outcome of the research will assist the corporate entities of the food and beverages firms in Nigeria to know whether or not determinants of audit fees made impact on Audit fees which will guide them in taking relevant investment decision.

Also the regulatory authorities will benefit from the outcome of the study, which will enable them examine the effectiveness of their monitoring instruments as well as review them as appropriate. Other stakeholders like government, employees and creditors will also benefit from the findings of the study by allowing them make informed decision about policies, employment and ratings respectively.

The findings of the study will also contribute to the existing empirical studies on determinants of audit fees in Nigeria. The study will also be useful to accounting students and researches. In addition, the outcome of the study will serve as an input or motivational factor for further research in the area.

1.7      Scope of the Study

The need to study the determinants of audit fees of listed food and beverages firms in Nigeria cannot be over emphasized as the industry contributed to the overall growth of the economy. The population of the study is all the twenty one Listed Food and Beverages firms quoted on the Nigeria Stock Exchange (NSE) as at 31st December, 2013. The period of ten (10) years is used which covers 2004 to 2013. As there are many changes in the sector which affected the industry before and after the chosen period of the study.