1.1 BACKGROUND OF THE STUDY
One of the primary reasons for an independent audit is the inherent potential conflict between an entity’s management and users of its financial statements. Management has an incentive to the information presented in financial statements since it is the means used to evaluate management’s performance. Management exercises a great deal of discretion in preparing financial statements and in using resources entrusted in its operating the entity. An audit provides reasonable assurance that management’s representations on these activities are liable. Thus, audit has value because management’s representatives on its performance and stewardship are examined and reported or by expert outside management’s control. The purpose of audit therefore, is to provide assurance to the shareholders’, bankers, creditors, government agencies and authorities, investors, and the public at large. These people need confidence that the picture of the company as given by the directors to obtain a second opinion from an expert (the auditor). Other than exposing errors and fraud and testing the reliability of a firm’s controls financial audits can alert management to weaknesses in the firm’s control as well as suggest operational improvements that could be undertaken. These are highlighted in the management letter from the auditors. Strategic systems auditors provide a top down approach to auditing by first examining a firm’s business strategy and keys to competitive advantage.
Financial audits may be performed for Government establishments, registered charities, some governmental and public entities certain forms of Government establishments are required to have an external audit. Government establishments typically request financial audits year after year because lenders may have required an audit or owned may want to have external unbiased eyes look at the financial statements to determine if the company is complying with all the required accounting principles charities would require a financial audit to show the financial status of the organization to potential donors. Private businesses are required to be audited by status to determine if all the money budgeted has been properly spent. Government financial reports are not always audited by outside auditor, but Government establishments are. It is the duty of the auditor to examine the financial statement and consequently form an opinion of their fairness in conformity with generally accepted accounting principles. As a secondary function, it is also his duty to uncover any act of omission, which in view is fraudulent in nature. It is alarming to state here that private liability companies have become a target of the fraudsters who take advantage of the irregularities and professionalism of the Government establishments to perpetrate their nefarious deeds. There is a long list of Government establishments with publicized fraud cases in various degrees which are hundreds of millions, they include uni-petrol and Agip Company now known as Oando Company, Total company Swallowed ELF, Oceanic bank and intercontinental bank e.t.c. Even the government ministries and parastals are not spared. Auditing has over the years gone considerably to a commendable length to expose various fraudulent practices both in private and public sector.
It has become inevitably necessary to critically evaluate the role of auditors in fraud prevention particularly in the Government establishments. It is not misleading to categorically say here that the cause of the companies’ woes and problem has its roots from the numerous fraudulent activities perpetuated by so many of the shareholders and mangers. These managers accounted for the unimaginable amount of money running into billions of naira squandered and stored away in foreign bank accounts. The most vocal of such recent cases of fraudulent acts by banks is that of five (5) bank CEO’S operated without identified values and they are Mrs. Cecilia Ibru of oceanic bank accrued 278.20 billion, Mr. Erastus Akingbola of intercontinental bank with N210.9 billion, Mr. Sebastian Adigwe of Afri bank owes N141.86 billion, Barth Ebong of Union bank owes N73.58 billion and Mr. Okey Nwosu of Fin bank recorded N42.45 billion, who had to face the music for their appropriating temporarily bank funds.
Since 357 of the companies and Allied matter Decree of 1990 (CAMD) requires that out registered limited liability companies both private and public must have their financial records audited annually by external auditors so appointed. It is the duty of the auditors in the cause of their work to uncover any fraudulent practice either by omission or commission.