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AUDITOR’S ROLE IN REPORTING OF FINANCIAL STATEMENT OF A COMPANY (A CASE STUDY, OLUSHOLA ADEKANOLA AND COMPANY CHARTERED ACCOUNTANTS)

Dept: ACCOUNTING File: Word(doc) Chapters: 1-5 Views: 2

Abstract

The Project File Details Name: AUDITOR’S ROLE IN REPORTING OF FINANCIAL STATEMENT OF A COMPANY Type: MS Word (DOC) Size: 263kb Length: 87 Pages

INTRODUCTION

       In the contempory business world, there should be a good communication method between the management and the providers of capital otherwise called the owners of shareholders. Usually, the shareholders appoint expertise as managers/ director to run the business on their behalf.

This occurs when the shareholders do not have the technical know-how or have limited time to manage the business. The manager communicate the stage of affairs of the business to them (the owners) at the end of each financial year through the preparation of financial statement.

The financial statement of a company are the annual reports and accounts prepared by the company. The sole responsibility of preparing financial statements of a company of the activities for an ontity for a particular reporting period. The main objective for an entity for a particular for the preparing the financial statement are to show the financial position and state of operations of a company to the relevant users of financial statements, especially shareholders. The financial state of a company is often displayed in the income statements. Balance sheet, cash flow statements, notes to the accounts and other statements, and explanatory materials which form part of the financial statements, which are prepared from the receipts, vouchers, documents and records of a company, the financial statements is mainly designed by the manager to report on their stewardship to the shareholders.

However, the shareholders may found the financial statement difficult to believe. This occurs as a result of the problems of trust between the owner and manager, as is usually the case when somebody entrusts one’s resources into the hands of other people. The suspicion of the ownener are usually based on the presupposition that the report either contains errors, is misleading, failed to discbse fraud and or relevant information.

Hence, there is the need to employe somebody who is independent of the report prepared by the manager/ directors. This person is called an auditor. He is appointed to examine and verify the organization, its records profit and loss account shows the trust and fair view of operations.

The auditor’s opinion helps establish the credibility of the financial statements.

In a nutshell, the roles that auditors play in reporting of financial statement of a company cannot be over-emphasized. The various uses of financial statements ranging from the shareholders, mangers, competitors, banker, labour union, financial analysts, tax practitioners government, creditors etc. depend on his/her state of mind before they can use the report to arrive at any statements is prone to wrong decision making by the financial statements users.

1.1   STATEMENT OF THE PROBLEM

       Basically, the financial statements are prepared to show the state of affairs of company at the end of a reporting period. Also, it is prepared to satisfy the interests of the relevant users of financial information such as share holders, competitors, bankers, tax practitioners, analysts, etc. hence, the impact of a auditor in reporting of financial statement of a company had given rise to the problems highlighted below.

1. What brings about the involvement of an auditor in the reporting of financial statement of a company? The proble of trust between the owner of the business and the directors had led to the employment of an auditor in reporting financial statement of a company. This simply helps to satisfy the shareholders inrerests and justify the integrity of the directors managers.
2. What is the impact of auditor’s independent in reporting og financial statements of a company? The degree of auditor’s independence determines to a large extent the accuracy and correctness of financial statement.
3. What are the problems faced by the users of financial information in the interpretation of financial statements? The ability of various users of financial information to interprete the financial statement correctly helps them in arriving at a fair decision making. This is achieved through the acquisition of relevant knowledge of interpreting accounts such as ratio analysis.
4. What are the impacts of using a company’s financial statement to compare that of another company in the same industry? This applies to competitors as one of the users of financial statement: the companies that are similar insize and structure should be compared with one another to enable reasonable comparism judgments to be concluded
5. What are the limitations of financial statements of the performance evaluation of a company? The financial statements show a limited picture of operation of the firm. As such , it cannot used in determing the efficiency of routine aspect of an organization

The aforementioned points are some of the problems observed in process of seeking solution to the general problem of the study.

1.2   AIMS AND OBJECTIVES OF THE STUDY

       This research work is mainly embacked upon to identify the impacts or roles of an auditor in reporting of financial statement of a company. The users of financial statements rely on the auditor’s opinion before they can use the report for decision making. The following are some of the reasons for embarking on this research exercise.

This study is made to examine the necessity of auditors in the reporting of financial statement for instrance, the duties of an auditor in ensuring that there is effective and efficient accounting system is observed. This is to see whether the supervision of an auditor on the accounting system would help the disclosure of relevant information in the financial statement of a company.

Similarly, this research work is done to ascertain wether olushola Adekanola and company (chatered accountants) usually conforms with the provisions of auditing standard and professional in the performance of his duties

Moreso, this study is undergone to know hoe the independence of an auditor is maintained in the course of assessing and verifying the organization, books and records of his/her client.

Finally, this research work is done to ascertain in the various services which the case study i.e. Olushola Adekanola and company also render independently to their clients involving government parastatals and private companies. As a result, the modern way of auditing is also examined to see the additional duties of auditors in the reporting of financial statements.

1.3   SCOPE AND CONSTRAINT OF THE STUDY

       This project is designed to examine the roles performed by an auditor in reporting of financial statement of a company. Also, it is made to consider the problems faced by the users of financial statement as well as information’s to be disclosed in the financial statements.

More so, this research work considered the various functions or services rendered by the case study i.e. Olushola Adekanola and company, to its numerous clients and the organizational structure of the case study is examined as well.

However, in the course of seeking solution to the problems of the study, these are some of the problems encountered. They include Vi2;

1. Financial constraint: There is unavailability of enough mnoney to check for more information on the internet and for frequent consultation of the case study.
2. Lack of Adequate time: There is also lack of adequate time for the collect of necessary data from the case study, Olushola Adekanola and company. This is due to the fact that the case study is a large auditing firm having limited, time to attend to people other than its clients.
   • RESEARCH METHODOLOGY

This study is carried out with the use of both primary and secondary sources of data.

The primary data employed include questionnaire and interview while secondary data include textbooks, internet, etc.

The secondary data were predominantly used in this project. This is because of some limitations such as time, distance and financial problem.

1.5   PURPOSE OF THE STUDY

Once again, this project is mainly executied to know the part an auditor plays in the reporting of financial statement of a company. Similarly, it’s undergone to seek solution to the statements of the problem attributed to the subject matter of his project. This project is at the same time intended to know the duties role of auditor’s opinion on the users of financial statement of a company.

1.6   SIGNIFICANCE OF THE STUDY

       The research work is examined to know the duties of additors in reporting a company’s financial statement. On the existing literature on the duties role of auditor’s opinion on the users of financial statement of a company.

The performance of auditor duties will help add credibility to the financial statement and satisfy the interest of the users or such report as well as justify the integrity of the directors \managers

The study will also state the advantages of audited financial state to the company and user of the financial state to the company general public will be more enlightening one the various services rendered by an auditor to its clients.

1.7   PLAN OF THE STUDY

       This protect has been divided into five chapters for ease presentation of the fact and observations is collected.

Chapter one contains the introduction, statement of the problem, aims and objective, scope and constraint, research methodology, purpose of the study, significance of the study, plan of the study and definition of the terms.

Chapter two consider the past and current literature review which include meaning of financial statement in organizational decision making, uses of financial statement. The meaning of auditing/ auditor, duties and responsibilities of an auditors independence.

Chapter three highlights research methodology and case study effort on the topic which include brief history of the case study, membership and organizational structure of the case study, organizational function of the case study, population of the study and limitation of the study.

Chapter four discusses the presentation and analysis of data collected. Internal control of the case study and analyses of annual report.

Chapter five throw light on the findings, summary, conclusion and recommendation for further study.

1.8   DEFINITION OF TERMS

       The concepts employed in this research work clearly explained below.

1. Shareholders: This are the owner of the business they are member who has pooled their resources together to establish a company and therefore bear the ultimate risk if the business should fail.
2. Directors: These are the technical know hoe required to manage the business of the owners. They are otherwise called professional managers. Also, they usually produce annual financial statements a particular financial year.
3. Financial statement: This refers to the means of communicating about the resources and performance of the reporting entity of enterprises to those having reasonable right to such information.
4. Auditor: An auditor means professional or an experienced accountant that checks the financial statements of a company wether it shows that truth and fair view of the state of affairs.
5. True and fair view: This is the concept mirostates that the true position of a company at a reporting date. This implies that the company account may show a trive and fair view while the company is making losts or having a going concern problem. Therefore, it is the factual presentation of financial information and meany of selecting the relevant accounting bases for the presentation of financial statement.
6. Opinion: In auditing, this simply means the state of mind of an auditor in reporting on the financial statement whether it shows the true picture of company’s operation.
7. Report: this is the product of an audit exercise. It is used to express the opinion of an auditor whether the accounts and balances examined display the true and fair view of the state of affairs.
8. Fraud and error: In auditing, the term “error) refers to unintentional mistakes in financial statements. It is a regrettable act and every human being is capable of committing error. On the other hand, the term “fraud” refers to international misrepresentative of financial information by one or more individuals among management employees, or third parties. It involves the use of criminal deception to obtain an unjust or illegal financial advantage
9. Irregularities: This concept simply means intentional distortion of financial statement for whatever purposes.
10. independence: this is usually used in relation to the auditor. It simply implies the attitude of mind of an auditor which free in from prejudice or bias.
11. Client: This is referred to as the party appointing the auditor to carry out audit on its financial statements. The party may be an individual in the case of sole proprietorship or partnership audit or corporate bodies in the case of companies audit.