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Chapter One of The Perspective of the Auditors and Clients: the Relationship Between the Auditors and Their Clients
INTRODUCTION
BACKGROUND OF THE STUDY
In an economy characterised by absentee ownership and asymmetric information flow, the communication of reliable economic information is a critical component in the transfer of capital between those who which to invest in the economy and those who are engaged to operate various business entities. This is what brought about auditing.
According to Stanley T. (1996), a company’s reason for establishment of a system of control is to help meet its own goals and objectives that is believed to be important to the entity. These policies and procedures are often called internal control system. The principal duty of the auditor to his client is to report to the shareholders on the truth and fairness of the account prepared by the client. However, this report is used by other users such as prospective investors, government department, trade creditors, employees, financial institutions such as banks, pension fund the general public. The auditor therefore ensures that the financial statement provide credible information for users. The company’s directors have the responsibility towards the interest of the company and its employees as well as it members. Auditing firms describes themselves as chartered accountants or certified accountants and so they are vested with the responsibility of investigating the financial statements of its client organisation. They can also assist client in the performance of other services.
James G. J. (1998) says that external auditors provide assurance that the company’s prepared economic information which is the financial statements is reliable and credible. To continue to provide such assurance, auditors must be objective and only through the preservation of this objectivity can the audit profession maintain the faith of investors and creditors.
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Roger D. M. (2006), in his work titled “The Ethics Looking Glass: Another view of the world of Auditors and ethics”, auditors have been required to understand clients’ internal control systems to facilitate planning the audit process for some time. Internal control can be defined as a process (e.g. tasks, checks and balances) put in place by the company’s management to increase the reliability of their accounting and financial statements. Auditors are therefore required to understand the internal control system during an audit engagement as part of the audit planning process. This level of understanding allows the auditor to decide how to proceed with the audit. If internal control is understood to be strong, auditor will plan to gather audit evidence to confirm that controls are in place and operating effectively in order to minimize the amount of direct audit evidence needed to test the financial statement. The employees of the organisation who are employed to audit the financial records and provide information to the management and board of directors are called the internal auditors. On the other hand, the external auditors refer to those audit professionals who perform independent annual audits of an organisation’s financial statement.
STATEMENT OF RESEARCH PROBLEM
The problem which auditors and their clients encounter in their relationship with each other in terms of preparation of credible information.
The need for trust and accountability in their relationship.
Lack of honesty and integrity.
As a result of these problems the following question will be addressed in this study:
What is the effect of quality audit report to auditors and their clients?
Does the relationship between the auditors and its client affect the trueness and fairness of financial statement?
Does the amount auditors earn have effect on the report they give?
What is the relationship between the auditor and its client?
OBJECTIVES OF THE STUDY
The objectives of the study are as follows:
To determine whether the amount the auditors earn have effect on the report they give.
To determine the necessity for honesty and integrity in the preparation and reporting of financial information
To determine whether there is lack of auditors’ accountability and transparency in their relationship with their client.
STATEMENT OF RESEARCH HYPOTHESES
The following hypotheses shall be tested:
There is a relationship between the client and the auditors.
The independence of the Auditor has influence on the report they give.
SIGNIFICANT OF THE STUDY
This study will be of benefit to a variety of interest groups in the following ways:
Prospective investors: they are those with the resources to invest, who use financial information to decide on their investment outlets.
Government department: They are interested in tax matters, which they use financial information to access the tax liabilities of companies.
Loan and trade creditors: These groups of users are those who have provided loan capital, credit facilities and goods to companies with the understanding that payment will be differed to a future date. These users groups use financial information to access the level of liquidity and solvency of the business organisation.
Employees: These groups should be interested in financial information to be able to access their level of security.
The Public: The public use financial information to assess the level of social responsibility to describe the extent to which corporate organisation affect host communities.
SCOPE OF THE STUDY
The relevance of auditor client relationship in organisation is of global interest.
However, the scope of this study is limited to auditing with particular reference to auditing firms in Benin City, Edo State. Specific areas to be assessed are the Directors who prepare the financial statements as well as the internal and external auditors in their relationship with one another.
LIMITATIONS OF THE STUDY
There were some limitations encountered in the course of carrying out this research they are as follows:
Smallness of sample size.
Low response from respondent.
Scarcity of relevant literatures.
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