ABSTRACT
The purpose of this study is to highlight factors contributing to audit expectation gap in Nigeria. The audit expectation gap is the difference in perception between auditors and users of audited financial statement concerning the nature of auditing. Unfortunately, there have been criticisms of the auditor by the public from which opinion have been emerged over the years due to business failures. It seems the users have a different idea of what auditing should be. This is what has led to the audit expectation gap. The factors contributed to this gap that are of particular concern to the researcher in this study are uncertainty about the responsibility of external auditors, uncertainty about the extent to which audit report may be used in making investment decision, audit report message and independent auditors. This study adopts a survey research design. Even though the study covers the business landscape in Nigeria, a sample size of two hundred and eighty seven persons (287) made up if fifty persons each of the auditors, accountants in the business, bankers and investment /shareholders were selected conveniently as time permitted from some accounting firms, banks, investment house and companies in Onitsha. The researcher instrument used was the questionnaire. The data collected were analyse using the cross section Chi-square analysis and analysis of variance (ANOVA).The significant factor that create expectation gap in Nigeria and other findings were presented.
TABLE OF CONTENTS
Title i
Certification. ii
Dedication. iii
Acknowledgement. iv
List of Tables. v
List of Figures. vi
Abstract vii
Chapter1: Introduction 1
1.1. General Description of the study 1
1.2. History of the case study organization 5
1.3. Statement of the problem 7
1.4. Objective of the Study 9
1.5. Research Questions 9
1.6. Statement of Hypothesis 10
1.7. Scope of the Study 11
1.8. Assumptions 11
1.9. Significance of the Study 11
1.10 Definitions of unfamiliar Terms 11
Chapter 2: Review of Literature
2.1. Conceptual/Theoretical Framework of the
problem (I. e. What informed the study). 14
2.2 Other sub-topics/headings(or any
other sequences) 19
Chapter3: Methodology
3.1. Introduction to the chapter 39
3.2. Re-statements of the research questions 39
3.3. Hypotheses 40
3.4. Research Design 40
3.5. Characteristics of population of the study 41
3.6. Sampling Design Techniques 41
3.7. Data Collection Instruments 42
3.8. Administration of Data Collection Instrument 43
3.9. Method/Procedures for Data Analysis 45
Chapter 4: Presentation and Analysis of Data
4.1. Introduction to the Chapter 46
4.2. Criteria Group Return of respondent 49
4.3 Analysis of Data according to
Research Questions 50
4.4. Presentation and Analysis of Hypothesis 53
4.5. Analysis of other Data 54
Chapter5: Summary, Conclusions and Recommendations
5.1. Discussion of findings /implementation
of findings 55
5.2. Implications of findings (if any) 55
5.3. Conclusion 56
5.4. Recommendations 57
References 60
Appendix. A Letter of introduction 63
B Letter of Transmission 64
C Questionnaires 66
CHAPTER ONE
INRTODUCTION
1.1. BACKGROUND OF THE STUDY
Amid the global wave of failing business, external auditors face challenges, including explaining reasons for the failure of the business. This is mainly because in some of the instances, the external auditors give an unqualified audit report. Koh and Woo (2010) noted that in recent years, some spectacular and well publicized corporate collapses and the subsequent implications of the reporting auditors have highlighted the audit expectations happen. In reality, the unqualified opinion is wrongly seen as a certification that the firm or enterprise is solvent, liquid and has capacity to adapt to the dynamics of the environment. Any subsequent failure of business resulting from management misjudgment, fraudulent practice, economic instability, inconsistency in micro and macaroni economic policies etc are viewed as failure of auditors Adeniji(2009) .
External audit is important in today’s corporate world because of separation of ownership from management as a result of increasing number of stakeholder in companies. They are perceived as independent and unbiased person; hence, people are able to rely on their judgment for different purpose Nagy(2011). This role is carried out to add credibility to the financial information release after the end of a company’s financial year. The credibility is however, called question after some spectacular and well publicized corporation (eg Enron and World Com in USA)collapse shortly after an unqualified audit report ha been issued Lee, Gloeck and palania (2009:1).
Ekwueme(2010:14) explained that shareholders and most of the general public feel that as a result of collapse of banks and firms ,the auditors safeguard are worthless. These perceptions draw a line that need to define the role of audit on protecting the interest of shareholders and ensuring that there is good corporate governance. Clients need value added and not an audit that will vouch and do the normal trade test. Nwokolo(2013:25). Additionally, auditors have been known for high integrity and objectivity as well as their commitment in public interest. The society wants their franchise to include detention of fraud and exposure of all corrupt practice that are likely to vitiate the fortunes of corporate entities. The difference between the actual nature and objective of an audit and that perceived by the user of audited financial statements has led to the concept of “audit expectation gap”.
An Audit Expectation Gap which has been variously defined as the difference between what the public expect from audit function and what the profession accepts the objective of auditing to be Adeyemi and Usual (2015). It means that the auditor’s actual standard of the expectation of the general public also that of the shareholders, board of directors, investors, management and also the creditor’s expectation. The AICAP held a conference in 1992 called the Expectation Gap which identify a fraud as a problem in the country.
Liggio(2014) defined the expectation gap as the difference between the level of expected performance “as envisioned by the independent accountant and users of financial statements”.
While narrowing the expectation gap has been the objective of previous changes to the audit report and the role of the auditor which has led to various factor which are responsibility and reliability are adapted from the study of Black and Tan(2011) and Nature and meaning of audit report messages factor is adapted from Schelluch and Gay(2017).
Also, the independence factor will be looked into for details, these factors are expounded upon in literature review. The rest of the paper is divided into five sections, two briefly reviews relevant and related literature on audit expectation gap, while section three addresses the research methodology employed. Section four represent the data analysis, results and discussion while the last section contain a summary of research findings and the concluding part of the paper.
1.2 History of case study organization
Innoson Nigeria Limited is an indigenous blue clip company engaged extensively in the importation, assembly and marketing of automotive components, accessories and motorcycles. Incorporated in July, 1987, the company has grown to become one of the major importers, supplier and assemblers of motorcycles and motorcycles spare parts to outermost part of West African sub-region and beyond.
Innoson Nigeria Limited started in 1986 as a trading outfit by buying Honda Motorcycle parts and over a period of time was recognized as the major dealer of Honda Motorcycle parts of the time. As time progressed, Innoson started importing the motorcycle parts and accessories into the country and having had the vast knowledge and experience in the motorcycle business sometime in 1994, we entered into joint venture of assembling motorcycle in Nigeria with a Chinese motorcycle manufacturer.
Innoson Technical & Industrial Co. Ltd is a subsidiary of Innoson Group of Company and was incorporated in 2002 with it’s head office/factory situated at Plot W/L Industrial Layout, Emene, Enugu State, Nigeria. Full scale operations and production commenced in October 2002. It is an indigenous blue clip company engaged in the manufacturing of plastic chairs, tables, trays, plates, cups, jerry cans of different sizes and many other allied products.
Since inception, this company ranks the biggest plastic industry in Nigeria. It produces the highest quality range of the plastic products of International standard and has a production over 10,000 pieces of chairs and tables per day.
Their mission is to satisfy the industrial and household plastic requirements of clients using the highest standard and technology and with well motivated and trained indigenous workforce to ensure adequate returns for the stakeholders.
Their vision is to be a dominant player in the plastic industry, producing products of first choice in Nigeria.
1.3. Statements of the problem
The criticism of auditors in Nigeria by users of audited financial statements has stirred many a response both from the profession and status. It seems the users have a different idea of what the auditing should be. This is what has led to the audit expectation gap. The existence of this gap has been caused by many factors (Communication factors and audit failure).
In this changing world, business environment requires that the auditors responsibilities be increased to include fraud detention/prevention. Also, users wants to be able to rely on audited financial statements for investment decision making. They also desire the absolute independence of the auditor because absence of it may reduce performance. This study will therefore attempt to elicit the perception of auditors, client and users of financial statement on their various understanding of the statutory role of external auditors or audit report in Nigeria as well as their perception of the components of the expectation gap in Nigeria.
1.3. Objectives of the study
The general objective of this study is to elicit the opinion of auditors and audit beneficiaries on the factors contributing to the audit expectation gap problem in Nigeria. From this general objective, the following specific objectives are drawn;
To investigate:
- The opinion of auditors and audit beneficiaries on the statutory role of external auditors in Nigeria.
- Whether responsibility and reliability factor contribute to the audit expectation gap problem in Nigeria.
- If the independence factor contribute to the audit expectation gap problem in Nigeria.
1.4. Research Questions
- What is the opinion of auditors and audit beneficiaries on the statutory role of external auditors in Nigeria.
- Does a reliability and responsibility factor contribute to the audit expectation gap problem in Nigeria.
- Does the independent factor contribute to the audit expectation gap problem in Nigeria.
1.5. Research Hypothesis
- Ho: Reliability and Responsibility factor does not contribute to the audit expectation gap problem in Nigeria.
Hi: Reliability and Responsibility factor contribute to the audit expectation gap problem in Nigeria.
- Ho: Independence factor does not contribute to the audit expectation gap problem in Nigeria.
Hi: Independence factor contribute to the audit expectation gap problem in Nigeria.
1.6. Scope of the Study
This study focused mainly on the audit expectation gap in Nigeria and the way forward.
1.7. Assumption
The researcher concluded that this study bring out the opinion of Auditor and Audit beneficiaries on the factors contributing to the audit expectation gap problem in Nigeria.
1.8. Significance of the Study.
This study highlights the problem of audit expectation gap in Nigeria and the way forward, thus entering a better understanding of the usefulness of audit compliance.
Furthermore, this study provides a better understanding of the desire for auditor’s independence which is often at heart of the auditor.
Moreover, this study is of great use in intending research in this area of accounting from the foregoing one can affirm that this study is of immense use to various patterns of business and academic world.
1.9. Definitions of Unfamiliar Terms
Audit: In this study ”audit” refers to statutory audit carried out by external auditors. It is an independent examination of the financial statement of a company.
Expectation: This word refer to the purpose of audit as perceived by the users of financial statement.
Gap: This is the inability of auditors to meet the expectation of the users. In this study the gap is as a result of misunderstanding of auditors role and responsibilities, inadequate understanding of the messages passed by the audit report and expectation about auditors independence.
Responsibility Factor: This concerns the duties and statutory responsibility of external auditors as they contribute to the audit expectation gap.
Reliability Factor: it elicits the extent to which Auditors work or audited statement can be relied on.
Independence Factor: This shows the extent to which independence of auditors affect the audit expectation gap.
Score: The aggregate response of individual group of audit beneficiaries.
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