EFFECT OF AUDITORS INDEPENDENCE ON ACHIEVING TRUE AND FAIR VIEW

OF ACCOUNTING
(A STUDY OF FEDERAL MEDICAL CENTRE (FMC), OWO)

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background to the Study

The independence of an auditor is one of the fundamental concepts to the accounting profession.

Auditing as a profession arose primarily because of separation in the ownership as well as the

administration of the company, we therefore have to employ a professional manager whose

responsibility is to utilize the shareholders resources and produce a quantitative statement. This

statement is referred to as stewardship account, in order to make the owners of the business place

reliance on members of management as regard the true and fair view of the financial statement,

the stakeholders appoints an auditor to produce on audit, reports.

Independence is often an altitude of the mind characterized by integrity and objectively to

professional works. In May, 2000, the Institute of Chartered Accountant of Nigeria reviewed an

existing document issued in November, 1979 embodying a code of conduct for the members.

This document titled ‘rules of professional conduct for members” because of the essential part of

the rules to incoming members; the essential part of the rules is majorly on independence of an

auditor definitely must have a direct impact in the audit report. This therefore means that if an

auditor’s independence is effective, what we should be expecting qualified report. The

importance of the independence to an auditor cannot be over emphasized owing to the fact that it

forms the crux of die profession and can be likened to the part of the auditing profession

(Howard, 2020).
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1.2 Statement of Problem

"True and fair view' today has become a term of art" (Edey, 2 0 11), in the sense that it

seems to be dominant in terms of reporting by auditors on company financial statements

(Walton, 2013). A layman interprets the concept of 'true and fair' as accurate financial

reporting, while financial reporting should never be taken as completely accurate due to

the number of assumptions that has to be made during compilation of financial

statements (Higson and Blake, 2013). Legal standards also allow departures from particular

standards, if such departure means to give a 'true and fair' view. However, the extent of such

departures should be disclosed along with the reason for the departure. Where the companies

feel that compliance with certain standards could give misleading information and at the

same time departures are forbidden, maximum efforts should be taken to reduce the

extent of perceived misleading aspects. This can be achieved by adequate disclosure in the

financial statements. It has to be clearly understood that, while auditors verify the financial

statements, they do not intend to guarantee on the accuracy of the said financial statement.

They only intend to give an opinion on the financial statements prepared by the client.

The auditors specifically state in their audit certificate that an audit includes examining

on test check basis, evidence supporting the amounts and disclosures in the financial

statements (2003 Annual report and financial statements of the Malaysian Institute of

Accountants). While this might be the correct approach as far as the auditor is

concerned, it has, in fact, given rise to an expectation gap. The expectation gap has

been growing over a period of time due to the ambiguity in the phrase 'true and fair view'. It

could be perceived that when financial reporting framework develops, the significance of

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'true and fair' might change. Other issues pertaining to the lack of auditor independence, lack

of regulatory

1.3 Objectives of the Study

The major purpose of this study is to examine the effect of auditor’s independence on achieving

true and fair view of accounting records within Federal Medical Centre, Owo. Specifically, the

study aims:

i. To evaluate the variables that influence auditor’s independence on the audit work.

ii. To examine auditor is allow to participate in the establishment of effective auditing

system in an organization.

iii. To investigate if auditors are performing their tasks in compliance with the provision of

the professional rules.

1.4 Research Questions

In achieving the purpose of this study, the following research questions are put forward in the

quest for answers to the problem being investigated.

i. Can auditor’s independence improve the reliance that shareholders, creditors, among

others have about an audit report?

ii. Can an auditor be allowed to participate in the establishment of effective auditing system

in an organization?

iii. To what level can auditors’ performance be investigated in order to know their tasks in

compliance with the provision of the professional rules?

1.5 Research Hypotheses

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In order to achieve the objective of this study, the following hypotheses are raised.

i. H01: Auditors’ independence does not have a direct impact on the auditor’s report.

ii. H02: There is no significant relationship between the provision of statutory bodies and

auditors independence.

iii. H03: There is no significant relationship between auditors’ performance compliance with

the provision of the professional rules and tasks done.

1.6 Significance of the Study

The results and recommendations of the study will help the policy maker in decision making and
enable them put in place policies guiding operation of the public organizations. The management
in both public and private sectors will also understand the anomalies in their operations.

This study will help in enhancing the role of external and internal audit in business organisation
to make them more relevant successful and expert. It will help the stakeholders welcome the role
of the external and internal audit as a standout amongst the most essential administrative control
frameworks in an organization required to shield their interests.

1.7 Scope and Limitation of the Study

The scope of this study covers auditor independence and the free and fair qualities of financial
reporting at Federal Medical Centre, Owo. However, the study is limited to hospital in Owo. The
researcher assumes that the finding of this study will be useful at the Hospital, This research
work is on the internal and external auditors as indispensable part of profitable business
organisation with a focus on at Federal Medical Centre, Owo Ondo state.

1.8 Definition of Unfamiliar Terms

Auditors’ Independence: Independence has traditionally been defined as the ability to act with

integrity and objectivity. According to the American Institute of Certified Public Accountants

(AICPA 1948) independence, both historically and philosophically, is the foundation of the

public accounting profession and upon its maintenance depends the profession’s strength and its

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stature. International Auditing Practices Committee of the International Federation of

Accountants (1980), in its International Auditing Guidelines (AG-3), defines the auditor

independence in these words. The auditor should be straight forward, honest and sincere in his

approach to his professional work. He must be fair and must not allow prejudice or bias to

override his objectivity.

True and Fair: True: Jayalakshmy, Seetharaman, and Khong (2022) credited the definition of

the word “True” to Nobes (2023) who studied a large audit firm and asserted that different

definitions were advanced by different professionals; hence defined the term as: based on fact;

complies with rules; undistorted fact; not in conflict with facts; objective; correct, within

materiality; adherence to events; and factual accuracy. In the same vein, “true” means that the

accounting information contained in the financial statements has been quantified and

communicated in such a way as to correspond to the economic events, activities and transactions

it is intended to describe (Lee, 2019).

Porter (1992), was of the opinion that the phrase 'true and fair' could mean different things

to different individuals, like for a lawyer it could mean unambiguous and bias free, while

for an accountant it could have a technical meaning. Thus, to an accountant, if the financial

statement has to present a 'true and fair view', the financial statements must be presented in

such a way so as to create the 'correct' impression of the reporting entity's financial affairs.

For this to be achieved the rules should be strictly adhered to. Dunn and Stewart, (2001) were

of the opinion that since accountants have different cultural backgrounds, achieving truth and

fairness in financial reporting is a process of communication and negotiation. They also stated

that the meaning attached to truth and fairness is elusive and appears to be situated in the world

in which accountants perceive, act and communicate. In Nigeria economy it is seen that the

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concept of true and fair is used by accountants to obtain specific advantage within the

Nigeria economy and its advantage is restricted only to a particular group of accountants

rather than the whole accountancy profession (Sucher et. al. 2 0 16). In trying to derive a

proper meaning of the concept, from an accountant's point of view, the authors could

identify that the accounts were supposed to be complete, in a manner verifiable and

correct so that one can derive a fair view of the matters that are the objects of accounting.

The resulting auditors' report in the form of words and numbers characterized by clarity, logic

and integrity, should convey a description of economic reality as closely as current

communications, economics and accountancy allow (Briloff, 2022).

Audit: it is a process carried out by suitably qualified auditor where the accounts of business

entities, including limited companies, charities trusts and professional firms are subjected to

scrutiny in such details as will enable the auditor.

Auditing: It is defined as the process by which a competent qualified independent person

accumulates and evaluates evidence about quantifiable information relating to a specific

economic entity for the purpose of ascertaining the compliance with any relevant statutory

obligation.

Auditor: an auditor is an expert accountant who makes an examination of accounting data in

order to form his opinion as to the reliability of those data.

Independence: This is the independence of the auditors mind in order to form an objective

opinion of the financial statement examined by him without any direct interference from his

client.

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True and fair view: This means accounts prepare in accordance to the generally accepted

accounting principles (GAAP) and International Financial Reporting Standard (IFRS).

Audit Report: This is the opinion of the auditor after due examination of the financial

statements. Audit report is a written summary of the findings of the auditors during their audit

work along with their opinion on such findings. The report may either be the domestic report

also called letter of weakness addresses to owners of the organization (in case of company’s

shareholders).

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Conceptual Review

2.1.1 True and Fair View

This section clarifies the meaning of true, fair, „true and fair view", history of true and fair view,

problems of true and fair view as well as factors affecting true and fair view in financial

reporting parlance.

True: Jayalakshmy, Seetharaman, and Khong (2022) credited the definition of the word “True”

to Nobes (2023) who studied a large audit firm and asserted that different definitions were

advanced by different professionals; hence defined the term as: based on fact; complies with

rules; undistorted fact; not in conflict with facts; objective; correct, within materiality; adherence

to events; and factual accuracy. In the same vein, “true” means that the accounting information

contained in the financial statements has been quantified and communicated in such a way as to

correspond to the economic events, activities and transactions it is intended to describe (Lee,

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2019). Based on these two definitions, it could be said that “true” means information as shown in

the financial reporting process represents statement of fact.

Fair: Equity is one of the synonyms for fair. Fair means that the accounting information has

been measured and disclosed in a manner which is objective and without prejudice to any

particular sectional interests in the company (Lee, 1982). Haider (2021) describe the word “fair”

as: not misleading (three times); substance over form (twice); proper reflection; putting in right

context; consistent with underlying reality; ability to understand what has really gone on; in

accordance with rules in context; and reasonable. According to Zanola (2021) fair comes from

the old English word “fager” which meant „beautiful, pleasant" and that the etymological path of

the word is strictly related to a general idea of beauty and harmony. Zanola (2021) also noted

that the root of the word dates back to the Old High German adjective fagar, which meant

beautiful, splendid, pretty, bright, and it is related to the Latin adjective pulcher. The root fagar-

is also behind contemporary English words like beauty and glory. Fair is a measure of the degree

of rationality exercised in the course of decision making process.

2.1.2 History/Origin of True and Fair View

There is no consensus in extant literature on the origin/history of “true and fair view”. The true

and fair view has its origin traceable to the United Kingdom in the 19th century (Ciocan and

Georgescu, 2019). The initial wordings based on its Anglo-Saxon origin were “true”, “correct”,

“honest” and “total” as evidenced in the United Kingdom (UK) regulations of the 1844 Joint

Stock Companies Act. This was also supported in the work of Salihin, Fatima, and Ousama

(2019). This trajectory of the conceptual phrase metamorphosing from “true, correct, honest and

total” to “true and fair view” could be an indication that the current inconsistency that surrounds

the use of the phrase as well as the lack of uniform definition of the concept started at the time of

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its historical formation. This lack of uniform definition of “true and fair view” is still prevalent

till date in the financial reporting environment (Salihin et al. 2019). Based on the

aforementioned, it can be deduced that the history of true and fair view is traceable to the United

Kingdom as its place of origin, while there is also a near unanimous standpoint on the lack of

universally accepted definition of the phrase.

2.1.3 Auditor Independence

Independence has traditionally been defined as the ability to act with integrity and objectivity.

According to the American Institute of Certified Public Accountants (AICPA 1948)

independence, both historically and philosophically, is the foundation of the public accounting

profession and upon its maintenance depends the profession’s strength and its stature.

International Auditing Practices Committee of the International Federation of Accountants

(1980), in its International Auditing Guidelines (AG-3), defines the auditor independence in

these words. The auditor should be straight forward, honest and sincere in his approach to his

professional work. He must be fair and must not allow prejudice or bias to override his

objectivity. He should maintain an impartial attitude and both be and appear to be free of any

interest which might be regarded, whatever its actual effect, as being incompatible with integrity

and objectivity”.

Arens (2022) explains that independence requires an attitude of responsibility separate from the

client’s interest. The auditor must maintain an attitude of healthy professional skepticism.

According to Bahram Soltani (2020) as cited by Saputra, W. (2019), auditor independence refers

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to the auditor’s ability to maintain an objective and impartial mental attitude throughout the

audit. Independence is described as having a position to take an unbiased viewpoint in the

performance of audit tests, analysis of results, and attestation in the audit report. Based on the

above understanding can be concluded that the independence of the auditor is the auditor’s

ability to maintain mental attitude objectively and impartially in the interests of the client in

conducting the audit, analyzing the results, and attestation in the audit report. Independence

Standard Board (ISB) (2020) defines auditor independence as freedom from those factors that

compromise, or can reasonably be expected to compromise an auditor’s ability to make unbiased

audit decisions. ISB does not specify independence questions, but it supplies a structure and

methodology for analyzing issues. The need for a framework arises from the jumble of confusing

independence rules and regulations. The framework is the product of an open process. A task

force of academics, lawyers, audit committee members regulators, auditors and others helped to

identify the issues and reviewed for clarity and completeness.

2.1.4 Types of Auditors Independence

There are three main ways an auditor’s independence can manifest itself

i. Programming independence

ii. Investigative independence

iii. Reporting independence

Programming independence essentially protects the auditor’s ability to select the most

appropriate strategy when conducting an audit. Auditors must be free to approach a piece of

work in whatever manner they consider best. As a client company grows and conduct new

activities, the auditor’s approach will likely have to adapt to account for these. In addition, the

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auditing profession is a dynamic one, with new techniques constantly being developed and

upgraded which the auditor must decide to use. The strategy/proposed methods, which the

auditors intend to implement, cannot be inhibited in any way. While programming independence

protects auditors’ ability select appropriate strategies, investigative independence protects the

auditor’s ability to implement the strategies in whatever manner they consider necessary.

Basically, auditors must have unlimited access to all company information. Company must

answer any queries regarding a company’s business and accounting treatment. The collection of

audit evidence is an essential process, and cannot be restricted in any way by the client company.

Reporting independence protects the auditors’ ability to choose to reveal to reveal to the public

any information they believe should be disclosed. If company directors have been misleading

shareholders by falsifying accounting information, they will strive to prevent the auditors from

reporting this. It is in situations like this when auditor independence is most likely to be

compromised.

2.1.5 What is Auditing?

Auditing has been defined by various ways, but all still paint to the singular fact that audit is an

independent examination of the books of account or financial statement of an organization with a

view of expressing an opinion as to whether it is true and fair. It should be noted that definition

however, are seldom helpful unless they are simple and easily understood. Mautz and Sharaf

(2021) defined auditing as “being concerned with the identification of accounting data, with

determining the accuracy and reliability of accounting statement and reports” Similarly, Spicer

and Regler (2022) posited that an “audit is an examination of the books of accounts and vouchers

of a business, as will enable the auditor to report whether he is satisfied that the balance sheet is

properly drawn up so as to give a time and fair view of the state of affairs of the business and

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that the profit and loss account give a time and view of the profit or less for the financial period

according to the information and explanations given him as shown by the books and it’s not

report in what inspective is not satisfied.

2.1.5.1 Types of Audit

Statutory Audit: These are the audits that are carried out under the statutory framework. The

scope of audit is determined under statue and no restriction is expected to be place example of

audit under this category is Limited Liability Company being private or public. Some of the

statutes are:

The companies and allied matters act 1990, companies act 1985 among others.

Private Audit: These are usually performed by sole trader partnership, clubs societies, churches,

mosque etc. the work to be performed by the auditor is not regulated by the statute. It is the types

of audit that is conducted to an agreed limit of work between the auditor and the client. However,

a report will still be prepared depending on the extent of the work done.

Management Audit: This is an enquiry into the effectiveness of any of the policies of the

directors on furthering the object of the company as define i to memorandum and article of

association and also into the efficiency with which they are securing the execution of these

policies.

Internal Audit: An internal, audit is an independent appraisal activity within an organization,

set up for the review of operation as a service to management. It is a form of management

controls which function by measuring and evaluating the effectiveness of other controls. The

nature of work requires an element of independence although not to the extent of those of

external auditors.

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Final Audit: Those are the audits carried out after the year end date when the financial statement

of the business have been prepared by management. The audit will principally involve:

The examination of transaction for completeness, accuracy and validity.

The verification of assets and liability for existence’ ownership and valuation.

The review of the financial statement.

Audit Risk

According to Millichamp (2019), this is the risk that the auditor will issue an incorrect or

inappropriate opinion on the financial statement considering different risk in auditing. The

auditors needs to understand the type of risk applying to the particular transaction and

consequently to take the appropriate action. Audit risk is divided into three components.

a. Inherent risk

b. Control risk

c. Detection risk

Inherent Risk: This is the risk element derived from the characteristics of the enterprise it’s

environment prior to considering the internal control.

Control Risk: This is the risk element that the client’s internal control will not prevent or detect

material error.

Detection Risk: This is the risk element that the auditor’s tests and procedures may fail to detect

if misstatement or material errors have occurred.

Auditor’s Liability

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According to Paula (1978), section 368(1) of CAMA 19O states that “a company’s auditor shall

in the performance of his duties, exercise due care, diligence and skill as is reasonably necessary

in each particular circumstance.

Subsection (2) states further where a company suffers loss or damages as a result of the failure of

it’s auditor to discharge his fiduciary duty imposed on him,

The auditor shall be liable for negligence either jointly or severally against him in court.

From the foregoing, the liability if the auditor as provided by CAMA is limited to the parties

with which the auditor is into contractual agreement with, in reality, however, this is far from

being the case as other users of financial statement apart from management and shareholders

tends to lay hold on the auditor for any loss or damage resulting from their reliance on the report

he presented. Other users of financial statement include; creditors which includes trade creditors,

debenture holders, banks employees, customers, government; etc.

In any case, shareholders and potentials shareholders bring most legal action against auditors as

they are at risk when the company fails. Auditor’s liability can be viewed from the following

perspective.

Legal Liabilities: A public accountant rendering auditing and other professional service has both

ethical and legal responsibilities. Thus the activities of the auditor exist within a legal

framework. It is appointments removal, remuneration, powers and functions are all determined

by the process of law. The ethical responsibilities are outlined by the code of professional ethics,

essays and the interpretation of the professional regulating bodies. There is no doubt that the

opinion that the auditor gives on his report on financial statement carry a great deal of

authoritative weight. Infects, the duty of the auditor in this regard carries more than the ordinary

obligation of a person called upon to verify the work of another person or person.

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It would be seen that the law seems to have recognized this fact in ensuring that the auditor must

be like a judge in his judicial capacity operate within the framework of absolute freedom devoid

of bias.

Sterling, in his contribution said “it can be devoid that the auditor’s role with respect to report

and opinion made on public accounts is more a less a judicial function’ “the right of the auditor

to call for and inspect books arid other financial records of company is not substantially different

from that of a judge in the court who demands and receive any information whatsoever in

considered relevance to the case at hand.

The subject, of the exact legal position of the auditor are public accountant is one of the

conservable complexity and decrees dealing with the appointment of the auditor.

Any related legal liability of the public accountant in a particular case may be known or judge

reaches a decision and appeal exhausted. As the philosophy of the court changes so changes the

external auditors legal liability or responsibly.

Therefore, the large number of legal cases or litigation involving external auditors during the

past two decades or so have resulted in expended scope of legal responsibility which are still

evolving.

According to Waldon (2016) in his book “partial auditing” many factors have led to the

evermore arising growth in the legal liabilities of auditors. These factors have combined with the

unprecedented demand arising out of the need to conform to accounting principles which are

themselves in serious need of standard expression and uniform interpretation demands arising

out of need to reconcile accounting standard with the age of electronic technology demands

made by over increasing completely in legislations relating to companies and taxation, demands

arising from the vastly escalating scale of commercial operation at a time when the tendency

15
towards centralization has never been strong and the need nevertheless to maintain the

traditional. Standard of skill and integrity in the audit work” other factors have led to the growth

external auditors this includes tremendous increase in the number of stakeholders, increase in

dissemination of annual reports and a marked interest on the part of government agencies to

ensure consumer protection other.

Auditors Liability to this Client: In common with other professional practice, the auditor

ordinarily by acquires considerable information about his client and this information should not

be disclosed to others. The clients engagements of the auditors establishes a fiduciary

relationship which would be breached by the disclosure of confidential information to another by

party and the law imposes a liability on the practitioner for any loss or damage incurred by his

client resulting from a breach of his fiduciary relationship.

The auditor can also create a liability to his client if he is negligent in the performance of his

duty, this requires that an auditor must exercise due professional came in the performance of his

duty, but whether an auditor has auditor has been negligent and thereby committed a breach

contract raises a difficult question in that negligence is often difficult to distinguish from an error

of judgment.

Auditor could be charged for enhance if he fail to detect fraud or misstatement in the accounts of

financial statement for instance, an employee might have embezzled fund and cancelled the

shortage by means of fraudulent ledger entry, this kind if situation raises two fundamental

questions.

1. When an auditor is engaged to examine a firm financial statement and expresses his

opinion on the statement, does he assume any responsibility for the detection in the

accounts?

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2. Should the fraud have been detected by this examination if it was made in accordance

with generally accepted auditing standards.

The Consequences of Using the Concept of True and Fair Value During an Economic

Downturn

True and fair view aspect definition allows banks to disclose losses that indicate a reduction in

their equity. Any benefit or loss in financial processes assumed by an entity in any circumstance

translates into an increase or decrease in equity of its shareholders. Therefore, its capitalization is

changing or deteriorating. In addition , the idea of true and fair view by Benefit or Loss means

reporting on balance sheet assets and liabilities at fair value and defining adjustments in true and

fair value as gains or losses in the statement of income.

The asset revaluation does not impact the gain at true and reasonable value by the full profit

model, and the surplus revaluation oils the equity. Then, for their credit worthiness ratio to be

preserved, banks need to boost their extra capital and lower their loans under dejected market

conditions. The situation would create a curved downward trend with compulsory asset sales and

a further decline in their current prices under the theory of fair and equitable viewing, possibly

resulting in inflated balance sheet values. In other words, true and fair view value would also

produce an increase in the propensity of financial variables to fluctuate around a trend during the

lending of the economic cycle as more concentrated declines in bank income and capital during

downturns will help over credit reduction (Fearnley, 2019).

True and fair view definition implies that market prices are the primary basis for determining the

worth of an asset or a liability, but that fair values inevitably fall during a market crisis. In the

case of assets and liabilities that are not sold regularly or do not have a market, even though they

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have not lost their vital value, the fair values fall. Whether the loss is real or fictitious, financial

institutions must either recognize or report the reduction in the value of their income statement as

other major revenues. It is important to emphasize that asset prices guarantee a corresponding

but contrary propensity of financial variables to fluctuate around a trend over the impact of the

economic cycle, which is the opposite of broader fluctuations. Contamination method is the full

opposite of upgrades. It is especially the case during economic booms as bank assets and income

priced at market levels also increase as asset prices start to rise and the acceleration of the

financial market cycle has unfair implications for banks.

2.2 Theoretical Review

2.2.1 The Lending Credibility Theory

This theory suggests that adding credibility to financial statements is an integral part of auditing,

making it a fundamental service auditors provide to clients. Audited financial statements boost

users’ confidence in an organization’s financial records and management’s stewardship; in turn,

improving their decision quality such as, investment or new contracts, based on reliable

information. This is because stakeholders need to have faith in the financial statements would

affect decisions by stakeholders (example credit limits provided by suppliers) and also helps

shareholders put trust in management, reducing the ‘information asymmetry’ between

stakeholders and management. The credibility theory provides the primary function of auditing

to increase the reliability of financial statement, lttonen (2021), in which the auditor

independence provides public trust Beatti, Brandt and Fearnley (2019). It is fundamental to the

existence of auditing (Bakar and Ahmad, 2019) to act in accordance with social expectations

(Suchman, 2021). Based on the theoretical view of legality, many studies have shown that when

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attitudes and social expectations change audit independence should be appropriately adapted

within the framework of standards (Deegan, 2021).

2.2.2 Theory of Inspired Confidence

This theory was developed in the late 1920s by the Dutch Professor Theodore Limperg (Hayes et

al; 2019). Limperg’s theory addresses both the demand for and the supply of audit services.

According to Limperg, the demand for audit services is the direct consequence of the

participation of outside stakeholders in the company. These stakeholders demand accountability

from the management, in return for their contribution to the company. The auditor’s job should

be executed in such a way that the expectations of a rational outsider are not thwarted. So given

the possibilities of audit technology, the auditor should do everything to meet reasonable public

expectations. The relationship of accountability is realized with financial statements; however, as

outside parties cannot monitor any material misstatement or bias in financial reports, the demand

for an independent reliable audit arises. The supply of audit services should satisfy the public

confidence that arises from the audit and fulfil community expectations, as the general function

of audit is derived from the need for independent examination and an expert opinion based on

findings; due to the confidence society places in an independent auditor’s opinion. It can be

assumed that ii society lost confidence in audit opinion, the social usefulness of audit would

cease; as audit delivers benefits to the users of financial statements. The auditor should maintain

appropriate business practices to maintain his independence from the firm being audited, in order

to satisfy his obligation to examine business practices and provide a credible opinion on the

financial statements.

2.2.3 Quasi-Judicial Theory

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In this theory, the auditor is regarded as a judge in the financial distribution process (Hayes et al,

2019). However, Porter concludes that (i) an auditor’s decisions and decision process are not

publicly available; (ii) the doctrine of precedence/consistency is not guaranteed in auditing; and

(iii) an auditor’s independence differs from a judge’s independence because of the different

reward system involved.

Auditors Independence it Effectiveness

Odion and Lawani (2019), the effectiveness like I earlier mentioned is the ability for one to meet

up to its original aim of existence. In the first place auditor a right to be able to meet up with the

original intention of auditing that is, expressing an unbiased opinion on a client’s financials

statement. But has this been achieved? Not really if I may say, reasons being that.

1) The decrees available do not give enough backing to ensure auditors effectiveness

independently

2) Auditors still perform none auditing functions, hence making independence no to be

effective

3) Audit committee whose main objective of existence is to ensure auditors independence,

has not been able to fully execute that due to the fact that they have to rely on the

director’s nominees for appointment of auditors.

4) Some auditors lack integrity in their approach to work. Though everyone seems to agree

that auditors’ independence is very vital to the discharge of their duty

2.3 Empirical Review

This section reviewed literature from prior scholars regarding auditor independence and quality

of financial reporting.

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According to Madakawi (2012) conducted a study on the audit characteristics and financial

reporting quality in Nigerian listed companies. This study aimed to investigate the effect of audit

committee characteristics on the quality of financial reporting of Nigerian listed firms. The study

employed multivariate regression analysis with a sample size of 101 and firms-year longitudinal

panels of 505 observations of non-financial listed companies on Nigerian Stock Exchange for the

period 2010 to 2014. The results showed that control variables; company age and company size

are statistically significant. Audit committee share ownership, and financial expertise are positive

and statistically significant, indicating that audit committee monitoring mechanisms influence

the financial reporting quality of listed nonfinancial firms in Nigeria. Regulatory bodies in

Nigeria should mandate all the three board representatives on audit committee to be non-

executive directors, while making a combination of financial and industrial expertise replace

financial literacy to further improve the quality of the financial reporting.

According to Moses, Ofurum and Egbe (2014) studied audit committee characteristics and

quality of financial reporting in quoted Nigerian banks. The research was carried out to

statistically examine the influence of audit committee characteristics on quality of financial

reporting in listed Nigerian banks. The study used financial records from the financial statements

of fifteen twelve monthly reports and accounts of the banks whose stocks are traded in the

Nigerian Stock Exchange. The study utilized correlation research design. The test of hypotheses

and other breakdown of data were empirically completed by SPSS statistic 26.0. The outcomes

of the study depicted that audit committee independence had no significant effect on earnings

management in quoted Nigerian banks. The study endorsed that audit committee should be well-

thought-out and operational so as to curtail earnings management.

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According to Moses, Ofurum and Egbe (2014) study focused on commercial banks in Nigeria

while the current study focused on non-commercial state corporations in Kenya. The study

further employed correlation research design while the current study utilized descriptive research

design. The focus of the study was on audit committee independence while in the current study,

the focus was on independence, diversity, financial competence and meetings.

CHAPTER THREE

3.0 METHODOLOGY

3.1 Research Design

The research design is based on dependent variable of organisational performance while

independent variable of internal auditing. This study explores the events, evidence, facts, and

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actions of actors who are involved in the policy formulation of internal auditing in the institution

(i.e. Owo Local Government Area).

3.2 Population of the Study

The target population is the population to which a researcher tends to specify the outcome of a

study (Kipyego and Naibei, 2021). The population aims in a research study comprised all those

potential participants that could make up a study group (Ondiek and Onono, 2021). It has been

observed that the objective of the study is to examine the relevance of internal audit operations in

Nigeria Universities. However, in a study of this nature, where the population size is very large,

a sample of the total population can be regarded as a true representative of the population that

was used to gather the needed information. The study population will consist staff working in the

directorate of internal audit in Owo Local Government Area, Ondo State, Nigeria.

3.3 Sample Size

The sample size consists of the respondents drawn based on their vast experience and knowledge

about the research together with their year of service within the Council Internal Audit

Directorate. Therefore, a sample size number of respondents that will be drawn from the

population, which consists of members of staff from each of the divisions of the directorate.

3.4 Research Instrument and Validity

Peculiar nature of the research topic and conditions for obtaining official information from the

staff caused the use of the qualitative method. Data were collected through primary source using

semi-structured questionnaires with well-structured questions that gave the respondents limited

and predetermined response option to choose from. The questionnaire was adapted from the

study of (Tracy, 2021), controlled using a drop and picks a method, and consists of four sections.

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Section A deals with information about the respondents, and Section B examined the relationship

that exists between internal audit operations and the performance of the polytechnic system.

3.5 Method of Data Analysis

Analysis was done with the use of descriptive statistics and Chi-square Statistical Technique

Method (x2) with descriptive statistics from which research questions and research hypothesis

research design which will be based on the institution. This also highlights the presentations,

analysis and interpretation of collected data in tables and graph with statistical package for social

sciences (SPSS) software version 26.

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