Abstract

This study was to examine and find out the role of auditing on management’s control success with a particular reference to the Department of Audit, Ministry of Finance, Uyo, Akwa Ibom State. To achieve this objective, four research questions and three research hypotheses were formulated to guide the researcher study. The data collected were analyzed using simple percentages and tables to analyze research questions, and Chi-square statistical tool was used for testing the research hypotheses. A structured questionnaire was used as the major instrument for data collection from the staff and management of Department of Audit, Ministry of Finance, Uyo. After careful analysis of the data, the following findings were revealed that; auditing enhances accountability in public sector in Nigeria. The study was concluded with some recommendations that the state government should improve the remuneration and fringe benefits of internal auditors as this would enhance their efficiency and honesty in the discharge of their duties. Undoubtedly, upholding integrity, objectivity and transparency in the conduct of their respective audit functions will make the internal auditors to be more relevant in the public sector and the rate of inadequate qualified manpower in the audit departments in the public sector should be minimized.


CHAPTER ONE

INTRODUCTION

Background of the study
Organization all round the world be it public or private or otherwise needs auditing for proper assessment of their financial statements. Auditing is an independent examination of an expression of opinion on the financial statement of an enterprise or organization by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation (Chamber, 2008). It aims at providing solution to the inevitable problem of credibility in report and accounts. It prevents and detects errors and frauds and also produces a report of the true and fairness of the financial statement (Coper, 2003). They also obtain full understanding of the operations under review. The role of internal audit has grown tremendously in most organizations in the recent past. This can be attributed partly to the growth of the organizations, which entails widely extended operations and the need to ensure that the organizations policies and basic accounting controls are observed at every facet of the organization. Again, it can be observed as a measure by management to ensure that the government regulations concerning the operations of organizations, both public and private are duly complied with so as to guard against conflicts and inconsistence with the law.

As the organization expands and supervisory responsibility broadens, the head can no longer have personal knowledge of every aspect of the organization. It becomes impossible for him to control or monitor the continuing effectiveness of all controls. This calls for the delegation of this responsibility to a separate department called the internal audit department. Internal Audit Department is a department set up by management, usually manned by a Chartered Accountant, as established in section 358 of the companies Act 1976, to receive the activities of other employees thereby enhancing controls in the organization. Management’s Control Success

Decisions may be made for various purpose and they vary from one business to another. Internal control provides assurance and dependability of the financial statements used in making decision, hence, there is need for auditing of financial statement, Auditing therefore is made to determine whether persons in positions of fiscal responsibility in government and commerce are acting and reporting in an honest manner.

The ministry of finance plays a vital role in the overall planning, controlling and disbursement of government funds, for the day to day running of the state administration. Basically, these functions are carried out by various departments in the ministry, the departments; personnel, finance and supplies, planning, research and statistics, office of the Accountant general. Internal Auditing

The personnel department is headed by a director and its functions include appointment, promotion and discipline of staff and other staff welfare matters. The department of finance and supplies is headed by director, whose functions include provision of finance management information to the ministry of decision making.

Planning, research and statistics department is headed by a deputy director research into various aspects of government finances and economy while executive director is in charge of ministry of finance incorporated.

The office of the Accountant general is headed by Accountant general whose functions include provision of efficient Accounting services to the government and advising on financial matters. At the helm of affairs in the ministry is the Chief Executive called Honourable Commissioner for Finance while the Chief Accounting Officer is the Permanent Secretary. Management’s Control Success. In general, this ministry takes charge to disbursement of funds to ministries, departments, boards and parastatals for payment of staff salaries and wages, pensions and statistics. The main focus of this research state the intention of the researcher to study the impact audit could create on public sector accounting system in Akwa Ibom State.

It is argued that if shareholders have perfect information about managers‟ actions, there would be no information asymmetry between the two parties. Information asymmetry exists when perfect information is absent, which is the assumption of agency theory and since information asymmetry exists, stockholders have difficulty detecting earnings management (Fama, 1980). Though, it is argued that businesses adopt some level of discretion in their decision because no firm adopts a hundred percent rule based accounting systems when reporting their economic performances and financial position. In fact, Bello (2002) is of the opinion that it is unimaginable to have accounting systems that are totally rule based without room for occasional judgments.



The chemical and paints industry in Nigeria is considered one of the most susceptible sub-sectors of the country to earnings management. This is due to the ongoing effort by both government and industrialists to develop the industry as priority area of industrial investment and a support toward government housing policy for Nigerians. The sub-sector has undergone various levels of transformation from themanual based processes to more technologically advanced production methods. In view of the renewed interest in the industry owing to its recent impressive performance and high level of activities, it is imperative to examine its earnings management practices and how it is affected by audit quality.

1.2 Statement of problem

In the wake of corporate accounting scandals and unethical behaviours despite the existence of the code of best practice for corporate governance, earnings management has become a focal point of business strategists and academic research. The interestfeatures numerous corporate governance components like audit committee characteristics, board monitoring, corporate governance characteristics, institutional monitoring) and accounting standards, as well as the role they play in reducing earnings management. This is because unethical behaviour in reporting the earnings of firms negates the rudiments of agency relationship and misrepresents the organizations financial status.



Many studies have been conducted in the area of earnings management and audit quality most of which recognized the audit quality mechanisms as effective factors that restrain excessive opportunistic behavior amongst corporate management. Most of the studies focused on developed countries, and reported mixed findings (Krishnan, 2003; Balsam, Krishnan & Yand, 2003,DeFond, Raghunandan & Subramanyam, 2002; Beasley & Petroni, 2001; Abbott & Parker, 2000; Craswell, 1999).Some of the studies documented that Big 8, Big 6,Big 5 and Big 4 audit firmsprovide higher audit quality thannon-Big 8, Big 6, Big 5 and Big 4 audit firms (Davidson & Neu, 1993; Teoh & Wong, 1993). The studies of Kim, Chung and Firth(2003) and Lam and Chang (1994) indicate that Big 8, Big 6, Big 5 and Big 4audit firms might not always provide higher quality audit service than the others. This gave rise to the issue of inconclusiveness of findings. Given that the developed markets offer different institutional settings and litigation environments from those in the developing markets, the generalization of their findings is limited. Few studies have been conducted in emerging economies like Nigeria. The studies also documented mixed and inconclusiveness findings (Okolie, et. al.2013; Okolie, 2014; Gabriel & Ioraver, 2015).While these studies have covered some important aspects of audit quality, none of them used auditor tenure in measuring the independence of audit firms despite the strong relationship that exist between auditor tenure and quality of audit.

In addition, the studies used ordinary least square procedure with pooled data (which tends to be biased,to generate serial correlation, cross-sectional correlation and differing variances)instead of extracting panel data to test for cross-sectional effect in line with best practice in earnings management and audit quality studies.This study therefore represents a modest effort to fill the gaps identified in the literature. The study extends its analysis to cover variables that are often neglected in audit quality. The study also extends to a sub-sector that has attracted little attention with regard to earnings management despite its strategic importance to the economy of Nigeria.

1.3 Research questions

This study sets to provide answers to the following questions:

To what extent does audit firm size affect earnings management in Ministry of finance, Akwa ibom state?
What is the effect of auditor independence on earnings management in the listed chemical and paints firms in Nigeria?
How does industry specialist auditor affect earnings management in the listed chemical and paints firms in Nigeria?
1.4 Objectives of the study

The main objective of this study is to examine the impact of audit quality on earnings management of listed chemical and paints firms in Nigeria. The specific objectives of the study are to:

examine the impact of audit firm size on earnings management in listed chemical and paints firms in Nigeria;
assessthe impact of auditor independence on earnings management in Ministry of finance , Akwa ibom state
examine the impact of industry specialist auditor on earnings management in Ministry of finance, Akwa Ibom state.
1.5 Hypotheses of the Study

Based on the objectives of the study, the following hypotheses were formulated:

H0: Audit firm size has no significant effect on earnings management

H0: Auditor independence has no significant impact on earnings management.

H0: Industry specialist auditor has no significant impact on earnings management.

1.6 Scope of the Study

The study covers the period of seven (7) years, from 2006 to 2012.The period was considered adequate because prior studies on this subject matter used maximum of five(5) years. Extending the study to cover seven(7) years would enhance the robustness of the analysis. The period also covers 2007 and 2008 when the global economic crisis that exposed many world corporate scandals started. The justification for the choice ofthe domainis that chemical and paints sector has received little attention from researchers in Nigeria despite the important role it plays in the country and its contribution to the country‟s economy.

1.7 Significance of the Study

Apart from contributing to the existing literature on the subject matter, the findings of this study will be of interest to policy makers, audit firms and professional accounting bodies, as well as existing and potential investors. Policy makers may use the findings of the study regarding the auditor independence to consider the potential benefits of regulating the minimum length of audit firm tenure, in years, that same auditor should audit the financial statements of a company. It has been posited that as the auditor tenure increases, the auditor is better at assessing risk of material misstatements by gaining experience and better insights into the client’s operations and business strategies as well as internal controls over financial reporting (Arens, Elder&Beasley,2003). Therefore, this study will provide a yardstick which professional accounting bodies will use in establishing policies, procedures to guide members on improving the quality of their audit in order to reduce the way and manner earnings are being manipulated by firms.

Financial analysts may also use the findings of this study to understand how the market interprets higher audit quality in constraining earnings management effect on capital market decisions. If the market sees the firms with industry specialization, longer audit tenure and audited by a big-4 auditor as being associated with higher financial reporting quality, the reported financial statements may be viewed as more reliable for investment decision and credit assessment. Also, both existing and potential investors may be educated on earnings management’s indicators, patterns and how well to monitor and make good out of their investments. In addition, the study will contribute to increasing the available studies on audit quality and earnings management, especially in this sector.







1.8 OPERATIONAL DEFINITION OF TERMS

Internal audit

Internal audit is a dynamic profession involved in helping organisations achieve their objectives. It is concerned with evaluating and improving the effectiveness of risk management, control and governance processes in an organization

Management

Management is the administration of an organization, whether it is a business, a not-for-profit organization, or government body

Control

The power to influence or direct people’s behaviour or the course of events. ‘The whole operation is under the control of a production manager’ ‘the situation was slipping out of her control’

Success

Success is the achievement of a high position in a particular field, for example in business or politics. Nearly all of the young people interviewed believed that work was the key to success.



1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study


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FOR COMPLETE ACCOUNTING PROJECT TOPICS AND MATERIAL VISIT

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Need for Effective Auditing In the Public Sector (A Study of Enugu-North Local Government Council

audit is defined as the independent examination and expression of opinion on the financial statement of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation.

http://www.scharticles.com/need-for-effective-auditing-in-the-public-sector/