Audit Services in Nigeria

Audit is an independent examination and expression of opinion on the financial statements of an enterprise by an appointed auditor in pursuance of that appointment and compliance with any relevant law and regulation. Whenever a fiduciary relationship with financial implications exists, there is a need for a knowledgeable outsider to independently and objectively review the accounts of stewardship and to express an opinion as to their honesty or otherwise.

Audit is deeply rooted in the concept of separation of ownership from management in the affairs of companies. There is now an urgent need to safeguard the interests of the owners (The Shareholders) who are not involved in the day-to-day decision made by the management (The Board of Directors). Now the services of professionals are being employed to take up the demanding task of independent examination of financial records produced by management and to express an opinion as to their truth and fairness.

In Nigeria, Companies and Allied Matters Act has made it an obligation for every public liability company to have its annual financial statements audited before circulating it to members. Specifically, Section 357 (1) states as follows: ‘Every company shall at each general meeting appoint an auditor to audit the financial statements of the company’. Other countries have similar legislation that makes the audit of financial statements of public companies a mandatory requirement.

The appointed auditor (who should be a member of a recognized professional accountancy body and duly licensed to practice and not disqualified by any legislation) is expected to express an opinion on the truth and fairness of the financial statements (Income Statements, Statement of Financial Position, Cash Flow Statement, Statements of Changes in Equity and Notes to the Account), all of which would have been prepared by the directors and presented to the shareholders at an annual general meeting.

Audit Services Rendered 

Financial Statement Audit

Compliance Audit

Operational Audit

Forensic Audit

Tax Audit

Information System Audit

Value for Money Audit

Financial Statement Audit

Financial statement audit determines whether the financial statement are presented fairly under specified criteria. This type of audit usually covers the basic set of financial statement (statement financial position and statement of financial performance) serve as the criteria. However, certain financial statement audits may entail the use of other criteria, such as the audit of bank entails the use of BOFIA (in Nigeria).

Compliance Audit

A compliance audit determines the extent to which policies, rules, laws, covenants or government regulations are followed by the entity being audited. For example, a company may have auditor determine within the organization. The corporate rules and policies serve as the criteria for measuring the departments’ compliance.

Operational Audit

An operational audit involves the systematic review of an organization’s activities, or a part of them concerning the efficient and effective use of resources. The purpose of an operational audit is to assess performance, identify areas for improvement, and develop recommendations.

Forensic Audit

This is an audit of transaction or situation with the utmost intention of determining the nature, extent, involvement and impact of fraud. The purpose is the detection or determination of a wide variety of fraudulent activities. Examples

• Business or employee fraud
• Criminal investigations
• Shareholder and partnership disputes
• Business economy losses
• Matrimonial disputes

Tax Audit

A tax audit entails reviewing taxpayers’ records to ascertain compliance with relevant tax laws, meaning paying taxes correctly and when due in line with the provisions of the applicable tax laws

Information System Audit

This is the review of the controls over software development, data processing and as well as access to computer systems. The objective of this type of audit is to spot any issues that could impair the ability of IT systems to provide accurate information to its users and also to ensure that unauthorized persons do not have access to data therein.

Value for Money Audit

In this audit engagement, the auditor assesses the entity’s achievement on the economy, efficiency and effectiveness of a project. The details of value for money for audit are:

Economy: the auditor performs an audit assessment to assess whether the organization uses the available resources for the project in the economic principle or not.

Effectiveness: this review focuses on the effectiveness of getting the desired output using minimum resources.

Efficiency: this usually takes place at the end of a project. Here, the auditor identifies the objective, funds and output of the project.

OBJECTIVES OF AN AUDIT

This can be broken down into:

 Primary objective

The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, under an identified financial reporting framework and that the financial statements give “a true and fair view” or “present fairly, in all material respects” the financial results and state of affairs of the client entity.

Secondary objective

The secondary objectives of the audit are:

• To prevent fraud and errors
• To detect any form of irregularity
• To evaluate the effectiveness or otherwise, of the internal control system within the enterprise
• To assist the management in the establishment of an effective auditing system
• To advice on financial matters for efficient decision making by the management
• To ascertain and ensure that an enterprise conforms to the statutory and professional requirement.

Merits of Audit

• Auditing serves as a deterrent to fraudulent staff within an enterprise.
•  Independent examination of partnership accounts will ensure accurate assessment and division of profits acquired.
• Audited financial statements serve as a reliable source of information for banks and other financial institutions when it comes to assessing the strength of loan/overdraft applications.
• The audited financial statement serves as a basis for measuring performances by the would-be investors (potential investors).
• Audited financial statements are one of the requirements of the Nigerian Stock Exchange for a business that is willing to be listed on the floor of the Nigerian Stock Exchange.

Chronology of Audit

Auditing is a practical discipline and in detail, each audit differs from the other. However, each audit assignment follows a systematic approach as outlined below:

STAGE 1

The objective of this stage is to discover the background and operational system. Means of achieving the objective include:

• Ascertain background and nature of the business
• Selected management interview
• Reference to procedural manual and organizational chart

STAGE 2

The objective of this stage is to discover the operational system in practice. This is achieved by:

• Observations
• Conducting selected walk through the test on transactions

STAGE 3

The objective is to discover the strengths and weaknesses in the control systems in detail. This is achieved by:

• Completing all applicable sections of the internal control questionnaire
• Conducting compliance tests

STAGE 4

The audit objective is to evaluate the relative effect of weakness in each major operational area. The specific task to achieve the objective include:

• Completing internal control evaluation schedule after the total effect of weakness already noted
• Reporting effect of major weakness to management

STAGE 5

The objective is to confirm the reliability of the records as a basis for the preparation of final accounts. Means of achieving this objective include:

• Preparation of detailed audit programme, specifying the nature of the substantive tests and the extent of substantive tests of transactions and balances.
• Executing audit programme by application of deep testing techniques

STAGE 6

The objective is to ensure that the financial statements are in agreement with underlying records. This is achieved by:

• Preparing a detailed year-end schedule (profit and loss account schedules), summarizing individual items by cross-reference to the records and statement of financial position
• Reconciling the movement of each item from the previous balance sheet position to the current balance sheet position

STAGE 7

The objective is to form an opinion as to whether the accounts as presented give a true and fair view and comply with statutory and other requirements. Means of achieving the objective include:

• Obtaining a letter of opinion from the chief executive
• Completing verification of assets and liabilities
• Analytical review

STAGE 8

The objective of this final stage is to express an opinion in the audit report to members. The auditor:

• Reviews draft contents of Director’s report
• Considers the need for qualification
• Draft final audit report for inclusion in the published accounts

 

For more information on your Financial Statement Audit, Compliance Audit, Operational Audit, Forensic Audit, Tax Audit, you can schedule a consultation with us today and you will be glad you did.

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