ROLE OF EXTERNAL AUDITOR IN BANKING OPERATION
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ROLE OF EXTERNAL AUDITOR IN BANKING OPERATION
EXTERNAL AUDITOR ROLE IN BANKING OPERATIONS ABSTRACT
This study was conducted primarily to determine the roles and duties of external auditors in banking operations. A case study of three Aba-based banks.
In the past year, there has been a misunderstanding of the roles of external auditors in an organisation or a firm; therefore, chapter one attempts to cover the introduction and explanation of the role of external auditors in an organisation or an industry, while chapters two and three cover the aspects of literature review and researcher methodology, respectively.
In terms of chapter four and chapter five, they discussed data analysis and how the data was analysed to help the reader understand what the chapter was about. They also went on to summarise the data and the conclusion, recommendation, and that of the suggestions part items of further study or further research.
Questionnaires, interviews, and observations were utilised to elicit explanations from the employees of the banks in Aba who composed the respondents. Tables, chi-square, and percentage were also used as statistical instruments in analysing the data obtained.
Finally, the functions of external auditors in banking operations will help to re-define what the roles of external auditors are and how they affect banking operations. Using the analytical and disciplinary research method, and with a case study of three selected banks in Aba, including First Bank of Nigeria, United Bank for Africa Plc (UBA), and Intercontinental Bank Plc,
it was discovered that, while a good and effective external auditor has been installed in the banking operation, so to speak, some of the basic elements are only there in theory, not in practise bank rule and regulations.
For example, are not strictly followed, there are insufficient accounting records, improper supervision, a smidgeon of dishonesty among the staff, some of whom are predisposed to fraud and incompetence, and toad to these, detailed are not always punished appropriately to serve as a deterrent to others.
Finally, it was recommended that external auditor and activities be more closely supervised and scrutinised to ensure that they follow proper procedure as documented in the banks handbooks.
programmes and procedures should be designed to employee, and as we develop staff that will be competent and honest, elaborate accounting records should be created and staff should be re-oriented and the incorrigible ones should be discipline acco
CHAPTER ONE OF THE EXTERNAL AUDITOR’S ROLE IN BANKING OPERATIONS
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
An auditor is typically someone to whom an organization’s receipts and payments are read, as the Latin verb audira, to hear, suggests. This is due to the fact that in ancient times, accounts and records of businesses, estates, trusts, and farms were examined by their owners by being called out by people who compiled them.
However, auditing, as it is known today, is an independent study of the financial records and statements of businesses, non-profit organisations, government parastatals, and so on in order to report on whether they provide a true and fair view.
The practise was known to have been practised by ancient civilizations such as the Egyptians. However, the increased complexity of commerce today has greatly expanded the scope of auditor operation and has called for a high degree of skills and discernment similarly,
the development of modern accountancy and auditing is also credited to the huge expansion in industry and commerce since the industrial revolution. It should be noted that the rapid change in nature has resulted in a surge in commercial transactions and investment in limited liability firms, in which shareholders are not the managers of their capital.
As a result, the manager is now required to account to the shareholder. On this basis, the government developed provisions for company accounts to be examined and disclosed to persons who weren not managing the business.
The role of external auditors in banking operations was explored in this research paper, which used three selected banks in Aba as case studies. This is due to the fact that there are various banks with branches in Aba, and the three selected banks to be reviewed are as follows.
i. THE FIRST BANK IN NIGERIA
ii. UBA (UNITED BANK FOR AFRICA PLC)
iii. PLC INTER CONTINENTAL BANK.
1.2 REVIEW OF THE SELECTED BANKS
First Bank owes its origins to the first major financial institution established in Nigeria, hence the name. Dr. Ayoola Oba Otudeko, OFR is the current chairman, and the bank is the largest retail lender in the country.
While most banks collect monies from people and lend them to huge firms and multinationals, First Bank has created a small market for some of its retail clients.
At the end of August 2006, the bank’s assets totaled 650 billion Nigerian naira, or $5 billion in US dollars. The bank was also the most highly capitalised firm on the Nigerian stock exchange, with over 10 billion shares outstanding.
FBN bank (UK), which has a branch in Paris, is a subsidiary in the United Kingdom. In addition, the bank has representative offices in South Africa and China. In September 2006, Global Finance magazine awarded the company the best in Nigeria.
Akintola Williams Deloitte and Touche (Chartered Accountants) and KPMG Audit (Chartered Accountants) are the first auditors.
Because of its limited exposure to non-performing loans, the firm has strong Short and Long term ratings from Fitch and the Global Credit Rating Company. The firm’s compliance with financial rules has also improved, with the Economic Financial Crimes Commission grading it highly.
Due to space constraints, I believe this is all I have to say about First Bank.
In terms of (UBA), which stands for United Bank for Frica Plc, it is the result of a merger between Nigeria’s third (3rd) and fifth (5th) largest banks, namely the old UBA and the erstwhile Standard Trust Bank Plc (STB),
and a subsequent acquisition of the erstwhile Continental Trust Bank Limited (CTB). The Union became the first successful corporate combine in Nigerian Banking history.
Today, United Bank for Africa Plc is one of Africa’s leading financial institutions, providing universal banking to over 7 million customers across 750 branches in 14 African countries,
with offices in New York, London, and Paris. With assets in excess of $19 billion, UBA is your global partner for banking services for Africans and African-related businesses.
Finally, Intercontinental Bank Plc created Nigeria Intercontinental Merchant Bank Limited as a merchant bank in February. The company began operations with a paid-up ordinary share capital of N12 million. It became Nigeria’s most profitable merchant bank in five years.
1989, September 1st, the first subsidiary, Intercontinental Securities Limited (INTERSEC) and investment company was established in 2000, 2002 became a publicly quoted company listed on the Nigerian Stock Exchange with an IPO of 288, 995,000 ordinary shares, which was fully subscribed.
2004 Public offering of 2.75 million ordinary shares in December, in order to exceed the CBN’s new N25 billion shareholders funds. Subsidiary by 136%, reinforcing investors’ trust in banks. In 2005, the bank merged with three other banks. In October 2005, Equity, Gateway, and Global were launched.
1.3 STATEMENT OF THE PROBLEM.
Internal and external auditors are both present to contract and maintain the organization’s financial balance and elevation. This researcher’s task is to analyse the position effects and influence of auditors. External auditors have a strong influence over financial institutions such as banks.
Auditing has long been used to contract the financial system of any organisation. Despite the practise, the organisation continues to publish false financial statements and reports to the public, and there has undoubtedly been continual fraudulent practise in the banks, which ultimately causes the banks to fail.
However, one would wonder how this condition could have persisted when auditing practises were absent in his research effort. Some issues have received specific attention. These are the following:
i. Should auditors be replaced every two years or remain as established, that were appointed annually by banks?
ii. What has been the source of the banks’ continuous dishonest practises?
iii. What are the actual functions that external auditors play in banks to help them expand and maintain the standards needed by BOFIO and CAMA?
iv. To what extent should external auditor dive into the financial and administrative processes of the banks?
1.5 PURPOSE OF THE STUDY
The purpose of this research is to critically investigate the banking industry in Nigeria and to identify the roles of external auditors in ensuring effective and efficient banking operations. Mismanagement of funds, loans, and credits is well acknowledged to be a concern for Nigerian banks. Based on the challenges described above, the researcher’s work objectives include the following:
i. To educate auditors, offer credibility to bank accounts, and assure compliance with SASIO and IAS30.
ii. To educate banks on the importance of adhering to the provisions of the Banks and Other Financial Institutions Decree of 1991.
iii. To teach banks how to comply with the Companies and Allied Matters Act (CVAMA) of 1990.
iv. To emphasise the importance of external auditors reviewing and reporting on banks’ accounts and balance sheets.
1.6 RESEARCH QUESTIONS :
Based on this research, particular questions are pertinently determined to aid in the achievement of the intended goal. These are some examples:
i. Does the bank make provision for the external auditors whom it chooses to audit the bank’s financial statements?
ii. Has the bank’s management attempted, with the assistance of an external auditor, to reduce the inadequacy in financial reporting?
iii. Do banks offer the relevant books of records for verification and investigation if it becomes necessary?
iv. Has the presence of auditors and their investigative efforts assisted banks to check their fraudulent practises?
v. Has inefficiency in cash and financial management resulted in a deficiency in the overall bank’s financial management resulting in a deficiency in the overall bank’s financial system control?
vi. Do banks follow the requirements established by the Bank and Other Financial Institutions Deed of 1991, as well as the Companies and Allied Matters Act of 1990?
vii. Have the banks followed the requirements of CAMA 1990 in drafting their annual financial report and statement?
THERE ARE 1.7 HYPOTHESES
In light of the previously described difficulties and questions, as well as the objectives and importance established to be attained in this research activity, the following hypotheses for this study may be formulated for acceptance or rejection:
Given the fact that Ho = Null Hypotheses and
Hi = Hypothesis Alternative.
i. Ho = Fraudulent practises in the bank have not decreased since 2000.
Hi = Since 2000, fraudulent practises in the band have decreased.
ii. Banks do not hire external auditors to examine and probe their financial statements, reports, and records. Documents from the Council library, as well as those from the Abia Poly library and other textbooks, were used in this investigation. The paper discusses the history, nature, duties, and essentials of external auditors in the Nigerian banking industry.
1.8 THE SIGNIFICANCE OF THE STUDY
To understand the overall significance of this research, one must consider the roles of the external auditor and the internal auditor in a bank. In light of this, the significance of this study is determined by the necessity to ensure that banks meet the requirements of the Banks and Other Financial Institutions Degree, 1991. Other factors to consider include:
i. External auditors recognise the government restrictions on banks while ensuring that they are consistently implemented by banks.
ii. Also, auditors’ positions have been established with the goal of analysing the financial backgrounds of banks in general and putting a stop to distress situations.
iii. It allows for the possible evaluation of the bank’s financial reports, allowing the general public to receive what they bargained for: a real and fair evaluated report.
iv. Investors benefit from understanding the financial reporting nature of banks, allowing them to discern accurate and fair viewed reports that may be measures to them in their business with banks.
v. The study will provide a solid basis for any student conducting a similar topic or subsequent research work on this issue to realise his or her researcher purposes of works.
vi. This research also partially fulfils the criterion for the award of a Higher National Diploma (HND) in Accounting.
1.9 THE DEFINITION OF TERMS
This part of the research effort is critical in order for the user of the research findings to fully comprehend the research work in its entirety. The definitions of certain terminology used in the project work are provided below.
v Banking Business: According to BOFIO, it is a business that receives deposits, a current account, savings account, or other similar account, pays or collects cheques drawn by or paid by customers, provides financial services, or any other business that the Government (or the Central Bank of Nigeria) may order published in the Gazzette to be designated as banking business.
Accounting Policies: Accounting Policies includes the primary basic connections, rate and methods adopted by management in preparation and presentation financial statements.
They are the specific accounting bases that are used for items that are regarded material in determining profit or loss for the period and stating matters in the financial split.
v An audit is an independent study of a corporate organization’s financial records and statements, non-profit masking bodies, government parastatals, and so on in order to report on whether they provide a truthful and fair picture.
v Internal Check: A component of an internal control system that deals with the organisation and preparation of bookkeeping and other clerical duties in such a way that no single task is executed from inception to completion by only one person, and the work of each clerk engaged on a task is subject to an independent check in the course of another’s duties.
v Substantive Test: According to the auditing standard and internal control guidelines, substantive tests are “those tests of transactions and balances, as well as other procedures such as analytical reviews,
that seek to provide audit evidence as to the completeness, accuracy, and validity of the information contained in the accounting records.”
v Vouching: Vouching is the review of documentary evidence presented to substantiate entries in a client’s accounting records. A voucher is any document that serves as the foundation for an entry in the accounting records.
Frau: Frau is defined as those acts that include using deception to acquire illegal or unfair financial advantages. It also defines an intentional mis-statement in or Omission of accounts or disclosure from an entity’s accounting records or financial statement.
v Chi-square Test (X2): This is a text statistic used to determine whether a set of values observed differs considerably from what was expected. It is used to test the qualities of more than two populations.
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