STATUTORY AUDIT AN EFFECTIVE TOOL OF MANAGEMENT CONTROL IN A MANUFACTURING COMPANY
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STATUTORY AUDIT AN EFFECTIVE TOOL OF MANAGEMENT CONTROL IN A MANUFACTURING COMPANY
Chapter one
1.1INTRODUCTION
Nobody knows why the jinx has lasted so long. The owners of capital resources have found it impossible to manage capital alone and effectively. For obvious reasons, capital owners want assistance in managing their financial resources, which leads to business polarisation. These lead to the ownership management relationship, such as:
– Master and Servant
– Master & Apprentice
– Landlord and peasant or tenant
– Entrepreneurship and Management
– Some others.
In the early days, businesses were run completely by the owners, who bore all of the risks and, as a result, reaped the rewards. There was no apparent need for a third party to investigate the financial operations of such businesses.
Modern corporate development necessitates the separation of ownership and management, as well as the utilisation of borrowed funds for business purposes.
These have resulted in the recruitment of unbiased, skilled, and professional examiners to scrutinise businesses’ accounts. Limited liability businesses’ accounts must be audited at least once a year.
This type of corporate partnership requires stewardship accounting. The master is frequently sceptical of the servant, and as a result of the communication gap, the servant is compelled to produce an account of stewardship as needed.
The Joint Stock Company Act of 1844 in the United Kingdom was the first to require that all incorporated companies have their yearly financial statements audited.
This account requires the appointed auditors to evaluate and report on the financial statements submitted to the company’s shareholders. The act did not require auditors to be independent of the company’s management or to be professional accountants.
In most cases, it appears that the shareholders elected a non-accountant from their own body, as professional accountants were few and difficult to obtain back then.
The 1888 Act is regarded as the most important of all auditing statutes, and the decisions are reasonable. The act defines the auditor’s attribution qualification. This established the auditing concept
which required the auditor to be impartial, to behave with integrity, and to avoid contentious situations by not auditing the account. It allows you to be neither a member of the management nor a shareholder, to act inappropriately between the two, and so on.
However, the 1888 Act did not require auditors to be professionally qualified; it was the United Kingdom Act of 1948 that first mandated professional certification for auditors and went on to list the accounting bodies whose members might practise as auditors in the United Kingdom.
The Nigerian Scene
The Nigerian scene is governed by the Nigerian Companies operate 1968, which states that only members of the Institute of Chartered Accountants of Nigeria (ICAN) may operate as auditors in Nigeria.
The company and Allied Mater Decree (CAMD 1990) upheld this, adding a clause requiring members of any other accounting body to recognise the federal military government, and recognising the Association of National Accountants of Nigeria (ANAN), which can also licence its members to act as auditors upon invitation under this clause.
1.2DEFINITION
An audit can thus be described as an independent review of and expression of an opinion on an enterprise’s financial statements by an appointed auditor in line with its conditions of engagement and compliance with the statutory provisions and provisional requirements.
This resulted in the notion of statutory audit, which is defined as a mandatory audit of a business affair as required by the statute. CAMD 1990, Insurance Decree 1991, BOFID 91 (BANKS AND OTHER FINANCIAL INSTITUTION DECREE), and Central Bank of Nigeria Decree 91 are all laws that require audits to be completed.
1.3 OBJECTIVES OF AUDITORS (STATUTORY AUDIT)
The preceding obvious facts demonstrate that the purposes of auditing are to conduct an unbiased, objective examination, testing, evaluation, and reporting on the correctness and dependability of an entity’s financial statements to shareholders.
In carrying out this work, the auditor would be expected to use all of his abilities and cases, as he will be held fully accountable to the shareholders for any lapses based on professional negligence. The auditor’s responsibilities also include the third party that he expected or should have realised would rely on his audit report.
However, this does not imply that auditors should be held hostage for anomalies not discovered by him. The auditor’s responsibility begins and ends with the expression of a judgement on the accuracy and fairness of the account provided to him.
If there are problems in the accounts that were not brought to his attention, he will not be held liable as long as he acted with reasonable care and accumulated adequate audit evidence to back his claims.
As a result, the auditor is neither a witch nor a blood-bound individual. This is not to say that the auditor should be complacent about this decision; while the directors are entirely responsible for establishing adequate internal controls in the system
it is the auditor’s responsibility to examine the adequacy and otherwise and report his findings to the directors in his report. Otherwise, his failure to determine the level of internal control over the system may render him negligent.
This unsettling position in which the auditor can be held accountable for anomalies he did not identify has become a bizarre bedfellow that the auditor has been attempting to get rid of.
With reference to a series of developments in the late 1960s that disturbed the foundation of the auditing and accounting profession. The statutory auditor’s objective includes both core and secondary, or subsidiary, objectives.
The primary objective bears the burden of the secondary goal. The primary goal is to present a report that expresses a judgement on the accuracy and fairness of the financial statements. This is intended to serve as a guidance for anyone who uses or intends to use such a report.
The auxiliary purpose is to uncover errors and fraud through the audit’s deterrent and moral effect. Also, auditors provide greater assistance with the accounting system, taxation, and other areas.
1.4 Uses and Applications of the Statutory Audit
Shareholders, as firm owners, are interested in the audited financial statements. This is to gather information about the level of profitability in respect to management policies. And the link between dividends paid, bonus shares issued, and actual profits earned.
Management, as the operator of a firm, need financial statements for the purpose of performance, with the goal of determining efficiency levels based on the auditor’s assessment.
Employees will be keen to receive a copy of the audited financial statement to assess the organization’s ability to pay benefits. Employees of manufacturing companies might deduct the amount paid for insurance against accidents that may occur during production operations.
Potential investors demand audited financial statements to assess the profitability and liability of the business in issue.
Creditors (both corporate and individual) demand an organisation’s financial statement to determine its capacity to satisfy debt obligations.
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