CHAPTER ONE

 

  1.0 INTRODUCTION

  Accountability  in  both  public  and  private  section  has  being  an  issue  that  is

worth discussing  due  to  its  paramount  and  colossal  impact  to  the  overall

performance of an organization.

  It (Accountability) has to do with reporting back action, task carried out by an

individual to the authority who apportioned such function.

 

  1.1 BACKGROUND OF THE STUDY

 

    Accountability is the process or act of reporting back to a higher authority,

body  or  individual  the  actions  taken  by  a  steward.  It  enables  the  person  or

persons reported to determine if the steward has acted or performed the assigned

duties properly and satisfactory. It plays a major role in the success or failure of

any business, particularly when the business is not managed by its owner.

  Initially most business set-ups were managed by their owners. The owners‟

manager  was  the  sole  financial  contribution  to  the  enterprise.  But  with  the

development  in  the  scale  and  scope  of  business,  a  huge  capital  beyond  that

affordable  by  the  sole  individual  or  a  family  was  needed.  Consequently

contributors (hereafter called shareholders) were required to raise the funds for

the  business.  The  emergence  of  these  shareholders  led  to  the  divorce  of  the

owner managers from the management of the business as all of them cannot be

directors  at  the  same  time.  This  the  management  of  business  was  entrusted  to

the  hands  of  people  who  have  no  financial  claims  to  the  business  and  the

shareholders  were sceptical about this particularly as the law does not permit

them individually to go through the books of the company in their desire to keep

abreast of the performance of the directors.
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  This skepticism aroused  the  need  for  surveillance  over  the  activities  of  the

non-owner managing directors. This bid to fulfil the later led to the engagement

of third-party (an Auditor) to perform an audit of the company‟s accounts.

  Audit has since them received a lot of definitions and/or then received a lot

of  definitions  and/or  interpretations  both  from  accounting  bodies  and  auditors

and  their  non-the-like.  Justifiable  is  to  say  that  audit  has  suffered  a  lot  of

misinterpretations. Most of the misgiving interpretations see it as being armed at

fraud  and  error  detection.  But  audit  essentially  involves  much  more  than  that.

One of the most involved and of course the most acceptable definitions so far is

that issued by the consultative council of accountability bodies (CCAB) which

sees  audit  as  “the  independent  examination  and  expression  of  opinion  on  the

financial  statement  of  an  enterprise  by  an  appointed  auditor  in  pursuance  of

statutory obligation (Howard 1982:1).


  Deductively,  an  audit  is the  objective  scrutiny  of  someone‟s  work  or

presentation by a third party (an auditor) who is different from the users and the

preparing  of  the  presentation.  The  general  essence  of  audit  is  to  ascertain

compliance  of  the  firm‟s  records  and  operational  policies  with  usefulness  of

acceptability of and the dependability on the firm‟s financial statements.


    Accountability  as  explained  above  has  suffered  some  misconceptions,

surprisingly in the hands of those who should have understood it better. Most of

the  lay men  conceptual  understanding  of  accountability  relates  it  to

„communicating about monetary matters (Odon, 1999:7) but accountability goes

beyond  that.  According  to  the  Webster encyclopaedia dictionary  of  English

language  (1995:110),  accountability  is  defined  as  “the  state  of  being

accountable, answerable, liable or responsible” the same dictionary goes further

to define accountable as “liable to pay or make good in case of loss; responsible

to  a  trust,  liable  to  be  called  to  account,  put  in  another  way  an  much  more
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related  to  the  context  in  the  articles  Aba  times  of  fourth  September  1999

captioned “accountability in the third republic” it says

      Accountability connotes answerability and stewardship, by

      answerability is meant answering for one‟s actions and

      decisions (odon1999:7)   

      Stewardship according to the article means service; it means

      that every leader should be responsible to the people who

      reposed trust in him. 


For accountability to be accorded its rightful place in an organization the writer

believes that  there  is  a high  need  for  proper  internal  control  measure  and  in

addition, efforts should be made to ensure that company accounts are subjected

to external and independent audits after each financial period. 

 The bible also records in chapter 25 verse 14-30 of saint Matthew gospel,

the story of a rich man who went on a far journey entrusting the affairs to his

servants  and  who  when  he  returned,  required  the  servants  to  answer

individually, for their stewardship to the business while he was away. It in the

same  manner  that  it  is  required  of  the  chief  executives  and  directors  of  a

company who are quite different from the real owners of the business to answer

for  their  stewardship  of  the  funds  and  property  entrusted  to  them  by  the

shareholders. It is desire for accountability that gave rise to what we know today

as audit- a mechanism through which the shareholders are made abreast of the

true and fair picture of the activities of the directors and chief executive of the

company

 

 

 

 
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      THE HISTORICAL BACKGROUND OF SHEFFIELD RISK

                    MANAGEMENT LIMITED, OWERRI

 

        Sheffield  risk  management  limited  is  located  within the  industrial  layout

area of Owerri, it is established as a private limited liability company, it is an

incorporated company.

       The company is an insurance brokerage firm that serves as an intermediary

between the insurer and the insured; they also serve as underwriter of insurance

policies.  The  insurance  policies  in  which  Sheffield  risks  management  limited

act  as  intermediary  between  the  insurer  (insurance  company)  and  the  insured

(client)  or  consultant  to  each  or  both  include  Life  insurance,  Car  insurance,

Burglary insurance, Motor vehicle insurance etc.

 

                          OWNERSHIP STRUCTURE

       According  to  the  memorandum  of  understanding  signed  by  the  stake

holders of Sheffield Risk Management, the company has its ownership structure

as  shown  below  out  of  the  start-up  capital  of  twenty  two  million  naira

(₦22,000,000).

 

Shareholders % Of shareholding Nominal value (₦)

Mr. David Okolie 50 11,000,000

Barr Obumneme  

Okonkwo 22 4,840,000

Mrs. Mary Nwosu 18 3,960,000

Barr O. Oluchukwu 6 1,320,000

Mr Okey Elendu 4 880,000

 

 
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                            BOARD OF DIRECTORS

 

   Going by the memorandum and article of association of the company, it has

provision  for  six  member  board  which comprises  of  the  chairman,  general

manager,  company‟s  secretary,  marketing  manager,  company‟s  accountant,

company‟s P.R.O.

   This composition has been maintained throughout the company‟s existence

 

1.2              STATEMENT OF PROBLEM

 

      The  increasing  wave  of  fraud  and  embezzlement  of  public  funds  by  high

officers and chief executives in the private and public companies brought to the

lime light some misconceptions of what the job of an auditor is and what audit

is all about. To the uninformed, the auditor is a wizened individual who wears

the traditional green eyeshade and sleeve garters.

   They  will  expect  to  find  him  perched  on  top  a  high  stool  counting  money,

meticulously  adding  long  columns  of  figures  and  gaining  his  sole  pleasure  in

life from the apprehension of luckless person whose books failed to balance or

whose cash account proved to be short (harword 2002:135). 

        According to Pratt (1998:1), were you to ask the average

      man in the street about the auditor‟s job, he will probably

      tell you that he prevent fraud, press our layman further, he

      may paint you a picture of a rather gray individual who

      buries himself in ledger, emerging only from time to time to

        produce sets or figure which are not important anyway

Such  are  the  image  that  the  auditor has  attracted  but  they  are  incorrect  in  the

sense that “the auditor‟s primary responsibility is neither to prevent fraud nor to

produce figures” (woolf 1982:12)
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 The problems are:

I. Mismanagement of enterprises by directors and top management who in

      most cases have no real financial stake in the business.

II. Because of the fact that the directors and top managers have no financial

      claims  to  the  business  or  its  enterprise,  they  tend  to  exhibit  the  highest

      level of truancy to work and are generally indifferent to the progress of

    the company. Most them regrettably choose their moments for putting the

      company  into  liquidation  of  little  or  no  cost  to  them,  by  diverting  the

      funds and assets entrusted into their care for their personal uses.

III. And  without  the  misappropriation  being  detected  not  the  culprit  being

      brought to book the auditor expresses an opinion of “a true and fair view”

    of  the  perpetrated  fraud.  The  problem  is  that  this  attitude  has  dented

      considerably the professional image of audit. To most employees of the

      auditor, the effect is “there is no need for auditors as it has failed to detect

      fraud”.

      And  to  the  few  informed  ones  the  question  constantly  asked  is  “how

      independent is the independent auditor?”

 

1.3   OBJECTIVES OF THE STUDY 

 

Having had the problem stated, the objectives of this study which are stated in

null form are:

I. To  ascertain  the  role  of  independent  audit  towards  accountability  in  an

      organization 

II. To determine whether independent audit can enhance managerial ability;

III. To determine if independent audit can control fraud and embezzlement.

 

 
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1.4   RESEARCH HYPOTHESES

 

   In  order  to  complete  this  study  successfully  the  following  hypotheses  have

been formulated in null form: 

I. Independent audit does not enhance accountability in an organization.

II. Fraud  and  embezzlement  will  not  decrease  if  independent  auditors  do

      their work properly 

III. Mismanagement is not due to lack of accountability.

 

 

1.5   SIGNIFICANCE OF THE STUDY 

 

    The  misconception  of  the  function  of  audit  has,  no  doubt,  eroded  in  most

minds  the  confidence  and  reliance  on  creditors‟  report  and  has  dented  the

credibility with which the audit profession was known.

  The  researcher  has,  therefore  taken  to  this  study  for  the  need  to  show

management and directors that reliance on auditor‟s report will help to enhance

their  performance.  The  studies  will  contribute  to  knowledge  by  bringing  the

opinion of many experts in one text and this make it easier for readers to have a

broader knowledge of the subject without having to go through several texts.

   Finally the thesis will become a reference material for other student who will

carry out further studies in the field.

 

1.6   THE SCOPE OF THE RESEARCH

       The study will mainly focus on the company selected as a case study i.e.

Sheffield Risk Management Limited, Owerri. The researcher would go beyond

desk search into field to sample the opinion of workers, officers as well as chief
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executive. These would be accomplished through the construction and issuance

of questionnaire to the potential respondents and also through oral interviews.

   The  researcher  intends  to  convince  the  misinformed  minds  about  the

relevance of independent auditing as a tool for enhancing accountability. To do

this  only  well  informed  individuals  will  be  consulted  during  the  primary  data

collection stage.

  The scope of the study will be limited to the statutory role of the auditor. The

auditors power  and  rights,  lead  liability,  ethics  and  types  opinion.  The  study

will  also  cover  intend  control  as  a  very  important  variable  in  accountability.

Further aspects and functions of internal audit will also be covered.

 

 

1.7   LIMITATIONS OF THR STUDY

 

     In  the  course  of  this  research  work, problems  of  various  natures  were

encountered, which in no small measure constituted some “Road block” to the

progress of the study. Among the militating factors are the following:

  1. Non-return of completed questionnaire by some respondents: some of the

      respondents did not return their response of the questionnaire irrespective

      of the researcher‟s series of reminder letters. Their reasons ranged from

        forgetfulness to lack of chance to attend to the questionnaire.

  2. Piecemeal  collection  of  information:  information  was  collected  in

      piecemeal from management due to bureaucracy among others.

  3. Reluctance  in  releasing  information  on  even  oral  interviews.    The

      researcher was looked upon as a spy in disguise who has come from their

      competitors to x-ray what they called their “top secrets” and “blue prints”

      As  a  result;  comprehensive  data  were  not  easily  collected

        notwithstanding the researcher‟s letter of introduction.
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  4. Time: This was not a good friend of the researcher. The time allocated to

      this  study  was  very  insignificant  compared  to  the  volume  of  the  work

      involved. This time constraint was further companied by the existence of

      other class room work.

  5. Funds: Money was another constraint to the research work. Most often,

      the researcher ran out of funds and had to delay the work for money to

      come in.

  6. Exeat:  Considering  the  school  system,  time  spent  on  the  search  for

      permission to leave school as regards to the research study is yet another  

      factor that ate deep into the very fabric of time allocated for this study,

      hence it is considered as a limiting factor to the progress of the study.

 

 

1.8   ORGANZATION OF STUDY 

 

    In  order  to  realize  the  aim  and  objective  of  this  study  the  write-up  was

divided  into  five  chapters  not  only  for  an  intensive  study  but  also  for  the

convenience and better understanding of the information by users. 

    Chapter  one  of  the  research  work  covered  an  introduction  to  the  study:  the

statement of problem objectives of the research;  the limitation encountered by

the  researcher  during  the  study:  Organization  of  the  study  and  the  operational

definition of terms used in the study.

   Chapter two covered an interview of current and related literature.

    Chapter three dealt with the methods and procedures used by the researcher

in conducting the study.

     The analysis of the data collected by the researcher is treated in chapter four. 
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      The  fifth  chapter  dealt  on  the  researcher‟s  findings/observations,

recommendations  to  the  information  user  and  a  conclusion  of  the  entire  work

based on the researcher findings, observations and tests.  

 

 

1.9    DEFINATION OF TERMS

 

    Some terms used in this study which may not be clearly understood by some

readers are hereby defined.

Audit:

         This is the dependant examination of a financial statement by an auditor

expressing an opinion about the true and fair view of the financial statement and

state of affairs of the enterprise.

        It  is  the  independent  examination  of,  and  expression  of  opinion  on,  the

financial statement of an enterprise by an appointed auditor in pursuance of that

appoint and in compliance with any relevant statutory obligation.


AUDITOR:

 The individual or partnership firm appointed to carry out an audit of the

financial statements of an entity.


AUDIT   REPORT:

 Any report, written by an auditor on a matter on which an opinion has

been sought within the terms of an auditor‟s appointment.


AUDITOR‟S REPORT:

 This is another term for audit report.


 


 


 
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AUDIT EVIDENCE:


   This  is  information  obtained  by  an  auditor  inn  arriving  at  the conclusion

which forms the basis of the auditor‟s opinion on the financial statement being

audited.


INTERNAL AUDIT:

  This is the audit function carried out within an organization of evaluating and

reporting on accounting and other controls on the operations of the organization.

  An audit of an accounting entity carried out by an auditor who is not employed

by  that  entity  or  by  its  manager  and  is  as  far  as  possible  independent  of  the

person(s) who manage(s) the entity.


 

ACCOUNTABILITY:

  This is the state or condition being accountable.


ACCOUNTABLE:

  This  is  the  required  provision  for  the  description,  analysis  and  evaluation  of

actions.

INTERNAL CONTROL SYSTEM:

  This is the whole system of controls financially and otherwise established by

the management in order to carry on the business of the enterprises in an orderly

and  efficient  manner,  ensure  adherence  to  management  policy, and  safeguard

the completeness and accuracy of the records, as regards to an organization. 

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