BRIDGING THE AUDIT EXPECTATION GAP THE PERCEPTION OF ICAN MEMBERS

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ABSTRACT.

This research set out to find out the perception of Members of ICAN, an important stakeholder group, on the fresh initiatives at bridging the audit expectation gap problem. Four hypotheses were formulated and tested in the course of this study.  A survey design approach  was  adopted  for  the  study  .Out  of  a  population  of  23,324,  159  ICAN MEMBERS were randomly selected. The t- test statistic and the Chi square were used to test the hypotheses of the study.  The study found out, among others, that 24 out of the 29 methods  on  offer  for  bridging  the  audit  expectation  gap  and  articulated  in  the questionnaire were acceptable to members of ICAN. Consequent upon the findings, it was recommended that ICAN should commence the process of implementing some of the methods within its purview and approved by its members as capable of ameliorating the expectation gap problem.

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Audit expectation gap is the gap between the role of an auditor as understood by the auditor and the users of financial statements .It is a gap between what the auditor is

doing and what the society expects him to do creating the impression that the statutory objective of audit is not meeting the social needs of the populace.   The functions performed  by the accounting profession  are  vital  to  the growth  and  stability of the financial market, whether at the global level or at the local level (Egbiki, 2006: 56 – 57).

An audit has been defined as an examination of the financial statements of an enterprise by an independent expert (the auditor) with a view to attesting that such financial report (in his opinion) show a true and fair view of the state of affairs of that enterprise for the period under review. The contribution of the auditor is to provide credibility to information. This means that the information can be believed and that it can be  relied  upon  by  outsiders.  The  outsiders  include  shareholders  and  government regulators. Others are creditors and customers. Usually these third parties use the information to make various economic decisions. An example of this decision is whether to  invest  in  the  organization.  Economic  decisions  are  made  under  conditions  of uncertainty as  there  is  always  a  risk  that  the  decision  maker  will  select  the  wrong alternative and incur a significant loss. The credibility added to the information by the auditors actually reduces the decision makers’ risk Therefore auditors reduce information risk, which is the risk that the financial information used to make a decision is materially misstated. The legal position is that an audit is carried out to enable an auditor form an opinion as to the truth and fairness of financial statements presented to him by his client’s management and to report accordingly. The accuracy of a company’s accounts is the sole responsibility of the directors. However, the accounting profession in Nigeria and other climes has been under intense pressure due to rising public expectations.

These expectations have been fuelled largely as a result of demise of some financial institutions in the late 80’s to early 1990’s and very recently for banks that failed to meet the statutory minimum recapitalization to the tune of N25 billion .Yet other banks failed

the CBN ” stress” test. In the light of these developments the heat was turned on accountants as members of the public sought whom to blame. The wide spread news of financial scandal and false reporting rife in the collapsed institutions have cast the organizational controls and auditors in very poor light. It has also tended to undermine the confidence of the public in the profession to detect and prevent corporate abuses.

Audit failures have been blamed, partly, on greed on the part of auditors.   In defense, auditors have often replied that they are not primarily responsible for detecting frauds and errors. However, shareholders, depositors and most of the general public remain unimpressed as they query the value of a watchdog that cannot bark let alone bite. Most people cannot seem to accept the legally defined status. They would wish to see an auditor’s certificate as an assurance that all that needs to be known about the financial transactions of a company have been disclosed to the auditor. In the same vein, an auditor’s  signature  should  be  taken  to  mean  that  all  is  well  with  the  health  of  the institution concerned  and that  there has  been  no  fraud  or other malfeasance.    This, however, is often not the case.

Two   components   of   the   audit   expectation   gap   have   been   identified   – communication gap and performance gap. Communication gap has to do with what the auditors think is their role and what the members of the public perceive should be the role of auditors. Performance gap, on the other hand, occurs when public expectations are reasonable but the auditor’s performance does not fulfill them. This means that there is a short fall in the auditor’s performance. (Okafor and Okaro, 2009: 11).

In the past, attempts have been made to bridge the gap by the profession. For example attempts have been made to educate users of the limitations of the modern audit process. As part of the process of    educating the user of audited accounts, the modern audit report usually tries to delineate clearly the respective responsibilities of the directors

of a company and that of the auditor in respect of audited financial statements. The profession  has  also  tightened  the  noose  on  self  regulation  bringing  to  book  erring members of the profession. The mandatory continuing professional education whereby members of professional accounting bodies are compulsorily required to attend professional seminars has also ensured that members’ skills are updated and horned up.

However, like a sore thumb, the gap appears to have remained as wide as ever. At the local level, the recent scandal in Cadbury Nigeria Plc whereby profits were overstated

by a whopping sum of over N13 billion, and the subsequent indictment of the accounting

firm  of  Akintola  Williams  Delloite  for  audit  failure,  has  further  aggravated  the expectation gap conundrum.

The international community has not been spared either. The collapse of the energy giant Enron in the United States of America in 2002 as a result of what was obviously a case of audit failure and wobbly accounting standards has again ignited a global search for tools to at least narrow the expectation gap.

The literature is awash with fresh suggestions and initiatives aimed at tackling the problem of expectation gap. ICAN MEMBERS are a very important stakeholder group in the search for a solution to the expectation gap problem. Their cooperation or lack of it can have a tremendous effect on the resolution or otherwise of the problem. This work is therefore an attempt to document in Nigeria, the perception of ICAN MEMBERS as to the initiatives for bridging the audit expectation gap problem.

1.2 STATEMENT OF RESEARCH PROBLEM

The global search for a solution to the audit expectation gap problem has become strident. The credibility of the accounting profession appears to be at its lowest ebb. In the United States of America, the profession has lost its self regulatory status .In this circumstance,  the  profession  is  bestirring  itself  and  the  result  is  a  welter  of  fresh

suggestions and initiatives aimed at solving the expectation gap problem. Some of the suggestions appear mundane while some others at best appear controversial. One U.K research study even concluded that expectation gap problem cannot be eliminated. There is the belief that the accountancy profession has resisted change in auditing for so long that it was unlikely to change of its own initiative. In the light of the above, what is the perception of ICAN MEMBERS in Nigeria as to the fresh suggestions and initiatives aimed at addressing the expectation gap problem?

1.3       OBJECTIVES OF STUDY

This  study has  the  general  objective of ascertaining the perception  of  ICAN MEMBERS in Nigeria on the vexed issue of bridging the audit expectation gap. The specific objectives of this study are as follows

1.         To ascertain the perception of ICAN MEMBERS in Nigeria as to the suggestions for bridging the expectation gap.

2.         To test the popularity, among ICAN MEMBERS in Nigeria, of the suggestion that convocation of all stakeholders dialogue to negotiate the issues involved in the audit expectation gap problem has become necessary

3.         To elicit the opinion of ICAN MEMBERS in Nigeria as to whether undue delay by the Accounting profession in Nigeria may lead unwittingly to government legislative interference.

4.         To enquire into the attitude of ICAN MEMBERS in Nigeria as regards enlisting the co-operation of rival accounting professionals in Nigeria in the search for solution to the audit expectation gap problem.

1.4       RESEARCH QUESTIONS

This study will be approached in such a way that it will, among others, answer the following questions

1.      What is the perception of ICAN MEMBERS in Nigeria about the efficacy of the suggestions for bridging the audit expectation gap?

2.         What is the opinion of ICAN MEMBERS in Nigeria to the suggestion that the convocation of a stake holder’s dialogue to negotiate the issues involved has become desirous?

3.         Are  ICAN  MEMBERS  in  Nigeria  worried  that  any  further  delay  by  the accounting profession in Nigeria to find a lasting solution to the expectation gap problem may lead to government legislative interference to resolve it?

4.         Are ICAN MEMBERS willing to enlist the cooperation of rival professional accountancy bodies in Nigeria to confront the monster of audit expectation?

1.5       RESEARCH HYPOTHESES

To achieve the above objectives, the following hypotheses are formulated for the research study.

1.         The acceptability of the 29 methods itemized in the questionnaire and aimed at bridging the audit expectation gap, to ICAN MEMBERS in Nigeria is not mixed.

2.         The attitude of ICAN MEMBERS in Nigeria towards the suggestion that the Institute   of   Chartered   Accountants   of   Nigeria   should   partner   with   rival accountancy bodies to monitor performance of professional accounting firms is not negative.

3.         ICAN MEMBERS in Nigeria perception of the idea of    an all inclusive stake holder’s conference to negotiate the issues involved in bridging the audit expectation gap is not positive.

4.     ICAN MEMBERS in Nigeria attitude to the suggestion that further delay in bridging the   audit expectation gap might lead to government legislative interference to resolve the issue is not  positive..

1.6       SCOPE AND LIMITATIONS OF THE STUDY

The scope of this study is on the perception of ICAN MEMBERS in Nigeria on the thorny issue of bridging the audit expectation gap given fresh initiatives in this regard. This study will focus on Nigeria. Accordingly, ICAN MEMBERS in Nigeria will be the target  of  this  study and  will  be  sought  at  MCPE’S,  Zonal  and  annual  conferences. Particular care will be taken to ensure that ICAN MEMBERS from the various ethnic and interest groups are covered in the sample. As Abuja has become the melting point of Nigeria’s ethnic groups, the researcher will, among others, sample the opinion of ICAN MEMBERS gathering in Abuja either for MCPE or Annual Conference. The study is being carried out in 2008.

In a research work of this nature difficulties are bound to be encountered. There was paucity of local literature as the researcher was threading on an area that has not been over flogged. Finance constituted another problem limiting the ability of the researcher to travel more extensively in search of relevant data and opinion. Some ICAN MEMBERS filled the questionnaires in a hurry, because of their busy schedules, thus affecting the quality of their answers. Time was of the essence in this research and this also affected the researcher.

On the whole, however, the researcher was still able to use his wealth of experience to navigate successfully   through the difficulties and produce a work that will stand the test of time.

1.7       SIGNIFICANCE OF THE STUDY.

The problem of audit failures globally had tended to exacerbate the problem of audit expectation gap.  As a result the search for a solution has become frenetic. ICAN MEMBERS, especially as auditors, stand at the centre of this effort at a panacea. Chronicling the perception of ICAN MEMBERS in Nigeria as to some of the methods/suggestions on offer for bridging the gap will have the following significance among others, the Institute of Chartered Accountants of Nigeria will benefit immensely from this work as the perception of the rank and file of the Institute about bridging the gap will be documented. The management and members of the Institute can then speak with one voice in any future negotiations aimed at bridging the audit expectation gap. Members of the public will be better informed on this enigmatic subject. Government of Nigeria will be better placed to articulate its own strategy, as the regulatory stakeholder group, in any discourse on this subject matter.  This will apply with equal force to the investing public.   Academics will also have a field day as this work will open a floodgate for further researches on other aspects of this all important subject matter as it affects Nigeria.    Finally,  the  International  community  will  have  the  benefit  of  Nigeria’s experience as the global search for solution to the audit expectation gap cankerworm gathers momentum.

1.8       DEFINITION OF TERMS

The following operational terms germane to this study are hereby defined:

(1)      The Institute of Chartered Accountants of Nigeria: The first professional accountancy body in Nigeria chartered by an Act of Parliament in 1965 and charged with regulating the practice of Accountancy profession in Nigeria.

(2)       ICAN MEMBERS: These are members of the Institute of Chartered Accountants of Nigeria.

(3)      Rival Accountancy Professionals in Nigeria: These are members of other Accountancy bodies in Nigeria notably members of The Association of National Accountants of Nigeria.

(4)       MCPE: Mandatory Continuing professional Education whereby members of the Institute of Chartered Accountants of Nigeria are compulsorily required to attend professional seminars in order to keep abreast of developments in Accountancy profession

(5)       ICAN Disciplinary Tribunal: A quasi judicial body charged with trying erring members of the Institute of Chartered Accountants of Nigeria.



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BRIDGING THE AUDIT EXPECTATION GAP THE PERCEPTION OF ICAN MEMBERS

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