THE ROLE OF AUDIT COMMITTEE FOR THE PROPER ACCOUNTABILITY OF COMPANY’S FUNDS

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[icon type=”icon-pencil”]: THE ROLE OF AUDIT COMMITTEE FOR THE PROPER ACCOUNTABILITY OF COMPANY’S FUNDS
[icon type=”icon-book”]: Chapter 1 – 5
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This study,THE ROLE OF AUDIT COMMITTEE FOR THE PROPER ACCOUNTABILITY OF COMPANY’S FUNDS contains concise information that will serve as a framework or guide for your project work. The project study is well-researched for academic purposes and are usually provided in complete chapters with adequate References.

Keywords:THE ROLE OF AUDIT COMMITTEE FOR THE PROPER ACCOUNTABILITY OF COMPANY’S FUNDS


RESEARCH BODY

ABSTRACT

This research work was designed to study and investigate precisely the Role of Audit for the proper Accountability of Company’s Fund with special emphasis on Department of Petroleum Resources.Prudent fund management requires that available resources be equitable allocated to all activities or proposals such that each ill not suffer under over allocation of funds. How efficient a manager is can be determined by how effective he can account for funds entrusted to his care.It is expected that available management tools for the purpose of proper accountability be adopted or used by administrators in the discharge of their administrative responsibilities. Audit which is mostly used as the last resort of company’s managers need to be enforced by any organization to enable it evaluate performance and deviation.Data for the study was collected form both the primary and secondary sources. The questionnaire method was used to collect data. Forty-three (43) respondents were selected using the stratified random sampling techniques.The simple percentage was used in the presentation of data, while the chi-square was used to test the hypothesis.

The study revealed that:

(1) The internal control system is weak.

(2) The accounting system is weak.

(3) Payments are sometimes influenced by top management.

(4) The occasional audits are mainly concentrated on financial matters.

The study finally proffered solution by recommending ways through which organization could achieve their audit objectives.

TABLE OF CONTENTS

CHAPTER ONE

1.1 General background of the study

1.2 Statement of problem

1.3 Objective of the study

1.4 Significance of the study

1.5 Scope and limitation of the study

1.6 Brief history of the Department of Petroleum Resources

1.7 The functions of Department of Petroleum Resources

1.8 Statement of hypotheses

CHAPTER TWO

LITERATURE REVIEW

2.1 Internal Audit

2.2 System auditing

2.3 Accountability

2.4 The auditing interest in client accounting system

2.5 A documentary evidence of an audited account management

2.6 Management

2.7 System management

2.8 Financial management

2.9 Aids to proper accountability of fund

2.10 Planning

2.11 Control

2.12 Organizing

CHAPTER THREE

Research Design and Methodology

3.1 Sources of data

3.2 Research Instruments used

3.3 Determination of sampling size

3.4 Method of data analysis

CHAPTER FOUR

Presentation and analysis of data

4.1 Testing the hypotheses

CHAPTER FIVE

Summary, conclusion, findings and recommendation

5.1 Summary

5.2 Conclusion

5.3 Recommendation

Bibliography

Appendix.

CHAPTER ONE

INTRODUCTION

1.1 GENERAL BACKGROUND OF THE STUDY

The word “Audit” is from a Latin word “Audire”, which means to HEAR. The practice was known to have first existed in Egypt.

In medieval period, the stewards were responsible for the welfare of their masters, thereby demonstrating the responsibilities of good and efficient stewardships over financial resources provided and entrusted to them for the proper running of their transaction.

Accountability is therefore necessary for managers of company’s funds to ensure that money and other assets entrusted to them are adequately taken care of. How one is able to account for funds, assets and other valuables entrusted to his care will then determine his efficiency and good stewardship.

There is a belief that auditing is a subdivision of accounting, this is probably because that is how it was introduced considering its origin. It is true, that every auditor is an accountant but every account is an auditor.

The relationship that exists between auditing and accounting is close but not just the same. Accounting is objectively concerned with the collection, classification, summarization and communication of financial information. Accounting has been observed overtime to be “The language of Business” and that big organizations have failed because o lack of adequate accounting records.

Auditing as a phenomenon is the independent examination and investigation of the books of account and vouchers of a business with a view to enabling the auditor to report whether the balance sheet and profit and loss account are properly and adequately drawn up so as to show a true and fair view of the state of the affair and the profit of the business.

The auditor could be said to be an independent critic, for in so far as he is appointed to verify a balance sheet and profit and loss account or other forms of statement of account prepared by others. An auditor is one to whom the receipt and payment of an organization is read, for him to verify.

Professor settler once said, “Auditing is a managerial control which functions by measuring and evaluating the effectiveness of other controls”. And according to Arthur W. Holms “auditing is independent appraisal activity with an organization for the review of the accounting financial and other operations”.

Verification of the correctness and reliability of accounting information is an essential process of lending credibility to accounts. This function is performed by the auditor; auditing investigates and reveals the variance of deviation and provides useful information relating to the sources and usage of funds and assets available to an entity for its daily operation.

Internal auditing is an appraisal of the information flow, for its quality and compliance and is mainly concerned with the reliability and adequacy of the accounting system through:

(i) Evaluation of compliance with generally accepted accounting principles and the Companies and Allied Matters Act (CAMA) 1990.

(ii) Protection of assets

(iii) Detection of waste

(iv) Prevention of fraud.

Operating within this entity, internal audit is an independent appraisal of the activity for the review of operation as a service to management; it is a measurement and evaluation of the effectiveness of control in the organization.

The system of external audit however is a more independent assessment of financial operations; it is an objective examination of the account with a view to ascertaining whether or not they show a true and fair view of the state of affair. It is an impartial investigation to confirm that transactions are supported by relevant and reliable documentary evidence.

Auditing is a method of reviewing system, conducting test, comparing the result and reporting the final opinion. It is this factor that makes auditing a social responsibility, assessing the quality of resources utilized in a financial operation with a view to ensuring the financial management of an organization is free form error and fraud.

An auditor can either be in a statutory form, such as a limited liability company or a private audit such as sole traders and partnership and non-statutory organization audit.

In the case of statutory and that is most relevant in this discussion, the shareholders of a limited liability company pull their resources together to form the company, but some of them have limited management skills hence the need to employ full time managers who will manage their resources in the company for them. The directors who manage the affairs of this company are therefore agents or stewards of the shareholders. The stewards, from year to year give account of their stewards to the shareholder of the investment in the company.

However, for the directors’ accountability to be credible, the Companies and Allied Matters Decree (CAMD), 1990 empowers the shareholders to appoint an outsider (in the form of an auditor) to review the management’s accountability and give his report thereon. This is the category within which the department of petroleum resources (DPR) falls. Audit here serves as a means of protecting+ the shareholders from any resource mismanagement by the company’s directors.

It has been made to be that an external auditor of a limited liability company must be a chartered accountant i.e. be a member of the Institute of Chartered Accountants of Nigeria (ICAN), or member of the Association of National Accountants of Nigeria (ANAN) and must hold a practicing license.

Some examples of the dramatic changes in accounting and auditing provisions, brought in by the CAMD 1990 were that:

(i) Every company was required to present annually to its shareholders not just the traditional balance sheet but also a profit and loss account more significantly, the auditor was for the very firm time required to give a report as to the reliability of both statements.

(ii) The appointed auditor’s duties, power and responsibility were clearly laid down in Act which puts the emphasis on the need for the auditor to give an expert opinion on the auditing of the company’s published results rather than on detection of error and fraud.

In the above therefore, the primary objectives of the auditor as stated in the Act 1990 is whether in the auditor’s opinion, the financial statement give a true and fair view of the balance sheet and of its result for the period then ended. Moreover, whether the opinion of the auditor, after export examination, he was satisfied that the company had maintained adequate accounting records.

1.2 STATEMENT OF PROBLEM

The essence of asking one to account for the responsibility entrusted to his care has been a matter of great concern in Nigerian companies both in past and recent time. When one is given company fund for a particular assignment and comes back to drop the balance at the completion of the assignment this in itself is an act of accountability. Be it as it is, the truth and fairness of such an accountability can only be confirmed by a third party after confirmation of the schedule of expenditure and income or fund supplied to him for such purpose.

In the world of business organization, it is expected that every business outfit be it private or public should judiciously utilise its available resources for an effective and efficient operation. It follows that prudent fund management, which requires that available resources be equitably allocated to all activities as it concerns the company.

In the early days, industries were small in size and could be controlled by the management alone. But as a result of expansion of these industries, management could not cope with the situation.

The detection of errors and fraud continued to dominate the conduct of company audit, despite the fact that it was now becoming more the rule rather than the exception for the auditor to be a professional accountant. Increasingly however, there was recognition of the need to provide detailed financial accounting information for the benefit of investor and other interested parties; as more and more importance was attached to the information contained in company’s balance sheet, so the role of the auditor was increasingly seen as being to lend credibility to this information of account.

It was the rapid development of the 1930s and 1940s, which really saw the “Birth” of auditing as we know it and understand it today. During this period, company management, particularly, larger enterprises, proved their acceptance of responsibility for detection of error and fraud, they did this by establishing systems of financial control and reporting, which were designed to minimize the risk of errors and fraud ever taking place at all.

This development was necessitated by the fact that the volume of transactions in which many companies were now involved meant that auditors were forced to use system of test checking if they were to complete the audit in a reasonable time.

So it was that, the major audit objectives were established as firstly, the giving of an opinion on the quality of the accounting information supplied to shareholders in the annual accounts and secondly, the verification of the reliability of the accounting records.

As stated, the auditor has a statutory duty to form an opinion on the truth and fairness of company financial statement, in order to discharge his responsibility properly. The auditor will always have to undertake an examination of the underlying accounting records of a company in order to consider whether or not such records provide a reliable basis for the preparation of account, which shows a true and fair view.

1.3 OBJECTIVE OF THE STUDY

The major objective of this study is to investigate how the activities of auditors in Nigeria companies with particular reference to Department of Petroleum Resource (DPR), have affected and correct the ills of improper accountability.

Specifically, the study would among other things:-

(i) Identify the relationship between auditing and accountability and whether auditing can ensure proper accountability.

(ii) Compare standard performance with actual, to check variance or deviation.

(iii) To investigate why fraud is prevalent in companies.

(iv) The role of the auditor in such entities, sources and application of company’s funds.

1.4 SIGNIFICANCE OF THE STUDY

It is hoped that at the end of this study useful information about the role of auditing as it affects proper accountability of company’s funds with particular reference to DEPARTMENT OF PETROLEUM RESOURCES (DPR)

Also, as suspected, since much has not been done in this area, it is hoped that this study would identify areas of future research-work in the study area and similar areas.

Finally, it would serve as a generally literature for future research work.

1.5 BRIEF HISTORY OF THE DEPARTMENT OF PETROLEUM RESOURCES

In the early fifties, petroleum matters were handled by the hydrocarbon section of the ministry of Lagos Affairs which reported directly to the Governor – General. This unit kept records on exploration matters and importation of petroleum products; it also enforced safety and other regulations on petroleum operation, which were then mostly products importation distribution. As the activities of the petroleum industry expanded, the unit was upgraded to a petroleum division within the ministry o mines and power.

It grew to become the DEPARTMENT OF PETROLEUM RESOURCES in 1970. In 1971, a new body – the Nigerian National Oil Corporation (NNOC) was created to handle direct commercial operational activities in the oil industry on behalf of the Federal Government, while the Department of petroleum Resources in the Federal Ministry of Mines and Power continued to exercise the statutory supervision and control of the industry. In 1975, the Department was upgraded to a ministry and named the ministry of petroleum and energy which was later renamed the ministry of petroleum resources.

Decree 33 of 1977 merged the ministry of petroleum resources and the Nigerian National Oil Corporation 9NNOC) to form the Nigerian National Petroleum Corporation (N.N.P.C), in order to conserve the then scarce manpower in the oil industry. This degree also created the petroleum inspectorate as an integral part of the N.N.P.C, and entrusted it with the regulation of the petroleum industry, but barred it from engaging in any commercial transactions and from taking commercial decisions for the corporation.

In 1985, the Ministry of Petroleum Resources was re-established, but the petroleum inspectorate remained within the Nigerian National Petroleum Corporation and retained its functions until March 1988 when the Nigerian National Petroleum Corporation was reorganized. By this reorganization, the petroleum inspectorate was excised from the Nigerian National Petroleum Corporation, and transferred to the ministry of Petroleum Resources as Department of Petroleum Resources.

The role of the Department of Petroleum Resources in these matters is mostly advisory and it includes identifying infringement and making them known to the government agencies, which possess the appropriate enforcement authority. However, section 7 (1) of the Decree 1969 and Regulation 25 of the mineral oils (safety) Regulation 1963 confer the power of arrest and a magistrate on officers of the department of petroleum resources in certain circumstances.

1.6 THE FUNCTIONS OF DEPARTMENT OF PETROLEUM RESOURCES

From the provisions of the above stated decrees and regulations, the functions of the DEPARTMENT OF PETROLEUM RESOURCES may be summarized as follows:

(i) Supervising all petroleum industry operations being carried out under licenses and leases in the country, in order to ensure compliance with the applicable laws and regulations.

(ii) Monitoring the petroleum industry to ensure that operations are in line with national policies and goals.

(iii) Enforcing safety regulations and ensuring that operations conform to national and international industry practices and standards.

(iv) Keeping and updating records on petroleum industry operations, particularly on matters relating to petroleum reserves production exports, licenses and leases, as well as rendering regular reports on them to government.

(v) Advising government and relevant government agencies on technical matters and public policies which may have an impact on the administration and control of petroleum.

(vi) Processing all applications for licenses to ensure compliance with laid down guidelines before making recommendations to the Honourable Minister of Petroleum Resources.

(vii) Ensuring timely and adequate payment of all rents and royalties as and when due.

These functions cover all the activities of the petroleum industry which geophysical and geological activities, drilling, production, exports refining, petrochemicals, transportation and distribution (by pipeline, rail, road and ocean tankers) and marketing of petroleum products.

1.7 STATEMENT OF HYPOTHESES

This study is aided by two hypothesis this is to make the study go beyond mere description.

(i) Auditing has positive rule on the accountability of company’s funds.

(ii) Managers of company funds make adequate and efficient utilization of scarce resources at their disposal.

Keywords: THE ROLE OF AUDIT COMMITTEE FOR THE PROPER ACCOUNTABILITY OF COMPANY’S FUNDS



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Keywords: THE ROLE OF AUDIT COMMITTEE FOR THE PROPER ACCOUNTABILITY OF COMPANY’S FUNDS

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