The Effect Of Internal Auditing On External Audit Fees In Nigeria

The Effect Of Internal Auditing On External Audit Fees In Nigeria

Chapter One

Preface

Background To The Study

Auditing norms permit external adjudicators to calculate on the work of internal adjudicators in performing a fiscal statement inspection( AICPA 1997; PCADB 2004; PCAOB 2007). It stands to reason that cost savings can be realized when external adjudicators are suitable to calculate on a customer’s internal inspection function( IAF), and in a competitive inspection request a large portion of these cost savings are likely to pass to the customer in the form of lower external inspection freights. This study investigates the relation between the donation that internal inspection makes to the fiscal statement inspection to the external inspection freights. Using a unique and preliminarily unapproachable old internal inspection data, we ameliorate on the work by creating or introducing quality- related internal inspection measures and thereby essay to more specify the relation between internal auditing and external inspection freights. The internal control system of an association to a large extent determines the inspection freights of an externalauditor.However, for a longer duration and a advanced inspection freights will be paid to the external adjudicator, If the internal control system of an association is strong the external adjudicators will have a shorter duration to work and low freights as well will be paid to the external adjudicators but if the internal control system of an association or a establishment is weak also the external adjudicator will have important work to do. Also, the advanced the development of a company the advanced the professional freights charged by the external adjudicators.

Range of terms was employed to describe this exploration, they include “ internal inspection ” “ external auditing ” “ internal control system ”. Internal inspection is an independent appraisal function within an association for the review of systems of control and the quality of performance, as a service to the association. It objectively examines, evaluates and reports on the acceptability of internal control as a donation to the proper, profitable, effective and effective use of coffers.( Millichamp, 1993), also internal control system is the whole system of controls, fiscal or else established by operation in order to carry on the business of the enterprise in an orderly manner, guard its means and to secure as far as possible the delicacy and trustability of its records( Oladipupo, 2005).

According to William Thomas, Emerson.O. Henke, 1983, Internal control system is the record and summary of account data in an association. The professional part of the independent external adjudicator is to express an opinion in the true and fair view of the fiscal statement checked . In other words, he’s there to cover the interest of shareholders and other parties that make use of the fiscal statement in decision- timber. The adjudicator provides other services piecemeal from auditing the establishment which include accountancy taxation, liquidation and receivership, disquisition operation advisory services, the adjudicator generally prepares a separate letter of engagement and separate freights should be charged. The freights charged for these services is typically not part of the inspection freights charged. inspection figure relates to inspection exercises but when an adjudicator writes the books, prepares bank conciliation statements or the final accounts( which are constantly done in practice in the checkups of numerous private limited liability companies in Nigeria and other developing country) a separate figure called accountancy will be charged. This is so because similar functions aren’t typically part of the inspection functions but rather are counting functions( Izedonmi, 2000). The time spent in performing fiscal inspection tasks, and time spent furnishing backing to the external adjudicator( work performed) relates with the prospects, which more competent internal inspection function associates with lower unanticipated inspection freights. Companies that have internal adjudicators have a lower unanticipated external inspection figure.( WoodD.A., 2007).

Statement Of The Problem

In outlining colorful approaches to internal auditing and external inspection freights a number of problems will be bandied. The trouble but largely inconclusive findings have redounded in several calls for fresh exploration to more understand the relation between internal auditing and external inspection figure( Felix, Gramling, and Malleta, 1998; Hay, 2006). farther analysis suggests that guests can affect the extent of internal auditing by investing in internal inspection quality and depending on the position of essential threat, by either managing internal inspection vacuity or easing lesser collaboration between internal and external adjudicators. The problem stated above doesn’t indicate dangerous situation has developed, it’s as a result of this problem that this exploration work intend to also examine whether characteristics of the internal inspection function( IAF) relating to capability, neutrality, and nature of work performed reduce the external inspection freights.

Exploration Question

In order to examine the relationship between internal auditing and external inspection figure, this exploration question was considered.

1. Is there a positive relationship between external adjudicator’s freights and internal adjudicator’s capability?

2. Is there a positive relationship between external adjudicator’s freights and internal adjudicator’s neutrality?

3. Is there a positive relationship between external adjudicator’s freights and internal adjudicator’s nature of work performed?

Ideal Of The Study

The ideal to this study is

1. To find out if there’s a positive relationship between external adjudicator’s freights and internal adjudicator’s capability.

2. To find out if there’s a positive relationship between external adjudicator’s freights and internal adjudicator’s neutrality.

3. To find out if there’s a positive relationship between external adjudicator’s freights and internal adjudicator’s nature of work performed.

Significance Of The Study

The study is of applicability to pot and adjudicators due to their desire to strengthen internal controls and reduce inspection figure by counting on internal adjudicators.( WandaA., Wallace, 1984). substantiation on the work suggest that unanticipated external inspection freights are significantly lower for companies where the head fo internal inspection reports to the inspection commission; still, this result doesn’t hold in some analysis because the time internal adjudicators spend performing fiscal work is appreciatively related to unanticipated external inspection freights.( WoodD.A., 2007). This exploration will explore these aspects of the study and make an attempt to give result or make suggestion as to how the internal inspection function( relating to capability, neutrality, nature of work performed) and freights paid to external adjudicators will be enhanced.

Compass Of The Study

This study examines the goods of internal auditing on external inspection freights. It suggests that external adjudicator’s reliance opinions are grounded heavily on quality related factors specified by external auditing norms( i.e. the capability, neutrality of, and work performed by internal adjudicators). The study focuses on the listed companies of the Nigerian Stock Exchange( NSE) as at December 31st 2006.

Statement Of Suppositions

The suppositions were formulated grounded on the previsioned problem of the exploration work.

1. There’s a positive relationship between external adjudicator’s freights and internal adjudicator’s capability.

2. There’s a positive relationship between external adjudicator’s freights and internal adjudicator’s neutrality.

3. There’s a positive relationship between external adjudicator’s freights and internal adjudicator’s nature of work performed.

Limitations Of The Study

Result indicates that the time internal adjudicators spend performing fiscal work is appreciatively related to unanticipated external inspection freights. None exposure of information, record keeping of fiscal statement and shy coffers( fund) is a debit to the study.