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PROJECT TOPIC: EFFECTIVENESS OF AUDITOR’S INDEPENDENCE ON CORPORATE PERFORMANCE FOR LISTED FIRMS ON THE NIGERIAN STOCK EXCHANGE

 EFFECTIVENESS OF AUDITOR’S INDEPENDENCE ON CORPORATE PERFORMANCE FOR LISTED FIRMS ON THE NIGERIAN STOCK EXCHANGE 

 

Abstract

The auditor’s independence is a veritable tool of the auditing profession, a crucial element of the statutory corporate reporting process and a key ingredient of the adding of value to an audited financial statement. Corporate performance is an important concept that relate to the ways and manner in which financial resources available to an organization are judiciously used to achieved the overall corporate objectives of an organization. It keeps the organization in business and creates a greater prospect for future opportunity. The economic dependent resulting from the provision of non auditing services, the familiarity developed from lengthy auditor tenure and personnel relationship alumni employees have been alleged to contribute to this erosion of auditor’s independence. Thus, the main objective of this study is to examine the auditor’s independence and corporate performance. The study also attempts to determine the relationship between audit tenure and non audit service, and how corporate performance is measure. The data used in the study was generated from questionnaire distribution to auditors, financial manger, and academicians, In Edo, Delta, Lagos, Ondo, Ogun and Port Harcourt.

 

CHAPTER ONE

INTRODUCTION

1.1     Background to the Study

The auditor’s independence is a cornerstone of the auditing profession. A crucial clement in the statutory corporate reporting process and a key prerequisite for the adding of value to an audited financial statement (Mautz & Sharaf, 2003). In a general sense, auditor’s independence has borne a relationship to the prevailing commercial environment in different time periods. Independence is a state of the mind characterize by objectivity and integrity on the part of the auditors. It implies the performance of auditors work without being biased and avoiding undue influence.

Corporate performance is the final results of all activities. It evaluate performance, the emphasis is on assessing the current behavior of the organization in respect of its efficiency and effectiveness. Corporate performance is an important concept that relates to the way and manner in which financial resources available to an organization are judiciously used to achieve the overall corporate objective of an organization; it keep the organization in business and create a greater prospect for future opportunities.

 EFFECTIVENESS OF AUDITOR’S INDEPENDENCE ON CORPORATE PERFORMANCE FOR LISTED FIRMS ON THE NIGERIAN STOCK EXCHANGE

The provision of non audit services by audit firms does not necessarily influence the independence of auditors as other writers have said. However, where the fees generated from such non audit services are considerably high (in proportion to the audit fees earned by such accounting firms and insufficient safeguard operates to protect the auditor independence. This create a situation whereby the auditors independence is likely to be compromised since the auditor may be denied inscriptive contracts (in the form of fees generated from NAS) where he decides to give a qualified opinion on the financial statement being audited.

There are number of performance measurement tools, which could be clubbed into broad groups like (A) traditional measures (B) non-traditional measures. Traditional measures which indicate the financial strength, weakness, opportunities and threats and return on investment (ROL), Residual income (RI), etc but it is found that some users of financial statement are interested on non-financial performance. In some case, some non-traditional measurement tools are to be used like economic value added. Balance scorecard, etc in the long run, if any area is either were emphasized, performance evaluation by the auditors will become unbalance. In this way, the aim of the concept is to establish a set of measure both financial and non-financial through which a company can control its activities and balance various measures to effectively track performance. 

1.2     Statement of Problem

Auditors’ independence is one of the most important issues in accounting practice today. Independence increases the effectiveness of the audit by providing assurance that the auditor will plan and execute the audit objectively. Because of the importance of auditors’ independence to audit quality performance in an organization, the security and exchange commission (SEC) has engaged in substantial rule making in this area without a conceptual framework. In the wake of the recent corporate performance around the globe, attention has been drawn to the issues of auditors having market based institutional incentives to act independently in protecting their reputation and independent (Zmijwski, 2003). The question of whether auditors’ independence, organizational culture and mechanism on governance have an impact on corporate performance has been the subject of much debate and research. Auditors’ independence is an essential feature of an efficient capital market. Managers have incentives to reduce agency costs in the firm by hiring independent auditors (Jenson & Meckling, 2006). Typically, the accusation made, that auditors have allowed inappropriate accounting treatment which therefore affects their independence by the non audit fees payable to them. The problems inherent in these study are those auditors who may become too close to the company they are auditing or because their objectivity may be challenged due to reliance on income from a single source

 

 EFFECTIVENESS OF AUDITOR’S INDEPENDENCE ON CORPORATE PERFORMANCE FOR LISTED FIRMS ON THE NIGERIAN STOCK EXCHANGE 

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