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The need for auditing arose when the management of an enterprise was separated from the ownership. The passing of the companies Act in Britain, introduced by Gladstone in 1844 set the scene. The Act required that registered companies should appoint one or more auditors to report on the company’s solvency to creditors. The companies Act 1879 made the appointment of auditors compulsory for banking companies and this was finally expected of all companies by the companies Act 1900.


The Nigerian Companies and Allied Matters Act (CAMA) 1990 as amended. Section

359( I) states that, the auditors of a company shall make a report to its members on the

accounts examined by them and on all group financial statements, copies of which arc

to be laid before the company in a general meeting during the auditor’s tenure of office.

The responsibility of the auditor in examining the financial statements is to enable him

express an opinion on the truth and fairness of the financial statements.


External auditing is a statutory requirement for public companies CAMA (1990) section 351 (1) states that, “every company shall at each annual general meeting  (AGM) appoint an auditor or auditors to audit the financial statement of’ the company  and to hold office from the conclusion of that, until the conclusion of the next AGM. The fundamental responsibility of the auditor is to scrutinize the accounts and records of  business entities, including charities; trusts, professional firms, as well as governmental establishments in such detail as will enable the auditor form an opinion about its accuracy and reliability.


However, in order that the auditor will do his work effectively, he requires a degree of independence necessary for a wholly objective audit (Izedonmi, 2000).

Ezejeluer (1996) as cited in Oladipupo (2004) aptly puts it that the general principle is

that the auditors must approach his work with an independent outlook and must do

nothing which would impair that independence.



An audit is a careful and unbiased examination of, and inquiry into any statement of account relating to money worth, the underlying documents and the physical assets where possible and all other available evidence as will enable the auditor to form an opinion .hereon and to report accordingly (Chukwuemeka & Okoye, 1998).


According to Okaro and Okafor (2009); audit is an examination of the  financial statements of enterprise by an independent expert (the auditor) with a view to attesting that such financial statements (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 such as shareholders, creditors, government regulators, customers and other interested third parties. Usually, these third  parties use the information to make various economic decisions including, for example, the decision about 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 maker’s risk. Thus, auditors reduce information risk which is the risk that the financial information used to make a decision is materially misstated. Herein, lays the importance of the audit function. It follows also that audit failures increase information risk and could have disastrous consequences for allocation of scare resources in any economy.



Although the rules differ between jurisdiction, usually larger companies, and  all publicly quoted companies must have their financial statements independently audited. Note that the auditors do not certify financial statements. That is done by the company’s directors. All that an auditor does is to examine the financial statements and records of a company and opines on whether they do indeed show a “time and fair” view (or meet other particular requirement that the auditor is, engaged to opine on).


According to CAMA (1990), it shall be the duties of the company’s auditors, in

preparing their report; to carry out such investigations as may enable them to form an

opinion as to whether:

  1. proper accounting records have been kept by the company and proper returns

adequate for their audit, have been received from branches not visited by them,

  1. the company’s balance sheet (now statement of financial position) and (if not

consolidated) its profit and loss account (now comprehensive income

statement) are in agreement with the accounting records thereon.


The auditor is required to maintain an attitude of professional skepticism

recognizing the possibility that a material misstatement due to fraud could exist,

notwithstanding the audit’s past experience with the entity about the honesty and

integrity of management and those charged with governance.


The auditor is expected to perform procedures to obtain information that is used to identify and assess the risks of materials misstatement due to fraud, consider whether an identified misstatement may be indicative of fraud and obtain written representations from management relating to fraud.


The auditor should provide guidance if, as a result of a misstatement resulting

from fraud or suspected fraud encountered by exceptional circumstances that bring

into question the auditor’s ability to continue performing the auditing (Asein, 2007).

Every auditor of a company shall have a right of access at all times to the company’s

book of account and vouchers and entitled to require from the company officers such

information and explanation as he thinks necessary for the performance or auditors




Audit failure can occur as a result of the following reasons

  1. Ethical failure
  2. Negligence in carrying out the audit process

iii. Environmental and cultural influences

  1. The limitations of the modern audit process itself.



Professional independence is one of the fundamental concepts to the accounting

profession. This is often an attitude of the mind characterized by integrity and

objectivity approach to professional work. The auditor must act with objectivity and

impartiality and free from any undue influence which might appear to conflict with his

assignment. The report of the external auditors adds credibility to the financial statements of a company and to maintain this credibility however, the auditor must be independent of the management. Any auditor that indicates an involvement or financial interest in the management or the enterprise will reduce the effectiveness of the Investigative independence auditors’ opinion. The following are areas in which the auditor has to exercise his independence.

  1. Programming independence
  2. Investigative independence

iii. Reporting independence


Oluwanya (2004) was the opinion that Nigerian auditors may not be truly

independent since a dissatisfied board will find a way of effecting the removal of the

auditors at the annual general meeting, the provision of auditors is not psychologically

free as a result of the fact that the distinction CAMA 1990 not withstanding. Ezejulue

(2004) argued that the Nigerian auditor is not psychologically free as a result of the fact

that the distinction between shareholders and management has become so often blurred

that the appointment, remuneration and dismissal of auditors is effectively decided by

management who are the very people, the auditors may wish to criticize in the course

of their duties.


Onosode (2001) believed that the Nigerian auditor is not truly independent and

attributes this to the inability of some auditors to distance themselves from overbearing

board or management so as not to incur their wrath and put their appointment at risk.



Statutory audit do help to assist organizations to improve their internal audit

functions by measuring the effectiveness of existing internal audit processes and

advising on the development of enhanced internal audit methodologies.

It helps the accounts to be regarded an authentic, correct and vehicle as a true and fair

indicator or the state of affair of an organization. The rational behind this, is that

auditors do not partake in the preparation of an account and his opinion as an

independent one, arrived at after an objective examination of all the relevant evidence

relating to the financial statement.


Statutory audit assists an economy in assessing the income tax payable by a firm;

the tax authority will normally be more willing to accept the profit and loss revealed by

financial accounts certified by an independent auditor. In the absence of such certified

financial statement, the firm may have a difficult time convincing the tax authority that

the accounts are correct.


Continuing globalization will increase the complexity of principles, regulations,

and the culture in which organizations operate. Increasing litigation, legislation and

regulations will carry important compliance implications. Ever growing competition

will increase the pressure on organizations in order to enhance productivity as a result

of the relevance of statutory audit in an economy.


Statutory audit enhances the amount a purchaser is willing to pay for a business

will depend among other things, on the earning capacity of the business and the trend

over a number of years. This will be revealed in the profit and loss account for the past

number of years decided upon, five or ten years for example. Negotiations will be

easier if the accounts for these years have been audited and certified by a qualified



Statutory audit or the financial statements in Nigeria is to provide reasonable

assurance that the accounts have been prepared in accordance with the generally

accepted accounting principles (GAAP) and are free of any misstatements, errors and

discrepancies. It also helps the client to monitor organizational ethic, conducting

effective reviews of operational and financial performance, assessing (he quality,

economy and efficiency of their operations and suggesting continuous improvement



The most statutory audits are conducted for companies and are governed by the

rules of the Companies Act 1990, as amended till date referred to as CAMA (1990).




  1. Appointment of Auditors: Section 357 directed on how the auditor(s) should be

appointed, which shall be appointed at the annual general meeting and that

where no auditor(s) appointed or re-appointed, the director may appoint a

person to fill the vacancy.


  1. Qualification of Auditors: Section 358 stated that to be qualified as an

auditor(s), he must be a member of a body of accountant in Nigeria established

from time to time by an act or decree. He shall not be an officer or servant of

the company, not a partner or not acting as the company professional advice in

a consultancy capacity.


  1. Remuneration of’ Auditors: Section 351 stated that the auditors’ remuneration

may be fixed by the directors or the company at the AGM depending who

appointed the auditors. The remuneration of the auditors includes sums paid by

the company in respect of auditors expenses.


  1. Auditor’s Removal: Section 362 stated that company away by ordinary

resolution remove an auditor before the expiration of his term of office in

respective of the agreement entered into with him.


  1. Resignation of Auditors: Section 365 stated that an auditor of a company may

design his office by depositing a notice in writing to that effect at the

company’s registered office and any such notice shall bring to an end the term

of his office. This notice shall need to be brought to knowledge o the members

or creditors of the company.


  1. Auditor’s Rights: Section 363 stated that a company’s auditors shall be entitled

to attend any general meeting of the company and to receive all notices of and

other communications relating to any AGM which a member of the company

is entitled to receive and to be heard at any AGM which they attend on any

part of the business of the meeting which concerns them as auditors.


  1. Audit Committees: This is a committee or directors, usually without executive

responsibility or top-ranking managers, which considers both the external and

internal audit plans and activity with specific brie to review internal control



Since professional accounting services have implications for the public interest, the audit performance gap occurs when public expectations are reasonable but the auditor’s performance does not fulfill them. This means that there is a shortfall in the audit’s performance. For the statutory audit in Nigeria to be relevant, there need to be an overhauling of the law that governs the auditing of financial statement in the country. The need for the law to impose stiff penalties on company management intent on deliberately misleading their auditors cannot be overemphasize. Audit committees of public companies in Nigeria must rise to the challenges of strengthening the independence of their audit. On their part, auditors must adhere strictly to their professional ethics. It is on this respect that great premium ought to be placed on the sanctity of the profession’s self-regulatory measure of regular rotation of engagement partners to enhance rebuilding the waning confidence of the public in the attestation function of the auditors and ensuring its continued relevance of the statutory audit in today’s complex and dynamic business world.



The following recommendations have been made so as to make statutory audit

relevant in Nigeria,

  1. Widen legislation to penalize top company management that mislead their auditors and penalize auditors for negligent work.
  2. Appointment or a government oversight body to conduct inspection of all registered accounting firms on a continuous basis.

iii. Separation of audit relationship from provision of other services.

  1. The introduction of mandatory rotation of auditors.
  2. Involvement of audit committees, non-executive directors and institutional shareholder in the appointment of external auditors.
  3. Strengthening or the mandatory continuing professional education (MCPE) requirement for professional accountancy bodies.



Unuigbokhai A. O. & Ehimi C.O.    The Relevance Of Statutory Audit In Nigeria

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The Relevance of Statutory Audit in Nigeria – A. O. Unuigbokhaia and C. O. Ehimi

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