Role of Auditor in Small Organizations



  1. Background to the Study

Over the past years, the scope of auditing has broadened due to the dramatic changes in its impact to organizations. It has always been carried out in diverse environment within organization depending on the structure, size and purpose (Faudziah, Haron & Jantan 2005). Compulsorily, all registered companies under the Companies and Allied Matters Act in Nigeria must audit their financial statements after a certain period of time. Companies benefit from the audited financial statement in a large variety of ways.

Users of financial information such as investors, stockbrokers and financial experts see the audited financial statement as a major thing to look out for when deciding on a choice of company to invest. These people rely on the auditor’s report because they believe it gives a true and fair view of the financial statement.

Nevertheless, many companies have also drifted away from the use of internal auditors.

While some perceive the department as a cost centre that does not generate revenue, some regard it as a unit whose value is not appreciated. Therefore, while some appreciate the advantages that are derived from having internal auditors others believe they are irrelevant and waste of money. Gone are the days when auditing is just about reviewing records or detecting irregularities and frauds. Modern auditing has developed and has thus increased the need of investors in requesting for credible financial statements.

According to Adeniji (2012), Auditing is defined as an independent, objective

assurance and consulting action established to add value and help to improve an organization’s operation. The action carried out is done by an independent person called an Auditor. The independence in context refers to someone been free from all material conflicts such that the objectivity of the audit work is not threatened (Christopher, Sarens & Leung 2008). There must not be any form of interference with the independence of an auditor in discharging his or her duties. An auditor should be given freedom in planning, executing, analyzing and reporting his findings without been biased.

Apart from the fact that auditors express their opinion on the financial statement, they also conduct examinations on the financial records of the organization. The report in which auditors analyse their facts, give their opinions and recommendations is called audit report. The audit report is a vital information to the users of audited statements in making decisions.

According to the requirements of Nigerian stock exchange, all companies listed on the stock market must have their financial statement audited. Also companies and allied matters act (CAMA) 2004 request that auditors need to express their opinion on whether the financial statement is prepared in accordance with the act and if the balance sheet, profit and loss account and group accounts shows a true and fair view.

However, there are many issues hindering an auditing assignment. Such issues needs to be managed and curbed from future occurrence if possible in order to avert possible damage that might be caused.

Small and Medium Enterprises (SMEs) is perhaps the most important sector of any economy not just in the higher number of people employed but in its contribution to the GDP, tax revenue and fast dissemination of technology. In counties such as Indonesia, Indian and Taiwan, SMEs contribute over 40% to the GDP growth of respective countries. In developed economy of Europe and America, SMEs make up 94 percent of all businesses in these countries. Hence, the SMEs role in employment and national economic growth are substantial.

Berry et al (2001) outlined three reasons why developing countries should pay attention to SMEs. These include:

i. SMEs performance is better on creating productive labour

ii. The productivity increase through investment and changing technology

iii. SMEs have more flexibility than big companies.

In-spite of these sector contributions to sustainable development, poverty alleviation and employment generation, there are still some problems that limit the potentials of SMEs in Nigeria to grow particularly in the area of book-keeping, internal control, auditing and risk assessment.

Therefore, this study seeks to investigate the capital and survival strategies of small scale enterprise in Rivers State.  

1.2 Statement of the Problem

The place of auditing in any business, irrespective of its size cannot be overemphasized. International Standards on Auditing (ISA) require close examination of an entity and its environment, including the entity’s control environment and internal control. Auditors are required to assess how management identifies and mitigates risk as part of the audit-risk assessment. Audit of Small and Medium Enterprises have proven to be among the most worrisome for professional accountants because of the inadequacy of the internal controls (Olatunji, 2013). Except for statutory demand, small and medium enterprise hardly give serious thought to process of sound accounting system, risk assessment and auditing hence the imminent and untimely collapse of many of these establishment. The main thrust of this study is to evaluate the role of the auditor in small business organizations.

1.3 Objective of the Study

The purpose of this study is the role of the auditor in small business organizations and specifically, the study seeks to

  1. Examine the key responsibilities of internal auditors in an organization.
  2.  Examine what is required of internal auditors in an organization.
  3.    Examine what are the benefits of having internal auditors in an organization. 

1.4 Researcher Questions

This study is guided by the following research questions:

  1. What are the key responsibilities of internal auditors in an organization?
  2.  What is required of internal auditors in an organization?
  3. What are the benefits of having internal auditors in an organization?

1.5 Statement of Research Hypothesis

The following null hypothesis was given for this study

i. Ho: There is no significant relationship between the roles of the auditor and performance in small business organizations.

Hi: There is a significant relationship between the role of the auditor and performance in small business organizations.

1.6 Scope of the Study

 This research covers the role of the auditor in small business organizations. The scope is Port Harcourt, Rivers State.

1.7 Significance of the Study

 Small-Scale Enterprises in Africa rely largely on own savings, not only to grow but also to innovate, firms often need real services support and formal finance  coordinator. This study will be of benefit to the operators of the Small and Medium Enterprise, the government, and the general public on the possible accounting options and growth of Small and Medium Scale enterprise and give the possible means of accessing them.

1.8 Definition of Terms

Accountant: A person whose job is to keep or inspect financial accounts.

Capital: wealth in the form of money or other assets owned by a person or organization and available for a purpose such as starting a company or investing.

SMEs: small and medium-sized enterprise, a company with no more than 500 employees.

error: Content is protected !!