ABSTRACT
This research study investigated the relationship between auditors responsibility and business failure in Nigeria. In order to achieve the purpose of the study, two (two) hypotheses were formulated and data was collected primary sources through the issue of structured questionnaires to auditors in Rivers State and its environs. Data collected was analyzed using Pearson Coefficient of Correlation and Regression Analyses on Statistical Package for Social Sciences (SPSS). The data analyses revealed among other things that: there is a negative relationship between auditors performing their duty of expressing opinion on the financial statement of companies and deteriorating working capital and declining profits. This finding is indicative of the fact that auditors performing their duty does not lead to business failure in Nigeria. Our findings also showed that the relationship between auditors performing their duty and business failure is not only negative but also insignificant. On the basis of the findings, we concluded that: Insufficient and inappropriate skills of management could cause failure in a lot of companies. Expertise in only limited areas and unwillingness of managers to accept professional advice reduce the possibilities of the company’s chances to survive in the medium term. The implication for policy makers are therefore as follows: Attention needs to be focused on internal management factors causing business failure and also some external factors such as harsh economic environment. Based on the conclusions above, we make the following recommendations: users of audit information should be educated on the functions of auditors and nature of audit service. Users of audited financial statements are encouraged to seek professional advice before investing on a company. This will further assure them of the safety of their investment. Auditors are encouraged to exercise due diligence and care in handling the accounts of a company, this is because failure to do so may abruptly end the business and increase the blame on the accounting profession.
BACKGROUND TO THE STUDY
........... Some symptoms of imminent business failure include deteriorating working capital, declining profit, declining sales and higher debt ratio .Business failure refers to a company ceasing operations following its inability to make profit or bring in enough revenue to cover its expenses.
A study published in 2014 by the Turnaround management society reveals that most crises are caused by the mistakes of top management. Business failures have long been recognized as indicators of economic trend (Simpson and Anderson 1957:153). Knowledge of these trends enable businessmen to make better decisions. The principal source for information about business failures during the late 19th and early 20th centuries was R.G, Dun and company (Gary R and Michael Gou, 2011) accordingly, Dun began publishing monthly data on business failures tabulated by branch of business, which the company asserted, was obviously “of the highest interest and importance to the business world” because the data showed on what directions “misfortune was to be expected.
The abnormal behavior of firms should serve as leading indicators of unhealthy performance which is major concern for researchers and scholars. It has also been widely recognized that business growth as well as survival depend on external and internal factors, while some can be predicted some are not. Insufficient and inappropriate skills of management could cause failure in a lot of companies. Expertise in only limited areas and unwillingness of managers to accept professional advice, reduce possibilities of the company’s chances to survive in the medium term (Ooghe and De Prijecker 2008) Management qualities and skills are not the only factors affecting the survival chances of a company.
Although the financial statements are management’s responsibility, the auditor’s responsibility is to express an opinion on the financial statements. Or to express an opinion on the fairness with which they present, in all material respects, financial position, results of operations, and its cash flow in conformity with generally accepted accounting principles. The auditor’s report is the medium through which he expresses his opinion or, if circumstances require, disclaim, an opinion.
Thus, the accounting profession is under pressure due to public expectations arising from financial failure in Nigeria (Ekwueme 2000:14). These financial failures happened too quickly after an unqualified audit report was issued by the external auditors. Some of these corporate collapses have been blamed on the auditors. It is expected by the public that the unqualified report by the external auditor is an indication that the business is solvent, liquid and has capacity to continue in a foreseeable future ..........
TABLE OF CONTENT
CHAPTER ONEINTRODUCTION
1.1 OVERVIEW OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 5
1.3 OBJECTIVE OF THE STUDY 6
1.4 RESEARCH QUESTION 7
1.5 RESEARCH HYPOTHESES 7
1.6 SIGNIFICANT OF THE STUDY 7
1.7 SCOPE OF THE STUDY 8
1.7.1 LIMITATION OF THE STUDY 8
1.8 ORGANIZATION OF THE STUDY 9
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 THEORETICAL/ CONCEPTUAL FRAMEWORK 10
2.2 THE ROLE OF AN AUDITOR IN ASCERTAINING GOING CONCERN STATUS OF A COMPANY 14
2.3 RESPONSIBILITIES AND FUNCTIONS OF THE INDEPENDENT AUDITOR 19
2.4 DISTINCTION BETWEEN RESPONSIBILITIES OF
AUDITOR AND MANAGEMENT 22
2.5 BUSINESS FAILURE 23
2.5.1 CAUSES OF BUSINESS FAILURE 25
2.5.1.1 High Debt Ratio 25
2.5.1.2 High level of mismanagement 26
2.5.1.3 Unexpected resignation of key staff 26
2.5.1.4. Inadequate Inventory 27
2.5.1.5. Selling products below cost price 27
2.5.1.6. Dwindling working capital 27
2.5.1.7. Consistent negative cash flow 28
2.5.1.8. Declining Profit 28
2.5.1.9. Loss of market share 28
2.5.1.10 Inability to secure operational capital 29
2.6 GOING CONCERN RISK ASSESSMENT 37
2.6.2 Business Risk Assessment 38
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 INTRODUCTION 44
3.1 RESEARCH DESIGN 44
3.2 POPULATION DESCRIPTION 45
3.3 SAMPLE AND SAMPLING TECHNIQUE 45
3.4 SOURCES OF DATA 46
3.5 INSTRUMENT OF DATA COLLECTION 46
3.6 METHOD OF DATA ANALYSIS 47
3.7 VALIDITY & RELIABILITY OF THE RESEARCH INSTRUMENT 50
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.0 INTRODUCTION 50
4.1 DATA PRESENTATION 51
4.1.1 Respondents Profile 52
4.1.3 EVALUATION OF AUDITORS DUTY & RESPONSIBILITY 53
4.2 DATA ANALYSES AND INTERPRETATION 64
4.3 DISCUSSION OF FINDINGS 67
CHAPTER FIVE
SUMMARY CONCLUSIONS AND RECOMMENDATIONS
5.1 SUMMARY 70
5.2 CONCLUSIONS 72
5.3 RECOMMENDATIONS 73
BIBLIOGRAPHY 74
APPENDICES 84
Reference code: C087
Reference code: C087
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