AHAM NZENWATA
ABSTRACT
This paper investigates Effect of Professional Code of Ethics
on Audit Practice In Nigeria: A Survey of Some Selected Auditing Firms 10
auditors were randomly studied in Port Harcourt. A three-point rating scale
questionnaire was administered on these respondents to generate data and
examine the level of compliance to the codes of professional ethics by
practicing auditors in Port Harcourt. The data collected were analyzed using
descriptive statistics and the null hypothesis was tested using the Chi-square
test. The result showed that the auditors practicing in Port Harcourt
significantly comply with the codes of professional ethics in the conduct of
their professional engagements as prescribed by the Institute. Though a great
deal of concern has been expressed in recent years regarding the deterioration
of ethical standards in business generally owing largely to the decay in social
values in Nigeria, auditors’ observance of codes of professional ethics in Port
Harcourt is found to be capable in ensuring that the key role of the audit in
monitoring corporate financial reporting is not passive.
1. INTRODUCTION
Accountants have obligations to shareholders,
creditors, employees, suppliers, the government, the accounting profession and
public at large. Therefore, behaving ethically is an essential and expected
trait; as a result, an accountant is responsible for the consequences of his
moral choices not only for his own life but also on the lives of other people.
The nature of the work
carried out by accountants and auditors requires a high level of ethical
standards and professionalism. Shareholders, potential shareholders and other
users of the financial statements rely heavily on the reports produced by
professional accountants and auditors as they can use this to make informed
investment decisions about the concerned organization. Accountants who prepare
the statement as well as the auditors that verified it to present a timely and
fair view of the company. Knowledge of ethics and can help accountants and
auditors to overcome ethical dilemmas, allowing for the high choice that
although may not benefit the company will benefit the public who relies on the
accounts auditor’s report.
The application of
ethical standards assists auditors to overcome ethical dilemmas which, allow
for the right choice of professional behavior that may not only benefit the
client but the public who relies on the auditors reporting. Auditors have an
obligation to the clients they serve, their profession, the public, and
themselves to maintain the highest standards of ethical behaviour.
They have a
responsibility to be competent and to maintain confidentiality, integrity, and
objectivity. An analysis of attitudes toward ethics in the accounting
profession showed that chances to engage in unethical dealings exist. In
Nigeria, the application of ethical standards in business operation has
seriously deteriorated generally, owing largely to the decay in social values
(Aguolu, 2002).
A great deal of concern
has been expressed in recent years regarding the apparently negative effects on
business ethics and morality in the Nigerian society (Bamballe, 2003). Research
interest in the area of auditors’ observance of ethical standards has been
motivated by the key role of the audit in monitoring corporate financial
reporting and a long-running controversy regarding the feasibility of auditor
independence under current institutional arrangements (King, 2002; Mayhew and
Pike, 2004; and Schneider, Church & Ely 2006).
Accordingly, studies have
investigated the application of ethical standards of professional auditors
around the world and this area of research has received renewed emphasis in
light of the recent wave of financial reporting scandals (Gul et al., 2003; and Hwang and Staley,
2005).
The issues which the
professional ethical standards emphasize are to ensure objectivity, integrity,
avoid conflicts of interest, ensure confidentiality of information obtained,
communicate with previous auditor before accepting appointment where there is
an existing auditor, ensure that fees charged are those agreed with the client
or based on the Institute’s scale of professional fees and ensure that practice
names project the dignity of the profession. Ethical standards if strictly
adhered to, become internalized and reflect extensively in professional
assignments (Nwanyanwu, 2010). This paper investigates the effect of professional
code of ethics on audit practice in Nigeria.
2.1 CONCEPT OF ETHICS AND
PROFESSIONAL CODE OF ETHICS
Ethics can be referred to well-founded standards of
right and wrong that prescribe what humans ought to do, usually in terms of
rights, obligations, benefits to society, fairness, or specific virtues.
Ethics, for example, refers to those standards that impose the reasonable
obligations to refrain from rape, stealing, murder, assault, slander, and
fraud. Ethical standards also include those that enjoin virtues of honesty,
compassion, and loyalty, as well as, standards relating to rights, such as the
right to life, the right to freedom from injury, and the right to privacy
(Aron, 2005).
Ethics can also refer to the study and development of
one's ethical standards. As mentioned above, feelings, laws, and social norms
can deviate from what is ethical. So it is necessary to constantly examine
one's standards to ensure that they are reasonable and well-founded. Ethics
also means the continuous effort of studying our own moral beliefs and our
moral conduct, and striving to ensure that we, and the institutions we help to
shape, live up to standards that are reasonable and solidly-based (Aron, 2005).
Thus, Heermance (1924) stated that ‘practices are
ethical if, on the long run, they make for the wellbeing of the human species
and for normal human relations. If there is friction, and social loss, it is a
sign of unethical conditions. Each profession or trade has its own problem of
ethics. The conduct of members must be judged by its consequences, to the group
itself and to the community. In the course of time there is likely to develop a
certain standard of practice’.
According to Yidawi (2005), Professional ethics are
the moral standards, principles and regulations that guide the course of
professional behaviour. Some examples of professions with established
professional ethics include law, medicine, banking, teaching, and advertisers.
Professional ethics are both individual and institutional in nature.
Professional ethics can be learned during the course
of study of the profession. Professional ethics also rely upon one’s own
personal sense of moral behaviour, applying their skills and making judgment.
It is essential that professionals continue to evaluate and learn about ethical
issues in their respective fields consistently, as professional ethics change
in light of new technologies.
Professional ethics is the norms required by the moral
point of view for the kind of work that professionals do, that is, an ideal rational
ethic. It means the second common norms actually followed by most
professionals. An ethic exists to the extent that professions regard such
practices as morally obligatory. It is also a common element of codes of
professional associations. Many such codes exist, but they do not always
conform either to rational norms or actual practices.
McDowell (1991) pointed out that one can aspire to
professional status, but achieving it depends on acceptance and admittance by
others. He further indicated that to qualify as a professional, there must be
an internal dimension of acquiring the character of a professional, as a matter
of individual choice and commitment. In other words, professional ethics isn’t
just about the acquisition of certificates but also about practicing the moral
aspect of professionalism.
2.2 THEORETICAL FRAMEWORK
Two theories are considered relevant to analyzing
unethical cases as in this case and they are Utilitarian Theory and Theory of
Duties (Spencer and Lehman, 1990). These will provide a theoretical frame work
for this paper. The Utilitarian Theory according to Mill (1863) states that one
should do the most good over harm. In making the decision, one must evaluate
the alternatives to decide on the one which benefits the most people.
The Theory of Duties states that one should consider
the duties of not harming innocent people, keeping promises, showing gratitude,
acting in a just way, and providing reparations to those who have been harmed
by one's actions in making an ethical decision (Beauchamp and Bowie, 1979).
The essence of ethical codes is to ensure that the
services of auditors do not harm innocent people, exhibit propriety of
behaviors and promote public confidence in the quality of the service rendered
by members of the profession. Then, the Utilitarian Theory and Theory of Duties
are the most apt theories to serve as framework for this study since they
enforce propriety of behavior.
2.3 EMPIRICAL
REVIEW
Several studies were carried out on auditors’ ethical
conducts. For instance, Fatt (1995) considers the perceptions of the public,
students, and accountants of the values of accountants in the working world. A
questionnaire was given to a sample population of 500 which included the
public, accounting students, and accountants. The questionnaire was designed to
examine the personal qualities of accountants. It is discovered that the
perceptions of the personal qualities of accountants are that accountants
should be ethical and have integrity. These perceptions reflect the importance
of ethics in the accounting profession.
Gendron, Suddaby and Lam (2006) explore the
relationship between work context and professional ethics. They generated data
through an online survey of auditors on the degree to which changing work
conditions have altered individual auditors' commitment to the core
professional value of auditor independence. They observe that auditors working
outside of public accounting have a higher commitment to independence than
auditors working in the context of public accounting firms. They further
observe that auditors in large international audit firms report lower
commitment to auditor independence than do others in public accounting.
Satava, Caldwell, and Richards (2006) describe how the
rule-based traditions of auditing became a convenient vehicle that perpetuated
the unethical conduct of firms such as Enron and Arthur Andersen. They present
a model of ten ethical perspectives and briefly describe how these ten ethical
perspectives impact rule-based and principle based ethical conduct for
auditors. They conclude by identifying six specific suggestions that the
auditing profession should consider to restore public trust and to improve the
ethical conduct of accountants and auditors.
NwayanwU (2010) examines the observed and expected
acceptance of the significance of ethics in accounting practice in Nigeria
using Chi-square test. He disclosed that a large difference exists between
observed and expected acceptance of the significance of ethical standards in
accounting practice. From the review and to the best of the researcher’s
knowledge, there is no empirical research on the subject matter particularly
from Kano. Therefore, this paper fills the existing gab in the literature.
Ogbonna and Ebimobowei (2012), evaluated the effect of
ethical accounting standards on the quality of financial reports of banks in
Nigeria, and they came to the conclusion that
ethical accounting standards affect the quality of financial reports of
banks in Nigeria.
Ajibolade (2008), in the study "a survey of the
perception of ethical behaviour of future Nigerian accounting
professionals", indicated that future professional accountants should be
properly groomed in ethical standards which is normal for professional growth
and improvement of services delivery in financial reporting and auditing in
order to maintain the respectability of the profession.
3. METHODOLOGY
Data were generated from the selected auditors firms
in Port Harcourt. A total of 10 auditors who are members of the Institute of
Chartered Accountants of Nigeria were randomly selected for the study.
Three-point rating scale questionnaire was administered on the respondents. Ten
(10) copies of the questionnaire were distributed and returned from the
auditors. This makes usable response rate in this research is 100 percent.
As a result, the case of bias is limited. The
questions contained in the instruments were designed to generate responses on
ethical requirements of integrity; independence; honesty; confidentiality;
maintenance of technical competence;
conformity with technical standards; and maintenance of ethical conducts
as issued by the Institute of Chartered Accountants of Nigeria and summarized
by Dandago (1999).
The responses were analyzed using the descriptive
statistics and the null hypothesis which states that auditors practicing in
Port Harcourt do not significantly comply with the professional ethical
standards in Nigeria is tested using chi-square test.
4 PRESENTATION DATA AND DISCUSSION
OF FINDINGS
In this section the descriptive
statistics of the responses generated is presented and the test of the null
hypothesis, which states that auditors in practicing Port Harcourt do not
significantly comply with the codes of professional ethics in Nigeria, is made
in the second part.
Table 1: Descriptive Statistics Investors’ Responses
Professional Codes
|
Auditors
|
|
Qualities of the Codes
|
||
Mean
|
Dev.
|
|
Accountability
|
2.45*
|
0.6863
|
Ethical Codes
|
2.35*
|
0.8751
|
Honesty
|
2.10*
|
0.8522
|
Independence
|
2.30*
|
0.8645
|
Integrity
|
2.50*
|
0.6883
|
Technical Standard
|
2.35*
|
0.8127
|
Technical Competence
|
2.35*
|
0.8127
|
Confidentiality
|
2.25*
|
0.7164
|
Survey, 2017
Table 1 presents the descriptive statistics of the responses
from the sampled auditors on compliance to the codes of professional ethics by
auditors in Port Harcourt and the responses from the sampled auditors on the
quality of codes of professional ethics in Nigeria.
A questionnaire with three-point rating scale which ranges
from 3 = ‘Good’, 2 = ‘Fair’ to 1 = ‘Poor’ was used in assessing the qualities
of codes of professional ethics as perceived by the auditors in Port Harcourt.
An asterisk (*) on the mean indicates that the mean is not significantly
different from 3.00, which represents ‘Good’.
This summary statistics of the survey results in the table
depict that the mean response for all the codes of professional ethics assessed
in terms of their quality are not significantly different from the highest
rating, ‘3’, which indicates ‘Good Quality’. Therefore, it could imply that the
sampled auditors believe that the codes of professional ethics in Nigeria are
of good quality and if applied are capable of promoting professionalism among
the auditors in Nigeria.
Table 2: Compliance
to Professional Ethics
Observed N
|
Expected N
|
Residual
|
|
Non-Compliance
|
244
|
320.0
|
-76.0
|
Undecided
|
398
|
320.0
|
78.0
|
Compliance
|
318
|
320.0
|
-2.0
|
Total
|
960
|
Generated
by the author, using SPSS 15
Table 3: Test Statistics
Compliance to
Professional Ethics
|
|
Chi-Square(a)
|
37.075
|
Df
|
2
|
Asymp. Sig.
|
.000
|
a 0 cells (.0%) have expected frequencies less
than 5. The minimum expected cell frequency is 36.7. Generated
by the author, using SPSS 15
From Table the results show that the auditors favoured
‘Complied’ with a lowest negative residual of negative 2. A chi-square test for
the data, in table 3, shows that the chi-square statistic (χ2) is 37.075. The
probability of obtaining a statistic this large or larger on the 2 degrees of
freedom that we have is p = .000. Since the set alpha level is .05, the null
hypothesis that auditors in Port Harcourt do not significantly comply with the
codes of professional ethics in Nigeria be rejected, and thus auditors in Port
Harcourt significantly comply with the codes of professional ethics in Nigeria.
This result is consistent with the findings of Haladu
(2003) which states that auditors in Nigeria strictly comply with professional
ethical standards. However, this result is contrary to the findings of
Nwanyanwu of (2010) who studied acceptance of ethical codes in auditors
practicing in Port Harcourt and discovered that a large difference exists
between observed and expected acceptance of the significance of ethical
standards in accounting practice.
5 CONCLUSIONS
Based on the data collected and analyzed, the study
concludes that auditors practicing in Port Harcourt are putting in efforts in
order to safeguard their integrity and independence, that is, they apply to
some extent the codes of professional ethics as prescribed by the professional
institute.
Based on this result, it can be argued that the
conduct of auditors practicing in Port Harcourt is considered to be ethically
acceptable since to a significant extent they observe the professional ethical
standard in discharging their professional obligations.
However, ethical rules themselves do not make ethical
people. While it is clear that, in general, enforcement and implementation is
not done nearly as much as it ought. Codes that are implemented and enforced do
have an important role to play in professional life. When well formulated they
not only prohibit but may prescribe certain actions, and may, therefore, be
used as benchmarks of behaviour and a basis for discipline or praise.
Except that in some instances the auditors have to
solicit for clients through lobbying, friendship ties and registration with the
clients organizations which clearly violates the provisions of the ethical
standards. This implies that the auditors in certain instances go against the
provisions of the codes in order to secure jobs. This poses a great ethical
threat on the auditors’ integrity and independence. The results also indicate
that the auditors are engaged in continuous training as organized by the
profession bodies in order to keep them connected with developments in the
accounting profession.
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