External Audit and Audit Committee Relationship in Banking Industry (A Case Study of Zenith Bank Plc)
The project examines the relationship between external audit and audit committee in the Nigeria Banking Industry. The study main objective is to strengthen the relationship between external audit and audit committee in banks with reference to zenith bank plc. However, the work of an external audit can ensure credibility and transformation in the banking industry and evaluate the operation of internal control system. The primary source of data collection was used in gathering data from respondents. A structure questionnaire was designed by the researcher and validity by two experts from the statistics department was used to obtain data Chi-Square (X2) was used to test hypotheses formulated. It was discovered that there is positive relationship between external audit and audit committee by extension will enhance the growth of banking industry. The study concludes that banks should established internal control system that will enhance their growth; the external auditor has to laid down effective processes and procedure that should be followed by every member of bank. Based on the findings the study recommends amongst others seminars and workshop for customers and staff of the banks, the auditor should ensure good relationship with the audit committee in the banking system.
TABLE OF CONTENTS
Title Page i
Table of Contents vi
Chapter One: Introduction 1
1.1 Background to the Study 1
1.2 Statement of Problem 3
1.3 Research Questions 4
1.4 Objectives of the Study 4
1.5 Statement of Hypotheses 5
1.6 Significance of the Study 6
1.7 Scope of the Study 7
1.8 Limitations of the Study 7
1.9 Definition of Terms 8
Chapter Two: Review of Related Literature 9
2.1 Introduction 9
2.2 Objective of External Auditor 10
2.3 Auditing Committee Requirement in line with
Company Allied Matter Act 1990 CAMA 11
2.4 The Scope of Practice 13
2.5 Audit Committee in Banking Operation 14
2.6 Importance of Audit Committee 17
2.7 Relationship between External Audit and
Audit Committee 18
2.8 Internal Control System in Banking Operation 20
2.9 The Necessary Function of External Audit 21
2.10 The Role and Function of Audit Committee 22
2.11 What are the Benefits of an External Audit? 24
2.12 Duties and Responsibilities of Audit Committee 28
2.13 External Auditor Liability to Third Parties 33
2.14 Corporate Governance 35
2.15 Role of the Board 36
2.16 Board Committee 37
2.17 Audit Committee of the Bank 38
2.18 Board Credit Committee 40
Chapter Three: Research Method and Design 42
3.1 Introduction 42
3.2 Research design 42
3.3 Description of the Population of the Study 42
3.4 Sample Size 43
3.5 Sampling Techniques 43
3.6 Method of Data Collection 44
3.7 Method of data Presentation 45
3.8 Method of Data Analysis 45
Chapter Four: Data Presentation, Analysis
and Interpretation 47
4.1 Introduction 47
4.2 Presentation of Data 47
4.3 Data Analysis 47
4.4 Testing of Hypothesis 65
Chapter Five: Summary of Findings, Conclusion
and Recommendations 69
5.1 Introduction 69
5.2 Summary of Findings 69
5.3 Conclusion 70
5.4 Recommendation 71
Appendix A 75
Appendix B 76
1.1 Background to the Study
Banks play a vital role in economic development of a nation. Time continued strength and stability of the banking system, is a matter of general concern as they hold the savings of the public, provide means of payment for goods and service and financial development of business and trade of a country.
However, auditing financial statement of banks has been a long time in practice. The auditing of accounting records of bank by an external auditor and audit committee become very important.
Therefore to perform these challenging functions severally and effectively the banking industries must command the confidence of the public and those with whom they do business. The public interest is reflected in the ways banks in all countries are subjected to supervision of financial soundness by central bank and other financial agencies.
Banks financial statements are subject to examination by external auditor and auditor committee whose opinion lead to credibility to such statement. And thereby assist in promoting confidence in banking system in Nigeria. It is therefore importance to nullify that the relationship and importance of external auditor and audit committee cannot be overemphasized to maintain this credibility.
The external auditor and audit committee are reamers to audit with reasonable skills and for an auditor are professional. Opinion by waiter (1972), “The auditor must be able to show that in the covers of his duty or work has reached an acceptable level of performance that is making sure that audit are properly planned audit are supervised and performed by auditors of appropriate experience relevant test and desired and properly applied in sufficient dept and conclusions are soundly based on relevant and properly documented.
1.2 Statement of the Problem
There are various problems faced by inventors, depositors and other interest group in forming a decision about the financial institution.
The statement of problem of the study are; the insensitivity on management to report made by the auditor regarding to the financial statement of bank; whether the auditor have the ability to report objectively and independently; and if there any opportunity which results from fraud, which may exist or are there any need or means to detect some common type of fraudulent activities that will continue to cause a loss to the banking industry.
However, this study will investigate into some areas where external auditor and audit committee exist in banking operation in Nigeria and its relationship. For a successful evaluation of external audit and audit committee which exist within an organization. The above listed question would be analyzed for the completion of this research work.
1.3 Research Questions
The following are the questions to be considered in the research work;
· How has the external audit and audit committee has been able to ensure a better relationship and importance in a bank?
· Does external audit committee aid credibility in financial statement of the bank?
· How is financial statement audited?
· What are the various factor offering external auditors and audit committee in their ability to report objectively and independently?
1.4 Objectives of the Study
The following are the main objectives of this research study;
· To ascertain how the external audit and audit committee has been able to ensure a better relationship and importance in a bank.
· To find out if external audit committee has aid credibility in financial statement of the bank.
· To find out how financial statement are audited.
· To identify the various factor offering external auditors and audit committee in their ability to report objectively and independently.
1.5 Statement of Hypotheses
Hypothesis is a tentative statement that could be proved right or wrong. According to Obaze and Onosu (2009) cited Tejumaiye (2003) hypothesis are statement concerning two or more variable to find out their relationship.
However hypothesis can either be null or alternative. The Null Hypothesis (HO) should be listed in the alternative form for the purpose of this study; both null and alternative hypothesis will be formulated.
HO: The external audit and audit committee has not been able to ensure a better relationship and importance in a banks.
HI: The external audit and audit committee has been able to ensure a better relationship and importance in a banks.
HO: The external audit and audit committee has not aid credibility in financial statement of banks.
HI: The external audit committee has aid credibility in financial statement of the banks.
1.6 Significance of the Study
Financial institution from the bank and other entire business and economic development of any economy. It is expected that an update study on how it financial statement are audited should be of benefit to management depositors, investors and the general public as well.
Also it will be of great importance to all who use bank as a means of keeping valuable items.
However the following are the significance of the study
· It will help to ascertain the relevance and reliability of the financial statement of bank.
· It will enable us to have proper records and the report on the information of the financial statement are correct and of acceptable integrity
· It will help the public to know the external relationship to banking industry.
· Most significantly, it will enable the banking industry to control fraud, over stating of cash, misappropriation of funds etc in banking industry.
1.7 Scope of the Study
The research is aimed at investigating the external audit and the audit committee their relationship and importance to the banking industry. Its time frame is between 2008 and 2012 and it was mainly investigated in Benin City, Edo State.
1.8 Limitations of the Study
The limitations of the study are those practical problem hindrance or constraint that limited against the study. In the process of carryout the study, many difficulties and constraints were encountered.
· Lack of response from the people who are under investigation.
· Reluctance on the part of some officer to provide official information
· Time and money are other constraints.
1.9 Definition of Terms
The following terms are used in the research work which definition are given below
External: It is a process involving a concerning connected with or situation on the outside the organization.
Committee: A group of people who are chosen usually by a larger group to make decision about a particular issue.
Banking: The activity or business of bank.
Industry: Activities involved in providing a particular service to people.