Audit Committee Annual Evaluation of the External Auditor

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AUDITOR’S INDEPENDENCE AND ACCOUNTABILITY IN NIGERIA PUBLIC ENTERPRISE

This study seeks to identify the determinants of auditors’ independence in public enterprises and determine the policy implications of lack of auditors’ independence in the public sector. The data for the research was primary and collected via questionnaire from the Nigerian Ports Authority Headquarters Lagos. The questionnaire responses were analyzed using the percentage method. The hypothesis was tested using the chi-square method. The study revealed that there is need for the audit of public enterprises in Nigeria; there is objectivity in the appointment of the external auditor for the audit of public enterprises in Nigeria; and that the independence of the auditor has a significant impact on the accountability disposition of Nigerian public enterprises. It was also found that provision of other services by the auditor as well as non-rotation of auditors are some of the strong factors, which may negatively impact on the auditor’s independence and objectivity. It was recommended that the remuneration of the auditor should be determined by office of the Auditor-General for the Federation rather than by the Head of the Public enterprise being audited. In addition, more powers (statutory backing) should be given to the external auditor in order to free him from influence or intimidation by the client while the auditor should avoid other non-audit services and being in the audit of the client for longer than three years.

The independence of auditors is regarded as key to their credibility as external verifiers of external financial statements. The requirement for external auditors to be independent of their clients when undertaking an audit according to the International Federation of Accountant's (IFAC) Code of Ethics and in the European Union's Eighth Directive. In the IFAC code, this requirement is translated into various situations where observance of certain rules should ensure independence. Recent bankruptcies of many large corporations with clean auditor‘s reports around the globe have called to question the validity of the financial statements prepared by those corporations. and Cadbury in Nigeria are clear examples. According to Okolie (2007), “statutory auditors are expected to audit the financial statements prepared by the directors of enterprises and express an independent opinion on them”. Therefore, in accounting practice of today, the independence of the auditor is one of the most important issues because it increases the effectiveness of the audit by ensuring that the auditor plans and carries out the audit objectively.

The auditors need to maintain that high quality audits enhance the reliability of the financial reporting process and facilitate optimal allocation of capital by investors and other users of the financial statements. The nature of the auditor‘s work requires him to be independent from the influence of any party so that he can objectively form an opinion on the financial statements examined by him and not tossed by wind from either the owners of the resources or the managers of such resources.

In this case study, I would like to show that the independence of an auditor is fundamental when the issue of accountability is concerned and is influenced by many factors within and outside the control of the auditor himself. It will concentrate on the developed countries and the Asian countries. In Nigeria, much evidence from literature dwells more on private sector audit. Very few literatures exist, particularly about audit in the public sector. That is why this study is concerned about independence of auditors in the Nigerian public sector.

Statement of the Problem

In Nigeria, the directors of public enterprises are empowered to appoint, reappoint, and remove their external auditors and they are also to fix the external auditor‘s fees using the guidelines...
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