1.1 Background of the Study
Auditing is a specialized function having complex legal, economic and ethical implications. The practice basically represents an accumulation of almost a century development. The need for auditing arose with the advent of joint stock companies which separated ownership from control and management. There was always the problem of uncertainty as regards the accuracy and authenticity of the financial statements periodically prepared by the management; and to eliminate these anomalies the practice of appointing auditors to verify on behalf of shareholders the account of the directors and report thereon to the shareholders developed.
An auditor is a person whose duty is to conscientiously and objectively examine and inquire into any statement of accounts and other documents and also the physical assets where possible in order to ascertain or form an opinion as to;
i. whether the accounting records have been properly kept and whether they present a true and complete record of all the financial transactions of the organizations during a given period.
ii. Whether the statement of account presents a true and fair view of what ever it purports to represent and to report thereon (Aguolu 2002).
James and Bates (1990) defined auditors as persons who conduct independent examination of the financial statements of businesses to form an opinion on whether they show a true and fair view of the business, check their conformity with laid down accounting principles in order to safeguard as far as possible the assets and records of the companies, detect errors and prevent the occurrence of fraud.
The auditor should be constantly aware of his possible obligations to clients and third parties, especially in the context of the increasing expectation of the society from the profession as are evident from the various amendments to Companies Act and other relevant legislation as well as the recent judicial pronouncement in this area. Unless an auditor is prepared to accept liabilities for his action, the authentication of a statement by him will be meaningless. It is the auditor's duty to perform his work with a high standard of care, great skill and caution, which a reasonably competent, careful and cautious auditor is expected to use in the discharge of his duties. If it is considered that he has not brought this to bear on his work, he may be held liable to make good any loss arising to his clients and third parties.
The extent to which an auditor could be held liable for appending his signature on any published financial statement is still a subject of controversy. Consequently, an appraisal of the auditors' position as to the extent to which his legal responsibility has affected his profession is deemed expedient.
1.2 Statement of the Problem
In recent times, auditors have been involved in a myriad of decided court cases due to the legal responsibility imposed on them by law in respect to their clients and of course the third parties.
The court cases have made a tremendous impact on the auditing profession. Civil actions have dominated most of the court cases but there have been isolated cases of criminal actions with most of both types of cases emanating from circumstances involving faltering enterprises and often associated with the efforts of discontented investors and their attorneys seeking compensation for their losses. In spite of all this, some of the cases have involved problems of disclosure and accounting principles while others involved auditing standards and their general applications.
The allegation against auditors stem from the fact that the public sees the auditors duties distinctly from that which the law imposes on him. Auditors assume responsibility for detecting material mis-statement in financial statements and not for detecting all manner of fraud.
1.3 Objectives of The Study
This study is undertaken with the following objectives viz:
i. To ascertain the extent to which auditors are liable to their client and third parties for losses suffered by them.
ii. To ascertain the extent to which the provision for auditors legal responsibility have been implemented
iii. To ascertain the extent to which the auditors' legal responsibilities have helped in ensuring effectiveness and accountability of auditors.
iv. To ascertain the level of awareness of the provision for auditors legal responsibilities among majority of the clients and third parties.
v. To ascertain if the provisions and implementation of professional ethics enhance the duty of care.
vi. To evaluate the extent to which the legal responsibility of auditors has affected the profession in its entirety.
1.4 Significance of the Story
This work is of immense significance to the extent that it will provide a path, through which professional excellence in auditing could be attained. It will also have the effect of improving the auditing standards as well as ensuring that a basis is provided for more reliance on audited accounts and statements with a view to enhancing the auditor's status.
This work therefore, will be of inestimable value to investors the business community, management of different companies, lecturers, students and practicing auditors and accountants.
It will help investors, the business community and management of different companies in assessing the level of information risk, and in determining what is rightfully expected of auditors.
Furthermore, it will be of immense benefit to students and lecturers in the field of accounting wishing to upgrade their knowledge of the subject matter for career development purposes.
In the same vein, it will help practicing accountants and auditors in updating their knowledge and in fully appreciating the impact/consequences of auditors' legal responsibilities on the accountancy profession.
1.5 Hypothesis
The following hypothesis will be tested in this research work.
- H1 : The legal and professional Responsibility For auditors has enhanced their efficiency.
H0 : The legal and professional Responsibility For auditors has not enhanced their efficiency. - H1 : The auditor-clients and third parties knowledge of auditors' duties have drastically reduced the expectation gap.
H0 : The auditor-clients and third parties knowledge of auditors' duties have not drastically reduced the expectation gap. - H1 : The provisions and implementation of professional ethics enhance the duty of care.
H0 : The provisions and implementation of professional ethics do not enhance the duty of care.
1.6 Scope and Limitation of the Study
This study covers the legal responsibilities of auditors with great emphasis laid on its consequences on the accountancy profession. The investigations carried out was not limited to any particular accounting firm but covers various accounting firms in order to draw out representative data.
In the process of carrying out the study, the researcher encountered some problems which restricted the study. Some of these constraints include finance, insufficient data and the biased attitude of some respondents interviewed. These limitations not withstanding, the result of the work will also enrich the existing literature in the field of auditing.
