THE ROLE OF AN AUDITOR IN SMALL BUSINESS ORGANISATION

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

According to the third national development plan (vol. 1 page 353) “manufacturing establishment employing less than 10 people or whose investment in machinery and equipment do not exceed N600, 000 are referred to as small scale industries. In the credit guidelines of the Central Bank of Nigeria (C.B.N) small scale enterprise are classified as those business with an annual turnover of less than half a million naira. Currently, as given by the government, small scale industry refers to those industries with a capital investment not exceeding N150, 000 in machinery and equipment alone. Today, every business organization intends to continue as a going concern, i.e. continue to acquire assets, increase sales, improve profit margin, to remain in operational existence into the foreseeable future and not having any intention to curtail or significantly reduce its scale of operation.

To acquire this aim, the organization will have to institute sound internal control and accounting system, appoint directors and managers to direct the affairs of the business and to ensure that the funds intended to achieve this aim are well applied. Business organization who successfully put these structures in place may yet fail to develop and survive in isolation of the auditor. It is evidenced by the fact that the directors and managers who are expected to manage the funds and direct the affairs of the business may begin to perform their activities with non-challant attitude knowing fully well that their work will be checked by an independent person (the auditor), as a result, funds may be misapplied, diverted, embezzlement may be on the increase, loss of confidence by shareholders on directors. e.t.c. with all these, the organization may no longer be able to continue as a going concern, and this will eventually result to the liquidation of the business.

No doubt, the role of an auditor in the development of small business organization is inevitable. With the role of auditor in force, the directors and managers are more careful in performing their duties as they may want to protect and maintain their integrity. As a result, mis-management, diversion, mis-application and embezzlement of funds will be greatly checked. The auditors’ role in achieving these may include: reviewing the controls of the organization in the traditional areas of accounting and finance to ensure compliance and contemporary areas of personnel, marketing, sales, and production, to ensure efficiency of the economy. e.t.c. During the audit, frequent correspondences are made between the auditor and the client such as internal control letter, management letter, letter of representation, all aimed at ensuring the survival of the business. At the end of the audit, a final audit report is made to the shareholders to boost their credibility on the directors. This project brings out in details what auditors do in practice that is, their roles in the development and survival of small scale business organization. A substantial aspect of this project shall focus on external auditing with particular reference to small business organizations in Akoko-Edo.

1.2 STATEMENT OF THE PROBLEM

Though in most cases, small business organizations are usually operated by their proprietors, yet there is still many of those small business organizations whose management is rested on people other than the proprietors hence the need for audit arises. However, in the course of this research, the following problems are to be examined. 1) Do auditors in small-scale business, comply with the provisions of the companies and Allied matters Act 1990 (CAMA) in the execution of his audit assignment? 2) How efficient is their internal control mechanism? 3) Do audited accounts present a “true and fair view? 4) What are the auditors’ responsibilities in the accounts of the business organizations? 5) Has cases of fraud and error been prevented in the business? 6) Is the principle of independence and honesty, competency observed in small scale industry? 7) Do the auditors get all necessary information and right access to the business books of accounts and financial statement?

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