MODULE 2 AUDITOR S LEGAL, ETHICAL AND PROFESSIONAL RESPONSIBILITIES

Transcription

1 MODULE 2 AUDITOR S LEGAL, ETHICAL AND PROFESSIONAL RESPONSIBILITIES

2 OUTLINE Professional Ethical Responsibilities: Statutory responsibilities and rights: Scope and terms of engagement as provided in: Companies and Allied Matters Act, Cap C20, Laws of the Federation of Nigeria,2004 Banks and other Financial Institutions Act 25 of 1991 Pensions Act Nigerian Accounting Standards Board Act/ Financial Reporting Council of Nigeria Act Auditor s responsibility in relation to fraud and for the entity s compliance with laws and regulations Auditor s responsibilities arising from alleged negligence (financial statements misstated) and related exposure and consequences Pre-appointment procedures: client assessment (including management integrity and completion

3 Professional Ethical Responsibilities: In Nigeria, the auditor should comply with the Rules of Professional ethics. These include: (a) Integrity A professional accountant should be straight-forward and honest in performing professional services. (b) Objectivity A professional accountant should be fair and should not allow prejudice or bias, conflict of interest or influence of others to override objectivity. (c) Professional Competence and Due Care A professional accountant should perform professional services with due care, competence and diligence and has a continuing duty to maintain professional knowledge and skill at a level required to ensure that a client or employer receives the advantage of competent professional service based on up-to-date developments in practice, legislation and techniques.

4 (d) Confidentiality A professional accountant should respect the confidentiality of information acquired during the course of performing professional services and should not use or disclose any such information without proper and specific authority or unless there is a legal or professional right or duty to disclose. (e) Professional Behaviour A professional accountant should act in a manner consistent with the good reputation of the profession and refrain from any conduct which might bring discredit to the profession. The obligation to refrain from any conduct which might bring disrepute to the profession requires IFAC member bodies to consider, when developing ethical requirements, the responsibilities of a professional accountant to clients, third parties, other members of the accountancy profession, staff, employers, and the general public.

5 Professional Ethical Responsibilities: The professional ethical responsibilities which govern the auditors include: (a) Integrity; (b) Objectivity; (c) Independence; (d) Professional competence and due care; professional behaviour; and (e) Confidentiality.

6 Statutory Responsibilities and Rights: The auditor have sole right and responsibility for: (a) The expression of audit opinion; (b) Determining the nature, timing and extent of audit procedures; (c) All judgments relating to the audit of the financial statements of the external auditors; (d) That responsibility is not reduced by any use, made of internal audit work; and (e) However, internal audit work may serve to provide external auditors with audit evidence.

7 Scope and Terms of Engagement Companies and Allied Matters Act, Cap C20, Laws of the Federation of Nigeria,2004 Section 357 of the Companies and Allied Matters Act provides for the appointment of auditors. The section states as follows: (a) Every company shall at each annual general meeting appoint an auditor or auditors to audit the financial statements of the company, and to hold office from the conclusion of that, until the conclusion of the next, annual general meeting. (b) At any annual general meeting a retiring auditor, however appointed, shall be reappointed without any resolution being passed unless: (i) he is not qualified for re-appointment; (ii) a resolution has been passed at that meeting appointing some other person instead of him or providing expressly that he shall not be reappointed; and (iii) he has given the company notice in writing of his unwillingness to be re-appointed.

8 Banks and other Financial Institutions Act 25 of 1991 (a) Every bank shall appoint annually a person approved by the Central Bank, referred to as.approved auditor., whose duties shall be to make to the shareholders a report upon the annual balance sheet and profit and loss account of the bank and every such report shall contain statements as to the matters and such other information as may be prescribed, from time to time, by the Central Bank; (b) For the purpose of this section, the approved auditor shall be an auditor who is: (i) a member of one of the professional bodies recognised in Nigeria; (ii) approved by the Central Bank; (iii) resident in Nigeria; and (iv) carrying on in Nigeria professional practice as accountant and auditor.

9 (c) Any person: (i) having any interest in a bank otherwise than as a depositor; (ii) who is a director, officer or agent of a bank; (iii) which is a firm in which a director of a bank has any interest as partner or director; (iv) who is indebted to a bank, shall not be eligible for appointment as the approved auditor for that bank; and (v) a person appointed as such auditor who subsequently: acquires such interest; or becomes a director, officer or agent of the bank; or becomes indebted to a partner in a firm in which a director of a bank is interested as partner or director, shall cease to be such auditor. (d) If any bank fails to appoint an approved auditor, the Central Bank shall appoint a suitable person for that purpose and shall fix the remuneration to be paid by the bank to such auditor; (e) Any approved auditor who acts in contravention of or fails deliberately or negligently to comply with any of the required provisions is guilty of an offence and liable on conviction to pay to the Central Bank a fine of not less than 200,000 and not exceeding 500,000

10 (f) The report of the approved auditor shall be read together with the report of the board of directors at the annual general meeting of the shareholders of the bank and two copies of each report with the auditor s analysis of bad and doubtful advances in a form specified, from time to time, by the Central Bank shall be sent to the Central Bank. (g) If an auditor appointed under this section, in the course of his duties as an auditor of a bank, is satisfied that: (i) there has been a contravention of this Act, or that an offence under any other law has been committed by the bank or any other person; or (ii) losses have been incurred by the bank which substantially reduce its capital funds; or (iii) any irregularity which jeopardizes the interest of depositors or creditors of the bank, or any other irregularity has occurred; or (iv) he is unable to confirm that the claims of depositors or creditors are covered by the assets of the bank, and he shall immediately report the matter to the Central Bank.

11 Pension Act The Commission shall cause to be prepared, not later than the thirtieth day of September in each year, an estimate of its income and of expenditure for the succeeding year. The Commission shall cause to be kept proper accounts and records in relation thereto. Such account shall, not later than 4 months after the end of each year, be audited by auditors appointed by the Commission from the list and in accordance with the guidelines supplied by the Auditor-General for the Federation. The Commission shall not later than 6 months after the end of each year submit to the President and the Public Account Committee of the National Assembly a report on the activities and administration of the Commission during the immediately preceding year and shall include in such report the audited accounts of the Commission and the auditors report thereon.

12 Nigerian Accounting Standards Board Act 2003/ Financial Reporting Council of Nigeria Act The Board shall observe the following procedure in the development of statement of accounting standards: (a) choice of a topic for standardization; (b) prepare and publish exposure draft; (c) conduct a public hearing where necessary; and (d) issue a statement of accounting standards.

13 Responsibilities of the Auditors The auditors plan, perform and evaluate their audit work in order to have a reasonable expectation of detecting material misstatements in the financial statements of the entity audited. When doing so, they recognize that material misstatements may arise from noncompliance with law or regulations. However, it is not the responsibility of auditors to detect fraud, but in the cause of the audit if fraud is discovered it should be reported. An audit cannot reasonably be expected to detect all possible noncompliance with law and regulations. In an audit, there is the unavoidable risk that some material misstatements of the financial statements will not be detected, even though the audit is properly planned and performed in accordance with auditing standards.

14 This risk is higher with regard to misstatements resulting from noncompliance with law or regulations due to such factors as the following: (a) There are many laws and regulations, relating principally to the operating aspects of the entity, that typically do not have a material effect on the financial statements and where the consequences of any non-compliance are not captured by the accounting and internal financial control systems; (b) The effectiveness of audit procedures is affected by the inherent limitations of the accounting and internal control systems and by the use of selective testing rather than the examination of all transactions; (c) Much of the evidence obtained by the auditors is persuasive rather than conclusive in nature; and (d) Non-compliance with law or regulations may involve conduct designed to conceal it, such as collusion, forgery, override or intentional misrepresentations being made to the auditors (Chitty, 2004).

15 Auditor s Responsibility Arising from Allege Negligence The auditors obtain representation from management in the course of conducting the audit of an entity. Obtaining management representation does not absolve the auditor from any blame, in case of proven negligence. (a) A company s auditor shall in the performance of his duties, exercise all such care, diligence and skill as is reasonably necessary in each particular circumstance. (b) Where a company suffers loss or damage as a result of the failure of its auditor to discharge the fiduciary duty imposed on him the auditor shall be liable for negligence and the directors may institute an action for negligence against him in the court. (c) If the directors fail to institute an action against the auditor, any member may do so after the expiration of 30 days. notice to the company, of his intention to institute such action, (CAMA, Section 368 ).

16 Pre-appointment Procedures Before an auditor is appointed, the pre-appointment procedure of the auditor is to screen the auditor whether the auditor to be is qualified or not. The following persons shall not be qualified for appointment as auditor of a company, that is (a) an officer or servant of the company; (b) a person who is a partner of or in the employment of an officer or servant of the company; or (c) a body corporate The disqualification shall extend and apply to persons who in respect of any period of an audit were in the employment of the company or were otherwise connected therewith in any manner. A person shall also not qualify for appointment as an auditor of a company if he is disqualified for appointment as auditor of any other body corporate which is that company s subsidiary or holding company or a subsidiary of that company s holding company, or would be so disqualified if the body corporate were a company.

17 Review Questions 1. Highlight the professional ethical responsibilities of an auditor. 2. Explain the scope and terms of engagement of an auditor as provided in CAMA. 3. Briefly explain the auditor s responsibility to his client. 4. Highlight the consequences of auditor s negligence.

18 Reference Adebisi.J.F (2009), Auditing, Investigation and Assurance Services, Bee Printing & Publishing Co, Abuja Nigeria. ANAN Study Pack