THE IMPACT AND CHALLENGES OF INTERNAL AND EXTERNAL AUDITORS IN MANUFACTURING COMPANIES

1.0 Introduction

Manufacturing companies are companies that transform raw materials or semi finished goods into commodities, goods usable by humans. Manufacturing companies are companies that produce commercially. Their main aim is to produce goods and render services to members of the public at a minimum cost to maximize profit.

In manufacturing companies, some various items of expenditure are allocated to sub division of the final account in accordance with the principles which govern cost accounts. However, when a manufacturing company produces more than one particular product, different accounts are to be prepared by the different departments.

In manufacturing company, company established by law is treated as a separate legal entity different from shareholders or subscribers. The owners or shareholders of a manufacturing company present their account to the auditors who audit and report if the account shows a true and fair view before it is been presented to the directors of the company. Without the report of the auditor in a manufacturing company the shareholders i.e the owners of the company finds it hard to accept the account given to them by the directors.

The auditors both internal and external auditors at times have problem in computing accounts and giving reports because it involves the strenuous method of bringing together all accounts of the company and summary of these accounts and control system.

An auditor is said to be an accountant who undergo a recognized professional course and a member of one of the recognized account bodies resident in Nigeria and who is carrying out a professional accountancy practice. For an auditor to audit a company account he must not be an employee or a body corporate of the company been audited. An auditor should be recognized in the context of the institute of chartered accountants of Nigeria.

An external auditors are auditors that are independent of the organization that are auditing. External auditors can be government auditors or an independent public accounting firm. They report to the companys shareholders. They provide their experienced opinion on the truthfulness of companys financial statements and perform work on a test basis to monitor system in place. Internal auditor is an auditor that work within an organization and report to its audit committee and directors. They help to design the companys organizing systems and help develop specific management policies.

They also ensure that all policies implemented for risk management are operating effectively the work of the internal auditors tends to be continuous and based on the internal control system of a business of any size.

1.1 Statement Of Research Problem

Investigation reveals the following problems of the research work;

1. It has been a generalized fact and knowledge to all and sundry that businesses are unable to control their affairs and existence in the longrun. This is due to some of the attribute of the administrative weakness and misappropriate that are inherent in business resulting to the controversy of the reality of the audit work in manufacturing companies.
2. Manufacturing companies have been beclouded with puzzling circumstances like financial impropriety, lack of auditing control, lack of independence of the internal control, incomplete recording of business transactions over blow expenses to reckless spending, non compliance to accounting standards, mismanagement of scarce funds.
3. It has not be proven that auditors and audit report are not needed in manufacturing companies and the importance and effect of these auditors cannot be ruled out.

1.2 Objectives Of Study

The objective of this study are as follow:

1. To institute the need and affirm the important, effects, impacts, needs and challenges of external and internal auditors in the management of manufacturing companies.
2. It also has the objective of ascertaining if the audit records given by internal and external auditors about the financial statement if correct i.e it shows a true and fair view.
3. To also determine the extent to which internal and external audit helps in enforcing compliance to rule and regulations regulating manufacturing companies. Another important objective of the study is to find out if the internal and external auditors inspects, verifies organizational assets and liabilities, books of account and to check the maintenance of adequate control in the manufacturing companies encountered by the auditors while performing audit functions.

1.3 Research Questions

With this regard, the researcher want to investigate the importance and challenges of external and internal auditors in the management of manufacturing companies and attempts to answer the following questions

• Is there need for external and internal auditors in manufacturing companies
• Will management contribute to management efficiency
• Does the auditors have the right to access the companys book of account and financial statement to get all relevant information.
• Does the auditors (internal and external) contribute to the detection of fraud.
• What type of challenges or problem do auditors encounter in delegating out their responsibilities.

1.4 Research Hypothesis

To address the above mentioned problems, the following hypothesis are formulated to establish the necessity and challenges of internal and external auditorium manufacturing companies;

Ho: There is need for internal and external auditors in manufacturing companies

Hi: There is need for internal and external auditors in manufacturing companies

To find out if audit report has been hampered

Ho: Inefficient internal audit and internal control has hampered audit reports.

Hi: Efficient internal audit and internal control has hampered audit reports.

To find out whether internal and external auditor improve the management of manufacturing companies

Ho: The internal and external auditors do not improve management.

Hi: The internal and external auditors improves management.

To find out challenges faced by internal and external auditors

Ho: The internal and external auditors does not face some challenges.

Hi: The internal and external auditors does not face some challenges.

To find out how internal and external auditors are opposed to the incursion of the external auditors

Ho: Internal auditors are opposed to the incursion of external auditor

Hi: Internal auditors are not opposed to the incursion of external auditor

1.5 Significance Of Study

The research work is being carried out to enable the research to be more enlightened about external and internal auditors in the course of manufacturing companies.

The study will be of immense benefit to the shareholders who have contributed the funds for the business and needs a reward in form of dividends. It will also help a great deal by way of determining the type of policies which an auditor will use upon the process of auditing manufacturing companies.

Lastly, the relevant of the study is to ascertain the internal control system that is operational ion manufacturing companies so that it can be effectively administered saved from mal-administration. It is hoped that manufacturing research work by agreeing with the recommendations, the study and appreciates the need for external and internal auditors.

It will also be of immense help to future researcher who will find the study interesting in their research pertaining same things.

1.5 Scope Of Study

This research work has been confirmed to be the impact and challenges of internal and external auditors in manufacturing companies. In the course of the study, the researchers shall examine the record system.

This will enable the researcher to find out whether the manufacturing companies keep proper records and books of account. Analysis on test of accounts will be carried out to enable the study give an insight as to the corrections and accuracy of the records kept.

Furthermore, the research will identify the system of management and administration set up, the efficiency and effectiveness of the internal control system and finally where possible conduct compliance and substantive tests.

1.6 Limitation Of Study

The researchers in the course of carrying out the research was faced with a lot of problem.

The research is limited to a particular area or vicinity due to its peculiarity and the limited available data, time factor; majority of the findings depends greatly on the writers efforts research the research work is limited to manufacturing companies. Hence, there is low possibility of generalizing the study to cover other classes of business organizations.

Time factor posed a very high limitation to the study due to the respondents who might not give quick response to questionnaire or interview they may be engaged in other activities company and when he seems available to answer the questions, the respondent gives limited time which might not be enough to answer all questions.

Finally, another great problem encountered in this research work is financial aids and assistant, the available fund was not enough to sustain the vast research proposals.

1.7 Definition Of Terms

Auditor: An auditor can be defined as an independent professionally qualified accountant who has undergone a recognized professional course and is a member of the recognized accountancy bodies resident in Nigeria who is appointed for the purpose of examining the statement of accounts, assessing of assets and liabilities of the relevant organization with a view to ascertain the true and fair view of the financial statement.

Auditing: This is the systematic investigation and appraisal of transactions procedures operations and resulting financial statements.

Audit: This is defined as an independent examination of financial statement or related financial information of an enterprise by an appointer auditor in pursuance of that appointment and in compliance with any relevant statutory obligations.

Internal Control: This is the whole system of control, financial or otherwise established by management in other to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records.

Internal Auditors: This is an auditor that works within an organization and report to its audit committee and directors. They help design the company's organizing systems and help develop specific risk management policies.

External Auditors: These are auditors that are independent of the organization they are auditors. External auditors can be government auditors or an independent public accounting firms.

Compliance Test: These are those tests which seek to assure the auditors (i.e provide audit evidence) that the internal control procedures are being applied (i.e working as prescribed by management.

Substantive Test: These are those tests on transactions and balances and other procedures such as analytical review, which seek to provide audit evidence as to the completeness accuracy and validity of the information contained in the accounting records or financial statement.

Financial Statement: This is a statement that has been prepared by a firm to ascertain its profit and to know its financial positions. It is the final books of account known as profit and loss account and balance sheet.

Independence: The auditor profession emphasize on this doe of conduct because this is a position which will enable auditor express his opinion without biasness. An independent auditor is one which has no interests in the clients firm to such extent of tilting his opinion towards one side.

True And Fair View: The main objective of an auditor is to form an opinion as to the truth and fairness of the products accounts. Truth means exactness and accuracy and this could be applied to the existence, ownership, classification and valuation of assets and liabilities. Fairness may be evaluated, statistical techniques, adopted, confidence limits and estimate taken in the light of available information. Therefore this auditor must take reasonable still and care in her judgement on fairness.