Impact of Auditing on Bank Profitability

Topics: Audit, Auditing, Internal control Pages: 33 (7961 words) Published: July 26, 2012

Business development in the 19th Century gave birth to the concept of Limited Liability Company, hereby ownership is separate from management. This concept was initially vague, but was quickly made explicit and popular by the celebrated case of Solomon Vs. Solomon and Col. Ltd.

Uzochukwu (2004), said that in an attempt to bridge the information gap between the shareholders on one hand and the directors on the other hand. The companies Act of 1884 (UK), (The First Act) was passed to make it compulsory that annual report and accounts be prepared compulsory by directors and be submitted to the shareholders in their Annual General Meeting (AGM).

Although, the accounts were required to show a true and fair view of the company’s state of affairs. Yet, some unscrupulous directors manipulated the accounts to exploit and victimize the shareholders. In almost all cases, shareholders were presented with accounts showing much less than the true profit that least dividend and paid in shareholders and lesser tax to the government.

The companies Act of 1888, stopped in to save the shareholders and the Government from this dilemma. The Act required external auditors with sound financial training to examine Annual Report and Accounts before they were presented to shareholders.

Since then, the function has grown in importance and had continued to enjoy recognition and fortification by various companies Acts worldwide. In Nigeria, similar recognition was first carried by the companies Act 1968, and currently by the Companies and Allied Matters Decree 1990.

Olusanya (2000), said that auditing, as it exists today, developed quite late because the development of accounting of accounting was slow as compared to economic theory. The eventual development of auditing was based on a strong determination to conquer problems associated with early beginning of business transactions and to provide an independent and competent report on the state of affairs of the business to their owners.

Olusanya (2001) wrote the – 1494, Luca Pacioli, an Italian, first published his comprehensive when he described the duties and responsibilities of an auditor. That auditing started taking from during the period, several test on accounting were published. Besides a tremendous industrial development, which led to the introduction of factory system was also taking place with rapid increase in the number of companies in the last century, the profession has assumed an ever-increasing role in business practices. It was so because the auditor played a vital role in instilling confidence in the public at large, with regard to companies by revealing facts which would otherwise have been hidden and by imposing a check on management. England was the first to make it legally compulsory for every company to appoint an auditor through Act of Farhament in 1900.

The thought behind Auditing, principally arose from the separation of ownership from management and the consequential need to safeguard the interest of the owners who all but the smallest of business were not involved in the day-to-day decisions made by the management. In Nigeria, auditing as a profession has developed to a high level due to recognition given it by law of the country i.e. companies and Allied Matters Acts, 1990. This is principally to protect the interest of the investing public and providing that company …Act, must have then annual financial statement audited.

The banking industry is faced with problems of auditing. These affect the activities of the banking industry negatively. Below are some of the problems encountered by the banks: 1. Failure to comply with the rules and regulations set up by Companies and Allied Matters Act of 1990, will affect the banking industry. 2. The misrepresentation of the financial statement will affect...

References: Akinyemi, S. T. (2000).Research Writing Made Essay: Lagos, Education
Consultants and Publishers
Braimoh, D. D. and Olaleye, B. O. (2003).The Constructivists’ Approach
to Education: Research Methodology Lagos: JEB Ace Publisher
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