Abstract

The need to focus on Transparency and Accountability of Financial Reports has increased particularly in the wake of economic collapse and financial crises. Additionally, scholars have found that Transparency and Accountability of Financial Reports influence a firm’s performance. Corporate failures and scandals have imposed the demand for reforms and for improved regulations, particularly on governance matters.

The purpose of the study was to identify ways of enhancing Transparency and Accountability of Financial Reports through auditing. The study focused on the following research questions: What is the role of auditors on Transparency and Accountability of Financial Reports? What is the role of an audit committee on Transparency and Accountability? The target for this study was Commercial Banks with National Financial Credit Bank being the Case Study.

The target population was 30 respondents which constitute the employees of the bank. The data collected were coded and interpreted with the use of SPSS software and Microsoft excel workbook. The findings were presented in form of tables and charts and inferential statistics were also used to interpret the data.

The study concluded that the role of auditors that can enhance transparency and accountability of financial reports were evaluating risks, evaluating controls and operations, assessing compliance with policies and procedures, verifying the existence of assets, and providing opinions on financial statements.

The study also concluded that the role of the audit committee that can enhance transparency and accountability of financial reports were reviewed internal audit plans, report and significant figures, monitor choice of accounting principles, ensuring risk management process is comprehensive and ongoing, establishing a direct reporting relationship with the external auditors, oversee financial reporting and disclosure and ensuring that financial statements are understandable, transparent and reliable.

CHAPTER ONE

INTRODUCTION

1.1Background of the Study

Auditing has been the backbone of the complicated business world, it has existed since the beginning of human civilization but it was fully recognized and practiced by the nineteenth century. The late nineteenth century was a turning point in the history of auditing when laws like the English Companies Act of 1862 were enacted.

Auditing came in as a result of the separation of ownership from control as landlords owned: properties, businesses, and other forms of wealth which were supervised controlled, and managed by stewards. Reports were later presented by those controlling the business to show how the business has been functioning.

With the evolution of time, businesses were no longer solely owned by a person, but by a group of partners, shareholders, or even stakeholders who had invested in the business and they expect reports from directors and management on how the business has been functioning, revealing any aspect of profit or loss incurred, the cash inflow and outflow, the financial position (assets and liabilities) and how the business has grown.

Due to conflict of interest that exists between management and shareholders or owners of the business, the solution to the problem of credibility in the reports lies in appointing an independent person to investigate the report and express an opinion whether they were prepared in all material respect and if they give a True and Fair View.

Auditing, therefore, is an examination of the financial statements or reports of an entity that enables an auditor to express an opinion on whether the financial statement was prepared in accordance with an identified and acceptable financial reporting framework. It is necessary for auditing to be done by a competent independent person. They exist both internal and external auditors and both review the financial statements presented to them by management.

According to Robertson (1976), Internal auditing may be defined in several ways depending on what purpose is to be served. Internal auditing is an independent, objective reassurance and consulting activity intended to add value and develop organization’s operations by assessing and refining risk management, controls, and governance procedures. Internal audit was considered a monitoring function that is the policeman and the watchdog of an organization.

It could be seen as an independent appraisal activity established within an organization. It should be noted that even though an internal audit department is part of an organization, it should be independent of the line of management whose sphere of authority it may audit.

Whereas External auditing is a periodic and independent examination of the books of account and records of an entity undertaken by a qualified person who is not an officer of the enterprise, to ensure that they have been properly maintained, are accurate, and comply with established concepts, principles, accounting standards, legal requirements and give a true and fair view of the financial statement of the entity.

Issues of Transparency and Accountability have been in recent years regarded as significant thus auditing has to be implemented adequately. Transparency in this light is clear disclosure of a company’s financial information and it helps reduce volatility because all the market participants are concerned base decisions of value on the same data. Laws and regulations exist in most jurisdictions encouraging or mandating transparency.

For example, the Securities and Exchange Commission (SEC) which is an agency of the U.S. Government serves as the primary regulator of the securities trade. It attempts to ensure that all trades are fair and that no price manipulation or insider trading occurs.

Also, it promotes full disclosure and monitors mergers and acquisitions to ensure continued competitiveness. Transparency involves full, accurate, and timely disclosure of information, it could be seen as the extent to which investors have ready access to financial information about a company, such as price levels, market depth, and financial statements.

Accountability on the other hand is when an individual or department is held responsible for the performance of a specific function. Accountability has to deal with bearing the responsibility for the outcome of certain events. It forces an accountant to be careful and knowledgeable in their professional practices, as negligence can cause them to face legal actions.

An accountant is accountable for the accuracy and integrity of the financial statements even if errors were not made by them. Managers of a company may try to manipulate their company’s financial statements without the knowledge of the accountant.

There are quite a number of incentives for managers to do this, as their pay package is usually tied to the company’s performance. This is why an independent body (auditors) must review the financial statements and accountability forces them to be knowledgeable and careful in their review.

The concept of transparency and accountability has helped in improving corporate governance. Transparency and Accountability are generally considered the pillars of corporate governance. Corporate governance is described as the framework of rules, relationships, systems,s and processes within and by which authority is controlled within an organization. It is seen as a relationship between a company’s board of directors, its shareholders, management, and other stakeholders (Cadbury, 1992).

It is a known fact that transparency makes a corporate organization more profitable. Due to recent financial crises and corporate scandals, the subject of transparency and accountability of financial reports in modern-day commercial banks has received attention as never before. It has become a subject of discussion and empirical research both in developed and developing countries.

As a result of the stock market bubble of the late 1990s and speculations over the future of ‘dotcom’ companies, many countries experience huge financial scandals and fraud. The bubble burst in 2000 and was followed by the revelation that senior management at Enron a U.S energy company had been deceiving investors by fraudulently overstating profitability.

Other companies that were involved in fraud included: WorldCom, Parmalat, Cable and wireless, Xerox and in Cameroon, its revenue from oil has been misappropriated and this could be attested by the World Bank

Also the Sarbanes- Oxley Act (SOX) of 2002 also known as the public company accounting reform and investors protection Act. This Act considers corporate governance, Auditing, Accountability, Responsibility, and Transparency. This is a US federal law put in place to protect investors from fraudulent accounting activities.

The SOX Act mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. The SOX Act was created in response to financial malpractice in the early 2000s when public scandals such as Enron Corporation, Tyco International Plc, and WorldCom shook investors’ confidence in financial statements and demanded an overhaul of regulatory standards.

Greater accountability and transparency are seen to improve the performance of corporate organizations through better resource allocation, enhanced efficiency, and increased growth prospects (Chipwa, 2005).

Enhancing transparency and accountability are central to the improvement of corporate governance mechanisms. Basically, transparency is a vital means of enhancing the performance and accountability of firms.

Transparency is critical for the culture of accountability, especially where market competition thrives (Katera, 2003). This implies that those with a stake in corporate organizations must have all relevant information regarding their affairs so as to make proper decisions and if necessary, take remedies. This becomes possible only if those charged with the daily responsibilities of the corporate organizations are transparent and accountable enough. The essence of transparency and accountability in Cameroon as a developing country cannot be overemphasized.

In this regard, (Katera, 2003) acknowledges that the key to business survival, creating and maintaining wealth for the corporate organizations lies primarily on systems of transparency and accountability. There is therefore the need or quest to enhance transparency and accountability so as to ensure shareholder wealth maximization and overall performance of the corporate organization.

According to OHADA UNIFORM ACT, relating to Commercial Companies and Economic Interest Group which was the first Act to be enacted, “All Public Limited Companies must appoint an auditor to examine and report on the accounts prepared by directors”. The Private Limited Companies are not compelled by the law to fulfill these audit requirements. A point often misunderstood is that the auditors do not act for directors; rather they act on the behalf of shareholders.

Against this backdrop, this study focuses on the Role of Auditing in Enhancing Transparency and Accountability of Financial Reports in the National Financial Credit Bank.

1.2 Statement of Research Problem

Transparency and Accountability are increasingly more topical, broadly relevant, but also more under-researched in enterprises (Chipwa ,2005) . In developed and developing countries, the need to focus on transparency and accountability of financial reports in an organization has increased particularly in the wake of economic collapse and financial crisis.

In spite of existing company regulation encompassing legislative framework and guidelines which govern commercial banks, the lack of transparency and accountability of financial reports enclosed into sound corporate governance practices has led to organizational failures.

To the best of our knowledge literature extensively dealing on transparency and accountability of financial reports in commercial banks in Cameroon is scanty.

Similarly, the factors enhancing transparency and accountability of financial reports in commercial banks in Cameroon have been under-looked, to the best of our knowledge. In the light of this existing gap, the following research objectives are raised.

1.3 Objectives of the Study

The objective of the study is classified into both the General and the Specific objectives.

The general objective is basically on enhancing transparency and accountability of financial reports in commercial banks.

However, the specific objectives of the study include:

1. To find out if the audit finance committee governs the transparency and accountability of financial reports in commercial banks.
2. To find out the role of auditors in enhancing transparency and accountability of financial reports in commercial banks.
3. To analyze the effect of audit quality on transparency and accountability.
4. To determine if board independence enhances transparency and accountability of financial reports in commercial banks.
5. To ascertain if ownership concentration enhances transparency and accountability of financial reports in commercial banks.

Further Readings

THE IMPACT OF EXTERNAL AUDITORS ON THE PERFORMANCE OF PUBLIC LIMITED COMPANIES IN BUEA

THE IMPACT OF AUDITING ON FINANCIAL PERFORMANCE OF MFIS IN BUEA.