THE ROLE OF EXTERNAL AUDITOR IN FRAUD DETECTION AND PERFORMANCE
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Considering the important role that external auditors are playing in the detection of fraud in the banks and other establishments in the Cameroonian economy, fraudulent activities in Cameroon banking systems in this recent years have been identified to contribute a lot to Cameroon’s economic meltdown. In this study, the effort was made on how this fraud can be detected and eliminated.
Taking the first bank of Micro Finance Institutions in Buea as a case study, this study was aimed at finding out the role of external auditors in fraud detection which is badly affecting our economy and ways of preventing it.
To get this research project done, primary data was based on direct questionnaires and interviews. Emphasis was laid more on the administration of questionnaires and interviews as a major source of primary data.
The manager of the first bank of Nigeria plc was interviewed on the role external auditors play in fraud detection. Secondary data was obtained from journals and textbooks.
An audit is a systematic process of empirically obtaining and evaluating evidence regarding statements about economic actions and events to determine the degree of correspondence between the financial statements and the established criteria and communicating the results to interested parties (GASS, 2012).
An audit is carried out by an independent competent person who is unbiased concerning the information gathered to express an opinion on the financial statements.
In pursuance of this objective, the external auditor may disclose defalcations and irregularities which could be substantial and widespread, thus capable of impairing the truth and fairness of the financial statements.
Also, it goes a long way to increase the risk exposure faced by clients, potential investors, third parties who place their trust in the auditor’s report for their economic decision making.
In the past, the widely registered corporate malpractice experienced by multinationals corporations because of the non-adherence to corporate governance principles, agreements, and regulated standards for reporting led to the collapse of multinational corporations such as Enron which resulted in immense scrutiny of the auditing profession.
In recent years, there has been significant debate over the extent of the statutory auditor’s responsibility for the detection of fraud and the performance of companies and small businesses.
This has been encouraged by the continuous uncertainty over the extent of the auditors’ liability to third parties for negligent audit work.
It’s obvious that failure to detect a major material misstatement due to fraud leads to gross negligence and thus causes damages to the client or third parties to whom a duty of care is owed.
The important question here is how far the auditors’ responsibilities to clients and third parties are.
The auditing profession has often held tight to the opinion that the primary responsibility for both prevention and detection of fraud and other irregularities rests with client management or those charged with governance.
The auditor’s responsibilities do not require him specifically to detect, prevent and correct fraud unless required by stature or specific terms of the audit engagement.
Following normal practice, the audit will be planned primarily to enable the external auditor to express an opinion.
An auditor is merely obliged to plan and design his audit procedures in such a way that it obtains a sufficient degree of evidence it needs to arrive at a reasonable conclusion, upon which his opinion is based and also detect defalcations and irregularities which may go a long way to impair the true and fairness of the financial statements.
This research is to investigate the positive effects and influences that external auditors have on Financial Institutions such as microfinance.
However, the question can be asked why MFI continues to witness fraud ever since the auditing process had been in existence.
In carrying out this research, some problems have attracted special attention. They are as follows:-
- What are the reasons for consistent fraudulent practices in banks (MFI)
- To what extent should external auditors play in MFI to enhance the growth of the MFI and for the banks to keep standards as required by the OHADA reporting framework?.
- What methods should Microfinance institutions employ to curb corporate financial fraud to an absolute low level?
The objectives of the study areas are stated below;
- To ascertain if there is a significant relationship between the role of the external auditor and fraud detection in Micro Finance Institutions.
- To ascertain if there is a significant relationship between fraud detection and the audit of financial statements in Micro Finance Institutions.
- To ascertain the relationship between the qualification and the experience of the external auditors and fraud detection in Micro Finance Institutions.
The following are the research questions of this study;
- What is the significant relationship between the role of the external auditor and fraud detection in Micro Finance Institutions?
- What is the significant relationship between fraud detection and the audit of financial statements in Micro Finance Institutions?
- What is the relationship between the qualification and the experience of the external auditor and fraud detection in microfinance institutions?