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The recent collapse of Enron and revelations of unethical behaviour by members of the board of large corporations in the USA have reopened the debate about the credibility of the auditing profession and their usefulness in establishing confidence in the capital markets. In the case of Nigeria, the promulgation of the Companies and Allied Matters Act No. 1 in 1990 provided the opportunity for the government to register its dissatisfaction with the performance of auditors in Nigeria. The act contained provisions that challenged the credibility of the accounting profession in Nigeria and almost threatened its very existence. This paper examines events and environmental factors which led to the "crisis of confidence" and how the profession has attempted to re-establish public confidence in its members. Other developments in the regulatory framework for accounting and auditing in Nigeria are also examined. The paper suggests that any response by the profession must be relevant and give due cognisance to the peculiarity of the Nigerian socio-economic, political and cultural environments. It also suggests that the accounting profession in Nigeria must not rest on its oars, but must constantly remain proactive by keeping abreast of developments in the internal and the external reporting environments and respond appropriately. [PUBLICATION ABSTRACT]
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Keywords Auditing, Regulation, Nigeria
Abstract The recent collapse of Enron and revelations of unethical behaviour by members of the board of large corporations in the USA have reopened the debate about the credibility of the auditing profession and their usefulness in establishing confidence in the capital markets. In the case of Nigeria, the promulgation of the Companies and Allied Matters Act No. 1 in 1990 provided the opportunity for the government to register its dissatisfaction with the performance of auditors in Nigeria. The act contained provisions that challenged the credibility of the accounting profession in Nigeria and almost threatened its very existence. This paper examines events and environmental factors which led to the "crisis of confidence" and how the profession has attempted to re-establish public confidence in its members. Other developments in the regulatory framework for accounting and auditing in Nigeria are also examined. The paper suggests that any response by the profession must be relevant and give due cognisance to the peculiarity of the Nigerian socio-economic, political and cultural environments. It also suggests that the accounting profession in Nigeria must not rest on its oars, but must constantly remain proactive by keeping abreast of developments in the internal and the external reporting environments and respond appropriately.
Introduction
Members of the auditing[l] profession in Nigeria as well as in other countries are once again in the limelight. The recent collapse of the US corporate giant Enron and revelations of unethical behaviour by members of the boards of major corporations have caused many to question the credibility of the auditing profession. This crisis of confidence facing the profession especially in the US is not unique. In Nigeria, the spate of corporate failures witnessed in the financial sector in the early 1990s brought auditors into sharp focus and caused the Nigerian public to question the role of accountants and auditors[2]. Besides the challenge of a crisis of confidence brought about by major corporate failures (see Volcker, 2002; AICPA, 2004), members of the global auditing profession operate in an environment that has witnessed significant changes in recent years (see Baker, 1977; Burton, 1981; Burton and Fairfield, 1982; Schieneman, 1983; Harrington, 2003; Franzel, 2003). These changes have been brought about largely through developments within information technology; the expectation gap between users and auditors in particular, the perception of users with regards to the auditors' responsibility to detect fraud, error and other irregularities; litigation against auditors, globalisation of businesses and increasing competition amongst the large audit firms. These changes and challenges have had (and will continue to have) a significant impact on the auditing profession in Nigeria as well as in other countries (Staats, 1981; Harrington, 2003). However, the nature and magnitude of the changes in the environment, and the response of the auditing profession and other regulatory bodies has varied across countries. When the UK faced its catalogue of accounting scandals about a decade ago, it heightened concerns about effective governance. These concerns led, amongst others, to the establishment of the Auditing Practices Board (APB) in 1991 and to the recent move that placed the regulation of the profession in the hands of an independent regulatory body. In the US, the reaction to recent corporate scandals has been different, and radical. On 30 July 2002, President Bush signed the Sarbanes-Oxley Act into law, which sets out changes to corporate governance arrangements for securities and Exchange Commission (SEC) registrants and introduces new oversight procedures for auditors.
For the auditing profession in Nigeria changes (examined later) within its socio-economic and political environments compounded the effects of changes to corporate audit reporting and accountability in the country. These changes were pointers to the auditing profession in Nigeria that it could no longer afford to remain passive in handling its responsibility for ensuring corporate accountability. This paper examines developments in the regulatory framework for auditing in Nigeria that have challenged and questioned the legitimacy of members of the auditing profession and how the profession has responded to these challenges[3]. The response of the profession is crucial, as this could determine the degree to which they have succeeded in restoring public confidence in their members and the extent to which they have re-established the legitimacy of their continued existence. In spite of the socio-economic problems that have bedevilled the economy in recent times, Nigeria is a leading player not only in Africa, but also in the international arena. It is the sixth largest oil producer in the world, and is endowed with enormous natural and human resources. Having recently embraced democracy after years of military dictatorship, the present government is keen to rebuild Nigeria's tarnished image and to attract foreign investments into the country. The auditing profession in Nigeria will have a crucial role to play in restoring the confidence of investors in audited financial statements issued in Nigeria. This paper contributes to the on-going debate about the usefulness of the audit function and the need for members of the public accounting profession to ensure that they continue to play a useful role in lending credibility to published financial statements and in maintaining confidence in the capital markets. However, the nature of the environment in which auditors operate will normally determine the extent to which they can successfully discharge their role as society's watchdog. Therefore, in order to appreciate the nature of the problems, which have confronted the auditing profession in Nigeria, an understanding of the general environment (and the developments within the environment) in which members of the profession operate, is required. For, as environments change, auditing practice and other services provided by members of the auditing profession take on new characteristics in order to embrace new demands that arise (Mirghani, 1982).
The social and environmental context of auditing and financial reporting in Nigeria
With a population of about 120 million, comprising 250 ethnic groups, and a landmass of 924,00 sq. km, Nigeria is the largest country in the African continent. The country is a federal republic of 36 states including the federal capital territory, Abuja. Since gaining independence in 1960, the Nigerian economy has been shaped by the experimentation with different types/styles of leadership and government. After the first military coup in 1966, and the subsequent civil war in 1967-1970, the army has been the dominant political player, except between 1979-1983 and for a few weeks in 1.993. The sudden death of the dictatorial military ruler, Sani Abacha, led his successor to move quickly to restore human rights, repair relations with the West and install a democratically elected government in 1999. Under the new constitution adopted in May 1999, a strong executive presidency appoints a Federal Executive Council, comprising government ministers and ministers of state from each of Nigeria's 36 states. Although the 36 state governments enjoy greater autonomy than under the former military administration, they remain dependent on the central government for funding. The executive is accountable to the bicameral National Assembly, though in practice personal and ethnic ties dominate the political process. Nigeria's geo-political boundaries, a creation of the British colonial government, were arbitrarily imposed, cutting across ethnic groups and cultural units and paying little regard to the people's history and past experiences (Barbour et al., 1982). As a result, since independence, Nigeria has grappled with the problems and crises deeply rooted in tribalism and other ethnic tensions. These tensions have led to successive military coups, including tribal and religious unrests. In addition, the country has had a long history of gross mismanagement of the economy and corruption at all levels of government. Hence, in spite of the country's potentials for wealth, in 1997 Nigeria was ranked the 141st country in the Human Development Index and thus one of the poorest countries of the world.
Accountability in all facets of the economy is an essential ingredient to the economic development of any nation. But achieving adequate accountability in Nigeria has become a major problem, which various governments have had to contend with, because of widespread corruption in almost all spheres of public and private endeavours. The present government is determined to rid the country of all forms of corrupt practices, and has launched an anti-corruption campaign aimed not only at re-establishing accountability and probity in the management of the country's resources, but also at restoring the confidence of foreign investors in the Nigerian capital market. The success of the government's anti-corruption campaign hinges on effective cooperation with various corporate governance mechanisms, prime amongst which is the role of accountants and auditors in financial reporting. Financial statement quality is an indispensable component of the infrastructure needed to develop strong capital markets. Thus, accountants and auditors play a key role in ensuring adequate internal controls in business organisations and the reliability of the financial information reported in company financial statements. According to Edwards (1978, p. 19):
The fact that most government agencies as well as the stock exchanges and financial institutions require an expression of opinion by a certified public accountant on the financial position of business firms is an indication of the magnitude of that individual's responsibility to the public.
Such an exclusive privilege provides substantial economic benefit to members of the accounting profession. In return, the public have a right to expect some benefit in the form of improved financial reporting and the assurance of a stable capital market. However, the right to improved financial reporting cannot be assumed in a society like Nigeria that is highly infested with corruption. In a corrupt society, the quality of the accounting system and accounting data generated may be doubtful, as well as the reliability of the information presented in the financial statements (see Kimbro, 2002). This is because, in such a society, the independence of auditors may be compromised[4]. Over the years, various governments in Nigeria have been concerned with how best to achieve adequate accountability in the country because of widespread corruption in almost all spheres of public and private endeavours. The problem of corruption in Nigeria and its influence on accounting and auditing practices can be traced to the various changes in its socio-political and economic environment. According to Okike (1994, p. 83):
Nigeria has had its own transformation (political, economic, and sociological) since independence. These changes include experimentation with different styles of government (... and military dictatorships of different kinds), different economic experiences (from a poor agrarian, cash-crop economy to an oil-based economy) and changing fortunes of the people - from poverty, through civil war, affluence, to crippling depression, and many ethnic tensions. This transformation within the Nigerian economy has significantly influenced the accounting profession in many respects.
Mauro (1995) and Kimbro (2002) provide evidence that countries that grow at a very rapid pace tend to be more corrupt than those that grow moderately. In the case of Nigeria, Okike (1994, p. 83) reports that:
With changed fortunes from growing oil revenues, Nigeria became a country of rapid economic development. Every sector of the economy was a possible target for growth and development.
Such rapid development:
Creates opportunities for excessive rents, since fast growth does not allow countries to establish control mechanisms and infra-structure to deal with changes created by wealth (Kimbro, 2002, p. 327).
This is not suggesting that corruption is unique to Nigeria, nor to any nation in particular (see Wallace and Parker, 1991; Kimbro, 2002). It is rife in many (if not all) developing as well as developed nations (Wallace, 1987).
Auditors have been identified as the "watchdogs" of society (Porter, 1992). But in a society like Nigeria where corruption is endemic and almost institutionalised, the independence of some auditors in discharging their statutory duties may be in doubt. In the Corruption Perception Index (CPI) compiled by Transparency International[5], Nigeria appeared as the most corrupt nation in the world (see Kimbro, 2002). In such an environment, the risk of audit failure is high and the auditor may not rely on formalised audit procedures but must employ more flexible and less formalised audit mechanisms (Wallace and Parker, 1991).
Corruption as a concept is difficult to define and varies in context from one country to the other[6]. It is generally viewed as the result of collective behaviour that has been institutionalised. Three broad types of national societies on the basis of the extent of corruption (Wallace and Parker, 1991) are:
(1) Non-corrupt - those that are relatively honest with little or no endemic corruption.
(2) Highly corrupt - those with systematic (or pervasive) corruption with little or no control mechanisms in place.
(3) Mildly corrupt - those with widespread corruption but with control mechanisms and sanctions against bad behaviour.
Kimbro (2002) posits that corruption or the absence of it can be determined by the wealth and economic well being of countries.
Wallace and Parker (1991) suggest that audit is best suited to mildly corrupt nations, not necessary in non-corrupt nations, and ineffective in highly corrupt nations. Therefore, the efficacy of auditing practices in any environment is determined by the socio-political and economic factors prevailing within that environment (see Okike, 1994). Although it is possible to argue that since corruption is rife in Nigeria, as in most developing countries, audits would be ineffective, a counter-argument is that it is because of this potential for ineffectiveness that highly corrupt countries are mostly in need of tight control and greater investment to develop systems capable of coping with their corrupt environment. Instead, most developing countries like Nigeria have adopted accounting and auditing practices suited to the developed (and often less corrupt) countries. This practice requires more knowledge, than is presently available in developing countries, to adapt the imported systems to their own environments.
The widespread corrupt business practices (see Ajibola, 1990; Inanga, 1985) that have led to a number of corporate scandals and made headline news in recent times have been blamed by some on the failure of the auditing profession (see Wallace, 1992). However, two questions come to mind when one examines the issue of corruption and its relationship with the accounting profession. The first question is, is it the professional duty of accountants and auditors to expose corruption? The other is, how can accountants and auditors in Nigeria free themselves from corruption in a highly corrupt environment? With regards to the first question, opinion is divided even amongst members of the profession. Whilst accountants have the duty to maintain the confidentiality of information relating to their clients, Gruner (1999, p. 37)[7] believes that "confidentiality is not absolute". According to Gruner:
There are situations where legal or professional requirements could override that responsibility, in that accountants might be obliged to report findings and even suspicions to some particular regulatory or other office.
However, Gruner admits that there is also the issue of what kind of legal and governance frameworks exist to protect accountants. He states that:
Accountants who expose corruption can suffer such untoward consequences as legal problems, loss of job, loss of client, loss of reputation, and perhaps, in most extreme circumstances, loss of life (Gruner, 1999, p. 37).
This appears to be the situation in which accountants and auditors in Nigeria find themselves. Whilst the "inability" of members of the auditing profession to tackle the problem of corruption has been associated with cultural factors (Wallace, 1987; Okike, 1994; Kimbro, 2002), there is also the critical problem of an insecure environment. The prevailing economic situation in the country has subjected many Nigerians to severe financial pressure such that many are unable to survive on their regular income. This has induced people to go to extremes to obtain additional sources of livelihood[8].
An unstable and a fast growing economic environment affects accountability (Kimbro, 2002). In the case of Nigeria, it would appear that internal and/or external auditors are powerless in dealing with the situation (Wallace, 1992, p. 45) because internal monitoring systems are weak. According to Wallace:
Some auditors have been assassinated ... after it had become evident that they had unearthed the ugly truth regarding massive fraud in their client companies.
In 1984 a Nigerian partner of Arthur Young Osindero and Moret (now Osindero Oni Lasebikan) was murdered while returning from an audit assignment, which led to the revelation of a gigantic fraud. Also, in 1989, two auditors, one accountant and the secretary of a finance director, who were involved in uncovering fraud in Guinness (Nigeria) Limited or were at least aware of the details of the fraud, were murdered in quick succession.
In order to attempt to provide an answer to the other question of how accountants and auditors can free themselves from corruption in a highly corrupt environment, one must understand the nature of highly corrupt societies, and the governance structure within that environment. According to Wallace and Parker (1991, p. 13), the problem with highly corrupt societies is that:
Almost every government measure or business endeavour, however rational its goal, is a source of corruption because forces which deter corruption are often weak.
In the case of Nigeria, the concept of internal control system is redundant because all employees on the control trail of a transaction can be bribed (Wallace, 1992). Inanga (1985, p. 5) also confirms some of the corrupt practices prevalent in big and small companies, involving staff of the Board of Inland Revenue and Customs offkials[9]. The problem has degenerated to such an extent that bribery and other forms of corruption are referred to as the "Nigerian factor" in official circles (Wallace, 1992). Although it is possible for the accounting profession in the country to equip its members to be in a better position to address this problem, it would be an uphill task without the cooperation of members of the public. Corruption in Nigeria has reached such alarming proportions that it has become contagious - affecting even members of the accounting profession. For example, Wallace (1992) reports:
... [chartered accountants] have been involved in cases of negligence, outright incompetence, collusion and fraud.
In one of the cases reported (Wallace, 1987), the auditors of company Z connived with the directors to inflate the assets of the company. Company T invested in company Z based on the statutory reports of the auditors on the accounts. However, the company was compulsorily liquidated after two years and company T suffered enormous financial losses, and successfully sued for negligence. Other members of the profession have supported this claim, as the following statement (Owoyemi, 1990, p. 13) suggests:
Due certainly to not want of competence or ability, but ... more as a consequence of the present very weak and subservient nature of the profession, it has remained comparatively easy for clients to manipulate their auditors, into cooperating with the clients to produce final accounts that reflect more the views and the intended missions of the clients, than the proper, true and fair view of the enterprise.
Similarly, a former President of the Institute of Chartered Accountants of Nigeria (ICAN) made the observation that the consciences of many (of its members) had been sold "in the face of economic hardship" (Nwokolo, 1998). Also, a former secretary to the Federal Government, Alhaji Shehu Musa, made the following remark:
I would be less than candid if I should conclude this brief address[10] without mentioning an issue that has been agitating my mind of late. I am very much disturbed by growing allegations of considerable disparity between reports of internal auditors and the certificate (sic) being issued by external auditors ... management audits are now reportedly finding out that an increasing number of external auditors do not bother to look into the books thoroughly as they are expected to before proceeding to issue certificates. Should there be any iota of truth in this allegation, it would be very sad indeed. For grave doubts would have been cast on the honesty and probity of the external auditors involved.
It would appear from these allegations and reports that although accountants and auditors in Nigeria can be free from corruption if they choose, the influence of the environment is so pervasive, that it has corrupted some of them. Given that accountants are only a link in the entire corporate governance mechanism in the country, in order for them to be free to perform their statutory duties untainted, the corporate governance structure in the country would require some overhauling. As will be examined later, the introduction of the new companies legislation in 1990, provided the government with the opportunity to require all listed companies in Nigeria to have established audit committees. In addition, auditors now have to make a report to the audit committee. Before examining other consequences of these allegations and claims against members of the auditing profession, the next section examines the regulatory framework for auditing in Nigeria.
The regulatory framework for auditing in Nigeria
Whilst the framework for the regulation of accounting and auditing differ from one country to another, nevertheless, the general pattern has been the presence of two types of regulation - government regulation (in the form of various legislation or statutes) and self-regulation (i.e. regulation by members of the profession). The issue of maintaining a balance between professional self-regulation and government regulation of the profession has featured prominently in auditing literature (see for example, Mclnerney, 1979; Mosso, 1980; Nelligan, 1980; Plaistowe, 1992; Studdy, 1979; Williams, 1980). While some are in favour of self-regulation, others advocate government regulation, and some others believe that a balance between the two is preferable, for example, corporatist scholars (see Puxty et al., 1987). The collapse of Enron, Worldcom and other corporate giants in the US, in particular, has reopened the debate as to the extent to which members of the profession should be allowed to regulate its members.
Regulation of auditing by the government
Legislative enactments and administrative regulations have been significant in the development of auditing. These enactments vary in shape and form from one country to another. In one sense, they can be seen as "the means by which government attempts to represent and, at least to some extent, define the role of auditing in society". Under this view, "legal provisions should reflect societal perceptions of the need for and desired contribution of, an audit" (Turley and Sherer, 1991, p. 48). In Nigeria, the legal regulation of accounting and auditing derives its root from the UK in view of the fact that Nigeria was under British rule and influence for nearly 100 years[11]. During this period, modern accounting practices were introduced into the country and Nigeria's legal system was greatly influenced by that of the UK (see Parker, 1958; Wallace, 1987, 1992). Having attained political independence in October 1960, a review of company legislation became inevitable. Consequently, the Companies Ordinance of 1922, which had been inherited from the colonial government was repealed and replaced by the Companies Act 1968. Although, the 1968 act improved on the previous law[12], nevertheless it was a replica of the UK Companies Act 1948, with two major exceptions. One was the exclusion of the "exempt private company" from the Nigerian Companies Act, and the other, the inclusion of part X, which required foreign companies intending to carry on business in Nigeria to be incorporated locally. By mimicking the UK's Companies Act, the Nigerian Companies Act of 1968 failed to deal with the rapid economic and commercial developments of the country and did not address the peculiarly Nigerian company law problems[13].
Until new companies legislation came into effect in 1990, the Companies Act 1968 regulated the constitution and conduct of all public and private limited liability companies incorporated in Nigeria, though there is additional legislation for financial institutions (Banking Act, 1969), insurance companies (Insurance Act, 1976), and some government agencies and parastatals that are governed solely by special laws and not by the Companies Act 1968 or its replacement. Unincorporated entities, such as partnerships, were not subject to the Companies Act 1968.
Before examining the "crisis" that followed the enactment of new companies legislation in Nigeria, the next section examines the role of the auditing profession in Nigeria in regulating auditing practice.
Regulation of auditing by the profession[14]
The extent to which accounting and auditing practices are controlled either by the government or the professional bodies differs from one environment to the other. In many Anglo-Saxon countries (including countries to which Anglo-Saxon practices have been transplanted such as Nigeria), professional bodies have often been empowered through government inaction to determine and control standards required by those taking up responsibilities as auditors. In Nigeria, the Institute of Chartered Accountants of Nigeria (ICAN) is the body recognised for these purposes having been empowered by the ICAN Act of 1965. In order to be admitted as a member of the profession, a person must pass the Institute's examinations and complete the practical training prescribed (section 8(1) a of the ICAN Act).
Prior to 1990, there was no regulation of the market for audit services in Nigeria and no professional code and standard of auditing practice. Most audit firms had to (and still) depend on the generally accepted auditing practices contained in various manuals of the international auditing firms to which they are affiliated, including guidelines of the International Federation of Accountants (IFAC), of which ICAN is a member. Probably due to pressure from clients and reports of unethical behaviour and insufficient audit practices, or the need to develop standards suited to the peculiar Nigerian environment, ICAN set up an Auditing Standards Committee (ASC) in July 1989, 24 years after its foundation. No auditing standards or guidelines were issued until November 1990, although the code of ethics for ICAN members was revised in 1989. ICAN also set up a Professional Practice Monitoring Committee (PPMC) which would monitor and carry out periodic review of work done by its members, and was also empowered to take action against erring members. ICAN believed that "the existence and use of generally accepted auditing standards and procedures (would) promote acceptability and confidence in the financial statements audited by (its) members", and cautioned its members to note that "a court of law may, when considering the adequacy of the work of an auditor, take into account any authoritative pronouncement of good practice ..." (ICAN, 1990). However, by November 1990, only two standards[15] and a Preface to Auditing Standards and Guidelines were issued by the ASC after which it went into a complete state of inactivity. Although the ICAN attempted to ensure compliance with its standards and guidelines through the PPMC, there appeared to be evidence of continued professional misconduct and reports of unethical behaviour by ICAN members. This is rather unfortunate, particularly at a time when the profession both within and outside the country were already under public scrutiny following the spate of corporate collapses of the 1980s (for example, BCCI, Polly Peck, Maxwell Pensions, in the UK)[16]. The need for greater response by the profession in the UK led to the establishment of the Auditing Practices Board (APB) in 1991, and recently to the establishment of the Accountancy Foundation, now taken over by the Financial Reporting Council, in response to the recent corporate collapses in the US.
It would appear from the statutory provisions for audit contained in the Companies Act 1968 and the Companies and Allied Matters Act (CAMA) No. 1990 (examined later) that the government and the private sector in Nigeria have maintained a close relationship. Merino and Neimark (1982) observe that the legal requirement that companies be subject to an audit has generated benefits not only for the auditing profession, by creating barriers to entry and a guaranteed source of income, but also for the state, by providing an effective, low-cost means of maintaining the confidence of investors in the securities market. However, Turley and Sherer (1991, p. 57) observe that this relationship has been marked by a significant amount of tension because of the problem of determining "the extent to which the profession should be allowed to govern itself and determine its own rules and procedures". There is also the issue of the conflict of interest, which may arise between the two parties. Whilst the state may be more concerned about auditors helping it to achieve its objectives (e.g. maintaining investors' confidence in the financial markets), members of the profession may engage in activities which, though guaranteeing their source of income, might jeopardise the interest of the state. The recent corporate collapses in the US, including the demise of Arthur Andersen, one of the largest accounting firms in the world, exemplifies what happens when auditors become negligent in the performance of their duties. But "if, within a basically self-regulating framework, the auditing profession is seen to be responsible, independent and accountable, and to have control over its members, the state, as well as the profession, will benefit" (Turley and Sherer, 1991, p. 58). This observation might well explain developments, which were to follow the enactment of new companies' legislation, the Companies and Allied Matters Act (CAMA) No. 1990 in Nigeria. As will be examined later, the "curious" provisions of the legislation were pointers to the auditing profession that the conflict of interest which had resulted in the discharge of their statutory responsibilities (see Okike, 1994,1998b) had brought about dissatisfaction in the minds of the Nigerian public, which required the intervention of the government. It would appear that the profession in Nigeria failed to take necessary action at a time when the spotlight was on its members, whereas Gaa (1991) reports that in the face of threats of government action the accounting profession in the US made a number of "voluntary changes" in the structure of the relationship between it and the rest of society. However, the recent corporate scandals involving Enron, Worldcom and others has changed the regulatory landscape for auditing in the US, again forcing the auditing profession to take some radical steps, some of which are examined later.
The next section examines how the promulgation of new legislation in Nigeria changed the regulatory framework for accounting and auditing and threatened the very existence of the auditing profession.
A profession in crisis?
Auditors play a useful role in society. By lending credibility to the financial statements of corporate enterprises, auditors enhance the value of the financial information contained in these statements[17], which is useful for the efficient functioning of the capital markets. Should auditors become negligent in discharging their statutory responsibility, then they have to face the consequences. According to Clowes and Fowler (1978, p. 47):
If the public believes that auditing firms are not maintaining high standards of performance, they will place little value on audit reports, thus destroying the profession's economic base. If the public believes that the profession is not effectively regulating the conduct of auditors, the government may intervene with public regulation. If audit firms fail to control the quality of their practices, they increase the risk of audit failure, litigation, loss of clients, and public reprimand[18].
Given the preceding review of the environment in which auditors in Nigeria operate and the apparent dissatisfaction with the compromising position in which members of the auditing profession found themselves, the review of company legislation provided an opportunity for the government to demonstrate its dissatisfaction with the performance of auditors. For, when a new companies' legislation, the CAMA No. 1 of 1990, was enacted, it contained some "curious" provisions (see Okike, 1994) which suggested to the profession, especially the ICAN that the public had lost confidence in its members.
"Curious" provisions of the CAMA 1990 and the auditing profession in Nigeria
The CAMA 1990 introduced innovations in respect of issues directly affecting auditing practice in Nigeria. It removed the monopoly of regulating the auditing profession from ICAN through the provision of section 358(1) of the CAMA 1990. The section states that:
A person shall not be qualified for appointment as an auditor of a company for the purpose of this act, unless he is a member of a body of accountants established from time to time by an act or decree (emphasis added).
Secondly, section 359(2) (before its repeal) required the auditors' report to be countersigned by a legal practitioner[19], and section 359(3) required the auditor of a public company to also make a report to an audit committee, which shall be established by the public company. Furthermore, section 368 of the act empowers directors and shareholders to sue auditors for negligence, suggesting that the era of "careless" auditing is over, if ever there was such.
Auditors, legal practitioners and the general public received these provisions of the CAMA 1990 with mixed feelings. Whereas members of the accounting profession considered some of the provisions of the decree as an embarrassment, some others, for example, the lawyers regarded the provisions as a step in the right direction. The then senior partner (Chief Ani) of the largest accounting practice in Nigeria (Peat Marwick, Ani Ogunde & Co.) lamented that:
Sections 358 and 359 [were] a disaster and [appeared] to be a vote of "no confidence" in the Institute of Chartered Accountants of Nigeria (Ani, 1990, p. 10).
Although there appeared to be suggestions (see Okike, 1994) that the "curious" provision requiring auditors' reports to be countersigned by legal practitioners was surreptitiously included in the final document that went to the printers, nevertheless, the CAMA No. 1990 carried the "offending" provision for one year before its repeal. What ensued from the experimentation was chaos and indeterminacy and this probably hastened its demise[20].
It was a relief to members of the accounting profession in Nigeria when the "curious" provision was withdrawn. However, members of the accounting profession have learnt that the line between full control and no control is thin. Therefore, the accounting profession would continuously need to undertake a self-examination of its activities in the country and to address objectively the issue of how to ensure professional accountability. In the words of a former President of the ICAN (Mr Ayo Oni):
[members of the profession] are now in the limelight and the searchlight is on [them]. The public is looking up to [members of the profession] for leadership in respect of public accountability. [Members] of the profession cannot afford to fail (ICAN, 1990, p. 7).
Auditors in Nigeria need to be more independent and diligent in the performance of their statutory duty and ensure that up-to-date audit procedures are well in place, so that the effect on any company suffering "loss or damage as a result of failure of its auditor to discharge the fiduciary duty imposed on him" (section 368 (2)) will be minimal. Ani (1990, p. 19) stressed that:
The inclusion of the provision (section 368) in respect of liability for negligence where a director or shareholder may sue the auditors brings to the forefront the need for all practitioners to take out professional indemnity insurance.
Ani urged the ICAN to ensure that "every member in practice takes out (professional indemnity insurance)" and expressed the view that "yearly renewal of practising licence should be conditional upon production of evidence that the member is insured". Ani (1990, p. 20) notes that:
It is indeed curious that of all the professional bodies given responsibilities in the Decree, only the auditors have been singled out specifically for the application of the laws of negligence.
This, according to him, is a signal of "accountants beware the Devil is unchained".
Whilst the preceding analysis might suggest that members of the accounting profession in Nigeria operate in a seemingly hostile environment and have been confronted with a number of problems in recent times, nevertheless, auditing in Nigeria is not a lost cause. There is evidence that members of the accounting profession in Nigeria have made a number of positive contributions towards enhancing the development of the country, as reflected in an address[21] given by the former President, General Ibrahim Babangida:
You have come a long way since (your) humble beginning. Your membership has grown from 242 in 1965 to the present[22] 5,069, with a student population of over 37,000! This is by no means a mean fit (sic). Your members can, therefore, be justifiably proud of this excellent track record, ... Your members can be found in both the public and private sectors of the nation's economy. Some of your members have been called upon by government, from time to time, to head or serve on tribunals of enquiry, visitation panels, university councils, boards of parastatals, the privatisation committee, to mention just a few .... Your Institute has grown in stature and,... has earned itself international recognition .... On the regional level, your Institute initiated the formation of the Association of Accountancy Bodies in West Africa (ABWA) .... (Through) your annual submissions on the national budget ... you have contributed in no small measure to the direction of our economy. Your post-mortem on the budget also provides an excellent opportunity for the Government to have, readily available to it, the reasoned views of seasoned experts - free of charge!
However, this does not mean that all is well and there is nothing more to be done (Akindele, 1990, p. 30). The economic challenges of the future point to the fact that much more would be required to sustain the present achievements of the accountancy profession identified by the former President. The profession, therefore, needs to be constantly aware of the need to respond to societal demands if it is to emerge unscathed from the turbulent sea of political and economic problems in the next decade.
The response of the profession
The auditing profession in Nigeria is well aware that "the Devil is unchained". Whilst it would appear to be taking every possible step to respond to the changes and challenges posed by the "turbulent" reporting environment in Nigeria, the suggestion is that:
Voluntary and anticipatory reform is always preferable to enforced and reactive reforms which follow a crisis in corporate reporting" (Kramer, 1989, p. 10).
The steps taken and the strategies evolved by the ICAN to improve the services offered by its members to the public irrespective of the areas they function can be split into the following:
* education and training of members;
* professional ethics and the discipline of members;
* service to the public and the government; and
* improvement in the quality of service.
Education and training of members
The ICAN is conferred with the right to determine "the standards of knowledge and skill to be attained by persons seeking to become members of the accountancy profession and raising those standards from time to time as circumstances may permit". In order to equip aspiring accountants and auditors to cope with the "sophisticated economic scene of the 21st century and beyond" ("Editorial", The Nigerian Accountant, 1991, Vol. 24 No. 2, p. 2), and to ensure the continued relevance of the members of the profession and their preparedness to meet the continued changes and challenges in the reporting environment, the Institute has revised its examination scheme twice; in 1991 and in 1998[23]. However, there had been some modifications to the structure of the examinations before and in between these years as deemed necessary. The structure of the new syllabus, including a "multi-disciplinary case study (MDCS)", conforms with the recommendations of the International Federation of Accountants (IFAC)[24]. It is expected that the new syllabus will produce chartered accountants who are well equipped to take optimal decisions in an integrated global environment. In particular, the introduction of the MDCS will further strengthen the communication skills of future accountants and broaden their analytical horizon and ethical disposition[25].
Furthermore, in pursuance of the principle of life-long learning, the ICAN recognised the need for the continuing education of its qualified members, by instituting a programme of Mandatory Continuing Professional Education (MCPE) to ensure that its members keep abreast of the developments within the profession and in the reporting environment. The objectives of the MCPE includes updating members' professional competence in today's ever-changing environment, and developing skills in related areas so that accountants can better serve their clients. The MCPE programme is also designed to cater for the needs of qualified professional accountants in commerce, industry, public practice and government. The programme took off in July 1996 and imposes minimum CPE attendance credit hours on members of the ICAN. Prior to the "crisis of confidence" against members of the profession, attendance at the CPE seminars was poor due to its voluntary nature[26]. Therefore, in response to the "crisis", the institute made the programme of continuing professional education, mandatory. However, there is evidence (see The Nigerian Accountant, July/September, 1998, p. 23) that some members of the institute are still not complying with this requirement. This revelation came to light in an interview held with the 1998 President of the ICAN, Sir Ike Nwokolo. He remarked that although the MCPE was set up for the benefit of members and not as a "punishment for those who would not participate", sanctions would be implemented against non-compliant members after three years of the implementation of the scheme.
Also, the institute introduced a second tier accounting grade in the profession known as the accounting technicians scheme (ATS) in January 1989. The scheme is specially designed as a nationally acceptable accounting qualification for "middle level accounting officers who ... will provide the much needed technical support for the professional accountant in practice, industry, commerce, and the public sector" (Oke, 1989). Out of this scheme has sprung up the association of accounting technicians (AAT)[27], an autonomous body, affiliated to the ICAN.
Professional ethics and the discipline of members
As would be expected of any professional body, the ICAN has an established code of ethics to guide the conduct of its members. The code of ethics was revised in 1989 and recently in 1998. The suggestion has been made (ICAN President, 1990) that "judging from the public statements about (the) profession, it cannot be over-emphasised the need for all (members of the profession) to be meticulous in keeping to both the letter and spirit of the code". According to the President (Mr Oni), the profession is now in the limelight and the searchlight is on the members:
The public was looking up to (the profession) for leadership in respect of public accountability. [Members of the ICAN] cannot afford to fail.
Similarly, whilst launching the revised code recently (in 1998), the President of the ICAN (Sir Ike Nwokolo) noted that in view of the "rapid economic changes, which have affected the general welfare and conduct of many (of the institute's members)", a review of the code was inevitable. According to Sir Nwokolo, since the ICAN was:
A body founded on the virtues of integrity and accuracy it is important to have a high standard of conduct which must be adequate, comprehensive and pace-setting (The Nigerian Accountant, October/December, 1998, p. 6).
Furthermore, the ICAN established an investigating panel consisting of three members, to monitor and probe any allegation against its members. The panel investigates cases brought to its attention and takes appropriate action. Some cases are referred to the disciplinary tribunal where further action is required. Between 1992 and 1995, the panel investigated 50 cases (The Nigerian Accountant, January/March, 1996). Depending on the severity of the cases brought before it, there is evidence (see The Nigerian Accountant, October/December, 1996) that the disciplinary tribunal have had the licences of erring members revoked or stripped them of their membership.
Whilst it might appear that the ICAN has taken a strong stance in the discipline of its erring members, there appears to be evidence of "complaints of various acts of misconduct" by its members (The Nigerian Accountant, April/June, 1995, p. 6). According to the registrar and chief executive of the ICAN):
Members take the implications of their non-compliance with the codes too lightly. In particular, Members in public practice do not seem to take the legitimate interests of other members into consideration. Audit jobs are accepted without any recourse to the Members being removed or ensuring that such removal is in accordance with provisions of the Companies and Allied Matters Act 1990.
He states further that:
There have also been reports bordering on integrity against members in employment in both the public and private sectors.
The registrar reminded members that "the only way to uphold the high calling of (the) profession is to maintain the highest standard of professional conduct". According to him:
The investigating panel (of the ICAN) will remain alert to deal with all proven cases of misconduct against members.
Service to the public and the government
In recognition of the importance of cooperation between practising accountants and researchers in the growth and continued relevance of the accounting profession, the ICAN established the Accounting Research Foundation (ARF) in January 1989 and recently (1998) organised a research awareness workshop to which academics, researchers and members of the accounting profession were invited. Whilst the ARF was established over a decade ago, it appears that its impact is yet to be felt amongst Nigerian researchers. Hence, the Institute has recently (see The Nigerian Accountant, Vol. 33 No. 2, April/June, 2000) invited both practising accountants and researchers to apply for research funds. Whilst such a move is commendable, the research committee must ensure that priority is given to those areas of research that will positively influence and promote good auditing practices in Nigeria.
In addition to setting up specific schemes and projects as a service to the Nigerian public, the ICAN has awakened to its professional responsibility of assisting the government to combat financial mismanagement of the nation's resources. The Institute is geared up towards "producing a financially responsible core of accounting officers both at the local, state and central government levels". Similarly, the ICAN has made proposals to the Federal Government about a review of the government's accounting system. Such a review, according to Oke (1989, p. 28):
Would move the system from cash based accounting to a modified accrual based system. This will have the advantage of producing a balance sheet that will show not only cash assets of the State but other assets and liabilities.
Oke expressed the view that the system recommended will go a long way in minimising some of the deficiencies of the present system of cash basis accounting and save the country the kind of embarrassing situation ... where both the Central bank of Nigeria and the Federal Ministry of Finance, found it difficult, without the assistance of foreign banks and experts, to tell the nation how much (the nation) owed internally or externally, nor any of the agencies of government what unused plants, equipment, etc., they have in place.
Also, the ICAN proposed guidelines, which would introduce efficiency audit into the programme of internal auditors in ministries and parastatals. The implementation of such a proposal, the ICAN believes:
Will assist in protecting assets and in detecting fraud, misappropriation, irregular expenditure and losses due to waste, extravagance and mal-administration (Oke, 1989, p. 28).
In 1996, professional accounting firms were invited by the Federal Government to act as professional import duty administrators (PIDAs) to help reduce the incidence of fraud and the number of operatives in Nigerian ports, and to help improve documentation and make Nigeria's ports an admirable place to carry out international trade transactions.
Improvement in the quality of service
In the institute's attempt to improve the quality of service offered by its members to the public (Oke, 1989, p. 27), it set up the Auditing Standards Committee and the Professional Practice Monitoring Committee (PPMC). However, it would appear that these two committees did not accomplish their intended objectives before they were overtaken by events that were later to follow. Following years of inactivity by the ASC and the PPMC, some accounting firms (especially those from the then "Big Five") decided to set up the Public Practice section (PPS) to help improve the quality of service provided by audit firms to their clients. The PPS was established in September 1996, not as an independent body, but as an integral part of the ICAN, in direct response to the challenge of the credibility of members of ICAN following the spate of corporate failures in Nigeria. The objectives of the PPS includes[28]:
* providing support to those chartered accountancy firms who audit publicly quoted companies and financial institutions and helping them to raise the quality of their reporting and the value of their services;
* upgrading the quality of audit and financial reporting by setting and enhancing standards; and
* conducting training and peer reviews and providing a forum for the development and dissemination of technical information relating to public practice.
The PPS also intends to work with relevant regulatory and standard setting bodies (the Central Bank of Nigeria (CBN), the Security and Exchange Commission (sec), the Nigerian Stock Exchange (NSE), the Nigerian Deposit Insurance Cooperation (NDIC), the Nigerian Accounting Standards Board (NASB), amongst others), to continuously upgrade reporting standards, foster compliance, educate preparers and users of financial statements. It will help improve public perception of audit firms and their fee structures, particularly for the high-risk assignments such as reporting accountant's work. Furthermore, the PPS intends to prepare and help the profession cope with litigation risks, upgrade training programmes, quality assurance processes and practice management of members of the section. These objectives, the PPS believes, would help reduce the expectations gap by ensuring that the quality of work produced by its members is of the highest possible standard. Although some firms had been involved in peer reviews for over a decade, this is now formalised through the PPS. Initially, the PPS was only open to firms with a minimum of two partners, including all firms auditing publicly listed companies. Membership is now open to sole practitioners as well, although there are fears (see interview with the Chairman of the PPS in Financial Update, May, 1998) that sole practitioners may not be in a position to make any effective contribution to the PPS because they lack the time as well as the expertise to be able to make any effective contribution.
Whilst it would appear that the objectives of the PPS are laudable, the fact that it has only issued one auditing guideline (AGOl) planning and performance (since its inception in 1996), which was formerly adopted three years later (at the Institute's AGM in July 1999), leaves one in doubt as to the possibility of accomplishing its noble objectives, especially that of narrowing the expectations gap between members of the profession and users of their services.
Another attempt of the ICAN at moderating the activities of its members is the standardisation of audit and professional fees. This is an area where it was felt that the services of their members were being compromised. Evidence from research (GuI, 1991) suggests that a link exists between auditor independence and the size of the audit fee. It is not surprising therefore, that this aspect of the work of auditors has attracted much attention over the years. In recognition of the sensitivity of this issue, legislation in some countries, including Nigeria, requires that audit fees charged to clients be disclosed in published financial statements. The ICAN has noted that over the years, their members have been left with the discretion to determine audit fees charged to clients without any established rule or guidance. This practice, according to the ICAN (The Nigerian Accountant, January/March, 1996, pp. 8-9):
Allowed chartered accountants in public practice, consultancy, etc., to grow with the culture probably borrowed from the overseas accountancy bodies, of basing the fees they charge on their cost scenario.
The ICAN believed that whilst "some practising firms and consultancies charged moderately acceptable fees, so many practitioners charged ridiculously low fees". The consequence of this is that some practising firms have had difficulties agreeing fees payable by clients on a consistent basis.
In order to address this problem, the ICAN introduced (in June 1995) what it described as "a reliable and consistent basis for the determination of fees". It has also drawn up a minimum salary structure for qualified audit staff (not partners) and other audit personnel in practising firms and similar organisations. Such a move, the ICAN believes would also stem the trend of members and support personnel drifting into other sectors. Charges for professional services would continue to be based on hourly rates because this is the actual time the practitioner would be engaged. The alternative of charging fees based on client turnover is allowable particularly in circumstances where the client refuses to accept the rates based on time spent "and/or insists on making the member justify how it was arrived at".
ICAN hopes to review the minimum scale rates from time to time and expects every practitioner to charge "not less than the fixed minimum". The charges based on hourly rates are shown in Table I. However, the charges remain negotiable with no upper limit, taking due cognisance of the fact that the philosophies and strategies of individual firms vary from one another. According to the ICAN, "the quality of services rendered will therefore, determine whether or not, a particular practitioner will continue to be engaged by a client".
Furthermore, the ICAN requires that "all services (excluding result-based contracts) should be pre-paid not less than 50 per cent of the estimated fee at the planning stage and not less than 85 per cent at the draft clearance stage". Therefore, all practitioners must provide an estimate of the fee for all jobs in order to be able to determine appropriately how much would constitute the 50 per cent and the 85 per cent prepayments. ICAN believes that this would avoid the need for its members to chase clients for the payment of fees after completing any assignment.
All practising members of the institute are expected to adhere to these guidelines on fees, and defaulters would be referred to the Accountants Investigation Panel and thereafter to the disciplinary tribunal for appropriate action.
Furthermore, the ICAN Council has adopted a new policy on the operation of branch practice firms. Branch practice firms must now be headed by a qualified member of the ICAN whether or not he/she has a licence to practice. Where the head of such a branch has no licence to practice, such a branch must be under the direct supervision of the head office of the practising firm and only a partner of the firm may sign audit reports issued by the branch offices.
Similarly, ICAN has ensured that members at grass root levels are educated on the need to maintain minimum standards of professionalism by entrusting that responsibility to the district societies. They are also responsible for ensuring that members of the profession within their jurisdiction act professionally in carrying out their professional duties.
It would appear that the inclusion of some audit firms amongst the recipients of the Capital Market Regulatory Authority's (CMRA) merit award might provide some evidence of the improvement in the quality of service provided by these auditors to their clients. The award is based on the ability of companies listed on the Nigerian Stock Exchange (NSE) to meet the statutory requirements of the CAMA 1990 as well as compliance with the listing rules and other information required to be made available to the NSE. Other criteria used include the comprehensiveness of the financial reports issued by the recipient companies, dividend policies and evidence of good financial performance. This might suggest that the award winning audit firms are helping their clients achieve appropriate accountability.
Summary and conclusion
Although the regulation of enterprises in Nigeria has focused essentially on those economic functions and industries which cannot ensure the desired allocation of resources without intervention (e.g. production and marketing functions), no deliberate attempt was made by successive governments in Nigeria to intervene in the accounting and auditing services market. This is probably because of government's belief that the professional bodies are best suited to regulate the affairs of their members. However, it would appear that members of the auditing profession in Nigeria took such a privilege for granted. Hence, the promulgation of the CAMA No. 1990 provided the government with the opportunity to demonstrate its dissatisfaction with the performance of members of the auditing profession in Nigeria[29].
The accounting profession in Nigeria as represented by the ICAN is now fully aware that the line between full control and partial control is very thin. In its effort to sustain and reinforce their prized position in corporate governance, the ICAN has evolved strategies that will enable it to appropriately identify, analyse and address the unique needs of its members irrespective of the areas where they function. Thus, beyond pioneering statutory rights to set standards and regulate the practice of accounting in Nigeria, the ICAN has taken steps aimed at delivering satisfaction to its members and the public that they serve and to ensure that its members continue to maintain a leading edge in the twenty-first century.
Sadly, it would appear that the reactive stance taken by the ICAN in relation to its role, as the society's watchdog has been rather unfortunate, as recent events discussed in this paper have unfolded. There is still much to be done to continue to improve the image of the profession in the public eye. The institute must be ready to discipline and make examples of its members who fail to abide by the institute's code of ethics. The issue of Members taking "the implications of their non-compliance with the institute's code too lightly" is inexcusable. It is regrettable that the ICAN waited so long before it commenced with the issue of auditing standards and/or guidelines for its members. Now that the PPS is in place, the ICAN must ensure that the Body is sufficiently autonomous in order to be able to act in the interest of the public, and not just to represent the interest of its members. On its part, the PPS needs to be more proactive, and must ensure compulsory membership for all firms involved in the audit of publicly quoted companies.
The ICAN must continue to demonstrate that it is capable of effectively regulating its members, and providing them with the necessary guidance on current developments within the profession. In particular, the institute must pay closer attention to the activities of one-partner audit firms. In the words of Ani (1990, p. 23):
The promulgation of the Companies Decree 1990 has added a new dimension to the duties and responsibilities of the auditors .... These are pointers to the fact that the era of one-man wagon of practice is gone.
Ani advised accountants in practice to:
Merge and form strong national firms that will devote more time to education and training, updating of technical know-how and manuals, and specialisation.
Similarly, the doyen of Accountancy in Nigeria, Sir Akintola Williams advised members of the ICAN to come together in partnerships "in order to ensure maximum standard of service to clients" (The Nigerian Accountant, January/March, 1999, pp. 6-7). There is power in synergy; small audit firms in Nigeria are more vulnerable to corruption. Perhaps the time is ripe for the ICAN to ensure that audit firms with more than one partner undertake the audit of listed companies.
The ICAN has taken a step in the right direction in providing appropriate guidance for its members about fees charged to clients for audit and other consultancy services. Also it has issued a guideline Planning and Performance, which sets out:
* basic principles governing an audit;
* infrastructural requirements of an audit;
* pre-engagement basics of an audit;
* procedures for planning the audit;
* performance of the audit assignment; and
* quality control procedures.
The auditing guideline 1.1 - integrity, objectivity and independence states that:
The auditor should possess an independent mental attitude, integrity and objectivity in his approach to his professional work. He must be fair and must not allow prejudice or bias to override his objectivity. He should maintain an impartial attitude and be free of any interest which may be regarded, whatever its actual effects, as being incompatible with integrity and objectivity. In this regard, the auditor is not permitted to have any financial interest by way of equity, bonds, or debenture stock, in its client company.
It would appear that in developing these guidelines, the ICAN has remained oblivious of the type of environment in which its members operate. The Institute has not only emulated auditing standards issued by the IFAC and other professional bodies, it still distributes IFAC's audit standards to its members. Whilst there is nothing wrong in adopting international standards of best practice, it is important that the standards that are applied in Nigeria are tailored to meet the present challenges posed by developments within the Nigerian economy. In particular, standards dealing with fraud and corruption are long over due. AccountancyAge.com (2002) reports that, in response to the controversial Sarbanes-Oxley Act, the AICPA has launched its own initiative aimed at restoring investor confidence in the auditing profession. It has instructed auditors to "approach every audit with professional scepticism and not assume that management is honest" as part of a new standard called SAS 99'. According to the chief executive of the AICPA, SAS 99' "puts fraud at the forefront of the auditor's mind". The standard calls on auditors to put aside any prior beliefs as to management's honesty and says "members of the audit team must exchange ideas or brainstorm how frauds could occur". Furthermore, the audit team is "expected to inquire of management and others in the organisation as to the risk of fraud and whether they are aware of any frauds". An examination of the entire guidelines issued by the ICAN on how to plan and perform an audit reveals no mention of fraud or corruption. Yet it is not a secret that Nigeria is now the most corrupt nation in the world (Kimbro, 2002). It should therefore be expected that in developing standards for its members, the ICAN takes this into consideration. The other issue is whether or not there are appropriate mechanisms for not only ensuring continued compliance with the guidelines, but also for reviewing them from time to time to ensure they are achieving the desired objectives. The ICAN must bear in mind that if an Enron-type disaster could occur in the US, which is presumed to have more appropriate mechanisms for the enforcement of rules and regulations, it could happen in Nigeria. In any case, in the early 1990s, Nigeria suffered from a similar fate, when many banks and financial institutions collapsed, causing depositors and investors to lose their investments. Many of the directors and senior officials of these collapsed banks are still languishing in jail. But the question every one asked was "where were the auditors when these officials were misappropriating investors' funds?"
In conclusion, the accounting profession in Nigeria must continue to monitor developments in the external and internal reporting environments and respond adequately. The pace of events within the Nigerian economy over the past years suggests that the accounting profession cannot afford to remain passive. The rebuilding of the economy following the establishment of a democratically elected government would suggest that various factors would come into play to make the accounting profession more relevant. The challenges of the twenty-first century raise problems, which the ICAN through its members would have to contend with. The effectiveness of the institute in the years ahead will depend largely on how these problems are resolved. The complexity of the economy will demand that members of the ICAN are appropriately equipped to address the various aspects of financial and economic management. Except members of the profession are able to do this, their relevance, especially as professionals may be called to question again.
In any orientation towards accountability and efficient resource allocation and utilization in Nigeria, members of the accounting profession will be called upon to assume greater responsibilities in corporate audit reporting. How the profession will respond will determine the relevance of the ICAN in the next decade. The onus is, therefore, on the institute to anticipate these changes, and ensure that its members are well equipped with the professional competence/training and attitudes that are suited to the new conditions. Whilst it appears the ICAN has taken some giant strides to rectify the tarnished image of the profession, following the promulgation of the CAMA No. 1990, it is only a matter of time before the success of these actions can be judged. The institute must ensure that these are not just matters of rhetoric or public relations exercises to create the appearance that something is being done to retrieve the profession's reputation. The ICAN must ensure that its response to the challenge to the legitimacy of its existence has maximum impact not only on the quality of service offered by its members, but also on their role as society's watchdog. The institute must leave no stones unturned in ensuring that it takes the lead in regulating its members effectively. Should any lapses be evident, the government or its agents could step in and auditors in Nigeria could find themselves under a more stringent regime than that imposed by auditors in the US. On the other hand, could this be exactly what is needed in a corrupt environment like Nigeria? Only time will tell. Also, the ICAN must recognise the need for change and the continuous updating of its standards in the light of developments in the economy and the effects of globalisation.
Finally, as the saying goes, "a tree cannot make a forest". Auditors in Nigeria are just one link in the chain of relationships, which form the framework for corporate governance in Nigeria. In a complex reporting environment such as Nigeria, perhaps the time is ripe for the entire corporate governance framework in the country to be reviewed. The development of such a framework in Nigeria should make an interesting subject for further research. Nevertheless, to assist members of the auditing profession to fulfil their role effectively, the government, through the Corporate Affairs Commission, the securities and Exchange Commission, the Nigerian Stock Exchange and the ICAN must get together and carry out a review of the regulatory arrangements for audit in the country. At a time when Nigeria is doing all it can to attract foreign investments, what it cannot afford is another Enron-type disaster.
Notes
1. The accounting/auditing profession is used interchangeably in this paper because they belong to the main Body of Accountants (the Institute of Chartered Accountants of Nigeria (ICAN)) responsible for the regulation of accounting and auditing practice in Nigeria. The "crisis of confidence" reported in this paper affected all members of the ICAN, although those Chartered Accountants in public practice were more affected than those in the industry.
2. Even financial analysts queried the adequacy of the generally accepted accounting principles and auditing standards in the face of complex business scenarios occasioned by the advancement in information technology, globalisation of the economic environment, increasing sophistication of the consumer, innovation in production processes and so on.
3. Okike (1994) presents a detailed analysis of the influence of socio-political and cultural factors on auditing practice as well as the analysis of events that led to the "crisis of confidence" in the auditing profession in Nigeria.
4. see Okike (1998b, 1999) for a longitudinal analysis of the paradox of audit qualifications in Nigeria, and the quality of corporate audit reporting in Nigeria.
5. The Transparency International CPI ranks countries in terms of the degree of corruption perceived among public officials and politicians. TI focuses on corruption in the public sector and defines corruption as the abuse of public office for private gain (Kimbro, 2002, p. 329).
6. For an analysis of the different types of corruption in relation to different types of societies, and the role of auditing (and auditors), see Wallace and Parker (1991) and Kimbro (2002) who investigated the relationship between corruption and the quality of financial statements in 61 countries. The study concludes that accounting plays an important role in reducing "the propensity and the opportunity for the development of corruption".
7. John Gruner is the Director General of the International Federation of Accountants (IFAC).
8. Although there appears to be evidence (see the Financial Times of Friday, 31 March 2000) that the new democratically elected government in Nigeria is determined to redress the situation, this was the condition before and after the new legislation was enacted in 1990.
9. see also Ajibola (1990) who reveals the banking and other financial malpractices in Nigeria. These include forgery on savings and deposit accounts; forgery on current account by use of forged cheques; forgery of transfer instruments such as drafts, mail transfers; opening and operating of fictitious accounts together with the creation of false credit balances; diversion of bank's funds; embezzlement or outright theft of cash; foreign exchange malpractices; advances to non-existing customers; misuse of various suspense accounts, etc.
10. This remark was made while delivering a speech at the Annual Dinner of the ICAN held at the Eko Holiday Inn, on Friday, 21 November 1980.
11. A review of the literature on the accounting in developing countries (such as Seidler, 1967; Johnson and Caygill, 1971; Briston, 1978; Walton, 1986) suggests that the state of accounting in former colonies can be traced to their colonial past. In most cases, these countries, like Nigeria, lacked the technical know-how to develop wholly indigenous company legislation. And in any case, foreigners, who along with their economic interests brought with them their accounting, controlled most of the business activities in the country prior to the indigenisation exercise of 1972 and audit reporting practices.
12. For example, it made mandatory provisions for accounts and encouraged greater accountability of directors and more effective participation of shareholders in the affairs of the company.
13. see Okike (1989, 1998a) for evidence of voluntary disclosures in financial statements and audit reports of Hated companies in Nigeria, illustrating the fact that not only were the requirements of the CD 1968 dated, developments in the UK have continued to influence reporting practices in Nigeria.
14. For a historical analysis of the establishment of an indigenous accountancy profession in Nigeria, see Wallace (1987, 1992).
15. The standards are: AG 1 - Auditing Guideline on Engagement Letters and AG 2 - Auditing Guideline: Prospectus and the Reporting Accountant.
16. In Nigeria, many financial institutions went burst due to poor accountability and management, and also in the US, in 1985, the Dingell Committee (of the House of Representatives) began an investigation into the quality of financial reporting following a number of prominent business failures.
17. Kimbro (2002) provides evidence that financial reporting practices and accounting standards quality in conjunction with effective enforcement of those standards through the degree of accountant-auditor concentration is inversely associated with corruption.
18. The recent events in the US and the response of the Senate, with repercussions around the globe lend credence to this point.
19. Nigeria is the first country in the world to ever make such a provision.
20. see Okike (1994) to find out how the requirement of section 359(2) of the CAMD 1990 was operationalised.
21. Activities marking the Silver Jubilee celebrations commenced with the opening address, on Friday 31 August, 1990, at the Nicon Nuga Hilton Hotel, Abuja (the new Federal Capital).
22. Since 1990 when this remark was made, the membership of the ICAN has more than doubled. At the end of 1998, the membership stood at 11,855.
23. During the first six years of its existence, the institute's examinations were organised with the assistance of the Overseas Accountancy Examination Advisory Board founded in the UK by the three chartered accountancy bodies (in England and Wales, Scotland and Ireland) for the same purpose. However, from October 1974 ICAN assumed full control over the conduct of its examinations.
24. In the UK, the ICAEW, the ACCA, and the other professional institutes have similarly revised their syllabuses and restructured their examinations.
25. The new syllabus was presented to the Nigerian public on Monday, 8 December 1997 at a press conference at the institute's secretariat in Lagos.
26. Wallace (1987) attributed the poor attendance to the fact that a number of ICAN members are members of international professional accountancy bodies either in the UK or the US, and have established links with these bodies and so are in a privileged position to up-date their knowledge on current issues. That being the case, it can be argued that such members are the most required to be present at such courses and seminars to impart their knowledge to those less knowledgeable.
27. The AAT was officially launched on 10 December 1994, and is run along the same lines as the AAT of the Institute of Chartered Accountants in England and Wales (ICAEW).
28. see The Institute of Chartered Accountants of Nigeria, Introducing Public Practice Section (PPS) for Self Regulation.
29. The enactment of the Sarbanes-Oxley Law in the US, following the financial scandals involving Enron, Worldcom and others, is another example of how the government can impose laws on members of the auditing profession because of their failure to adequately regulate their members. Similarly in the UK, the regulation of members of the profession is now virtually in the hands of an independent regulatory body.
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Elewechi Okike
Sunderland Business School, University of Sunderland, Sunderland, UK
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