This project work titled “the impact of conflicts of interest on the auditor’s independence” using a price water house coopers as a case study, examines specifically the concepts of independence and conflicts that may arise when it is lacking. Independence are identified and discussed on how to manage threats. The primary and secondary sources of data were used in gathering information for the success of the project work. It was discovered that auditor’s conflict of interest greatly influence the auditor’s independence. It was concluded that the conflicts of interest exists from the auditor to the structures that govern the industry, the institutions and legislation. Finally, it was recommended that auditors should be chosen not by management of the company, but by the committee which should comprise of the Board of Directors (BODs).
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgements iv
Abstract v
Table of Contents vi
Chapter One: Introduction 1
1.1 Background of the Study 1
1.2 Statement of Problem 3
1.3 Statement of Research Problem
1.4 Objectives of the Study 6
1.5 Research Hypotheses
1.6 Scope of the Study 6
1.7 Significance of the Study 7
1.8 Limitation of the Study 7
1.9 Definition of Terms 8
Chapter Two: Literature Review 12
2.1 Introduction 12
2.2 The Historical Origin and Development of Auditing 12
2.3 The Concept of Independence 21
2.4 Auditor and the Importance of Independence 23
2.5 Professional Responsibility of an Independent
Auditor 25
2.6 The Companies and Allied Matter Act 1990 and the
Auditor’s Independence 27
2.7 Conflicts of Interest 32
2.8 Price Water House Cooper: History and Milestones 54
Chapter Three: Research Method and Design 59
3.1 Introduction 59
3.2 Research Design 59
3.3 Description of Population of the Study 60
3.4 Sample Size 60
3.5 Sampling Techniques 60
3.6 Sources of Data Collection 60
3.7 Method of Data Presentation 61
3.8 Method of Data Analysis 62
Chapter Four: Data Presentation, Analysis and
Interpretation 64
4.1 Introduction 64
4.2 Data Presentation 64
4.3 Data Analysis 64
4.4 Hypothesis Testing 79
Chapter Five: Summary, Conclusion and
Recommendations 83
5.1 Introduction 83
5.2 Summary of Findings 83
5.3 Conclusion 84
5.4 Recommendations 86
References 89
Appendices 91
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Conflict of interest and auditor’s independence are two concepts that must be considered properly in this project work. If there is any way auditors’ conflict of interest affects his independence.
To start with auditor’s conflict of interest according to Andrew (2004) is a setting where an auditor trade off the influence and been biased of his report. There are two types of conflicts of interest in this regard. They are conflict where auditor earns reward from a third party between form and clients interest and conflict between the interests of two or more client e.g. where an auditor or audit team has a long term relationship.
While auditor’s independence refers to as the independence of the auditor from parties that have an interest in the financial statement of an entity.
This usually safeguard the auditor’s integrity and also an objective approach to the audit process.
It is obvious that there is auditor’s conflict of interest i.e. either of the two types of conflict of interest, there is usually auditor trade of the influence and been based that could make auditor not given accurate report, and then affect auditor independence.
The definition of auditor and auditor’s independence over the decades, have evolved along with accounting profession itself the concept independence was considered of great importance, and the focus was am elimination of conflict of interest that arose from financial relationships between auditors and their clients.
The twin sides of a coin are the concept of audit and the concept of independence. The auditor who has lost his independence has lost his reason, he has become a dependent auditor and will be in conflict of interest with his clients. Independence remains as crucial an issue as it was in the nineteenth century, and is still required to be demonstrated.
1.2 Statement of Problem
Financial reports are meant to be a formal record of business activities and these reports are meant to provide an overview of the financial position and profitability in both short and long term of companies to the users of these financial statements such as shareholders, managers, employees, tax analyst, banks, etc. But in recent times, the financial manipulations, weak internal control systems, ignorance on the part of the board of directors and audit committee, manipulation on the part of the reporting auditor and other fraudulent activities that occur within companies, creating a negative goo
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