IMPACT OF PROCESS AUDITING ON PRODUCTION AND PROFITABILITY IN MANUFACTURING COMPANIES
1.1 Background Of The Study
The turbulent effects of the global financial crisis have highlighted the critical importance of credible high quality financial reporting. Achieving quality financial reporting depends on the role that the external audit plays in supporting the quality of financial reporting of manufacturing companies. It is an important part of the regulatory and supervisory infrastructure and thus an activity of significant public interest. Process auditing is one of the most important issues in audit practice today.
The financial statement audit is a monitoring mechanism that helps reduce information asymmetry and protect the interests of the various stakeholders by providing reasonable assurance that the management’s financial statements are free from material misstatements. The societal role of auditors should be a key contribution to financial performance, in terms of reducing the risks of significant misstatements and by ensuring that the financial statements are elaborated according to preset rules and regulations. Lower risks on misstatements increase confidence in capital markets, which in turn lowers the cost of capital for firms (Heil, 2012).
External financial statement users, including current and potential investors, creditors and others need reliable financial information on which to base their resource allocation decisions. When the financiers of organizations have confidence and trust in the audited financial report of an organization, they are bound to pour in more funds into the organization, which in turn results in increased financial performance. Regulators and standard setters can increase the effectiveness of quoted companies by promulgating rules and regulations that help ensure that audits improve financial information quality. Internal financial statement users such as management, audit committees and board of directors have an interest in quality audits, for example; to help reduce the cost of capital (Miettinen, 2011).
External audits performed in accordance with high quality auditing standards can promote the implementation of accounting standards by reporting entities and help ensure that their financial statements are reliable, transparent and useful. Sound audits can help reinforce strong corporate governance, risk management and internal control at firms, thus contributing to financial performance (Internal Audits Board, 2011).
The statutory audit can reinforce confidence because auditors are expected to provide an external, objective opinion on the preparation and presentation of financial statements. Auditors need to be independent in the opinions they express, while the work they have to do to form their opinions is highly dependent on and rooted in the real world and may become challenging in some business environments such as the cement industry. It is against this background that this research work is carried out. The purpose of this study therefore is to determine the impact of process auditing on production and profitability of manufacturing companies in Nigeria.
Accounting has an instrumental role in disclosing environmental responsibility for different entities whether industrial or commercial services, and at all levels whether micro, meso and macro. Thus, accounting became concerned with achieving new goals such as measuring and evaluating potential or actual environmental impacts of projects and organizations. These new goals are of great importance as they enable many users to take different development decisions that are economically and environmentally sound (Bala and Yusuf, 2003).
1.2 Statement Of The Problem
Productivity level is very low in most private organizations in Nigerian. Low productivity can be traced to frauds and errors in the account and financial statement of these firms that often lead to collapse of such organization.
Most organization do not functional audit unit and they often problems associated with the report of the financial statements.
1.3 Research Objectives
The main objective of this research work is to find out the impact of process auditing on production and profitability in manufacturing company, the following are the other objectives of this research work. The importance and advantages of the internal audit function within an organization, Process auditing can contribute to organizational performance, To examine the relationship between effective process auditing functions and organizational performance, To evaluate the extent to which process audit, on production and profitability of manufacturing company.
1.4 Research Questions
i. Is process auditing contributing to the improvement of the organizational performance of production and profitability of manufacturing companies?
ii. How does this service enjoy a good hierarchical position for the guarantee of its independence?
iii. What type of mission does it necessary and adequately has to achieve its objectives?
1.5 Research Hypothesis
The following will be the research hypothesis
H0: process auditing has no impact on production and profitability in manufacturing companies
H1: process auditing has impact on production and profitability in manufacturing companies
1.6 significance of this study
To understand the importance and advantages of the process auditing function within an organization, To explain how process auditing can contribute to organizational performance, To examine the relationship between effective internal auditing functions and organizational performance, To evaluate the extent to which internal audit, in the manifesting companies, is contributing to the improvement of organizational performance, To propose measures to increase organizational performance through an effective internal audit service.
1.7 Outline of Chapters
The research work will be comprises of five chapters, chapter will be the background of the study, which will bravely give and introduction to the whole research work. Chapter two of this research work will be literature review; the researcher will review past researches that have contributed to this kind of work. Also the chapter three of this research work will be the methodology of the study; this will show the method that will be employed for this research work. Chapter four of this research work will be the data analysis, data from the field work by the research will be analyzed and interpret in respect to the objectives of the research work. And the concluding chapter will be chapter five, which will contain the summary of the whole research work, conclusions of the researcher base on the results and recommendations by the researcher..