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THE EFFECT OF AUDITING AND INVESTIGATING IN SMALL SCALE BUSINESS ORGANIZATION

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

The work of an auditor in any organization cannot be looked beyond or over emphasized. This is because in earlier years when there was no auditor to take proper care of the organizational financial statement, many organizations like small scale business organization, manufacturing companies and even private companies suffered frauds and errors in their business. The enterprises that existed at the time were mostly joint ventures with a limited life. In such cases, the ascertainment of profit was simple. It was equal to the surplus of cash in hand at the end of the venture. One should also remember that where audits were conducted at this time, it was not because of any statutory provisions, and that responsibilities and duties of an auditor had not been clearly defined. Most of fraud is being committed by the staff of those organizations especially small-scale business organization because of this, there is need for auditing and investigation in small scale business organization.

Since small scale business is a business that has little fund and materials. It is very crucial to employ the service of an auditor. The auditor is concern merely to ascertain the correctness of sums of money received and disbursed, checking the accuracy of individual entries in a cash record and verifying the balance of cash in hand at a particular point in time. In so doing, frauds, and errors can be easily detect and prevent. An auditor is the only person authorized by law to conduct auditing and investigate on any financial matter concern organization (including small scale business). Investigation is a special inquiry into the financial affairs of a business. An auditor need proper investigation to help him carryout his auditing duties. Finally, the major important need for auditing and investigation in small scale business organization is to make sure that the business grow with its little financial back up coupled with total minimum of frauds and errors. Auditing help in ensuring that o material, financial or otherwise is misused.

.2 STATEMENT OF THE PROBLEM

Problem arise in the application of normal auditing principles and procedures to audits of small scale business organization employing a smaller number of administrative staff. Substantial domination of the accounting and financial management functional by one person is also one of the major problem that the organization is suffering from. Limitations on the effectiveness of internal control owing to the small number of employees. Thus, the provision of check whereby the work of one person is proved independently (or is complementary to the work of another) be absent to a considerable extent. Whilst internal control including internal check may be effective for it's primary purpose as a check on management itself.

Inadequate management support for internal auditing is also one of the major problem the organisation is encountering. We had to assume that the management and auditor were in conflict then the task of the auditor would not be able to rely in any way on the explanations and information given to him by management. He was likely to be false and the audit process would become both costly and detailed. The organization is also suffering from inadequate accounting records since one person is handling the financial management function, we find out that frauds and errors can be easily committed by that person.

1.3 PURPOSE OF THE STUDY

The purpose of this study is:

To find out the extent of substantial domination of the accounting and financial management function by one person affect the organization’s internal control system. To ascertain the extent of limitation on the effectiveness of internal control owing to the small number of employees. To find out if proper auditing and investigations were made by the auditors by all the information and explanations obtained to the best of their knowledge and belief were necessary for the purpose of their audit. To determine to what extent the organization suffered from inadequate accounting records. To ascertain the extent of inadequate management support for internal auditing.

1.4 THE SCOPE OF THE STUDY

Considering the circumstance and predicaments of business, it is apparently obvious that there is no business that can survive without encountering one kind of problem especially in small-scale business organization. According to James Bades, all firms’ faces risk but they are proportionally greater in the small firm. The failure of a production batch in small firms may spell disaster while a similar failure or problem in a large organization. Causes of frauds and errors by the management staff are one of the major problems that the organization is encountering. Financial problem is a major problem for small-scale business organization in Nigeria sources of fund for this category of business. Inability to borrow is difficult because of the small amount of asset they have.

The organization is also seriously suffering from marketing problems due to lack of experience in the field, poor human relations, unable to meet customer’s demand. Since the organization is operating with small amount of fund and asset they are suffering from production problem due to lack of production facilities, insufficient of raw materials for production, poor product planning, lack of purchasing policy and sources of supply and also lack of ware housing. The organization is seriously suffering from research problems such as illiteracy and human behaviour. Major weaknesses in the system of internal control is minor errors which is caused by the management staff of the organization by not keeping the appropriate financial statement due to false manner of entering accounting transaction.

1.5 THE SIGNIFICANCE OF THE STUDY

The relevance of the study cannot be over emphasized as a successful completion of this study. The need for auditing and investigation in small scale business organization help the organization to employed a qualified auditor to enable the management staff of the organization to keep adequate accounting record. So that the financial statements prepared by the management can only be accurate and reasonable. If the organization employed a qualified auditors it will help the organization to detect and prevent errors and frauds easier. Finally, the need for auditing and investigation will help for survival and substantial growth of the organization.

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