DECLARATION - cees.mak.ac.ugcees.mak.ac.ug/sites/default/files/publications/RESEARCHPROJECT… · I...
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i DECLARATION I Nyeko Geoffrey Job declare that this research report has been written by me. The views that are not original have been fully acknowledged. The work has not been presented either wholly or in part in any Institution or University for any Diploma or Degree award. Student’ Name:- Nyeko Geoffrey Job Signed:...............................................Date:...............................
Transcript of DECLARATION - cees.mak.ac.ugcees.mak.ac.ug/sites/default/files/publications/RESEARCHPROJECT… · I...
i
DECLARATION
I Nyeko Geoffrey Job declare that this research report has been written by me. The views that
are not original have been fully acknowledged. The work has not been presented either wholly
or in part in any Institution or University for any Diploma or Degree award.
Student’ Name:- Nyeko Geoffrey Job
Signed:...............................................Date:...............................
ii
APPROVAL
This work has been done and submitted for marking under my supervision
Mr Nzibonera Eric
Signed:...............................................Date:...............................
iii
DEDICATION
This research project is dedicated to my Late Father Tito Opoka
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ACKNOWLEDGEMENT
I am indebted to my supervisor Mr Eric Nzibonera for sparing his time, guidance and careful
study of my work toward the completion of this research project without whose effort, would
have been impossible to finish.
A special thanks goes to my Mother Siliverina Akongo for standing with me all this time of my
study
I owe thank to an endless list of persons whose names can't be mention all individually
especially those from who supported me morally.
I must also extend my thanks to my lecturers and all my colleagues at Makerere University for
their effort and encouragement during my study period in the University.
Special thanks also go to all the respondents and the staff of Kitgum District local
Government, for their cooperation during the study and whose responses have enabled me to
complete this research project.
Lastly, I greatly acknowledged and sincerely thank my friend Ms Asina Antakunda for her
forbearance and constant support to enable me carry out and complete this research project.
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TABLE OF CONTENTS
DECLARATION ................................................................................................................ i
APPROVAL ...................................................................................................................... ii
DEDICATION ..................................................................................................................iii
ACKNOWLEDGEMENT ................................................................................................. iv
TABLE OF CONTENTS ................................................................................................... v
ABSTRACT ...................................................................................................................... x
CHAPTER ONE ................................................................................................................ 1
1.0 Introduction .................................................................................................................. 1
1.1 Background to the Study .............................................................................................. 1
1.2 Problem statement .................................................................................................. 2
1.3 Purpose of the Study..................................................................................................... 3
1.4 Objectives of the study ................................................................................................. 3
1.5 Research questions ..................................................................................................... 3
1.6.0 Scope of the Study .............................................................................................. 3
1.6.1 Conceptual Scope ...................................................................................................... 3
1.6.2 Geographical Scope ................................................................................................... 3
1.7. Significance of the study ............................................................................................. 4
CHAPTER TWO ............................................................................................................... 4
2.0 LITERATURE REVIEW ............................................................................................. 4
2.1 Introduction .................................................................................................................. 5
2.2 Nature of auditing......................................................................................................... 5
2.3 Elements of external auditing ....................................................................................... 6
2.3.1 Vouching ................................................................................................................... 6
2.3.2 Verification ............................................................................................................... 7
2.4 Auditing process........................................................................................................... 7
2.4.1. Planning and designing an audit approach ................................................................ 7
2.4.2. Perform tests of control and substantive tests of transactions .................................... 8
2.4.3. Perform analytical procedures and test of detail of balances ...................................... 8
2.4.4. Complete the audit and issue an audit report ............................................................. 9
2.4.5 Audit reports ............................................................................................................. 9
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2.4.6 Testing .................................................................................................................... 10
2.4.7 Management assertions and objectives..................................................................... 10
2.5 Auditing standards...................................................................................................... 11
2.6 Auditing in Local Government ................................................................................... 11
2.7 Duties of the external auditors (section 162) ............................................................... 12
2.8 Rights of the external auditors (S. 162) ....................................................................... 12
2.9 The purpose, need and role of external auditing .......................................................... 12
2.9.1 Giving an audit opinion. ......................................................................................... 13
2.9.2 Provide information to stake holders. ....................................................................... 13
2.9.3 Accountability and stewardship. .............................................................................. 13
2.9.4 Agency theory. ........................................................................................................ 14
2.10 Users of audit information. ....................................................................................... 14
2.11 Auditing concepts ..................................................................................................... 14
2.11.1 Due care ................................................................................................................ 15
2.11.2 Independence......................................................................................................... 15
2.11.3 Evidence ................................................................................................................ 15
2.11.4 Ethical conduct ...................................................................................................... 15
2.12 Limitations of external auditing ................................................................................ 16
2.13 Financial reports. ...................................................................................................... 17
2.14 Purpose of financial reports ...................................................................................... 18
2.14.1 A balance sheet...................................................................................................... 18
2.14.2 The income statement. ........................................................................................... 19
2.14.3 Fund flow statement. ............................................................................................. 19
2.14.4 The cash flow statements. ...................................................................................... 19
2.15 qualities of good financial statements. ...................................................................... 19
2.15.1 Relevance. ............................................................................................................. 19
2.15.2 Reliability .............................................................................................................. 20
2.15.3 Timeliness ............................................................................................................. 20
2.15.4 Understandability. ................................................................................................. 20
2.15.5 Comparability. ....................................................................................................... 21
2.16 Requirements for preparation of financial statement (IASI) ...................................... 21
2.16.1 Compliance with statutory requirement. ................................................................. 21
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2.16.2 Accounting Policies. .............................................................................................. 21
2.17 Limitation of quality financial reports ....................................................................... 22
2.17.1 Untimely ness of financial reports. ......................................................................... 22
2.17.2 Generally accepted procedures............................................................................... 22
2.17.3 Accounting procedures. ......................................................................................... 22
2.18 Relationship between external auditing and quality of financial reports. ................... 22
2.18.1 Relationship between vouching and quality of financial reports ............................. 22
2.18.2 Relationship between verification and quality of financial reports .......................... 23
2.18.3 The relationship between Audit Reports and Quality of financial reports. .............. 23
2.18.4 Relationship between Audit Process and quality of financial reports ...................... 23
2.18.5 Relationship between management assertions and objectives, and quality of
financial reports .............................................................................................................. 24
2.18.6 Relationship between testing and quality of financial reports ................................. 24
CHAPTER THREE .......................................................................................................... 25
METHODOLOGY........................................................................................................... 25
3.0 Introduction ................................................................................................................ 25
3.1 Research design .......................................................................................................... 25
3 . 2 Survey population .................................................................................................... 25
3.3 Sample design ............................................................................................................ 26
3 . 3 . 1 Sampling .............................................................................................................. 26
3.3.2 Sample size ............................................................................................................. 26
3.3.3 Sampling procedure ................................................................................................. 26
3.4 Data sources ............................................................................................................... 26
3.4.1 Primary source ........................................................................................................ 26
3.4.2 Secondary Sources .................................................................................................. 26
3.4.3 Data collection methods/ instruments. ..................................................................... 26
3.4.4 Data processing ....................................................................................................... 27
3.4.5 Data analysis ........................................................................................................... 27
3.5 Limitation of the study ............................................................................................... 27
3.5.1 Time ........................................................................................................................ 27
3.5.2 Cooperation. ............................................................................................................ 27
3.5.3 Funds ...................................................................................................................... 27
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CHAPTER FOUR ............................................................................................................ 28
PRESENT ATION, DISCUSSION AND INTERPRETATION OF FINDINGS ............... 28
4.0 Introduction ................................................................................................................ 28
4.1 Demographic findings ................................................................................................ 28
4.1.1 Gender of the respondents ....................................................................................... 28
4.1.2 Age Bracket ............................................................................................................ 29
4.1.3 Experience............................................................................................................... 29
4.1.4 Level of education ................................................................................................... 29
4.2.1 Vouching ................................................................................................................. 30
4.2.2. Whether external auditors ensure that all transactions recorded are supported by
documentary evidence ...................................................................................................... 30
4.2.3. Whether external auditors "ensure that all vouchers are recorded and entered in the
books of accounts”. .......................................................................................................... 31
4.2.4. Whether external auditors ensure that receipts and payments are authorized ........... 31
4.3. Verification ............................................................................................................... 32
4.3.1. Whether external auditors confirm existence of all documents: ............................... 32
4.3.2. Whether all documents confirmed by external auditors actually exist ...................... 32
4.3.3. Showing whether documents confirmed by external auditors contain the right
information. ..................................................................................................................... 33
4.4.0 Auditing Process ..................................................................................................... 33
4.4.1. Whether External auditors plan and design the audit approach to be used in the audit33
4.4.2. Whether external auditors follow the audit process designed in the audit. ............... 34
4.4.3 The audit process simplifies the work performed by external auditors...................... 34
4.4.4. Whether the audit process simplifies the work performed by external auditors ........ 34
4.5. Audit report ............................................................................................................... 35
4.5.1. Whether audit reports are always prepared by external auditors at the end of the year.35
4.5.2. Whether external auditors issue audit reports at the end of the process .................... 35
4.5.3. Whether all users of audit information get access to audit reports prepared by external
auditors. ........................................................................................................................... 36
4.6. Testing ...................................................................................................................... 36
4.6.1. Whether external auditors check that management policies and procedures are
effective ........................................................................................................................... 37
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4.6.2. Whether external auditors check management activities. ......................................... 37
4.6.3. Whether external auditors inspect all transactions performed in the District the findings
of the research were presented in the table below. ............................................................ 38
4.7 Management assertions and objectives ....................................................................... 38
4.7.1 Whether external auditors get sufficient evidence that financial statements are
prepared based on IPSAS. ................................................................................................ 38
4.7.2. Whether external auditors check that accounts have been classified correctly ......... 39
4.7.3. Whether external auditors ensure that financial statements are free from bias. ........ 39
4.8 Findings on objective two. To establish the quality of financial reports in Kitgum District
Local Government............................................................................................................ 40
4.8.1 Whether financial statements are free from bias ....................................................... 40
4.8.2 Whether financial statements are free from material errors ...................................... 40
4.8.3 Whether financial statements prepared are understandable by all users .................... 41
4.8.4 Whether users are able to compare district performance overtime using financial
statements ........................................................................................................................ 41
4.8.5 Whether financial statements are prepared following recommended accounting reporting
standards .......................................................................................................................... 42
4.8.6. Whether financial statements are delivered on time when accounting reporting standards
are properly followed. ...................................................................................................... 42
4.8.7. Whether there is a strong effect of external auditing on the quality of financial reports in
Kitgum District. ............................................................................................................... 43
4.8.9 Relationship between external auditing and quality of financial reports in local
governments ..................................................................................................................... 43
CHAPTER FIVE ............................................................................................................. 44
SUMMARY, CONCLUSION AND RECOMMENDATIONS ........................................ 45
5.0 Introduction ................................................................................................................ 45
5.1 Summary of findings on gender of the respondents ..................................................... 45
5.2 Summary of findings on experience of the respondents. ............................................. 45
5.3 Summary of findings on objective one ........................................................................ 45
5.4 Summary of findings on objective two: ...................................................................... 45
5.5 Summary of findings on objective three ..................................................................... 46
5.6. Conclusion ................................................................................................................ 46
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5.6.1. Conclusion on summary of findings on objective one: ............................................ 46
5.6.2. Conclusion on summary of findings on objective two ............................................. 46
5.6.3 Conclusion on objective three: ................................................................................. 46
5.7 Recommendations ...................................................................................................... 47
5.8 Areas of further research ............................................................................................ 47
APPENDIX 1 REFERENCES ......................................................................................... 47
APPENDIX 2 QUESTIONNAIRE ................................................................................... 49
APPENDIX 3 LETTER OF INTRODUCTION ............................................................... 53
ABSTRACT
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This study was about the effect of External Audit on the quality of financial statements in
Local Government a case of Kitgum District Local Government
External auditing is “A guiding force in the achievement of quality financial reports in
local government”. This is because constant external auditing of financial reports by
independent auditors will ensure that reports are prepared following accepted procedures and
standards like the IPSAs put up by the institute of certified public accountants (ICPAU).
This will therefore ensure financial statement which are reliable t imely comparable
accurate and consistent. The objectives of the study were, to examine the process of external
auditing in Kitgum District Local Government, to establish the quality of financial reports in
Kitgum District Local Government, to establish the relationship between external auditing and
quality of financial reports in Kitgum District Local Government.
The study was conducted using both primary and secondary data. The instruments used for
data collection were the questionnaire.The study population constitute of 31 staffs from
finance, audit department and senior management.
The findings after having taken an analysis of the situation in Kitgum District Local
Government, the researcher therefore recommends that there is need to improve supervision so
that all transactions that are carried out in the district are inspected and correct record taken
by respected needs. There is also need to publish financial reports for public viewing so that
every user gets access to view the financial reports and be able to assess performance.
Furthermore, there is need to design and implement management policies.
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CHAPTER ONE
1.0 Introduction
Chapter one shall cover background to the study, problem statement, purpose of the study,
objectives of the study, research questions, scope to the study and significance of the study.
1.1 Background to the Study
The International Auditing Committee (1977) defined auditing as the independent examination of
financial information of any entity whether profit oriented or not when an audit is carried on with a
view of expressing an opinion thereon. The American Accounting Association Committee
(1972) defined Auditing as a systematic process of objectively obtaining and evaluating
evidence regarding the assertions about economic actions and events to ascertain the degree of
correspondence between those assertions and established criteria and communicating results to
interested users. External auditing therefore is the periodic examination of books of accounts and
records of an entity conducted by an independent auditor to ensure they have been properly
maintained, are accurate, comply with established concepts, principals and standards, and give a
true and fair view of the financial statements of an entity. External auditing in a Quality of
financial statements is the degree to which the financial reports are prepared and presented to
be used by interest group in determining the financial operations and results of the entity are free
from the defects, deficiencies and significant variation
(www.business directory.com/definition/quality.html) financial statements should contain
information that is useful if it is relevant reliable comparable and understandable (Frank wood,
2002). The quality of financial statements is exhibited by accuracy, timeliness, reliability, and
comparability that can enable policy makers within an entity to take informal decisions; this
must conform to the generally accepted financial reporting.
However in Kitgum District Local Government there has been delayed submission of the
financial statement for independent examination, insufficient information and estimation of
figures in the financial statements making the quality of the financial reports poor. According
to the Auditor General’s report 2006/2007 Kitgum District Local Government failed to
comply with the statutory date of submission of accounts in the financial year 2006/2007.
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The financial year was ending 30th
June 2007 but Kitgum District Local Government
submitted after 30th November 2007. This leads to poor qualit y o f financ ia l
reports.
There is also ineffective external auditing practice like the untimely auditing of the
accounts, understaffed audit staff and unprofessional auditors which affects the
quality and t imely production of accounts as required by the law and regulat ions
(Auditor General's report, 2006/2007). However several workshops, seminars and
scholarships have been offered to provide the personnel with the skills to ensure
preparation of qualit y financial reports in the Company.
The poor quality of the financial reports is likely to lead to loss of confidence from
share holders like the donors, investors and the general public and may lead to future
losses to the Company.
1.2 Problem statement
Despite the efforts to employ skilled personnel in the Accounting and Finance
department to manage the preparation of financial statements, the quality of financial
reports in Kitgum District Local Government seem to be poor. Seminars, workshops and
scholarships have been offered to provide skills to the staff preparing the financial
statements but the quality still seems to be poor. This is likely as a result of
ineffective external auditing practices like unt imely auditing of accounts,
understaffed audit staff and use of unprofessional auditors which affects the quality
and timely production of accounts as required by law and regulations (Auditor
General's report, 2006/2007). There is also estimation of figures and untimely
submission of financial statements causing inaccuracy in the statements. The poor
quality of the financial reports in the Company is likely to result into loss of
confidence by the shareholders like the investors, Donors, and the general public
which may lead to future loss of assets, and public cash and going into debts like District
vehicles are attached or sold to pay debts.
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1.3 Purpose of the Study
The purpose of the study is to establish the relationship between External auditing
practices and the quality of financial reports.
1.4 Objectives of the study
The objectives of the study were:
1.To examine the process of external auditing in Kitgum District Local Government.
2.To establish the quality of financial reports in Kitgum District Local Government.
3.To establish the relationship between external auditing and quality of financial reports in
Kitgum District Local Government.
1.5 Research questions
The guiding questions in the research were;
1. What is the process of external auditing?
2. What is the quality of financial reports in Kitgum District Local Government?
3. What is the relationship between external auditing and the quality of financial reports
in Kitgum District Local Government.?
1.6.0 Scope of the Study
1.6.1 Conceptual Scope
The study covered the External Auditing practices as the independent variable which is the
periodic exanimation of books and records of an entity by an independent auditor. It is
indicated by the existence of audit reports, verification, vouching, management assertions
and objections and audit process. The quality of financial reports as the independent variable
which is defined as the degree to which the financial reports are prepared and presented to be
used by interest group in determining the financial operations and results of the entity are
free from defects, deficiencies and significant variations, it is exhibited by accuracy,
timeliness, reliability, and comparability of financial reports.
1.6.2 Geographical Scope
The study shall be conducted in Kitgum District Northern Uganda and it will mainly focus on
Kitgum District Local Government.
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1.7. Significance of the study
a. The study will help generate findings which will be useful for future scholars who
will under take a similar study.
b. Management will benefit from the study through corrective action given by the
independent examiners.
c. The Government will benefit in that it will know how its funds to the District are
always utilized and it will be shown by the opinion given by the Auditors.
C H A P T E R T W O
2.0 LITERATURE REVIEW
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2.1 Introduction
This chapter contains a crit ical review of what has been stated by different
scholars and authorities on the variables. It covers the explanation of the variables,
the relationship between the variables, and the conclusion. It also presents related
literature on external auditing and quality of financial reports that were published
previously by academicians, researchers, Government departments and other
stakeholders.
2.2 Nature of auditing
The American Accounting Associations Committee (1972) developed a definition
that is not only clear, concise and intuitively logical, but sufficiently broad to
encompass many different types of audit. The committee defined auditing as a
systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of
correspondence between those assertions and established criteria and communicating
results to interested parties.
The business definition of external audit ing is the analysis of acceptability of the
company's financial records provided by an outside firm that 's a Certified Public
Accountants (CPA) firm. External auditor by definition is an audit professional who
performs an audit of the financial statements of an entity, individual or Government
being audited. Internal auditing on the other hand is an independent activity that the
management establishes to manage and evaluate the organization's management
process and systems of control and to make recommendations for achievement of
firm's objectives. Both external and internal auditors have s imilarities and
differences in the responsibilities and conduct of the audit. The responsibility of the
external auditor is the presentation of financial statements while following the
International Standards on Auditing (ISA's) and other laws governing the audit process.
Financial statements are presented to users who always rely on the auditor's credibility
while the internal auditor is responsible to management. On the other hand, both must
be competent and objective in performing their work as auditors.
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External auditors rely on the internal auditors with audit risk model that reduces
the level of substantive testing. When there is an effective internal audit in an entity,
the fee reduction of external auditors is typically substantial. The effectiveness of
internal auditors is only considered by external auditors only when they are independent of
the entity they are operating.
SAS 65 (AU 332) allows external auditors to use internal auditors for direct
assistance on the audit. The risk of the external auditor is the lack of competent and
independent performance by internal auditors therefore the external auditor must
be confident of the internal auditor's independence, objectivity and confidence.
Government audit ing therefore can be seen as a complex engagement and therefore
the auditor must be familiar with both generally accepted auditing standards and a
series of laws and regulations.
2.3 Elements of external auditing
2.3.1 Vouching
A voucher is documentary evidence supporting a transact ion in the books o f
accounts. Vouching on the other hand is the act of establishing the accuracy and
truth of entries in the books (Bhatia, 2004). Vouching is also referred as to the
auditor of documentary evidence supporting and substantiating a transaction and is
thought to be the essence of auditing. Saleemi (2007) states that vouching means to
substant iate an entry in the books of accounts with documentary evidence such as
agreements, receipts, counterfoils of a receipt book, or arranging in the books of
contracts but also verifying that a transaction has been authorized by a competent
authority, recorded and entered in the books of accounts for example, verification of
entries in the invoices, checking of cash receipts with counterfoils of receipt
book and checking of payment. Saleemi (2007) further sated the objectives of
vouching as, to ensure all receipts are counted, no fraudulent payments have been
made, all receipts and payments are entered in the cashbook.
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2.3.2 Verification
Verificat ion means proving the truth or confirmat ion. An auditor has not to only
see the arithmetical accuracy and bonifieds of the transactions in the books of accounts
by vouching but also has to see that assets recorded in the balance sheet actually exist
(Bhatia, 2004). In Bhatia [2004), a scholar called Joseph Lancaster defined verification
of assets as a process by which the auditor substant iates the accuracy of the right
hand side of the balance sheet and must be considered as having three distinct
objects that 's verification of the existence of the assets, valuation of the assets and
authority of their acquisition. Bhatia (2004)" further adds that if the auditor fails to
verify, he will be liable. Therefore vouching is meant to verify the authority and
authenticity of the transactions as recorded in the books of accounts. Saleemi (2007)
also adds that verification is not merely inspection of the receipts with the cash book, but
also includes the examination of the transactions of the business together with
documentary and other evidence to satisfy an auditor that such transactions are in
order, properly authorized and correctly recorded in the books
2.4 Auditing process
The audit process involves the identification of the steps that the auditors will
follow while carrying out their independent examination of the account of the entity.
2.4.1. Planning and designing an audit approach
Arens (1994) states that there are many ways in which an auditor can accumulate
evidence to meet the over all audit object ives. Arens (1994) further adds that
concern for sufficient competent evidence and cost control necessitates planning
the engagement, Planning and designing takes the following stages;
1-Obtaining knowledge of the client’s entity
An understanding of the client business and industry is essential in order to adequately
interpret and understand the meaning of the information obtained throughout the
audit Arens (1994). Unique aspects of different businesses are reflected in the
financial statements. For example an audit of a life insurance company may not be
performed without an understanding of unique characteristics of the business
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therefore a reasonable understanding of the clients business and industry is required
SAS (AU 311)
2-Understanding the clients internal control structure and assessing the control risk
The ability of the client internal control structure to generate reliable financial
information and safe guard assets and records is one of the most important and widely
accepted concepts in the theory and practice of auditing Ricchiute (1982). If the
client has an excellent internal control structure, control risk will be low and amount
of the audit evidence to be accumulated can be sufficiently less than for an internal
control structure that is not adequate. According to Arens (1994), to adequately plan
the appropriate audit evidence, generally accepted auditing standards require the
auditor to gain an understanding of the internal control structure. This is done by
reviewing the organization charts and processing the internal control questionnaires,
flow charts and observing client activities. After gaining the understanding of the
internal control structure, the auditor is in position to evaluate how effective it should
be in preventing and detecting errors and irregularities
2.4.2. Perform tests of control and substantive tests of transactions
Where the auditor has reduced the assessed control risk based on the identification of
controls, he may then reduce the extent to which the accuracy of the financial
statement information directly related to those control must be supported through
accumulation of evidence Arens (1994). To justify reducing planned assessed control
risk, the auditor must test effectiveness of controls. Auditors also evaluate the
client recording of t ransact ions by ver ifying the amounts of transactions.
Substantive tests satisfies the accuracy of transactions related to audit objectives an
auditors frequently perform substantive tests of transactions (Bhatia, 2004)
2.4.3. Perform analytical procedures and test of detail of balances
Analytical procedures are tests of details of balances. Analytical procedures tests are
those tests that test the over all reasonableness of transactions and balances (Ricchiute,
1982). An example of analytical procedure according to Arens (1994) is to examine
the sales transaction in sales journal for usually large amount and to compare total
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monthly sales to prior years. Tests of details of balances are specific procedures
intended to test for monetary errors and irregularities in balances in the financial
statements for example direct written communication with the client customers
(Bhatia, 2004) test of details of ending balances are essential to the conduct of an
audit because most of the evidence is obtained from the source independent of the
client and therefore considered of high quality (Arens, 2004). If the auditor has obtained a
reasonable level of assurance for any given audit objective, the test of detail for tat
objective can be significantly reduced.
2.4.4. Complete the audit and issue an audit report
After the auditor has completed all procedures for each audit objective and for each
financial statement account, it 's necessary to combine the information obtained to
reach an overall conclusion as to whether financial statements are fairly presented
(Ricchiute, 1982). This is highly subjective process that relies heavily on auditor's
professional judgment (Hayes, 2005). In practice, the auditor continuously combines
information as he proceeds through the audit. The final combination is the
summation at the completion of the engagement. When the audit is complete, a
Certified Public Accountant (CPA) must issue a report to the company the client
published financial statements. The report must meet well-defined technical
requirements that are affected by the scope of the audit and nature of findings. Arens
(1994) in his book Auditing an integrated approach summarized the auditing process
as, planning and designing the audit approach, perform substantive tests of
transactions, perform analytical procedures and test of details of balances and finally
complete the audit and issue an audit report.
2.4.5 Audit reports
Reports are essential to audit or other attestation process because they inform the users
that what the auditor did and the conclusions reached from the users perspective, the
report is considered the primary product of the attestation process, National Audit
Act (2008). Arens (1994) also adds that professional standards require that a report
be issued whenever a Certified Public Accounting (CPA) firm is associated with
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financial statements and audit reports only exists when an audit has been
conducted. Ricchiute, (1982) also summarized that a standard audit report contains
report title, audit report address, introductory paragraph, scope and opinion
paragraph.
2.4.6 Testing
These are auditing procedures to test the effectiveness of the policies and procedures in
support of the reduced control risk (Hayes, 2005). According to Ricchiute (1982)
the key internal controls must be supported by test. He further stated "that the extent
to which testing is applied depends on the assessed risk. The lower the assessed risk,
the more extensive the test should be in order to support the degree of reliance upon
internal control (Schilder, 2005). Ramaswamy (1994) in his book Auditing Today
stated that the nature of testing is it generally consists of a combinat ion of evidence
gathering which he summarized as inquiry of client personnel, observation,
inspection, reperformance (recalculation). This is in agreement with Hayes (2005) of
testing as audit procedure to test the effectiveness of policies and procedures.
2.4.7 Management assertions and objectives
Audit procedures are designed to obtain evidence about the assertions of management
that are embodied in financ ia l st atement s. Management assert io ns are
implied o r expressed representations by management about classes of
transactions for example sales and related accounts in the financial statements
(Hayes, 2005). According to Rick (1946) an example of management assertion is
that the company's financial statements are prepared based on the international
accounting standards. The auditor must obtain sufficient evidence that this assertion is
materially true. He must gather evidence that the accounts are classified correctly and
proper disclosures have been based on internat ional standards. According to IAS
500, financial statements are by management, expressed or otherwise that are
embodied in the financial statements. Emile (1994) also agrees with management
assertion as being embodied in financial statement and classified them as,
occurrence, completeness, accuracy, cut off, existence, classification, and rights
and obligation. Hayes (2005) further adds that when the auditors have gathered
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sufficient evidence to support each management assertion, they have sufficient evidence
to support audit opinion
2.5 Auditing standards
Auditing standards set out the basic principles and the essential procedure that
auditors should follow in the conduct of audit or other engagements (www.oag.co.ug).
Auditing standards apply to all audits and should be followed all the time. They are not
laws but are considered by courts of law to determine whether the auditor has been
negligent in his or her own work (Arens, 1994).
In Uganda the audit of financial statements is done following the International
Standards on Auditing (ISA's) (LGFAR, 1998). The use of the ISA's was adopted by
the Institute of Certified Public Accountants of Uganda.
In Ricchiut (1982), the general standards on auditing are based on the concepts of
independence, ethical conduct and due care and these relate to the professional
qualification and quality of the auditor's work.
2.6 Auditing in Local Government
External auditing in Local Government is guided by Article 163 of the constitution and the
Local Government Act 1997, which requires all Local Governments and administrative
units to carry out internal and external audit of the financial statements and pro vide
reports thereafter. Local Government councils and administrative units shall be
audited by the Auditor General or an auditor appointed by him whose duty is to carry out
surprise audit considered necessary and shall distribute the reports to the responsible
persons as per the Local Government Act 1997. External audit ing is therefore meant
to assure the users the reliabilit y and accuracy of financial information they
receive about a particular entity. This is achieved by carrying out independent
examination of account of the organization.
The office of the Auditor General (OAG) is established by article 163 of the
constitution of Uganda (1995) as amended. Article 163(3) of the constitution as
amplified by the national audit Act 2008 and also sect ion 88 o f Local Government
12
Act (2007) and other various acts of parliament that establish commissions and
state corporations give the Auditor General the mandate to audit a ll public
accounts o f Uganda and make annual reports on them to parliament. Article
163(3),(4) and (7) as further amplified by section 13 of the National Audit Act 2008
specifically provide respectively that Auditor General shall audit and report on the
public accounts of Uganda and all public offices including Local Government
administrative units, town councils as established by the Act of Parliament. The
Auditor General shall conduct financial and value for money audit
2.7 Duties of the external auditors (section 162)
The scope of the Auditor General's duties and responsibilities is derived from the
constitution 1995 of the republic of Uganda, the Nat ional audit Act 2008, the
Public Financial and Accountability Act 2003 and the Local Authorities Act 1997.
According to the 7 1h
schedule of the Act, an auditor has a duty to form an opinion as
to whether accounts have been prepared in accordance with the Act or the constitution
and to report in their opinion whether;
Proper books of accounts have been kept.
The balance sheet and profit and loss accounts are in agreement with the books of
accounts. The accounts have been prepared according to the rules and regulations.
Director's report is consistent with the accounts
The financial statements show a true and fair view
2.8 Rights of the external auditors (S. 162)
The auditors have a right to access record books, documents and accounts all the time
Right to sign the audit report
Right to get information and explanation from officers' necessary for the audit process
2.9 The purpose, need and role of external auditing
Financial statements are audited because users have a need for services (Ricchiute,
1982). These users can be classified as external and internal. The information is useful
to users in that it helps in decision and assessing the performance of the entity.
The purpose and role of external auditing according to Ajowi (2007) include;
13
2.9.1 Giving an audit opinion.
SAS 53 (AU 316) requires that an audit be
designed to provide reasonable assurance of
detecting misstatements in the financial statements and must be performed with
professional skeptism in all aspects (Arens, 1994). The International Auditing
Standards (IAS) require an external auditor to obtain sufficient evidence on which to
base his audit opinion as to whether the financial statements show a true and fair
view. The auditor's opinion is of benefit to users and the shareholders in an entity
like the investors, agencies, government and t he general public in decision making
and evaluation of the performance in each of the sectors for the case of local
government. The users rely on the external auditor to present an unbiased and
independent evaluation on such entities (Modification 16 Jan 2009)
2.9.2 Provide information to stake holders.
External auditors provide information not only to shareholders but also to stake
holders such as suppliers, creditors, tenders employees and the public. Independent
audited financial statements are useful to stake holders in understanding the entity's
performance. Independent audits help to ensure that financial statements are free of
bias and manipulation for the benefit of the users of this financial information (Bhatia,
2004)
2.9.3 Accountability and stewardship.
Accountability provides a test of consistency between public policy and service
provision. Its effectiveness will depend on whether influence of stakeholders is
reflected in the monitoring and incentive system of service providers (Jabia, 1981). In
an organization, management is separate from ownership therefore management has
to be accountable or report to the owners of the ent ity. Being accountable in this
case is stewardship; this is done by preparing financial statements. It can therefore
be seen that directors of an organization are stewards of shareholders and therefore
external auditing has a purpose to ensure that stewardship function is properly
maintained and carried out. This safe guards public resources by directors being
accountable. Accountability is a concept that has received a good deal of attention
over the past years. It is now universally recognized as a means for "ensuring
proper and effect ive use of funds (INTOSAI, 1991)
14
2.9.4 Agency theory.
Agency theory means the relationship that exists between two parties in an
organization. It can be seen that employees are agents of directors, directors are
agents of shareholder and auditors are agents of shareholders ACCA (2009). The
principle in this recognizes the fact that agents may have self-interests and may not
serve the interest of the principle. Therefore, the agency theory explains why
directors may not maximize shareholders wealth and may result to creative accounting.
External auditing in this case helps in preventing investors defrauded and minimizes
giving false information (PFAA, 2003)
2.10 Users of audit information.
Independent auditors carry out financial statement audit because users of financial
information have a need for the services. The underlying assumption on the audit of
financial statement is that they will be used by different groups for different purposes.
This makes it more efficient for an auditor to carry out an audit and draw conclusions
that can be reliable than to have users perform their own audits. If the audited data
does not serve the purpose of the user, he or she has an option of obtaining more data
(Loebbeke, 1998). Users of financial information can therefore be classified as both
internal and external to the organization. Internal users include, internal auditors,
management accountants, employees (Ricchiute, 1982).
External users are indirectly involved in achieving the entit y's goals; therefore,
they are far removed from the operation of the business. External users are reluctant
to rely upon internally generated informat ion rather they prefer comfort of an
audit. They can be categorized as creditors, financial information monitors, investors,
analysts, government and general public.
2.11 Auditing concepts
Ricchiute (1982) stated that concepts, abstracts derived from experience and
observation are designed to an understanding of the similarities within which a subject
matter is based. They are abases for standards and guidelines or measure of quality for
which audit procedures are derived. These concepts include
15
2.11.1 Due care
Auditors themselves are subject to human errors like in any other profession.
However independent auditors are expected to perform their duties with high degree
of care. This concept is routed in the fundamental issue of the degree of care expected
of the auditor. Ricchiute (1982) stated that auditors are not infallible like
physicians, attorneys and other professionals. Independent auditors are subject
to human error, however also like in other professions, independent auditors are
expected to perform their duties with high degree of care.
2.11.2 Independence
Independence of an auditor means being free from any external influence. The audit
practitioner should perform his duties without any external influence that may under
mind his objectivity the auditor must be aware of the conditions that may impair his
independence, Auditor General's Report (2008/09). The status of auditing as a useful
service to the public is based on the fact that the financial community perceives auditors
to be independent of both the financial information to be audited and financial information
preparers and users Ricchiute (1982).
2.11.3 Evidence
It's any information that is used by an auditor to determine whether the quantitative
information being audited is stated in accordance with the accepted criterion, (Arens,
1994). It persuades the auditor whether financial statements are stated in accordance
with generally accepted accounting principles. In the audit process, independent
auditors gather information in form of evidence on which to base the audit opinion,
this is therefore the information that is gathered and evaluated. The information is used
to determine with reasonable degree of assurance whether the hypothesis is true or
false. It also helps to acquire knowledge as a basis for reaching a conclusion about an
overall audit hypothesis (Ricchiute, 1982)
2.11.4 Ethical conduct
Ethics can be defined broadly as a set of moral principles or values (Arens, 1994). In
auditing, ethical conduct refers to the ideal conduct of professional independent
auditor. While carrying out the audit practice, independent auditors must abide by the
16
professional’ ethics of auditing set by bodies such as the International Auditing and
Ethics Standards board (IAESB). Ricchiute (1982) further added that auditing
principles protects the audit profession and brings confidence to the users of the
information
2.12 Limitations of external auditing
Audit function is faced with a number of limitations which affects the auditor's
performance and may impair the decisions that they make
An independent auditor's examination is based upon selective rather than
complete testing of transactions and events underlying financial statements, Manasseh
(2007), he further states that an audit is an examination and not verification.
Ricchiute (1982) also states that although generally accepted as a sufficient basis
for an auditor's opinion, selective testing is subject to inherent risk that an
unexamined transactions and events may contain material errors and irregularities.
Never the less, SAS No 16 confirms the appropriateness of selective testing by
stating that an auditor is not an issuer or guarantor, if the auditor's examination
was made with generally accepted auditing standards, he has fulfilled his professional
responsibility, (section 327.13) Auditors are also not purely objective in their
judgments because of the difference in their opinions. Each auditor may have his or
her own view and if there has been a bias by one auditor, the decisions made may not
depict the true nature of the situation of the financial reports, Arens (1994).
Fraud. The inherent risk that material irregularities may go undetected is further
compounded by questions of management's integrity. Management could perpetrate a
material irregularity by for example overriding the internal controls, forgery,
unrecorded transact ions or falsifying documents (Ricchiute, 1982). This serves as a
limitation of auditing.
17
2.13 Financial reports.
Teefe (1995) stated that a financial report is document prepared out of financial statements
using account ing postulates or concepts, principles accompanying notes and
generally accepted accounting standards in relation to the regulatory frame work.
Financial reports may be subdivided into management accounting and financial
accounting. Management accounting reports are prepared by the persons within the
firm while financial accounting reports are prepared by persons out side the firm (Aurora,
1974).
Where as the reports are different and serve the different interests of the organization
groups, it is worthy nothing that all are concerned with the financial aspects of the
organization they are therefore geared towards financial aspects of the organization
like accountability and decision making by various stakeholders (ACCA, 2009).
This is true from the point of view that organizations are there to maximize wealth
in the case of local government this can be related to the value of money and the kind of
financial statements provided.
OIIiot and Janire (1993) re-examined the scope and aim of published financial reports
in light of modern needs and condition. He stated that it was concerned with public
accountability of economic entities of all kinds but especially business enterprises. It
attempted to establish a set of working concepts basis for financial reporting to identity
a person for whom published accounts should be prepared and information appropriate to
their interest. It considers the most suitable Means of measuring and report ing the
economic posit ion performance and prospects of undertakings for the purpose and
persons identified. In local government, the demand for various reports by different
interest groups in local government created a lot of confusion on how such reports
were to be presented (LGFAR, 1998). This led to establishment of Local
Government Financia l and Account ing Regulat ions 1998 to be adopted and
fo llowed by all Local Governments for conformity and uniformity purpose of
financial reporting for all Local Governments.
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2.14 Purpose of financial reports
According Brain, (1989), financial reports serve the following purpose, it should
provide information about economic resources of an organization and claims against
those resources. This is what the accounting language calls the assets and liabilities of
the firm. The assets show the outcomes of funds utilized, it is physical evidence of
financial accounting, which shows value for money. The balance sheet is used to
accomplish this reporting requirements and it shows the financial position of the
organization. It should give information about the firm's operating performance during
the period that is how it has performed basing on its budgeted income and activities,
the income statement facilitates this.
It should also provide information about how the organizat ion obtains and uses
the funds whether in uses borrowed funds or grants for the case of local government
and capacity building. This shows the organization gearing positions and control so the
cash flow statement satisfy this purpose (ACCA, 2009)
Financial reports play a role of providing information on how management has
discharged its stewardship responsibility to owners. This informat ion is got form
all the three financial statements ment ioned below. Financial reports can not
play any role if applicat ion and interpretations are not accorded to help users
understand the information provided. The needs of the end users of information have
therefore included the nature of financial information and have therefore provided
background against which financial reporting has developed (Nobles and Parter,
1979).
The Financial Statements include.
2.14.1 A balance sheet
This measures the financial position of a business at particular date. The financial
position is indicated by the business assets and liabilities on that date (Jain, 1987).
ACCA (2009) states that, a balance sheet shows a list of all asset s and liabilities
owned by a business as at a particular date. It is a snapshot of the financial position
of a business at a particular moment. Momentary amounts are attributed to each of the
assets and liabilities.
19
2.14.2 The income statement.
This is a record of revenue generated and expenditure incurred over a given period of
time. The statement shows whether the business has had more revenue than
expenditure, ACCA text (2009). It also shows the financial performance of the
organization whether in its operation it is making profits or loses elements included in
the income statement include sales Cost of sales, gross profit net profit loss.
2.14.3 Fund flow statement.
This shows the method by which the business has been financed and how its funds were
utilized between the opening and closing balance sheet dates. From the case of Local
Government the analysis of such statements over a period of time clearly shows the
sources from which post activities have been financed and where other funds were put.
Fund flow statement points out the financial strength and weakness of the entity. It
also helps to understand the changes in assets source and assets, which are not readily
evidenced in the income statement or financial position (Jain, 1987).
2.14.4 The cash flow statements.
This gives a summary of cash receipts and payments classifying them into operating
financing and investing cash flows and reconciling the opening and closing
balances of cash and cash acquired equivalents with cash flows that occurred during
the period
2.15 qualities of good financial statements.
The primary test of financial statements is their quality. Quality of financial
statements is the attributes that make information that is in financial statements of
great use (Alexander et al, 1994). Information in financial statements is useful if it
is comparable, reliable, relevant and understandable (Frankwood, 2002).
Nkundabanyanga (2004) also agrees that these are attributes that make financial
statements of users to the users of the information.
2.15.1 Relevance.
Only relevant information can be useful. Information is useful when it helps users to
evaluate the past, present, future events or it conforms or corrects previous
evaluat ion, ACCA (2009). Alexander (1994) also agrees that relevant information
20
can be used in the evaluation of the business operations both past, present and future
information. For example, information about the current level and structure of asset
holding has value to users when they endeavor to predict the ability of the business
enterprise to take advantage of the opportunities and ability to react to the adverse
situations. Relevance therefore constitutes quality of financial statements.
2.15.2 Reliability
Reliable information is always free from material errors, financial reports can only be
useful to the users if it's reliable and can be depended upon by the users, the user must
be able to depend on it being a faithful representation ACCA (2009). Weetma
(1999) also agrees that quality information is reliable when it is free from material
errors and bias and can be depended upon by users. However, Alexander (1994) states
that information may be so unreliable in nature in that its recognition may be
potentially misleading. For example if the validity and the amount of the claim for
damages under a legal action are disputed, it may be inappropriate for a business entity
to recognize the full amount of the claim in the business
2.15.3 Timeliness
A good financial report is supposed to be timely and available to the users to enable
they make sound decisions. Information may become irrelevant if there is a delay in
reporting it ACCA (2009). There is a balance between timeliness and provision of reliable
information. Information may be reported on a timely basis when not all aspects of
transactions are known thus even compromising reliability of information.
2.15.4 Understandability.
Information presented to users should be really understood by users this is the essential
quality of informat ion provided in financial statements users are assumed to have
abilit ies that is reasonable knowledge of business and complexity of economic
activities and accounting as well as willingness to study the information with
reasonable evidence Alexander (1994). However Weetma (1999) suggests that
information on complex matters should not be omitted from financial statements
on grounds that some users may find it difficult to understand. Financial reports
21
should therefore be prepared with consistency for it to be understood and make it give
a quality of financial statements.
2.15.5 Comparability.
Financial reports must be easily compared. Users of financial statements of an entity
should be able to compare financial statements over time to enable them identify
the business trends, Harrison (1989). The users must also be able to compare and
contrast the financial statements of different enterprises to enable them track the
entity's progress over time, (Frankwood, 2002). This is also in agreement with
Nkundabanyanga (2004) who states that users need to be able to compare the entity's
performance in order to be able to identify the ent ity's performance with another.
However to make comparability possible there must be consistency in application of
accounting policies on presentation of financial reports, ACCA (2009).
2.16 Requirements for preparation of financial statement (IASI)
Before making an opinion on financial statements and deciding on working of the
audit report, the auditors should conduct on overall review of statements. Omonuk, (1999)
states that financial statements should provide information that complies with the
specific requirements to the user. The areas required are;
2.16.1 Compliance with statutory requirement.
This relates to the presentation and disclosure of financial statements and in this
checklists are normally used to ensure compliance with all requirements. The
presentation should be in line with the Public Financial and Accountability Act (2003)
2.16.2 Accounting Policies.
The accounting policies should be reviewed and adopted by the management to
determine whether such policies comply with the International Financial Reporting
Standards (IFRS). This should be consistent with the previous period and are applied
throughout the unity and should be disclosed according to the requirement of
international auditing standards (IAS) presentation of financial statements (LGFAR,
1998).
22
2.17 Limitation of quality financial reports
Several circumstances render quality of a financial report of an entity not meet the
users needs and may render it of less value to the users. These include;
2.17.1 Untimely ness of financial reports.
Information may become irrelevant if there is a delay in reporting it, there is a balance
between timeliness and provision of reliable information. Information may be reported
on a timely basis when not all aspects of the transactions are known thus compromising
reliability, ACCA (2009). This may not serve the purpose for which they are
required by users. This renders financial reports meaningless to the users for
intended purpose depending on the category of users either at management or decision
making levels (Auditor General's Report, 2006/2007).
2.17.2 Generally accepted procedures.
If generally accepted procedures of preparing financial statements reports in Local
Government are not followed like the International Financial Reporting Standards
(IFRS) then the financial reports produced will not meet this purpose thus making
it difficult for quality financial statement to be attained (LGFAM, 2007).
2.17.3 Accounting procedures.
If normal accounting procedures are not being followed, In case of a contradiction
between the funds spent and financial regulations in Local Government, the quality of
financial statements may have limitations for a good financial report because the
actual revenue collected will not be reflected in the books thus distorting the Accounting
procedures leading to poor financial reports
2.18 Relationship between external auditing and quality of financial reports.
2.18.1 Relationship between vouching and quality of financial reports
Vouching is the act of establishing the accuracy and the truth of the entries in the
books of accounts (Bhat ia, 2004). ACCA (2009) defines a voucher as a
document that supports a transaction. This is in agreement with Bhatia (2004)
who defines a voucher as documentary evidence supporting a transaction in the
books of accounts. Vouching in this case ensues that transactions have been entered in
23
the books of accounts with documentary evidence supporting a transaction. With all
transactions recorded in the books of accounts, quality of financial reports is guaranteed
2.18.2 Relationship between verification and quality of financial reports
According to Bhat ia (2004), an auditor has not to only see the arithmetical
accuracy and bonifieds of transactions in the books of accounts by vouching but
also to see that assets are recorded in the balance sheet and actually exist. Further,
the verification of liabilities is also important. If liabilities are over stated or under
stated, the balance sheet will not represent a true and fair view of the state of affairs
of an entity. The balance sheet includes elements such as, assets, liabilities, owners
equity (ACCA, 2009) therefore verification of the existence of assets and liabilities
improves on the auditor's opinion on the truth and fairness of the financial reports and
this therefore will ensure quality of financial reports in an entity
2.18.3 The relationship between Audit Reports and Quality of financial reports.
Auditors communicate to users of financial information through audit reports
(Ramaswamy, 1994). The management using appropriate accounting standards,
conventions principles and concepts in relation to the legal framework (Alexander,
1994) prepares the reports that are audited. The reports are then audited by examining
the account records and presentation of financial statements. It is upon these reports
that auditors base their opinion on whether the financial statements show a true and fair
view (Hayes, 2005).
2.18.4 Relationship between Audit Process and quality of financial reports
The quality of financial reports can be achieved if external auditing practice is
involved in an entity. Auditing ensures that the required procedures are followed.
(Hayes, 2005). This is also st ipulated in the Account ing regulat ions like
preparing financial statements using the International Financial Reporting
System (IFRS) and the constitution (LGFAM, 2007). This therefore shows the
relationship between external auditing and the quality of financial reports.
24
2.18.5 Relationship between management assertions and objectives, and quality of
financial reports
Audit procedures are designed to provide evidence about assertions of management
that are embodied in financ ia l st at ement s. Management assert ions are
implied o r expressed representation by management about classes of transactions and
related accounts (Hayes, 2005)
Rick (1946) stated that management always makes assertions as to whether financial
statements are prepared based on International Accounting Standards (IAS). In this
therefore the auditor must obtain sufficient evidence that management assertion is
materially true, accounts classified correctly and proper disclosure have been based
on international standards to avoid material errors. This is in line with ACCA (2009)
which states that financial statements can be depended upon if they are free from
material errors and are being depended on it being a faithful representation.
2.18.6 Relationship between testing and quality of financial reports
Testing is an audit procedure to test the effectiveness of control policies and
procedures in support of the reduced control risk (Hayes, 2005). The nature of
testing is that tests generally consist of a combination evidence gathering like inquiry
of client, observation and inspection (Ramaswamy, 1994). Auditors carry out testing
by inspection of accounts of transactions in an entity and other documents to find out
whether financial statements have been prepared using the international standards (Hayes,
2005), these tests reduce the risk of misstatement in the financial statements which are
relied upon by users (Weetma, 1999).
2.18.6 Conclusion
External auditing is a guiding force in the achievement of quality financial reports
in local government”. This is because constant external auditing of financial
reports by independent auditors will ensure that reports are prepared following
accepted procedures and standards like the IPSAs put up by the institute of certified
public accountants (ICPAU). This will therefore ensure financial statement which
are reliable t imely comparable accurate and consistent.
25
CHAPTER THREE
METHODOLOGY
3.0 Introduction
This chapter presents the methods that the researcher used to collect data, data
sources, instruments of collection, research design, sample size, study population, sampling
design, data analysis and presentation. The limitations that the researcher faced in the course
of the study are also included in this chapter.
3.1 Research design
A descriptive research design was used by the researcher to establish the influence of
external auditing on the quality of financial reports of Kitgum district Local Government
this design also described the characteristics of the variables of interest and qualitative
method that was use since the research study well involved the establishment of the
relationship between external auditing and quality of financial reports. These has helps the
researcher reach a conclusion on the relationship between the variables of the study.
3 . 2 Survey population
T he s t udy po pu la t io n was t he e mp lo ye es o f Kitgum district Local Government
depar t ment s of accounting and finance, internal audit department and senior management.
26
3.3 Sample design
3 . 3 . 1 Sampling
Stratified random sampling technique was used by the researcher this sampling method was
able to segregate the study population in to departments of finance, accounting staffs, and
senior management and user/public. The staff and senior management was selected based on
purposive sampling method. This is because relevant information was needed to confirm to
the characteristics of the study.
3.3.2 Sample size
A total of 31 employees of Kitgum district Local Government stakeholder were used as
respondents.
3.3.3 Sampling procedure
Stratified random sampling was used and in this, the population was divided into non
overlapping groups called strata. The strata included staffs and the senior
management. A sample selected from each group called stratum using a simple random
sampling so that all members have an equal chance of being selected.
3.4 Data sources
The researcher used both primary and secondary data to collect data necessary for the study.
3.4.1 Primary source
The primary Data comprised first hand information that was obtained by use of
questionnaire.
3.4.2 Secondary Sources
The secondary source of data comprised District records, books of accounts, Journals,
reports for past years ,audit reports and reviewed lit erature about variable this helped
the researcher to support the findings.
3.4.3 Data collection methods/ instruments.
A self administered questionnaire with closed ended and open ended questions was used as
the main data collection method to acquire data from the respondents. The questionnaire was
designed in line with the study objectives, pre-tested and collections made and then
distributed to the management, staffs.
27
3.4.4 Data processing
The researcher collected the letter of int roduct ion from the Inst itute of Adult
and Cont inuing Education (IACE) which was used by the researcher to introduce him
self to the responsible officers in the District so that permission can be granted to
approach the respondents concerned. Questionnaires were distributed among
respondents and their cooperation were sought by the researcher then interpreted,
edited, and analyzed basing on the data collected.
3.4.5 Data analysis
The researcher classified, edited, coded and filtered data collected from the field to
ensure accuracy and completeness of the findings. The researcher then analyzed
the findings using frequencies and stat istical tables. The SPSS was used to
determine the coefficient of determinat ion (r2) to enable the researcher
established whether external auditing influences the quality of financial reports.
3.5 Limitation of the study
A number of challenges and problems may be met by the researcher as indicated below;
3.5.1 Time
Time limited the researcher since the researcher did not spend full time researching.
3.5.2 Cooperation.
The respondents were cooperative in giving information as it actually appeared to
them. This was because they did not view the research study with suspicion.
3.5.3 Funds
Funds to support activities like transport, typing, printing, photocopying, binding and
stationery was not enough since the project was privately sponsored.
28
CHAPTER FOUR
PRESENT ATION, DISCUSSION AND INTERPRETATION OF FINDINGS
4.0 Introduction
This chapter constitutes both empirical findings from the research and discussion of the
implications of results. The data obtained from the research was analyzed and presented in
simple descriptive statistics which involved the use of frequency tables and frequencies. The
research was based on the following objectives
1. To examine the process of external auditing in Kitgum District Local Government
2. To establish the quality of financial reports in Kitgum District Local Government
3. To establish the relationship between external auditing and quality of financial reports
in Local Governments
4.1 Demographic findings
The demographic information of the respondents was grouped into gender, age, education
level and experience in the service.
4.1.1 Gender of the respondents
The researcher obtained the following information regarding the gender of the respondents.
The findings were summarized in the table below
Table 1: Showing gender of respondent
Gender Frequency Percentage
Male 21 68
Female 10 32
Total 31 100
Source: Primary data
The table above shows that majority of the respondents are male compared to female
counterpart.
29
4.1.2 Age Bracket
Table 2 Showing Age Bracket of the respondents
Years Frequency Percentage
18-27 3 10
28-36 7 23
37-45 11 35
46-50 4 13
51-above 6 19
Total 31 100
Source: Primary data
In the above table, results show that out of 31 respondents, who were interviewed, 35% were
between 37-45 years 23% were between 28-36 years,19% 51 and above years and 10% were
between 18-27 years.
4.1.3 Experience
Researcher found out the following information regarding the experience of the respondent
Table 3 Showing Experience of the Respondents
Years Frequency Percentage
2 None 0
3-5 2 6
6-9 9 29
10-15 12 39
16-Above 8 26
Total 31 100
Source: Primary data
The table above shows that majority of the respondents had worked for between 10 to 15
years and therefore had experience to give reliable responses
4.1.4 Level of education
Researcher found out the following information regarding level of education of the
respondent
30
Table 4 Showing Level of Education
Years Frequency Percentage
University 8 26
Tertiary 23 74
Secondary None 0
Others None 0
Total 31 100
Source: Primary data
The above table shows that all the respondents attained higher level of education and
therefore were knowledgeable on question asked.
4.2.1 Vouching
In finding out whether vouching is practiced, the researcher used the information below;
4.2.2. Whether external auditors ensure that all transactions recorded are supported by
documentary evidence
The researcher was interested in finding out whether all transactions recorded are supported
by documentary evidence. Results are shown in the table below.
Table 5 Showing whether external auditors ensure that all transactions are recorded
Response Frequency Percentages
Strongly Agree 3 10
Agree 9 29
Note Sure 5 16
Disagree 10 32
Strongly Disagree 4 13
Total 31 100
Source: Primary data
Results show that 10% strongly agreed, 29% agreed, 16% not sure, 32% disagreed and 13%
strongly disagreed. This shows that majority of the respondents disagree and therefore,
implies that in the auditing process not all transactions are supported by documentary
31
evidence which reflects the ineffectiveness of the process which hence low quality of
financial reports produced.
4.2.3. Whether external auditors "ensure that all vouchers are recorded and entered in
the books of accounts”.
The results were found out and presented as seen in the table below.
Table 6 Showing whether external auditors ensure that all vouchers are recorded and
entered in the books of accounts
Response Frequency Percentages
Strongly Agree 11 35
Agree 17 55
Note Sure None 0
Disagree 3 10
Strongly Disagree None 0
Total 31 100
Source: Primary data
Results in table above shows that 35% strongly agreed, 55% agreed, 10% disagreed. This
implies that all vouchers are recorded and entered in the books of accounts.
4.2.4. Whether external auditors ensure that receipts and payments are authorized
Table 7 Showing whether external auditors ensure that all receipts and payments are
authorized
Response Frequency Percentages
Strongly Agree 7 22
Agree 17 55
Note Sure 1 3
Disagree 3 10
Strongly Disagree 3 10
Total 31 100
Source: Primary data
Results in table 7 indicate that 22% strongly agreed, 55% agreed, 3% were not sure, 10%
disagreed, 10% strongly disagreed. The results imply that in the audit process external
auditors ensure that all receipts and payments are authorized. This shows fair audit process
employed therefore to quality reports at the end of the year is produced.
32
4.3. Verification
The information below guided the researcher in establishing whether documents are verified
in the District.
4.3.1. Whether external auditors confirm existence of all documents:
Table 8 Showing whether external auditors confirm existence of all documents
Response Frequency Percentages
Strongly Agree 2 6
Agree 13 42
Note Sure none 0
Disagree 16 52
Strongly Disagree None 0
Total 31 100
Source: Primary data
The results in the above table, shows that 60% disagreed, 6% strongly agreed, 42% agreed
meaning that the existence of all documents is not confirmed by external auditors. This may
be as a result of the understaffed audit staff employed which makes it difficult to confirm all
documents. This shows a poor audit process followed during the audit of financial
statements.
4.3.2. Whether all documents confirmed by external auditors actually exist
The research aimed at finding out whether all documents confirmed by external auditors
actually exist. The results are shown in the table below.
Table 9 Showing whether all documents confirmed by external auditors actually exist
Response Frequency Percentages
Strongly Agree 18 58
Agree 10 32
Note Sure None 0
Disagree 3 10
Strongly Disagree None 0
Total 31 100
Source: Primary data
.Results obtained in table above shows 58% strongly agreed, 32% agreed, 10% disagreed that
external auditors ensure that all documents confirmed actually exist. This implies that these
33
documents are used by external auditors during audit as evidence that support any transaction
hence reflecting a good process of auditing even if some respondents disagreed.
4.3.3. Showing whether documents confirmed by external auditors contain the right
information.
The researcher was interested in finding out whether all documents confirmed by external
auditors contain the right information.
Table 10 Showing whether documents confirmed by external auditors contain the right
information
. Response Frequency Percentages
Strongly Agree 11 35
Agree 16 52
Note Sure 3 10
Disagree 1 3
Strongly Disagree None 0
Total 31 100
Source: Primary data
Results in the above table indicate that 35% strongly agreed, 52% agreed, 10% were not sure,
3% strongly disagreed. With the majority of the respondents agreeing, it implies that during
the auditing process documents confirmed do contain the right information which makes
information provided by the external auditors dependable. This indicates that the process of
auditing is effective. This is as a result of professional nature of auditors employed which
results into quality reports produced.
4.4.0 Auditing Process
Researcher found out the following information regarding the Auditing process
4.4.1. Whether External auditors plan and design the audit approach to be used in the
audit
The results were found out and presented as seen in the table below.
Table 11 Showing whether External auditors plan and design the audit approach to be
used in the audit
Response Frequency Percentages
Strongly Agree 17 55
Agree 11 35
Note Sure None 0
Disagree 3 10
34
Strongly Disagree None 0
Total 31 100
Source: Primary data
Results in table above shows that 55% strongly agreed, 35% agreed, 10% disagreed. This
implies External auditors plan and design the audit approach to be used in the audit.
4.4.2. Whether external auditors follow the audit process designed in the audit.
Table 12 Showing whether external auditors follow the audit process designed in the audit
Response Frequency Percentages
Strongly Agree 7 22
Agree 17 55
Note Sure 1 3
Disagree 3 10
Strongly Disagree 3 10
Total 31 100
Source: Primary data
.Results in table 12 indicate that 22% strongly agreed, 55% agreed, 3% were not sure, 10%
disagreed, 10% strongly disagreed. The results imply that in the audit process external
auditors follow the audit process designed in the audit. This shows fair audit process
employed which results to quality reports at the end of the year.
4.4.3 The audit process simplifies the work performed by external auditors
The information below guided the researcher in establishing whether the audit process
simplifies the work performed by external auditors.
4.4.4. Whether the audit process simplifies the work performed by external auditors
Table 13 Showing whether the audit process simplifies the work performed by external
auditors
Response Frequency Percentages
Strongly Agree 2 6
Agree 13 42
Note Sure none 0
Disagree 16 52
Strongly Disagree none 0
Total 31 100
Source: Primary data
35
Results in table 13 indicate that 6% strongly agreed, 42% agreed, none were sure, 52%
disagreed, none strongly disagreed. The results imply that audit process does not simplify the
work performed by external auditors. This does not show fair audit process employed which
results to poor quality reports at the end of the year
4.5. Audit report
The information below shows whether audit reports exist in Kitgum District
4.5.1. Whether audit reports are always prepared by external auditors at the end of the
year.
The table below shows an illustration on whether audit reports are always prepared by
external auditors at the end of the year.
Table 14 Showing whether audit reports are always prepared by external auditors at the
end of the year.
Response Frequency Percentages
Strongly Agree 3 10
Agree 10 32
Note Sure 4 13
Disagree 12 39
Strongly Disagree 2 6
Total 31 100
Source: Primary data
The research results in the above table show that 10% strongly agreed, 32% agreed, 13% not
sure, 39%disagreed and 6% strongly disagree. The above results imply that audit reports are
not always prepared by external auditors at the end of the year. Therefore this shows poor
system of the audit process that is used in the district by external auditors in the audit
process.
4.5.2. Whether external auditors issue audit reports at the end of the process
The researcher aimed at finding results on whether external auditors issue out audit reports at
the end of Audit process. Results were presented as seen below;
36
Table 15 Showing whether external auditors issue out audit reports at the end of the audit
process.
Response Frequency Percentages
Strongly Agree 29 94
Agree 2 6
Note Sure None 0
Disagree None 0
Strongly Disagree None 0
Total 31 100
Source: Primary data
The table above, indicate that 94% strongly agreed, 6% agreed, this implies that at the end of
the audit process, audit reports are issued out which is a good practice.
4.5.3. Whether all users of audit information get access to audit reports prepared by
external auditors.
The results of the research were established and presented in the table as seen below;
Table 16 Showing whether all users get access to audit reports prepared by external
auditors
Response Frequency Percentages
Strongly Agree 9 29
Agree 10 32
Note Sure 9 29
Disagree 3 10
Strongly Disagree none 0
Total 31 100
Source: Primary data
Table above show that the majority respondents of 32% agreed, 29% strongly agreed 29%
not sure and 10% disagreed. This implies most of the users of audit information get access to
audit reports, although others do not access audit reports which may lead to loss of
confidence by other users.
4.6. Testing
The questions below were used by the researcher to find out the existence of testing as one of
the processes of auditing.
37
4.6.1. Whether external auditors check that management policies and procedures
are effective
The researcher was interested in finding out whether external auditors check that
management policies and procedures are effective.
Table 17 Showing whether external auditors check that management policies and
procedures are effective.
Response Frequency Percentages
Strongly Agree 2 6
Agree 7 23
Note Sure 3 10
Disagree 11 35
Strongly Disagree 8 26
Total 31 100
Source: Primary data
The findings show that 6% strongly agreed, 23% agreed, 10%were not sure, 35% disagreed
26% strongly disagreed. The implication of the results is that external auditors do not check
that management policies and procedures are effective. This is because of the unprofessional
auditors who do not test management policies.
4.6.2. Whether external auditors check management activities.
The table below shows results on whether external auditors check management activities in
Kitgum District.
Table 18 Showing whether external auditors check management activities
Response Frequency Percentages
Strongly Agree None 0
Agree None 0
Note Sure 2 6
Disagree 8 26
Strongly Disagree 21 68
Total 31 100
Source: Primary data
The findings above show that 6% were not sure 26% disagreed, and 68% strongly disagreed.
This implies that external auditors do not check on management activities in the District
leading to poor controls and ineffective management of the public assets in the District. This
also reflects the poor process of auditing used in the District during the audit.
38
4.6.3. Whether external auditors inspect all transactions performed in the District the
findings of the research were presented in the table below.
Table 19 Showing whether external auditors inspect all transactions performed.
Response Frequency Percentages
Strongly Agree None 0
Agree 5 16
Note Sure 5 16
Disagree 15 48
Strongly Disagree 6 19
Total 31
Source: Primary data
The table shows that 16% strongly agreed, 16% agreed, 48% were not sure, 19% disagreed
and 10% strongly disagreed. With the majority disagreeing, it implies that not all transactions
are inspected by external auditors as a result of understaffed audit staff employed. Therefore
inadequate information is provided for auditing, this also shows the weaknesses that exist in
the auditing process which indicates that the auditing process is not wholly followed during
the auditing process.
4.7 Management assertions and objectives
The information below shows whether management policies exist and are effective.
4.7.1 Whether external auditors get sufficient evidence that financial statements
are prepared based on IPSAS.
The table below shows whether external auditors get sufficient evidence that financial
statements are prepared based on international accounting standards.
Table 20 Showing whether external auditors get sufficient evidence that financial
statements are prepare based on IPSAS.
Response Frequency Percentages
Strongly Agree 10 32
Agree 12 39
Note Sure 1 3
Disagree 8 26
Strongly Disagree None 0
Total 31 100
Source: Primary data
Results in the above table show that majority of the respondents 32% strongly agreed, 39%
agreed, 3% not sure, 26% disagreed. Though there were some respondents who agreed,
39
majority disagreed which implies that international public sector accounting standards are not
used this leads to preparation of poor reports.
4.7.2. Whether external auditors check that accounts have been classified correctly
The following information was obtained and presented as seen in table below.
Table 21 Showing whether external auditors check that accounts have been classified
correctly
Response Frequency Percentages
Strongly Agree 6 19
Agree 9 29
Note Sure None 0
Disagree 14 46
Strongly Disagree 2 6
Total 31 100
Source: Primary data
The findings in the table above show that 19% strongly agreed, 29% agreed, none were sure,
46% disagreed and 6% strongly disagreed. With the majority of respondents disagreeing, it
implies accounts are not always classified in a proper way. This leads to transactions being
wrong recorded and these results into untimely auditing of accounts by external auditors.
This indicates an in effective audit process.
4.7.3. Whether external auditors ensure that financial statements are free from bias.
The table below shows the findings and results presented
Table 22 Showing whether external auditors ensure that financial statements are free from
bias.
Response Frequency Percentages
Strongly Agree 7 23
Agree 11 35
Not Sure none 0
Disagree 13 42
Strongly Disagree None 0
Total 31 100
Source: Primary data
The findings shows majority of respondents 42% disagreed, 35%agreed, 23% strongly
agreed none were not sure and strongly disagreed. This implies that management is biased
40
when preparing financial statements and this is checked by external auditors. This lower the
quality of reports produced in the District. Hence reflecting a Poor audit process employed
during the audit in this stage.
4.8 Findings on objective two. To establish the quality of financial reports in Kitgum
District Local Government.
The findings in objective two were intended to establish the quality of financial reports in
Kitgum District Local Government. The information below guided the researcher.
4.8.1 Whether financial statements are free from bias
The table below shows the research findings on whether financial statements are free from
bias.
Table 23 Showing whether financial statements are free from bias.
Response Frequency Percentages
Strongly Agree 13 42
Agree 12 39
Note Sure None 0
Disagree 5 16
Strongly Disagree 1 3
Total 31 100
Source: Primary data
In the above table 42% of the respondents strongly agreed, 39% agreed, none were sure, 16%
disagreed and 3% strongly disagreed. This implies that financial statements are free from bias
since majority of respondents strongly agreed indicating that quality of financial reports are
produced in the District.
4.8.2 Whether financial statements are free from material errors.
The information below shows whether financial statements are free from material errors
Table 24 Showing whether financial statements are face from material errors.
Response Frequency Percentages
Strongly Agree none 0
Agree 10 32
Note Sure 8 26
Disagree 1 3
Strongly Disagree 12 39
Total 31 100
Source: Primary data
41
Table above shows that out of the total respondents who interviewed, none strongly agreed,
32% agreed, 26% were not sure, 3% disagreed and 39% strongly disagreed. The results in
above table imply that financial statements prepared contain material errors because of the
estimated figures. This indicates weaknesses in the preparation of financial statements and
this leads to poor quality of financial statements.
4.8.3 Whether financial statements prepared are understandable by all users
The following table shows whether financial statements prepared are understandable by all
users.
Table 25 Showing whether financial statements prepared are understandable by all users
Response Frequency Percentages
Strongly Agree 4 13
Agree 10 32
Note Sure 3 10
Disagree 11 35
Strongly Disagree 3 10
Total 31 100
Source: Primary data
Results in the above table show that out of the total number of respondents, 13% strongly
agreed, 32% agreed, 10% were not sure, 35% disagreed and 10% strongly disagreed. This
implies that financial statements prepared are not understandable by all users which
indicate poor quality of financial statements produced since they cannot be understood by
people who use the financial statements.
4.8.4 Whether users are able to compare district performance overtime using financial
statements
The table below shows whether users are able to compare District performance over time
using financial statements
Table 26 Showing whether users are able to compare performance over time using
financial statements.
42
Response Frequency Percentages
Strongly Agree None 0
Agree None 0
Note Sure 3 10
Disagree 11 35
Strongly Disagree 17 55
Total 31 100
Source: Primary data
Table indicates that 55% strongly disagreed, 35% disagreed, and 10% were not sure. This
implies that District performance can not be compared overtime using financial statements
since the financial statements can not be understood. This shows poor quality of financial
reports produced at the end of the year.
4.8.5 Whether financial statements are prepared following recommended accounting
reporting standards
The information in the table below shows whether financial statements are prepared
following recommended according reporting standards.
Table 27 Showing whether financial statements are prepared following recommended
IPSAS.
Response Frequency Percentages
Strongly Agree 21 68
Agree 9 29
Note Sure none 0
Disagree 1 3
Strongly Disagree None 0
Total 31 100
Source: Primary data
Results in the above table show that 68% strongly agreed, 29% agreed, 3% disagreed and
none strongly disagreed. This imply that recommended accounting standards are wholly used
while preparing financial statements which result into quality financial reports produced
4.8.6. Whether financial statements are delivered on time when accounting reporting
standards are properly followed.
The table below shows findings on whether financial statements are delivered on time when
accounting reporting standards is properly followed.
Table 28 Showing whether financial statements are delivered on time when accounting
reporting standards are properly followed
43
Response Frequency Percentages
Strongly Agree 20 65
Agree 9 29
Note Sure 2 6
Disagree None 0
Strongly Disagree none 0
Total 31 100
Source: Primary data
According to the above table, 65% strongly agreed, 29% agreed, and 6% were not sure this
implies that financial statements are delivered on time when accounting reporting standards
are properly followed This indicates that quality financial reports are produced at the end of
the year in the district due to untimely delivery of financial reports.
4.8.7. Whether there is a strong effect of external auditing on the quality of financial
reports in Kitgum District.
The researcher intended to find out whether there is a strong effect of external auditing on the
quality of financial reports in Kitgum District. Results are in table below.
Table 29 Showing whether there is a strong effect of external auditing on quality of
financial reports in Kitgum District
Response Frequency Percentages
Strongly Agree 14 45
Agree 8 26
Note Sure 5 16
Disagree 1 3
Strongly Disagree 3 10
Total 31 100
Source: Primary data
Results in the above table show that 45% strongly agreed, 26% agreed, 16% were not sure
and 3% disagreed. This implies that there is a strong effect of external auditing on the quality
of financial statements. This shows good quality of financial reports that are produced in the
District at the end of the year.
4.8 Relationship between external auditing and quality of financial reports in local
governments
44
External auditing Financial reports
External auditing Pearson Correlation 1 .866**
Sig. (2-tailed) .000
N 31 31
Financial reports Pearson Correlation .866** 1
Sig. (2-tailed) .000
N 31 31
** Correlation is significant at the 0.01 level (2-tailed).
The relationship between external auditing and financial reports was statistically tested. A
strong positive relationship (r=.866*, p<0.01) was established. Since .866 is close to 1, a
very high positive relationship, significant at 0.01 level existed between external auditing and
financial reports
CHAPTER FIVE
45
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
This chapter summarizes the contents of the entire reports with particular emphasis on the
findings of the study in chapter four, conclusion, recommendations and other areas for
further studies are also highlighted.
5.1 Summary of findings on gender of the respondents
The researcher found that out of 31 respondents, who were interviewed, 68% were male and
32% were female which implies that there were many male respondents compared to female
respondents.
5.2 Summary of findings on experience of the respondents.
The researcher found that majority of the respondents had worked for between 10 to 15 years
and therefore had experience to give reliable responses
5.3 Summary of findings on objective one: To examine the process of external auditing in
Kitgum District Local Government.
The research found that the process of external auditing plays a great role in determining the
quality of audit reports. However, inefficiencies were also noted that are involved in the
process of external auditing. Firstly, it was noted that after preparing audit reports, not all
users get access to view the audit reports. This is seen as a weakness and it affects the
decisions that are made by users of this information. It was also seen that not all transactions
are inspected in the process of external auditing. This is likely to compromise the quality of
financial reports due to omission of some information through improper inspection of
transactions. The researcher therefore, found that despite the importance of external auditing
process. It still has weaknesses which ought to be addressed
5.4 Summary of findings on objective two: To establish the quality of financial reports in
Kitgum District Local Government. From the findings, majority of the respondents disagreed
that financial statements are free from material errors. This is one of the major factors which
compromise the quality of financial reports. It was also found out that accepted international
public sector accounting standards are not fully followed when preparing financial statements
which is unprofessional. This also causes poor quality of financial reports at the end of the
46
year. The factor of late delivery of financial reports and their preparation in time was also
seen as a weakness in management. But all the same financial statements were found
to be useful and relevant to all management and users despite some weaknesses
identified
5.5 Summary of findings on objective three: To establish the relationship between
external auditing and quality of financial reports in Local Governments. The data was tested
and the findings were that effective external auditing bring about quality financial reports this
is evidenced by r = 0.866.
5.6. Conclusion
5.6.1. Conclusion on summary of findings on objective one: To examine the process of
external auditing in Kitgum District Local Government.
Despite the ease provided by the process of external auditing, there is still a weakness in the
implementation of management policies to ensure that all transactions are inspected and
material errors avoided. Management therefore ought to strengthen their policies to ensure
that all processes of external auditing are implemented to avoid variances in financial reports.
5.6.2. Conclusion on summary of findings on objective two: To establish the quality of
financial reports in Kitgum District Local Government. Existence of material errors in
financial statements compromises their quality. On the other hand delay in Submission of
financial statements also compromises their quality. These were noted and therefore
management ought to realize the values of time while preparing financial statements and
avoid making material errors which compromise quality of the financial reports. This will
enhance quality of the District reports
5.6.3 Conclusion on objective three: To establish the relationship between external auditing
and quality of financial reports in Local Governments. The positive relationship that external
auditing has on the quality of financial reports should be appreciated as evidence by the
strength of the relationship which is 0.749. Management should therefore up hold external
47
auditing practices in order to improve the quality of financial reports of the District Local
Government
5.7 Recommendations
The findings after having taken an analysis of the situation in Kitgum District Local
Government, the researcher therefore recommends that there is need to improve supervision
so that all transactions that are carried out in the district are inspected and correct record
taken by respected needs. There is also need to publish financial reports for public viewing so
that every user gets access to view the financial reports and be able to assess performance.
Furthermore, there is need to design and implement management policies.
Workshops and seminars should be promoted so that the management is updated with the
current accounting standards and reduce on the material errors in financial reports this can
improve quality of financial reports.
5.8 Areas of further research
The following areas present an opportunity for further research.
1. The effects Public sector’s accounting standards on the quality of financial reports
2. The effects internal controls and financial accounts on the quality of financial reports
APPENDIX 1 REFERENCES
Alexander, and Britton A. (1993), Financial Reporting (Third Edition) London Chapman
and Hall.
Andrew D Chambers, Georges M. Gerald Vinten, (1987). Internal Auditing. (Second
edition) Pitman.
Arens Alvin A.K Loebecka, (1994) Auditing an integrated approach England Cliffs, NJ.
48
Auditor General's report (2006/2007). Kampala, Uganda.
Aurora (1974). Cost Accounting principles and practices (fourth revised edition).Pitman.
Beams A (1996) Advanced Accounting. (Sixth edition). Upper Saddle River. NJ. Prentice
Hall.
Bhatia R.C (2004). Auditing Vikas Publishing House PUT Ltd University of Delhi.
Emile W (1994). Auditing Today. (Third edition). Prentice Hall. New York.
Frankwood and Sangster (1999). Business Accounting (Tenth edition). London Finanxial
Times. Pitman Publishing.
Gupta R, and Ramaswamy M (1990). Financial statements (Theory methods and
application), New Delhi. Delhi Universit
Horngren T, and Harrison T (1989). Accounting (second edition). NJ. Eaglewood cliffs.
Jain S.P (1984) Fundamentals of cost accounting New Delhi kalyani.
Jones C (1984). Municipal Accounting for Developing countries (first edition). United
States Chartered Institute of Public Finance and Accounting.
Kamal Gupta (1987) Contemporary Auditing. New Delhi, Tata Grawhill
Local Government and Accountability manual (2007).
National Audit Act (2008).
Nkundabanyanga (2004), Advanced Accounting (First Edition) Kampala-
Makerere University Business School.
Public Financial and Accountability Act (2003).
49
Ramaswamy M.S (1994). Auditing Today. New Delhi. G,S Shama.
Rayes R. Schilder (2005). Principles of Auditing. An introduction to Principles and
Standards of Auditing. Harlow Financial Times. Prentice Hall.
Ricchiut, David N (1982) Auditing concepts and standards, Cincinnati,
Southwestern publishing company.
Weetman, (1999), Financial Accounting an Introduction (Second Edition) Harlow
Prentice Hall.
APPENDIX 2 QUESTIONAIRE
MAKERERE UNIVERSITY KAMPALA
COLLALGE OF ECONOMICS AND MANAGEMENT
BACHELOR OF COMMERCE
RESEARCH QUESTIONNAIRE
Dear sir/ Madam,
You are kindly requested to answer the following questions providing information to the best
of your knowledge. The information collected is purely for academic purpose for the award
of a Bachelor of commerce Degree. The information provided will also be treated with
utmost confidentiality.
50
The research topic is "THE EFFECT OF EXTERNAL AUDIT ON THE QUALITY OF
FINANCIAL STATEMENTS IN LOCAL GOVERNMENT" A CASE OF KITGUM
DISTRICT LOCAL GOVERNMENT
Thanks for your cooperation
SECTION A: BIO DATA
Tick as appropriate or fill where necessary
1. Gender Female Male
2. Age
18-27 28-36 37-45 46-44 45-Above
3. Experience
2years 3-5 years 6-9 years 10-15years 16-Above
4. Highest level of education
University Tertiary Secondary Others (specify).....
EXTERNAL AUDITING.
Please rate the work done by external auditors in Kitgum District Local Government basing
on the following attributes ;( Tick where appropriate)
SECTION B: Vouching
1). External auditors ensure that all transactions recorded are supported by documentary
evidence
Strongly Agree Agree Not sure Disagree Strongly Disagree
2). External auditors ensure that all vouchers are recorded and entered in the books of
Accounts
Strongly Agree Agree Not sure Disagree Strongly Disagree
51
3 External auditors ensure that all receipts and payments are authorized
Strongly Agree Agree Not sure Disagree Strongly Disagree
SECTION C: Verification
4 External Auditors confirm the existence of all documents
Strongly Agree Agree Not sure Disagree Strongly Disagree
5 All documents confirmed by external auditors actually exist
Strongly Agree Agree Not sure Disagree Strongly Disagree
6 Documents confirmed by the external auditors contain right information
Strongly Agree Agree Not sure Disagree Strongly Disagree
SECTION D: Auditing process
7 External auditors plan and design the audit approach to be used in the audit
Strongly Agree Agree Not sure Disagree Strongly Disagree
8 External auditors follow the audit process designed in the audit
Strongly Agree Agree Not sure Disagree Strongly Disagree
9 The audit process simplifies the work performed by external auditors
Strongly Agree Agree Not sure Disagree Strongly Disagree
SECTION E: Audit reports
10 Audit reports are always prepared by external auditors at the end of the year
Strongly Agree Agree Not sure Disagree Strongly Disagree
11 External auditors issue out audit reports at the end of the audit process
Strongly Agree Agree Not sure Disagree Strongly Disagree
52
12 All users of audit information get access to audit reports prepared by external auditors
at the end of the year
Strongly Agree Agree Not sure Disagree Strongly Disagree
SECTION F: Testing
13 External auditors check that management policies and procedures are effective
Strongly Agree Agree Not sure Disagree Strongly Disagree
14 External auditors check management activities in the district
Strongly Agree Agree Not sure Disagree Strongly Disagree
15 External auditors inspect all transactions performed in the district
Strongly Agree Agree Not sure Disagree Strongly Disagree
SECTION G: Management assertions and objectives
16 External auditors get sufficient evidence that financial statements are prepared based on
IPSAS
Strongly Agree Agree Not sure Disagree Strongly Disagree
17 External auditors check that accounts have been classified correctly
Strongly Agree Agree Not sure Disagree Strongly Disagree
18 External auditors ensure that financial statements are free from material errors
Strongly Agree Agree Not sure Disagree Strongly Disagree
SECTION I: QUA LITY OF FINANCIAL STATEMENTS
19 Financial statements prepared are free from bias
Strongly Agree Agree Not sure Disagree Strongly Disagree
20 Financial statements prepared are free from material errors
Strongly Agree Agree Not sure Disagree Strongly Disagree
21 All financial statements prepared are understandable by all users
53
Strongly Agree Agree Not sure Disagree Strongly Disagree
22 Users are able to compare the district performance over time using financial statements
Strongly Agree Agree Not sure Disagree Strongly Disagree
23 Financial statements are prepared following recommended international public sector’s
accounting standards (IPSAS)
Strongly Agree Agree Not sure Disagree Strongly Disagree
24 Financial statements are delivered on time when accounting reporting standards are
properly followed
Strongly Agree Agree Not sure Disagree Strongly Disagree
25 There is a strong effect of external auditing on quality of financial statements in Kitgum
district
Strongly Agree Agree Not sure Disagree Strongly Disagree
APPENDIX 3 LETTER OF INTRODUCTION
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