IMPLEMENTATION OF ASSET AUDITING GUIDELINES IN FINANCIAL REPORTING OF TERTIARY EDUCATION INSTITUTIONS IN SOUTH-EAST NIGERIA
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Background to the Study
Tertiary education institutions are institutions of higher learning where knowledge is imparted to its seekers and researches are undertaken in various fields of human endeavour. They are at the post-secondary level of the national education system, which include universities, polytechnics, colleges of technology, colleges of education, advanced teacher training colleges, correspondence colleges and such institutions as may be allied to them (Federal Republic of Nigeria (FRN), 2014). These institutions may be publicly or privately owned and are meant to contribute to national development by developing physical and intellectual skills which will enable individuals to become self-reliant and useful members of the society. It is important to appreciate the fact that, for tertiary educational institutions to achieve their objectives effectively, there is need to establish an effective internal control system to furnish the management with necessary analyses, appraisals, and recommendations for decision making (Modibbo, 2015). An effective internal control system in tertiary educational institutions requires accountability in cash flow and adequate financial 2 reporting and accountability is paramount to the growth and development of tertiary educational institutions. The main objective of financial reporting is to provide adequate and useful information for proper planning, control and decision making that will aid in achieving organizational short-term and long-term goals. These objectives can be achieved where the information received is understandable, timely, accurate, complete and comparable (Muhammad in Filli & Opeyemi, 2016). Accordingly, auditing is carried out by qualified auditors to ensure that financial reporting contains the salient qualities. Auditing plays an essential role in serving the public interest in order to strengthen accountability and reinforce trust and confidence in financial reports presented to stockholders, members, creditors and the entire public. Anichebe (2010) defined auditing as a systematic investigation and appraisal of transactions, procedures, operations and result in financial statements to determine the degree of adherence to the prescribed criteria and to express opinion thereon. The quality of internal audit helps an organization to accomplish its objectives by providing a systematic approach to evaluate and improve the effectiveness of risk management processes, internal control and corporate governance. In recognition of the importance and essence of internal auditing, governments and private sector in many countries consider 3 the establishment of internal audit units and empowerment of internal auditors (AIs) as imperative. The Federal Government Financial Regulations (2009) considered internal audit as a control mechanism which operates by assessing and measuring the effectiveness of internal control system in an organization, using auditing guidelines. Guidelines are rules or instructions that are given by an official organization telling you how to do something especially something difficult. Auditing guidelines are the principles and standards guiding the practice of auditing. The main objective of the audit guideline is to ensure compliance with audit best practices. It is therefore mandatory for all auditors to adhere to the guidelines in the manual in order to ensure consistency and coherence of the auditing process rather than relying on personal interpretation and opinion (Federal Ministry of Finance, 2011). It is on this ground that the regulatory authorities of tertiary institutions (TI) which include the National Commission for Colleges of Education (NCCE), National Board for Technical Education (NBTE), and National Universities Commission (NUC) provided uniform accounting and auditing manual, explaining the specific guidelines, methods, and ways of audit guidelines such as audit guideline for revenue collection; audit guideline for stores; audit guideline for fixed assets; audit guideline for 4 disposal of fixed assets; audit guideline for payroll and audit guideline for staff advances and staff debtors, prepayment audit procedures, among others (NCCE Audit Manual, 2006; Federal Ministry of Finance, 2011; University of Ibadan Audit Manual, 2014). The manual is designed to standardize the practice of internal auditing in public tertiary institutions in Nigeria. Guidelines in financial reporting of the activities of tertiary institutions in the South-East would facilitate auditing. It is also a truism that the manuals and guidelines would be applied to control corrupt practices by account officers. Under this accountability and good financial management environment, employment opportunities would be created, facilities for research would be provided and sustained, and investment from the private and corporate organizations would be attracted to the public tertiary institutions in South-East Nigeria. The expected result for the tertiary institutions under this transparent system is (1) rapid growth and development in teaching and learning; (2) research and publications in public tertiary institutions in South-east Nigeria. The audit guidelines in public tertiary institutions specify the functions of the account officers. Among many other functions, the regulation and manuals mandate the department to ensure compliance with the internal control system put in place and safeguard the assets of the institutions. 5 Account officers make sure that the financial records are kept for smooth running of the institution and accountability purposes. Account officers in tertiary institutions include Bursars and Directors, Senior Accountants and Auditors, Accounts and Store officers (Nwaigburu & Mark, 2014). Despite the existence and reforms in internal audit tasks, studies Adetoso, Oladejo and Akesinro (2013); Whawo (2015) have shown lapses in the internal control system leading to several occurrences of fraud, misappropriation, and irregularities in Nigerian tertiary educational institutions. Tertiary education institutions in this study include public universities, polytechnics and colleges of education which are established to meet the nation‟s need for socio-economic development through knowledge-sharing, research and development. Modibbo (2015) asserted that tertiary institutions are expected to provide educational services, counselling and credible financial statements to the general public at the right time. Tertiary educational institutions provide for internal audit functions through uniform accounting and audit manuals which are used by auditors to examine material account balances. Asset balance, which deals with assets that cannot easily be converted into cash, is a common material account balance on an entity‟s financial statements (Kendra, 2017). Asset is audited through 6 procedures that confirm the existence and valuation of the reported account balance. An asset is defined by the International Accounting Standards Board (IASB, 2015) as a resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity. Timely maintenance, effective tracking and audit of these assets are mandatory for educational institutions (Tracet, 2016). Asset auditing involves current and non-current assets (fixed assets) which are useful and valuable resources by institutions and ensures the accurate record of such assets. An institutions balance sheet normally splits assets into current assets and non-current (fixed) assets. Current assets are assets which can easily be converted into cash or used to pay-off current liabilities within one year (IASB, 2015). Examples of current assets include cash, inventory, accounts receivable (money that customers owe), prepaid liabilities or other liquid assets. These are the assets that help institutions operate on a day-to-day basis to cover expenses as they arise and ensure the smooth functioning of business activities. Non-current assets (fixed assets), on the other hand, are assets which represent a longer-term investment and cannot be converted into cash quickly. They are likely to be held by an institution for more than a year. 7 Non-current assets constitute a major chunk of the assets of an educational institution. Examples of non-current assets include land, property, investments in other companies, machinery and equipment. Intangible assets such as branding, trademarks, intellectual property and goodwill are also considered non-current assets. An auditor‟s job is to examine the records at a particular time, verify all assets appearing on the balance sheet and ensure that there are no other assets, which ought to appear on the balance sheet. Audit guidelines for assets follow several related steps to ensure that the reported asset balance is free of material accounting errors (Jay, 2018). Several common audit guidelines are used to ensure the existence of assets in a business (VanBaren, 2017). These guidelines include checking an institution‟s documents and comparing them with a physical inspection of the assets, reviewing the systems established to ensure compliance with those policies, plans, procedures, laws, and regulations that could have a significant impact on operations, reviewing the means of safeguarding assets and, as appropriate, verifying the existence of such assets; reviewing and appraising the economy and the efficiency with which resources are employed, and reviewing operations or guidelines to ascertain whether results are consistent with established goals and objectives. This study, however focuses on the implementation of asset auditing guidelines for fixed 8 assets, disposal of fixed assets, review of cash collection and bank transactions, payroll and expenses, as well as staff debtors and advances as it is contained in the audit manual for universities, colleges of education and polytechnics (NCCE Audit Manual, 2006; Federal Ministry of Finance, 2011; University of Ibadan Audit Manual, 2014). . Audit guideline for fixed assets pertains to an examination of relevant records and physical checking of assets. Physical verification of fixed assets is primarily the responsibility of the management but the auditor must pay particular attention to the verification system to ensure that it is adequate and reliable (Financial Accounting Standards Board (FASB), 2016). All the fixed assets should be valued and recorded in the financial statements as per the generally accepted accounting practices that suit educational institutions. Disposal of fixed assets involves eliminating assets from the accounting records. Bragg (2017) explained that this is needed to completely remove all traces of an asset from the balance sheet (known as derecognition). An asset disposal may require the recording of a gain or loss on the transaction in the reporting period when the disposal occurs. Disposal of assets is an important part of asset auditing management in educational institutions because it is a function that guarantees that institution funds are not wasted on obsolete and unserviceable equipment 9 and assets and that when stores are disposed, they are sold at the best achievable value in the market. Cash collection and banking (treasury) transactions are the most fundamental systems operated by any organization. Cash is an organizations most important physical asset and ability to pay wages and suppliers depends on the availability of cash (Internal Audit Manual, n.d). The auditing guideline regarding cash collection and bank transactions includes implementation of computerized accounting system for cash receipts and reconciliation of funds received by comparing the bank balance as per bank book and the pass book. Payroll usually represents the largest proportion of an institution‟s expenditure and is an area where good controls are essential to prevent fraud and corruption (Internal Audit Manual, n.d). Payroll systems usually incorporate payments that are made direct from employees‟ payroll such as personnel income tax and pension contributions. The auditing guideline in review of payroll and expense arrangement include verifying duties of all workers in the payroll department and generating payroll report and comparing the balances of expense account with the budgeted balance for the current period. 10 A cash advance to a staff is usually a temporary loan by an institution to a staff. In other words, the institution is the lender and the staff is the borrower. The cash advance needs to be reported as a reduction in the institution‟s cash account and an increase in an asset account to staff or other receivables. According to Sheth (2015), during the process of verifying debtors, the auditors need to ascertain an adequate internal control on the clients‟ accounting system. The influencing factor on the extent of implementation of asset auditing guidelines in the financial reporting by tertiary education institutions could be by the type of institution and the ownership of institution. This variable is likely to affect account officer‟s mean ratings on the extent of implementation of asset auditing guidelines. Type of institution in this study means universities, polytechnics and colleges of education. Account officers in this study are the principal officers in tertiary education institutions. Another influencing factor could be ownership of institution. Ownership of institution in this study means the Federal and State Government owned tertiary educational institutions. According to Ibrahim, Adeyemi and Ayeni (2016), independent tertiary institutions selected showed that the accounting guideline and policies have no significant impact 11 on the preparation of the financial statement. This occurred as a result of some of the enabling statutes of tertiary institutions do not contain or provide proper guidelines on the nature of financial statements to be compiled. Apart from this, the attitudes of governing council members of these institutions circumvent the ability of the institutions to follow the guideline and policies in implementing the accounting system to put in operation while preparing its financial statement. In view of this, it is appropriate for any type and ownership of educational institution to have an effective control system of accounting by instituting internal audit for good monitoring and checking against financial reporting Literature has revealed various violations of normative rules in financial reporting of most tertiary educational institutions in Nigeria (Auditor-General of the Federation 2009 Annual Report). This report contained queries and indictments of many Chief Executive Officers (CEOs) of tertiary educational institutions (Section 7, subsections 10, 11, 12, 15, 61, 78 and 92 of the report). Furthermore, captions on daily newspaper and media publications do not give a good indication of prudent management of funds by tertiary educational institutions in Nigeria. The increase in fraudulent activities in Nigeria and South-East in particular has become a common phenomenon leading to the collapse of 12 many organizations and greater weakening of the economy. Fraud is a serious problem in Nigeria compared to other developing nations in Africa. It is so endemic that it is gradually becoming a normal way of life in both public and private sectors of the economy. The education sector of Nigeria and the South-East in particular the economy appears to be affected by fraud which jeopardizes the success of long-term initiatives in every area of educational development. This means that education devoid of fraud is a sine qua non for national development since an educational system that is characterized by fraud and corruption will breed bad leaders, unqualified teachers, quack doctors, technologists and technicians, managers and corrupt public officers (Odimmega, 2015). Fraud cases and some other corporate financial accounting scandals and financial scams have continued to increase concerns about the effectiveness of internal control systems in most public and private organizations. Considering this view, it is appropriate for any tertiary educational institution to have an effective control system of accounting by instituting internal audit for good monitoring and checking against financial statements; ensure compliance with asset auditing guidelines requirements and safeguard the asset of the institutions.
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