CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
It is interesting to note that “Audit” originated from the Latin word “Audire” which means “To Hear” because in ancient time, the owner of a business used to hear a report made by the Auditor about the book keeping and financial records of hours business. This was because the primitive ways of keeping financial records which inducted making marks on ward, keeping figures off hand without any documentation and back of mechanical aids for calculation, had a lot of problems associated with it.
The rudimentary form of checking records of financial transaction could be traced back to the 17th century when civilization came to stage where people began to come on formal business transactions. But such checking was configured mainly to the public account because private audit in the early stages of civilization are rare.
Auditing, as it exists today, developed quite late because the development of accounting was slow as compared to economic theory. The eventual development of auditing was based on a strong determination to conquer problems associated with early beginning of business transactions and to provide an independent and competent report on the state of affairs of the business to their owners.
In modern times, audits have been affected the needed to encourage public investment by providing an environment for ensuring that investor found are put into proper use.
Philosophy of auditing put more input on it that the thinking behind auditing principally arose from the management and the consequential need to safeguard the interests of the owners who in all but the smallest of business were not involved in the day-today decisions made by the management.
Owing to the enlargement of size and complexity of business enterprise today, the concept and scope of auditing have changed. A comprehensive definition of auditing system given by Robert .E. Schlessor as quoted by Jadish Dakash in his book “Auditing principles, practice and problems” (1990:8) say Auditing is a system examination of financial statements, records and related operations to determine and herences to generally accepted accounting principles management policies stated requirement.
Another definition which is widely accepted given by chartered Accountants of England says.
Auditing is an independent examination and investigation of books, records and vouchers so as to enable the Auditor to report whether they have been properly drawn up, so as to show a true and fair view of the profit and loss and balance sheet and of the state of affairs of the business accordance with the best information and explanation given to the Auditor. In these definitions, emphases were laid Auditing being related to operations and how far they adhere to management policies on stated requirements. In other words, we find out that there is need to introduce an effective control system a lack of which can head to business failure also resulting to other multiple problems.
What then is this internal control? Internal control system is defined by explain institute as:- Those control, not only internal check and internal audit but the whole system of controls, financial and otherwise established by management in order to carry on the business of an organization in an orderly manner, safeguard it’s assets and secure as far as possible the accuracy and reliability of it’s records. It may therefore be said that internal or control is an umbrella beneath which are included financial controls, internal check, internal audit and non-financial controls.
The individual components are known as “Control” or “Internal Control” Millichamp .A. U. (1990:97) in his instructional manual for accounting students also defined internal control as related to the definition given by English institute.
Also, it was stated in paragraph five of the Auditor’s operational standard requires that for an auditor to place reliance on any internal control, he should ascertain and evaluate those controls and perform compliance test on the control. We therefore see that to have a sound control system, it would be worthwhile for the organization and the possibility of business failure will be minute.