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EXTERNAL AUDITING AND QUALITY OF FINANCIAL REPORTING
SYSTEM IN GOVERNMENT HEALTH CENTERS
[A CASE STUDY: BUKEDEA HEALTH CENTER 4]
BY
OUMO STEPHEN
A RESEARCH REPORT SUBMITTED TO MAKERERE UNIVERSITY
SCHOOL OF DISTANCE AND LIFELONG LEARNING
PARTIAL FULFILLMENT FOR THE A WARD OF A
BACHELORS DEGREE IN COMMERCE
May 2011
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DECLARATION
The material in this research has never been submitted to any university or institution of
higher learning for any academic qualification. This report is a result of my own
independent research effort and investigations, the acknowledgement has been made.
Signed……………………………………………………..Date…………………………
…………………
Oumo Stephen
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APPROVAL
This work has been supervised and is now ready to be submitted to Makerere University
with the approval of the supervisor.
Signed……………………………………………………Date…………………………….
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DEDICATION
I dedicate this piece of work to my family, uncle and my friends whose company has
played a great role in my life, may the Almighty God Bless you.
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ACKNOWLEDGEMENT
Research of this nature can only be completed with external support and guidance. It’s
therefore under this note that I wish to extent my sincere gratitude and appreciation to the
following people.
I greatly acknowledge my thanks to Mr. Nzibonera Eric my supervisor for guidance and
encouragement during this research.
Special thanks go to my mother Alice Oumo and father Jacob Oumo, my uncle Peter
Okwakol and my brothers Daniel oumo and Samuel oumo whose assistance and support
in writing this research was immense. May the good Lord our God Bless you abundantly.
I also wish to take this opportunity to express my sincere gratitude to Makerere
University and management for having provided an environment which promotes
academic growth.
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TABLE OF CONTENTSDECLARATION................................................................................................................iAPPROVAL.......................................................................................................................iiDEDICATION..................................................................................................................iiiACKNOWLEDGEMENT...............................................................................................ivLIST OF FIGURES.........................................................................................................viiLIST OF TABLES..........................................................................................................viiiABSTRACT......................................................................................................................ix
CHAPTER ONE................................................................................................................11.0 INTRODUCTION.......................................................................................................11.1 The background of the study.........................................................................................11.2 Statement problem.........................................................................................................21.3 Purpose of the study.......................................................................................................21.4 Objectives of the study..................................................................................................21.5 Research question..........................................................................................................31.6 Area and scope...............................................................................................................31.7 Significance of the study...............................................................................................3
CHAPTER TWO...............................................................................................................5Literature review...............................................................................................................52.0 Introduction....................................................................................................................52.1 Nature of auditing..........................................................................................................52.2 The need, purpose and role of external auditing............................................................72.6 The Uganda Company’s Act.......................................................................................112.7 Internal control system................................................................................................122.8 Methods used in ascertaining the clients internal control system................................132.9 Financial reports..........................................................................................................142.10 Elements of financial statement.................................................................................172.11 Requirements for preparation of financial statement (IAS1)....................................182.12 Relation between external auditing and quality of financial reports.........................19
CHAPTER THREE.........................................................................................................21METHODOLOGY..........................................................................................................213.0 Introduction..................................................................................................................213.1.0 Research design........................................................................................................213.1.1 Study population.......................................................................................................213.1.2 Sampling size and sampling design..........................................................................213.1.3 Methods of data collection and instruments.............................................................223.1.4 Questionnaire method...............................................................................................223.1.5 Interviewing method.................................................................................................22
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3.1.6 Primary data..............................................................................................................223.1.7 Secondary data..........................................................................................................223.1.8 Data processing.........................................................................................................223.1.9 Data presentation and analysis..................................................................................233.2.0 Problems and their solutions.....................................................................................23
CHAPTER FOUR...........................................................................................................24PRESENTATION AND ANALYSIS OF FINDINGS..................................................244.1 Introduction..................................................................................................................244.2 Background characteristics of the Respondents..........................................................244.3 Role of external auditing...........................................................................................264.4 Quality of financial reporting system..........................................................................29
CHAPTER FIVE.............................................................................................................34SUMMARY, CONCLUSION AND RECOMMENDATIONS...................................345. 1 Introduction.................................................................................................................345.2 Summary of major findings.........................................................................................345.3 Conclusions..................................................................................................................365.4 Recommendations........................................................................................................36
REFERENCES................................................................................................................38QUESTIONNAIRE TO THE HOSPITAL...................................................................39INTRODUCTORY LETTER.........................................................................................43
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LIST OF FIGURES Figure 1: Showing description of respondents according to sex.......................................24
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LIST OF TABLESTable 1: Description of respondents according to age.......................................................25
Table 2: Description of respondents according to education level....................................25
Table 3: Showing the varied views of respondents pertaining to the role of external
auditing..............................................................................................................................26
Table 4: Views of respondents on the frequency of carrying out external audits of its
financial statements...........................................................................................................28
Table 5: Showing the views of the respondents on the duration of auditing exercise.......28
Table 6: Views of respondents on the quality of financial reporting system....................29
Table 7: The financial trend of Bukedea Health Centre 4.................................................30
Table 8: Respondents’ views on the relationship between external auditing and quality of
financial reporting system..................................................................................................31
Table 9: Correlation table showing the relationship between role of external auditing and
financial reporting system..................................................................................................32
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ABSTRACT
In this section the researcher would like to bring out a summary of the entire report from
chapter one to chapter five.
The researcher investigated external auditing and quality of financial reporting systems in
Government Health Centers. Taking Bukedea Health Center 4 as case study
Chapter one of the report gives the Background information, Statement of the problem,
Objectives, Purpose and significance of the study.
Chapter two of the report gives the related literature review on the external auditing and
financial reporting systems in Government Health Centers.
Chapter three of the report gives the methodology which is used for collecting data.
Chapter four of the report explains how data was presented, interpreted and analyzed.
Chapter five of the report gives the discussions, conclusions and recommendations on
how external auditing and quality of financial reporting system on Government Health
Centers
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CHAPTER ONE
1.0 INTRODUCTION
This chapter shall cover the background of the study, problem statement, purpose of the
study, objectives of the study, research questions, area and scope, time scope and the
significance of the study.
1.1 The background of the study
External Auditing comes from a Latin word audire which means to hear. In ancient time,
the auditor was supposed to hear and determine the accuracy of statements open
accountability. Auditing started in the days of man as people were employed to review
work done by those employed to look after their economic resources. In early times the
main objective was detection of fraud and errors. In modern auditing, the auditor has a
duty to discover fraud that affects the true and fair view. With the increase in size of
businesses, auditing has changed from vouching individual transactions to reliance on the
internal control systems where the systems are reliable and focuses on the high risky
areas
Auditing is systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to certain the degree of correspondence
between those assertions on establishing criteria and communicating the result to
interested parties.
The business definition of external auditing Is the periodic examination of books of
accounts and records of an entity conducted by an independent 3rd party (an Auditor) to
ensure that they have bee properly maintained, are accurate and comply with established
concepts, principals and accurate standards and give a true and fair view of the financial
statements of an entity.
It can also be defined as the analysis of the acceptability of the company’s financial
records provided by an outside firm generally a CPA firm. Therefore external auditor is
an audit professional who performs an audit of the financial statements and also
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government individuals or any other legal entity or organization and who is independent
of the entity being audited. Users of this entity’s financial information such as investors,
government, and agencies ad general public rely on external auditor to present an
unbiased and independence evaluation on such entities
The quality of financial reports (reporting system) is one which must be timely, accurate,
reliable, measurable and comparable which can enable policy makers with in the entity
take an informal decision, this must conform to generally accepted financial reporting
principle in a given organization ( as per company’s Act cap 110 1995 and IAS ‘s and
IFR’s ).
1.2 Statement problem
The quality of financial reporting system in Government Health Centers seems to be
ineffective and grossly lacking for instance in Bukedea Health Center 4. This is
evidenced by insufficiency of internal audit committee which consists of 1 to 2 members,
existence of only three members in the accounts department that is cost accountant,
cashier and general accountant and external auditing seems to be taking place after a log
period of time (6 months and more) delay of salaries which takes longer periods of about
three month and poor implementation of the organizations policies. Despite employment
of such staff with additional training, poor quality financial reports seem to persist and
such more worsening. Therefore the genesis of this problem must be discovered and a
solution followed to correct.
1.3 Purpose of the study
The main purpose is to examine the relationship between external auditing and quality of
financial reporting in Government Health Centers.
1.4 Objectives of the study
To establish the role of external audit in Government Health Centers
To establish in the extent to which the external audits have effectively contributed
to financial reporting system in Government Health Centers
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To obtain the relationship between external audit and quality of financial
reporting system in the organization.
1.5 Research question
i) What is the role of external auditing?
ii) What is the quality of financial reporting system in Government Health
Centers?
iii) What is the relationship of external auditing and quality of financial report
Government Health Centers?
1.6 Area and scope
Conceptual scope
The study is limited to only aspects of external audit like assessing the financial position
of the organization, giving an audit opinion and quality of financial report in terms of the
financial performance and position in Government Health Centers.
Geographical scope
The study area will focus on the on the financial reports of Bukedea Health Center 4
(Bukedea District) and records for a period of 2006/2007 and 2007/2008 shall be
considered for the study.
1.7 Significance of the study
Management from shall benefit from this study through getting corrective action from the
external auditors regarding handling of finances of the organization relation to proper
allocations.
Benefits the studying students on issues of how carry out research that is discovery of
problem statement.
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It was aimed at generating findings which will be useful for future research to scholars
who may wish to undertake similar research.
Helps government notice what is required of the hospitals and there for be able to give
what is necessary in terms of health assistance.
Conclusion
External auditing is relevant to organization to clearly show the level of financial position
and performance of the entities through financial reporting systems.
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CHAPTER TWO
Literature review
2.0 Introduction
This chapter focuses mainly on what has been stated by different scholars and authorities
about external auditing that is nature of auditing, the need for auditing and its roles,
auditing concepts, general auditing standards, internal control systems, auditors’
responsibility, financial reporting system in relation to the quality of financial reports
issued by different organizations.
2.1 Nature of auditing
Auditing definition by Ricchiute (1982) as by different organizations and individuals
In 1972 the America accounting association’s committee on basic auditing concept
developed a definition that is not only clear, concise and intuitively logical but
sufficiently broad to encompass many different types of audits the committees report
defines it as:
A systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events of a certain the degree of correspondence
between those assertions and established criteria and communicating the result to
interested parties.
Business definition of external auditing is the analysis of acceptability of the company’s
financial records provided by an out side firm, general a CPA firm. The external auditor
is an independent public accountant who examines a business/entry’s books.
External auditor is not an employee of the company therefore external auditor by
definition is an audit professional who performs an audit on the financial statement of the
company, government, individuals or any other legal entity being audited.
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An internal audit is an independent activity established by management to examine and
evaluate the organizations risk management processes and systems of control and to
make recommendations for the achievement of the firm’s objective. There are both
difference and similarities between the responsibilities and the conduct of audit by
internal and external auditors. The primary difference is who each party is responsible to.
The external auditor is responsible to financial statement users who rely o the auditors to
add credibility to the statements. The internal auditor is responsible to management eve
with this important difference. There are many similarities between the two groups, both
must be competent as auditor and remain objective in performing their work and
reporting their results. They both for example follow a similar methodology I performing
their audits including planning and performing tests of controls and substantive tests.
Similarly they both use the audit risk model ad materiality in deciding the extent of their
tests and evaluating results through their decision about materiality and risks may differ
however because external users may have different needs than the management has.
External auditors rely on internal auditors though the use of the audit risk model and
there by reduce substantive testing, if internal auditors are effective, the fee reduction of
external auditors is typically substantial when there’s highly regarded internal audit
function. External auditors typically consider internal auditor’s effectiveness if they are
independent of the operating units being evaluated. Competent and have performance
relevant audit tests of the internal control structure and financial statement.
SAS 65(Au322), Also permits the external auditors to use the internal auditor for direct
assistance on the audit. This means that the external auditor is permitted to treat internal
auditors much like her / his own audit staff; the incentive for management is reduced
audit fee while the incentive of CPA firm is retaining the client. The risk of external
auditor is the lack of competent and independent performance by the internal auditors.
Before using internal auditors, external auditors must be confident of their competence,
independence and objectivity. In summary of this, auditors typically perform a sample of
internal auditor’s work to make sure that it was done correctly. From the proceeding
discussion one can see that entering the arena of corporate, government auditing
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standards and a series of laws and regulations. Thus the first step in preparing for such
engagement is extensive professional development.
2.2 The need, purpose and role of external auditing
According to Ricchiute (1982), the independent auditors perform financial statement
audits because the users of financial information have a need for these services. Users of
financial services can be classified as either external or internal to the business entity. In
addition, this information needed by managers and owners of the business is always used
for decision making that is, it provides a useful way of comparing the performance of the
firm overtime and over another, give advice on improving internal control systems of the
business that may improve its efficiency, deciding on how much is allocated to tax
liability.
A primary responsibility of an external auditor is to revolt an entry’s risk management
strategy and practices management control flows and governance process they provide
different kinds of services, most common of them is review of financial statement and
compilation.
According to Saleemi and Ajowi (2007), they stated the following purposes and the role
of external auditing.
1. Accountability and stewardship in many business, management is a separate from
ownership. Management therefore, has to account or report to the owners of the
business. Such accountability is called stewardship accounting is usually done by the
preparation of annual financial statement. Directors of a company stewards of
shareholders and the purpose of the external audit is to ensure that stewardship
function properly carried out this ensures accountability by the directors and
safeguard investors’ money. The emphasis of the modern audit has shifted from
detailed checking of the individual terms towards and overall the review of systems in
operation and the financial statements prepared from them.
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2. Provision of information to stakeholders.
A part from providing information to shareholders, there are often stakeholders that use
audited accounts of the business. These include potential investors, employees, suppliers
and creditors, customers, government and the public. The requirement for an independent
audit helps to ensure that the financial statements are free of bias and manipulation for
the benefit of users of financial information.
3. Agency theory
The relationship between the various parties in an enterprise can be examined in terms of
agency theory. Directors are agents of shareholders, employees are agents of directors
and auditors are agents of shareholders. The principle in each of these cases should
recognize the fact that the agents may have self interests and many not full serve the
interests of the principal therefore; the agency theory explains why the directors may not
maximize the shareholders wealth and may resort to creative accounting. An external
auditor may prevent investors defrauded and minimize giving false information.
4. Giving an audit opinion
The purpose of external audit under ISAs is for to obtain sufficient appropriate evidence
on which to base audit opinion. This opinion is for the benefit of shareholders; therefore
independent auditor’s opinion provides both internal and external users with input to
making reasoned, logical and informed decisions about a variety of financial matters,
including business entity earnings performance and economics vulnerability. Without
auditors, decisions such as these are more likely to be from biased financial information.
Hence auditing is a requisite to minimize biases that might result from a business entity
undisclosed errors, irregularities or illegal acts.
2.3 Users of audit information
Alrin and loebbecke (1988) stated that that the underlying assumption on the audit of
financial statements is that they will be used by different groups for different purposes.
Therefore it’s more efficient to have one auditor perform and draw audit conclusions that
can be relied upon by all users than to have each user perform his or her own audit. If
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users believe that the general audit does not provide sufficient information for his or her
purposes, the user has an option of obtaining more data.
Independent auditors perform financial statement audits because the users of financial
information have a need for these services. Users of financial information can be
classified as either internal or external to the business entity. Internal users include:
cooperate controllers, management accountants and internal auditors and so on.
External users are far removed from operation of the business and are at best, only
indirectly involved in achieving the entity’s goals. Thus external users are reluctant to
rely upon internally generated information rather they prefer the comfort of an audit.
External users can be categorized as investors that are present and potential, analysts
(under writers and credit bureaus), creditors (Banks and Suppliers), government and
financial information monitors, investors (debt and equity holders) and so on.
Ricchiute (1982), auditing (external audit) has existed for the presence of whom to
report.
Internal users are: employees and management.
2.4 Auditing concepts
Ricchiute (1982) stated that concepts abstracts derived from experience and observation
and are designed to an understanding of the similarities with in a subject matter and the
differences from the other subject matters. They are a basis for standards, the guide lines
or measure of quality from which audit procedure are derived.
Evidence
It’s the information gathered, evaluated and used not to prove that the audit hypothesis is
true but to determine with the reasonable degree of assurance whether the hypothesis is
true or false.
The purpose of gathering and evaluating evidence is to quire knowledge as a basis for
reaching a conclusion about an over all audit hypothesis.
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1. Due audit care
Clearly auditors are not infallible, independent auditors are subject to human error.
However also like other professors, independent auditors are expected to perform their
duties with the high degree of care. The concept of due audit care is rooted in the
fundamental issue of the degree of care expected of the prudent auditor.
2. Fair presentation
This is an accounting related concept requiring that reported financial information be
impartial and biased and reflects organization results of operations, financial position and
changes in financial position.
Meutz and sharaf divided the concept of the fair presentation into three related concepts:
accounting proprietor, adequate disclosure and audit obligation.
3. Independence
The concept of independence relates both to the real independence of individual audit
practitioners and to the apparent independence of all audit professionals collectively. Too
successfully and impartial attitude towards financial, preparers and users, an auditor must
be a ware of conditions or factors that might impair independence.
4. Ethical conduct
In auditing, it refers the ideal conduct of professional independent auditor and is a
philosophical issue rooted in the study of general ethics.
The above audit concepts provide away of thinking about auditing, a conceptual over
view for understanding audit practice.
2.5 General audit standards
Ricchiute (1982) also stated that the three general standards based primarily on the
concepts of due audit care, independence and ethical conduct, in general they relate an
auditors professional qualifications and the quality of his or her work.
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1. Adequate technical training and proficiency
An auditor becomes proficient through formal professionalism for example graduate
degree and continuing professional. The independent auditor is expected to be proficient
in both accounting and auditing matters. Accounting and auditing are separated fields;
however a auditor must be proficient in order to audit accounting information
competently.
2. Independence in mental attitude
An auditor should be impartial and have no biases about either the financial information
audited or the financial information preparers and users. Because it is an attitude or state
of mind thus even though independence requires that an auditor be intellectually honest,
an auditor can demonstrate independence only by remaining free of the obligations or
interest in an entity’s financial information preparers and users.
3. Due professional care
The third general standard is concerned with how an auditor’s work is performed. The
standards that requires that auditors observe each of the field work and reporting
standards and supervise all work and judgments by assistants
2.6 The Uganda Company’s Act
The audit of companies is regulated by the company’s act (cap 110 laws of Uganda). The
purpose of this act is to: seek to ensure the competence of auditors by requiring
appropriate professional qualifications (Section 161).
Protects the independence of the auditor by disqualifying certain people from
appointment as auditors and by means of rules regarding appointment and removal of the
auditor (Sec 159 and Sec 160)
Sets out the duties of the auditor (Sec 162), (7th schedule)
Gives the auditor rights to help him or her to do the work (Sec 162)
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Eligibility as auditor (Sec 161)
It states that every partner of the professional bodies listed in schedule 5 to the
accountants’ statute 1992, or must be a full member of the certified public accountants of
Uganda (CPA-U). This ensures that proper people are appointed as auditors (sec 159).
Duties of external auditor (sec 162)
According to the 7th schedule of the act, to form an opinion as to whether accounts have
best prepared in accordance to the act or firm’s constitution.
Whether the financial statements show true and fair view
Whether in their opinions, proper books of accounts have been kept to mention but a few.
Rights of external auditor (sec 162)
(i) The auditor should have a right to access record books, documents and acccouts
all the time. Never uses force or seek court redress when refused access.
(ii) To get information and explanations from officers necessary for the audit. It also
extends to the subsidiary companies and their auditors when carrying out holding
company audit.
(iii) Right to remuneration if he has completed his work and so on.
2.7 Internal control system
ISA 315 understanding the entity and its environment and assessing risks of material
misstatements defines internal control systems as the process designed and effected by
those charged with the government of the entity’s objectives with a regard to a liability of
financial reporting, effectiveness and efficiency operations and compliance with
applicable and regulations.
In understanding the internal controls according to ISA 315, helps the auditor to
understand the major classes of transactions of the clients and the operating effectiveness
of the client’s internal control, it follows to assess the client’s risk of material
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misstatement in the financial statements, internal control system also assesses the
adequacy of the accounting system as a basis for preparing the financial statements.
Section 147 of the Uganda companies act cap 110 requires a company to keep proper
books of accounts and in fulfilling this duty, management has to design and operates an
internal control system. And the books prepared should be in accordance with or in
respect of all sales and purchases of goods by the company, all sums of money received
and expected and the matters in respect of which the receipts and expenditure takes place.
2.8 Methods used in ascertaining the clients internal control system
(i) Observation of the client’s procedures to see how work is done for example
the auditor’s attend a wage pay out.
(ii) Examine the client’s documents that are used in processing transactions like
sales invoices, customers order, dispatch notes and receipts in the sales
system.
(iii) Perform a walk through tests which involve tracing a few transactions in the
system for example a customer order can be stressed from the initial
documentation of recording the order, through the related entities in the day
books and ledgers.
(iv) Examine the previous audit work, unless it is a first audit, the audit files on
the client contains information on the client’s system. However, the file
requires an annual updating unless the system has been completely changed.
Elements of internal control system includes, control environment,
information system and monitoring of internal controls and others.
Auditor’s responsibility
The responsibility is to express an opinion on the financial statement based on their audit.
They conduct audit in accordance with ISA (International Standards on Auditing). Those
standards require that they comply with ethical requirements and plans to perform the
audit to obtain reasonable assurance about whether the financial statements are free of
evidence about the amounts and disclosures in the financial statements. The procedures
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selected depend on the auditor’s judgment, including the assessment of risks of material
misstatement of the financial statement whether due to fraud or error in making those risk
assessments.
The auditor considers internal controls relevant to the entity’s preparation and fair
presentation on the financial statement in order to design audit procedures but not for the
purposes of expressing an opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the
overall financial statement presentation.
2.9 Financial reports
Teefe (1995) stated that a financial report is a document prepared out of financial
statements using accounting principle, postulates or concepts and accompanying notes
generally using accounting standards in relation to the regulatory frame work. These
principles and concepts make it possible to compare both vertically and horizontally
different statements. This process therefore is called financial reporting.
Olliot and Janire (1993) “re examined the scope and the aim of published financial
reports in the light of modern needs and conditions”
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 identify a person for whom published accounts should be
prepared and the information appropriate to their interest. It considers the most suitable
means of measuring and reporting the economic position performance and prospects of
undertaking for the purpose and persons identified.
Arora (1974) mentioned that financial reports may be subdivided into management
accounting and financial accounting is concerned with preparations of reports for use by
persons outside the firm.
Whereas the reports are different and serve the different interests of the organization’s
groups, it’s worthy nothing that all are concerned with the financial aspects of the
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organization. They are therefore geared toward financial aspects of the organizations
accounting and decision making by various stakeholders.
This is true from the point of view that organizations are to maximize wealth. This can be
related for money and the kind of financial statement produced will serve this purpose.
According to Gaber (1989), financial reports serve the following purpose.
(i) It should provide information about the economic resources of an organization
and claims against those resources. This is what the accounting language calls
assets and liabilities of the firm. The assets show the out come of funds
utilized.
(ii) It is a physical evidence of financial accounting which shows value for
money. The balance sheet is used to accomplish this requirements and it
shows the financial position of the organization.
(iii) It should provide information about how the organization obtains and uses its
funds. Whether it uses debt/ borrowed funds on much of equity. If it’s
depending on more equity then the firm is much better than dependency on
them debts (Jain 1987).
(iv) It should give the information about the firm’s operating performance during
the period i.e. how it has performed basing on its budgeting income and
activities. Therefore the income statement has to facilitate this.
Financial statements play a role of providing information on how management has
discharged its stewardship responsibility to answers.
This information is got from all the four financial reports mentions below, financial
reports can not play any role if explanation and interpretations are not accorded to help
the users understand the information provided, the need of the end users of information
have therefore included the nature of financial information and here therefore provided a
background which financial reporting has developed (Nobes and Parker 1979) the
balance sheet.
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A balance sheet is a statement prepared with a view to measure the financial position of
a business on a certain fixed date. The financial position of a concern is indicated by its
assets and liabilities on that date (Jain 1987).
The income statement. This statement shows the financial performance of the
organization, that is whether it’s making profits or losses. It contains elements like sales,
gross profit, cost of sales, expenses to mention but a few.
Fund flow statement. Is a financial statement which levels the methods by which the
business has been financed and how it has used its funds between it opening and closing
balance sheet dates. It describes from which additional funds were put. The analysis of
such statements over periods of time clearly shows the sources from which the past
activities have been financed and brings to highlight the area of which such funds have
been put.
Among the objectives of fund flow statements are;
To point out financial strength and weakness of a company
To help understand the changes in assets sources and assets which are not readily
evidenced in the income statement or financial position statement (Jain, 1987)
Jain also says that, it explains the financial consequences of business operations. This
statement gives a clear answer to the questions regarding liquid position and distribution
of dividend in a concern.
Helps the financial analyst to advice employees, clients regarding directing the funds to
those channels which are more profitable for the business
It’s a test as to effective or otherwise use of working capital. It will tell the financial
analyst about the advisory or in advocacy of working capital during particular period and
steps which the management should take for the effective use of surplus working capital.
The cash flow statement. It gives the 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 equivalents with the cash flows that
occurred during the period.
A statement of changes in equity This shows the movement in capital and reserves
accounts. There are several objectives relating to there financial statements and include:
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i) To provide reliable information about changes in net resources of the
enterprise that result from profits directed activities.
ii) To disclose possible other information related to the financial statement that is
relevant to statement users.
The quality of financial statements is the primary test that is financial statements can not
be tested for other qualities without satisfying the materiality aspects. Other qualitative
characteristics include:
Those relating to content
i) Relevance; to be useful information must be relevant to the decision making
needs of the users, information that influences decision must be predictive and
confirmatory value, users predict the future performance and financial position
and the ability to generate cash and confirming certainty of its generation on the
basis of past performance.
ii) Reliability: information is reliable when it’s free from material errors and bias and
can be depended upon by the users. The financial information I any given set of
financial statements must be properly presented to increase its utility.
Those relating to presentation include the following;
iii) Comparability: users need to be able to compare an entity’s performance over
time in order to establish trends (trend analysis) and to be able to (inter firm
analysis) to achieve this, financial statements must provide information that is
comparable (comparative information)
iv) Understandability: the information provided in the financial statements should be
presented in such away that it’s readily understandable by users.
Understandability depends on level of aggregation and ability of users to
understand on this purpose, users are shown to have a reasonable ability to
understand financial statement information (Nkundabanyanga, 1998)
2.10 Elements of financial statement
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Assets: The definition according to the framework is resources controlled by an entity as
a result of past events and from which economic benefits are expected to flow to the
enterprise.
Liabilities: IASB (international accounting standards board) defines liabilities as present
obligations of the entity arising from past events expected to result into an out flow of the
enterprise’s resources embarking economic benefits.
Expenses: these are decreases in economic benefit during the accounting period I the
form of out flow or depletions of assets or increases in liabilities resulting in decrease in
equity.
2.11 Requirements for preparation of financial statement (IAS1)
Identification of financial statements
That the financial statement should be clearly identified and distinguished from other
information in the same publishing documents to achieve the distinguished identification
The information below should be prominently displayed for proper understanding of
financial information.
The name of the reporting entity, the level of precision used in the presentation of figures
in the financial statements, the reporting currency, whether the financial statements cover
individual enterprises or group company (ies)
Reporting period
Here an entity should at least annually present financial statement, in the event that the
entity can not report annually, the enterprises should disclose the reporting period other
than one year being used and the fact that it should be disclosed that comparative
amounts are not comparable.
Components of financial statements
Components set of financial statements include; Balance sheet, income statement, cash
flow statement, fund flow statement, statement of either change in equity or recognized
18
gains and losses and statement of change in equity and statement of accounting policies
and explanatory notes.
Before forming and opinion on the financial statements and deciding on the working of
the audit report, the auditors should conduct an overall review of the statements, four
areas are required.
Compliance with statutory requirement
This is in relation to the presentation and disclosure of financial statements. Check lists
are normally used to ensure compliance with all requirements.
Accounting policies
The auditor should review the accounting policies adopted by the enterprise to determine
whether such policies comply with IFRS (international financial reporting statements).
Are consistencies with those of the previous period and are consistently applied
throughout the enterprise and are disclosed in accordance with the requirement of IAS,
presentation of financial statement. When considering whether the policies adopted by
management are acceptable, the auditor should have regard, inter alia, to the policies
commonly adopted there is substantial authoritative support.
Presentation and disclosure
The financial statements should reflect the sustenance of the underlying transactions
2.12 Relation between external auditing and quality of financial reports
The preparation of financial statement by management using appropriate accounting
standards conventions, principle ad concepts in relation to the legal frame work, followed
by auditing which involves the examination of the accounting records and the
presentation of financial statements to owners of the firm
It’s through the report that the auditor communicate the audit findings to users of
accounts, the report contains the auditor’s opinion on whether the accounts show true and
fair view.
19
Conclusion
Financial statements and reports should be accurate, reliable and standards criteria such
as full disclosure, materiality consistency conservatism and fairness should be adhered to
in communicating information to users that is vital/positive for decision making in an
organization.
20
CHAPTER THREE
METHODOLOGY
3.0 Introduction
This presented the methods employed in data collection and analysis. It described the
research design, study population, sampling design, sampling frame and size, data
collection and type of data, data analysis method, data processing data presentation and
analysis, problems and their solutions.
3.1.0 Research design
Across sectional survey was used employing both qualitative and quantitative
approaches. This helped the researcher in reaching an appropriate conclusion on the
relationship between external auditing as an independent variable and financial reporting
system as a dependent variable.
And was based on information got from employees, records and annual reports which is
in line with the research objectives.
3.1.1 Study population
The study was conducted in the hospital at the level of staff members who form both top
and lower management in the evaluation team.
3.1.2 Sampling size and sampling design
Simple random sampling was used to get the information from management of Bukedea
Health Center 4. 20 staff members were interviewed a sample of 8 staff members was
from top management, this was because specific information was required by the
researcher and the others were from lower management.
21
3.1.3 Methods of data collection and instruments
Data was collected by the use of both questionnaire and face to face interviews. The
questionnaires were both closed and open ended questions.
3.1.4 Questionnaire method
The researcher will design both structured and unstructured questionnaire which will help
him to gather information from respondents. The questionnaire will be self administered
and the respondent will be required to give personal attitudes and information pertaining
to the operations of the fuel filling station.
3.1.5 Interviewing method
As a qualitative technique the in-depth interview was designed to gather ‘rich’
information from a relatively small number of respondents rather than to statistically
generalize from a large sample.
3.1.6 Primary data
Primary data was obtained from the respondents using both open ended and close ended
questions which both oral and written.
3.1.7 Secondary data
Secondary data was obtained from a review of related published literature, financial
records and reports of the hospital.
3.1.8 Data processing
After collecting data, the researcher organized well answered questionnaires, edited,
sorted and scrutinized then to check for any inconsistence and summarized the raw data
so as to come up with objective judgments.
Data processing was done manually thought and data analysis was done using tables and
percentages.
22
3.1.9 Data presentation and analysis
Data was presented in tabular form with frequencies, percentages and singular
classification of responses and easier analysis. Spearman’s rank correlation was to come
up with the regression to measure the relationship between external auditing and the
quality of financial reporting system.
3.2.0 Problems and their solutions
Bukedea Health Center 4 was not able to give confidential information which would be
sufficient to the researcher; however the researcher tried to convince the accountant of
Bukedea Health Center 4 that research was intended to help them improve o their weak
points.
There was too much pressure as a result of limited time for the researcher but however
the researcher asked for more time from the supervisor and devoted more time on the
research.
Financial constraints since research requires money for printing and transport however
the researcher made sure that he follows what his supervisor told him to do therefore he
did not do the work man
23
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF FINDINGS
4.1 Introduction
In this chapter, the researcher presents analyses and interprets the findings of the study.
The findings are based on the data collected using questionnaires and documentary
analysis. Semi structured questionnaires were administered to all the respondents.
Descriptive means of data analysis are mainly used backed by simple tables and
percentages.
4.2 Background characteristics of the Respondents
Figure 1: Showing description of respondents according to sex
Source: Primary data
Figure 1 shows that 35.0% of the respondents were male while 65.0% were female. This
finding makes a sharp contrast with other organizations where male employees dominate
the females. Management of Bukedea Health Centre IV has faith in females than male
employees.
24
Table 1: Description of respondents according to age
Frequency Percent
Valid
Percent
Cumulative
Percent
Valid Under 30
years6 30.0 30.0 30.0
30-40 years 6 30.0 30.0 60.0
40-50 years 8 40.0 40.0 100.0
Total 20 100.0 100.0
Source: primary data
Table1 shows that 30.0% of the respondents were under 30 years, 30.0% fell between 30-
40 years while 40.0% were aged between 40-50 years. By the virtue that majority of the
respondents were above 18years implies that the findings of the study were from mature
and responsible respondents.
Table 2: Description of respondents according to education level
Frequency Percent
Valid
Percent
Cumulative
Percent
Valid Secondar
y5 25.0 25.0 25.0
Diploma 6 30.0 30.0 55.0
Bachelor
s9 45.0 45.0 100.0
Total 20 100.0 100.0
Source: Primary data
Table 2 shows that 25.0% of the respondents were secondary school leavers, 30.0% were
diploma holders while 45.0% were degree holders. This high level of literacy of the
25
respondents indicates that the responses were from informed sources with ability to
deliberate on the performance of the variables in the study area.
4.3 Role of external auditing
Table 3: Showing the varied views of respondents pertaining to the role of external auditing
External auditing Strongly
agree
Agree Not sure Disagree Strongly
disagree
1. The center undertakes external
auditing of its financial
statements.
15.0% 70.0% 10.0% 5.0% 0.0%
2. The centre maintaining its
internal control systems
30.0% 50.0% 20.0% 0.0% 0.0%
3. There is independence of
external auditing.
45.0% 35.0% 10.0% 10.0% 0.0%
4. Auditor’s give a qualified
report at the end of the
exercise.
25.0% 30.0% 10.0% 25.0% 10.0%
5. The audit fees charged is high. 35.0% 30.0% 15.0% 10.0% 10.0%
6. Auditors take an overview of
the centre audited
25.0% 20.0% 20.0% 25.0% 10.0%
7. Auditors are given past records
and relevant information
20.0% 40.0% 10.0% 10.0% 10.0%
8. The management is satisfied
with auditors work
25.0% 35.0% 20.0% 15.0% 5.0%
Source: Primary data
Item 1 from table 4 shows that 25.0% of the respondents indicated that the centre
undertakes external auditing of its financial statement, 70.0% agreed, 10.0% were not
sure, 5.0% disagreed while none strongly disagreed.
26
Item 2 from table 4 shows that 30.0% strongly agreed that the centre maintains its
international control systems, 50.0% agreed, 20.0% were not sure, while none of the
respondents disagreed and strongly disagreed respectively.
Item 3 from table shows that 45.0% strongly agreed, 35.0% agreed, 10.0% were not sure,
10.0% disagreed while none strongly disagreed.
Item 4 from table 4 shows that 25.0% of the respondents strongly agreed, 30.0% agreed,
10.0% were not sure, 25.0% disagreed while 10.0% strongly disagreed.
Item 5 from table 4 shows that 10.0% of the respondents strongly agreed that the audit
fees charged is high, 15.0% agreed, 30.0% were not sure, 35.0% disagreed while 10.0%
strongly disagreed.
Item 6 from table 4 shows that 25.0% strongly agreed that auditors take an overview of
the centre audited, 4 (20.0%) agreed, 4 (20.0%) were not sure, 25.0% disagreed while
10.0% strongly disagreed.
Item 7 from table 4 shows that 20.0% of the respondents strongly agreed that auditors
were given past records, 40.0% agreed, 10.0% were not sure, 10.0% disagreed while
10.0% strongly disagreed.
Item 8 from table 4 shows 25.0% strongly agreed that management was satisfied with
auditors work, 35.0% agree, 20.0% were not sure, 15.0% disagreed, while 5.0% strongly
disagreed.
27
Table 4: Views of respondents on the frequency of carrying out external audits of its
financial statements
Frequency Percent Valid Percent
Cumulative
Percent
Valid Quarterly 6 30.0 30.0 30.0
Monthly 7 35.0 35.0 65.0
Annually 6 30.0 30.0 95.0
None 1 5.0 5.0 100.0
Total 20 100.0 100.0
Source: Primary data
Table 4 shows that 30.0% of the respondents indicated that external audit of its financial
statements. Quarterly, 35.0% indicated it’s done monthly, 30.0% indicated that the
external is done annually while 5.0% indicated that the exercise was not done at all.
Table 5: Showing the views of the respondents on the duration of auditing exercise
Frequency Percent Valid Percent
Cumulative
Percent
Valid 2 Weeks 6 30.0 30.0 30.0
One Month 13 65.0 65.0 95.0
None 1 5.0 5.0 100.0
Total 20 100.0 100.0
Source: Primary data
Table 5 shows that 30.0% of the indicated that auditing was for 2 weeks, 65.0% indicated
that it was done for one month while 5.0% was not sure of the duration of the period.
28
4.4 Quality of financial reporting system
Table 6: Views of respondents on the quality of financial reporting system
Quality of financial reporting
system
Strongly
agree
Agree Not sure Disagree Strongly
disagree
1. The financial statements are
relevant in Bukedea health Center
30.0% 55.0% 10.0% 5.0% 0.0%
2. The financial statements are
prepared in Bukedea Health
Centre.
25.0% 40.0% 30.0% 5.0% 0.0%
3. The cash inflow and outflows are
prepared by the cashier and cost
accountant.
15.0% 25.0% 45.0% 15.0% 0.0%
4. Financial statement was prepared
comply with statutory
requirements.
35.0% 35.0% 25.0% 0.0% 5.0%
5. The accounting policies adopted
comply with international financial
reporting system.
30.0% 30.0% 5.0% 5.0% 30.0%
Source: Primary data
Item 1 from table 6 shows that 30.0% strongly agreed that the financial statements are
relevant to Bukedea Health Centre IV, 55.0% agreed, 10.00% were not sure, 5.0%
disagree while none strongly disagreed.
Item 2 from table 6 shows that 25.0% strongly agreed that financial statements are
prepared in Bukedea Health Centre IV, 40.0% agreed, 30.0% were not sure, 5.0%
disagreed, while more strongly disagreed.
29
Item 3 from table 6 shows that 15.0% of the respondents strongly agreed that cash
inflows and outflows are prepared by the cashier and cost accountants, 25,0% agreed,
45.0% were not sure, 15.0% disagreed while none strongly disagreed.
Item 4 from table 6 shows that 35.0% strongly agreed and agreed respectively that
financial statements prepared with statutory regulations, 25.0% were not sure, none of the
respondents disagreed while 50.0% strongly disagreed.
Item 5 from table 6 shows that 30.0% of the respondents strongly agreed and agreed
respectively that the accounting policies adopted comply with international financial
reporting systems, 30.0% were not sure while 5.0% disagreed and strongly disagreed
respectively.
Table 7: The financial trend of Bukedea Health Centre 4
Frequency Percent Valid Percent
Cumulative
Percent
Valid Steadily growing 7 35.0 35.0 35.0
Constant 3 15.0 15.0 50.0
Seeding 4 20.0 20.0 70.0
Fluctuating 6 30.0 30.0 100.0
Total 20 100.0 100.0
Table 7 shows that the 35.0% of the respondents indicated that the financial trend of
Bukedea Health Centre IV was steadily growing, 15.0% revealed that it was constant, 4
20.0% indicated that it was seeding while 30.0% indicated that it was fluctuating.
30
Table 4.5 Relationship between external auditing and quality of financial reporting
system
Table 8: Respondents’ views on the relationship between external auditing and quality of
financial reporting system
Activity Strongly
agree
Agree Not sure Disagree Strongly
disagree
1. There is a relationship between
external auditing and financial
reporting.
35.0% 45.0% 5.0% 10.0% 5.0%
2. The financial reports are
prepared with knowledge
external auditing feature.
20.0% 45.0% 30.0% 5.0% 0.0%
3. There is examination of
accounting records and
presentation of financial
statements.
35.0% 25.0% 25.0% 25.0% 0.0%
4. There is preparation of
financial statements by
management using appropriate
accounting standards.
20.0% 35.0% 5.0% 25.0% 15.0%
Source: Primary data
Item I from table 8 shows that 35.0% strongly agreed that there is a strong relationship
between external auditing and financial reporting system, 45.0% agreed, 5.0% were not
sure, 10.0% disagreed while 5.0% strongly disagreed.
Item 2 from table 8 shows that 20.0% of the respondents agreed that the financial reports
are prepared with knowledge of external auditing feature, 45.0% agreed, 30.0% were not
sure, 5.0% disagreed while none of the respondents strongly disagreed.
31
Item 3 table 8 shows 35.0% strongly agreed that there is examination of a country record
and presentation of financial statements, 25.0% agree, 25.0% were not sure, 25.0%
disagreement while none of the respondents strongly disagreed.
Item 4 from table 8 shows that 20.0% of the respondents strongly agreed that there is
preparation of financial statement, 35.0% agreed, 5.0% were not sure 25.0% disagreed
while 15.0% were not sure.
Table 9: Correlation table showing the relationship between role of external
auditing and financial reporting system
Role of
External
Auditing
Financial
Reporting
System
Role of External Auditing Pearson Correlation 1 .789(**)
Sig. (2-tailed) .000
N 20 20
Financial Reporting System Pearson Correlation .789(**) 1
Sig. (2-tailed) .000
N 20 20
** Correlation is significant at the 0.01level (2-tailed).
Source: Primary data
Table 9 shows that a high Pearson’s correlation coefficient (r = 789*, p<0.01) was
obtained from the computation of the correction coefficient between external auditing
and financial reporting systems. The method was selected because of the numerical
nature of the data generated for external auditing and financial reporting systems at a
significant level of 1%.
The above result implies that there is a strong positive relationship between effective
external auditing and performance of the financial reporting systems of Government
32
Health centers. This provides a precursor to management of Bukedea Health Centre IV of
the need of strengthening external auditing of better performance of the financial
reporting systems is to be realized.
33
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5. 1 Introduction
The researcher, in this chapter presents the summary of findings, conclusions and
recommendations based on the objectives of the study.
5.2 Summary of major findings
Summary of the role of external audit system
The study established that Bukedea Health Centre IV undertakes that auditing of its
financial statements, the external auditing was independent, auditors would give a report
at the end of the exercise and the auditors were given past records and relevant
information. However this external auditing was found to be based on the maintenance of
control on the internal control systems of the health centre.
By and large, external auditors rely on internal auditors though the use of the audit risk
model and there by reduce substantive testing, if internal auditors are effective, the fee
reduction of external auditors is typically substantial when there’s highly regarded
internal audit function. External auditors typically consider internal auditor’s
effectiveness if they are independent of the operating units being evaluated.
The findings of the study are in line with the observation made by SAS 65(Au322), that
external auditors to use the internal auditor for direct assistance on the audit implying that
the external auditor is permitted to treat internal auditors much like her / his own audit
staff; the incentive for management is reduced audit fee while the incentive of CPA firm
is retaining the client
The findings of the study are further supported by Saleemi and Ajowi (2007), who found
out that external audit is to ensure that stewardship function properly carried out this
ensures accountability by the directors and safeguard investors’ money hence, the
emphasis of the modern audit has shifted from detailed checking of the individual terms
towards and overall the review of systems in operation and the financial statements
prepared from them.
34
Summary of the quality of financial reporting system
The study established that the financial statements were prepared in Bukedea Health
centre IV and were relevant to the institution, cash inflows and outflows were prepared
following the established statutory requirements, all aiming at producing quality financial
reports for purposes of assessing and gauging the performance of the institution.
Financial statements that are handled include balance sheet, income statement, cash flow
statement, fund flow statement, statement of either change in equity or recognized gains
and losses and statement of change in equity and statement of accounting policies and
explanatory notes.
According to Gaber (1989), financial reports provide information about the economic
resources of an organization and claims against those resources. This is what the
accounting language calls assets and liabilities of the firm. The assets show the out come
of funds utilized. They also serve as a physical evidence of financial accounting which
shows value for money. The balance sheet is used to accomplish this requirements and it
shows the financial position of the organization.
The findings are further supported by Jain (1987) that financial statements provide
information about how the organization obtains and uses its funds. Whether it uses debt/
borrowed funds on much of equity. If it’s depending on more equity then the firm is
much better than dependency on them debts
Nkundabanyanga (1998) however noted that the information provided in the
financial statements should be presented in such away that it’s readily
understandable by users. Understandability depends on level of aggregation and
ability of users to understand on this purpose, users are shown to have a reasonable
ability to understand financial statement information
35
Summary of the relationship between external audit system and quality of financial
reporting system
A high positive relationship (r=.789, p <0.01) was established between external auditing
and quality of financial reporting system. This implies that effective external auditing
significantly influences the quality of financial reporting system.
The preparation of financial statement by management using appropriate accounting
standards conventions, principle and concepts in relation to the legal frame work,
followed by auditing involves the examination of the accounting records and the
presentation of financial statements to owners of the firm. This facilitates decision
making.
5.3 Conclusions
External auditing greatly influences the quality of financial reporting system. It was
concluded that before forming an opinion on the financial statements and deciding on
the working of the audit report, the auditors should conduct an overall review of the
financial statements.
5.4 Recommendations
Management of the Health centre should stress emphasis on the internal auditing since
this forms the basis for external auditing.
There is need for training of the accountants and finance officers at the health unit such
that they can be in position of preparing error free financial statements and other accounts
records as failure to do would affect the quality of financial reporting
There is need for proper storage of all the documents accruing from any financial
transaction since this would ease the work of the internal auditors and external auditors as
well.
36
There is need for adopting computerized accounting and management software’s like
Tally, Quick books and Enterprise Resource Planning as these would positively influence
the tracking of records in the institution.
37
REFERENCES
Arena Alvin A.K. Loebecke, (1994) Auditing an integrated Approach England Cliffs N.J
Appleby, Robert C, (1994) Modern Business Administration. Harlow: Finance Times
Prentice Hall
Ricchiute David N (1982) Auditing Concepts and Standards. Circinnati: South western
Publishing Company
S.P Jain, K L Narang (1987) Advanced Accounting. Ludhiana Kalyani Publishers
I M Pandey (2005) Finance Management (Nineth Edition) Vikas Publishing House PVT
Ltd
Koul (1997): Methodology of Education Research New Delhi Vestay Publishing House
Stephen K Nkundabanyanga (2009): Advanced Accounting second Edition
Teefe (1995), Olliot and Janire (1993): Financial reports
Saleemi and Ajowi Elisa (2007): Textbook for Auditing
http://en.wikipedia.org/wiki/international financial reporting standards
Company’s Act (Cap 110 laws of Uganda)
38
QUESTIONNAIRE TO THE HOSPITAL
Topic: External Auditing and Quality of Financial Reporting in Government Health
Centers
[A case study in Bukedea Health Center 4]
NB
The information given in this questionnaire is strictly confidential and will be treated
with utmost confidentiality and with a lot of dignity since the researcher is a student of
Makerere University conducting an academic research study.
Thank you for your cooperation [No respondent’s name is required]
Please tick only the most appropriate answer to you.
1. DEMOGRAPHIC FEATURES
a) Sex: Male Female
b) Age: Under 30years 30-40years 40-50years
Above 50years
c) Education level: Secondary Tertiary University
39
2. THE ROLE OF EXTERNAL AUDITING
a)
ACTIVITY STRONGLY
AGREE
AGREE NOT
SURE
DISAGREE STRONGLY
DISAGREE
The center undertakes external
auditing of its financial
statements.
The center maintains its internal
control systems.
The independence of external
auditing
Auditors give a qualified report at
the end of the exercise.
The audit fees charged is high
Auditors take an overview of the
center audited
Auditors are given past records
and relevant information
The management is satisfied with
the auditors work
b) Bukedea Health center carries out external audit of its financial statements
Quarterly Monthly Annually Non
c) The audit duration
2 weeks
Month
Non
40
3. THE QUALITY OF FINANCIAL REPORTING SYSTEM
a)
ACTIVITY STRONGLY
AGREE
AGREE NOT
SURE
DISAGREE STRONGLY
DISAGREE
The financial statements are
relevant in Bukedea Health
Center 4
The financial statements are
prepared in Bukedea Health
Center 4
The cash inflows and
outflows statement are
prepared by cashier and cost
accountant
Financial statements prepared
comply with statutory
requirement
The accounting policies
adopted comply with
international financial
reporting systems ( IFRS)
b) The financial trend of Bukedea Health Center 4
Steady growing
Constant
Seeding
41
Fluctuating
3. THE RELATIONSHIP BETWEEN EXTERNAL AUDITING AND FINANCIAL
REPORTING SYSTEM
ACTIVITY STRONGLY
AGREE
AGREE NOT
SURE
DISAGREE STRONGLY
DISAGREE
There is a relationship between
external auditing and financial
reporting system
The financial statements are
prepared with the knowledge of
external auditing future
The examination of accounting
records and the presentation of
financial statements to owners of
the firm
The preparation of financial
statement by management using
appropriate accounting standards
Thank you for taking part in the study
42
INTRODUCTORY LETTER
43