AN EXAMINATION OF EFFECTIVE AUDIT SYSTEM AS A PREREQUISITE FOR IMPROVING CORPORATE ACCOUNTABILITY (A CASE STUDY OF AFRILAND FIRST BANK, CAMEROON)

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Society supports the survival and expansion of economic enterprises by furnishing them with financial and other resources.  As these entities acquire more resources, their economic, social, and political influence grows significantly.  Managers are required to be accountable in order to prevent any misuse of their position (Jos, 2019).  Throughout history, as firms have expanded in scale and enhanced their authority and impact on society, the scope of individuals and entities responsible for overseeing their management has been broadened.  In contemporary society, the managers of expansive public corporations are regarded as being responsible to the entirety of society for a diverse array of business endeavours (Sinsu et al., 2017).

As per the Oxford English Dictionary, accountability refers to the state of being responsible and liable to provide an explanation and justification for the fulfilment of obligations or behaviour.  This term inherently includes the idea of being subject to punishment if one fails to fulfil their responsibilities adequately.  Harris (2019) highlights the gap between answerability and accountability.  Individuals are held responsible for their actions when another person has the authority to demand an explanation for their behaviour. However, accountability goes beyond this, as it suggests that if individuals do not fulfil their obligations and are unable to provide a satisfactory explanation for their actions, they will be subject to punishment.  Corporate accountability refers to the responsibility of company managers to fulfil their commitments to parties such as shareholders, debt holders, and creditors. If they fail to do so and are unable to provide a reasonable explanation for their conduct, they may face some type of punishment or penalty.  Consequences can vary from a decline in popularity and/or status to a monetary penalty or even incarceration.

Prior to the mid-1970s, firm managers were obligated to generate accountability reports in the form of annual financial statements and present them for audit in order to fulfil their responsibility (Bali et al., 2020).  In the last 30 years, it has become clear that the current method of holding companies accountable for unexpected failures and instances of misconduct by their officials is not sufficient.  In the 1970s, audit committees were created to enhance corporate accountability by bolstering the external audit role.  Nevertheless, unforeseen corporate collapses and misconduct by corporate executives persisted.  In the 1990s, it became evident that effective corporate governance is crucial for ensuring corporate accountability.  As a result, there has been a shift in the audit function. Specifically, there is now a realisation of the necessity for a comprehensive audit trinity system, which includes internal auditors, external auditors, and an audit committee (Bali et al., 2020).  In order to achieve optimal results, every participant within the audit system must possess robust capabilities, maintain operational autonomy from the company's executive body, and be filled with professionals who demonstrate technical and professional competence, as well as the necessary personal attributes (Jones, 2021).

Every individual inside the audit system has a unique and essential function, which, despite being different, are interconnected and mutually supportive.  Internal auditors are primarily responsible for overseeing the company's internal controls, while external auditors ensure that management's financial and non-financial reports accurately represent the company's activities. The audit committee plays a central role in supervising and coordinating both internal and external audit functions. Foreign experience has demonstrated that numerous financial failures and catastrophes have garnered global attention during the past twenty years. Notable instances include Enron, Worldcom, Tyco, Parmalat, and various other significant crises (Fadeyi et al., 2022). Several multi-billion dollar projects have been terminated due to a lack of managerial responsibility, preventive measures, and control mechanisms. Due to these financial failures and crises, investor trust in financial statements and management reporting has greatly diminished.

In 1999, the Blue Ribbon Committee implemented an audit committee, an internal audit, and an external audit as a "three-pronged tool" of corporate governance to improve the credibility of financial statements. Internal audit is commonly seen as a technique for company governance (Li et al., 2019). The audit committee is responsible for carrying out the primary role of internal audit within the corporate governance framework. The audit committee, in collaboration with the organization's management, internal and external auditors, oversees the safeguarding and advancement of shareholders' capital and interests as a component of the corporate governance process (Tyler et al., 2018). The Audit Committee is authorised to represent the Board of Directors to safeguard the interests of investors and ensure corporate responsibility, while playing a crucial role in supervising corporate governance (Li et al., 2019). The Audit Committee gets reports from management, internal auditors, and external auditors regarding the efficacy and efficiency of internal management (Bastian, 2020).

Corporate accountability is a fundamental aspect of a robust financial system and a crucial factor in fostering investor trust. Accountability is the responsibility of an organisation to be held liable for its acts, decisions, and policies, and to openly communicate them to stakeholders in a clear and transparent manner (Terry et al., 2020). In the banking industry, where trust and dependability are of utmost importance, ensuring corporate accountability becomes even more crucial. Audit systems that are effective play a crucial role in improving corporate responsibility by offering independent verification of a bank's financial statements, internal controls, and adherence to legislation. (Agnus et al., 2019) A well-designed audit system aims to analyse the precision and honesty of a bank's financial reporting, guarantee adherence to relevant laws and regulations, and evaluate the efficiency and efficacy of its internal controls. Stakeholders, such as investors, regulators, and customers, rely on a strong audit system to ensure that the bank is being effectively managed and that its financial statements are trustworthy (Agnus et al., 2019).

Afriland First Bank is a prominent financial institution in Cameroon. It offers a diverse array of banking services and plays a crucial role in the nation's financial industry. The bank's dedication to corporate accountability and transparency is of utmost importance due to its prominent position, as it directly impacts not just its stakeholders but also the general stability of Cameroon's banking system. The implementation of efficient auditing procedures at Afriland First Bank can serve as a standard for other financial institutions in the region. The objective of this study is to gain a thorough comprehension of how implementing an efficient audit system might enhance corporate responsibility at Afriland First Bank in Cameroon. The study aims to enhance the stability and credibility of the financial system in Cameroon by developing more transparent, accountable, and dependable banking practices.

1.2 Statement of the problem

A robust audit system is essential for guaranteeing corporate accountability and bolstering the accuracy of financial reporting. Within the framework of Afriland First Bank, a renowned financial institution in Cameroon, it is imperative to evaluate the extent to which the existing audit system adequately facilitates corporate responsibility. The issue revolves around comprehending the role of an efficient audit system in enhancing corporate accountability at Afriland First Bank. Although audit systems are intended to identify and prevent financial irregularities and assure adherence to regulatory standards, there is a lack of documented evidence about their effectiveness in achieving these goals and promoting a culture of accountability inside the bank.

The audit function in corporate governance has difficulties and concerns regarding credibility as a result of deregulation, competition, and improvements in information and communication technologies (Adejumo, 2019 & QUANSAH, 2017). Organisations have implemented effective corporate governance practices to provide transparency and accountability for stakeholders. Nevertheless, a lack of strictness in the responsibilities of the audit units has resulted in extremely poor corporate governance, which has had a negative impact on their performance and reputation in the sector (Onwuka, 2021 & Quansah, 2017). Tjivau (2020) asserts that the underperformance of corporate organisations, such as Afriland First Bank in Cameroon, can be attributed to ineffective corporate governance, specifically nepotism and a deficient audit function resulting from a lack of independence.

Furthermore, the worldwide progression of corporate governance norms and the growing focus on responsibility and openness highlight the need for educational institutions to strengthen their governance structures (OECD, 2021). Nevertheless, the insufficient exploration of the contribution of audit systems to the achievement of governance objectives at Afriland First Bank, Cameroon is evident. Moreover, differences in legislative frameworks and institutional cultures between regions may create complex connections between audit methods and corporate governance results, requiring investigations that are tailored to specific contexts (Ahmed, 2017).

This study aims to address the fundamental issue of implementing a robust audit system to enhance corporate accountability at Afriland First Bank in Cameroon. Although the bank holds a prominent position, there is a fear that deficiencies in its audit processes could compromise its responsibility to stakeholders. The study aims to investigate how the adoption of a comprehensive audit system might strengthen corporate responsibility at Afriland First Bank.

Objectives of the study

The primary objective of this study is to critically examine effective audit system as a prerequisite for improving corporate accountability (a case study of Afriland First Bank, Cameroon). Specific objectives of this study are to:

To find out if there is a relationship between effective audit system and corporate accountability in Afriland First Bank, Cameroon

To examine the impact of the audit system in promoting transparency in Afriland First Bank, Cameroon

To assess the Impact of the Audit system on adherence to regulatory and ethical standards within the bank.

To assess the Impact of the Audit system on stakeholder’s confidence

To identify challenges and limitations faced by the audit system at Afriland First Bank, Cameroon

1.4 Research Questions

The following research questions which are in line with the objectives of this study will be answered in this study:

Is there a relationship between effective audit system and corporate accountability in Afriland First Bank, Cameroon?

What is the audit system in promoting transparency in Afriland First Bank, Cameroon?

What is the Impact of the Audit system on adherence to regulatory and ethical standards within the bank?

What is the Impact of the Audit system on stakeholder’s confidence?

What are the challenges and limitations faced by the audit system at Afriland First Bank, Cameroon?

1.5 Research Hypotheses

To determine the effectiveness of this study, the following research null hypotheses will be formulated to guide the study and it will be tested at 0.05% levels of significance.:

Ho: There is no significant relationship between effective audit system and corporate accountability in Afriland First Bank, Cameroon.

Ha: There is significant relationship between effective audit system and corporate accountability in Afriland First Bank, Cameroon.

1.6 Significance of the study

This study is important because it examines crucial elements of corporate governance and financial integrity within a particular environment, and its findings have ramifications for wider practices and regulations. It will function as a reference point for Banks, stakeholders, policymakers, researchers, and scholars.

The study seeks to investigate the extent to which efficient audit procedures enhance corporate accountability. Ensuring transparency and responsibility is crucial for organisations to maintain trust with stakeholders, including investors, consumers, and regulators.

In addition, this study examines how strong auditing methods can effectively mitigate financial mismanagement, fraud, and errors, specifically within Afriland First Bank in Cameroon. Audits that are effective guarantee precise financial reporting, which is crucial for maintaining the bank's credibility and operational stability. Utilising Afriland First Bank as a case study enables a comprehensive analysis of particular practices and issues within a specific setting. Examining the efficiency of audit systems in a practical setting, namely in the banking industry of Cameroon, might offer valuable understanding.

Moreover, proficient audits have the potential to bolster the trust of stakeholders, such as investors, customers, and regulatory bodies, in the financial well-being and ethical conduct of the institution. This level of confidence can result in higher levels of investment, stronger consumer loyalty, and an enhanced market reputation.

Moreover, the results of the study can provide valuable insights for suggesting governmental measures to enhance audit standards and corporate governance in the banking industry. This can enhance the overall stability of the financial system and promote economic growth in Cameroon.

In essence, the study might be a great asset for students, professionals, and politicians who are interested in comprehending the convergence of auditing and corporate accountability. It offers a pragmatic illustration of how abstract principles are implemented in realistic situations. This study can set a standard for future research on auditing practices and corporate accountability in similar situations. It has the potential to stimulate additional exploration of different organisations or sectors, broadening the comprehension of efficient audit methods.

1.7 Scope of the study

Broadly, this study focus is to critically examine effective audit system as a prerequisite for improving corporate accountability (a case study of Afriland First Bank, Cameroon). Specifically, this study seeks to find out if there is a relationship between effective audit system and corporate accountability in organizations in Cameroon, examine the impact of the audit system in promoting transparency in organizations in Cameroon and assess the Impact of the Audit system on adherence to regulatory and ethical standards within the bank in organizations in Cameroon. 

Further, this study will focus on assessing the Impact of the Audit system on stakeholder’s confidence in organizations in Cameroon and it also seeks to identify challenges and limitations faced by the audit system at organizations in Cameroon.

 The study is carried out in Cameroon. 

1.8 Limitations of the study

As with any human endeavour, the researchers experienced many minor constraints during the investigation. The main limitation was the lack of extensive literature on the topic, due to the limited availability of data about the analysis of an efficient audit system as a requirement for enhancing corporate accountability (a case study of Afriland First Bank, Cameroon). Hence, a significant allocation of time and exertion was necessary to ascertain the appropriate materials, books, or information and gather data. 

Furthermore, this study is constrained by its small sample size and narrow geographic scope, focussing just on Cameroon. Therefore, the conclusions of this study cannot be extended to other situations, thus requiring further investigation. 

Moreover, the limits faced by the researcher were primarily due to financial constraints, as they are a student without any source of income to sustain themselves. The exorbitant transportation charges at the research location posed a significant challenge in covering the expenses for transportation fees.

Furthermore, the researcher faced a time constraint due to the need to do this research while simultaneously fulfilling the obligations of attending lectures and participating in other educational activities.

1.9 Definition of terms

Audit: Audit is the examination or inspection of various books of accounts by an auditor followed by physical checking of inventory to make sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial statements provided by the organization.

Corporate governance: Corporate governance is the structure of rules, practices, and processes used to direct and manage a company. A company's board of directors is the primary force influencing corporate governance.

Accountability: Accountability is the practice of being held to a certain standard of excellence. It is the idea that an individual is responsible for their actions and, if that individual chooses unfavorable actions, they will face consequences.