ANALYSING THE IMPACT OF LEGAL AUDIT REQUIREMENTS ON AUDITOR PERFORMANCE IN CAMEROON

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The extensive body of literature on behaviourist management control and information asymmetry spanning more than three decades reveals that management controllers and managers (Niglis, 2019) do not fully disclose information to each other. In addition, the flow of information is facilitated by regular discussions on decisions, with the management control service playing a significant role (Godener & Fornerino, 2017). The relationships that enhance the efficiency of the data gathering process, as well as the manager's ability to adapt and take ownership of the problems posed by internal control procedures (IC), are described below. Thus, a stalemate arises when there is a disagreement or lack of agreement between the internal controller and the statutory auditor at the intersection of reports regarding either conflict or synergy. However, the internal controller is responsible for conducting the statutory audit throughout his mission, which focusses on the accounting and financial information requirements (Fisher & Frederickson, 2022). In order to resolve this impasse, it is necessary to establish internal control codes for effective governance and efficiency benchmarks for statutory audits. Furthermore, the new Uniform Act 2017 of the Organisation for the Harmonisation of Business Law in Africa (OHADA), specifically in Article 6, promotes the adoption of internal control measures by member States (Dunk & Fisher, 2020).

The security of accounting and financial information involves ensuring that the information provided by the company to its partners meets established standards of quality (Ngew, 2023). The task involves verifying the legality and accuracy of the company's financial accounts. In order to address the lack of quality information, the initial remedy is enhancing the corporate governance structure, which entails strengthening the oversight of legal activities carried out by firm executives.

Auditing is a methodical inspection of an organization's books, accounts, papers, and vouchers to determine the extent to which the financial statements accurately and honestly represent the organization's situation. Additionally, it guarantees that the books of accounts are diligently maintained by the entity in accordance with legal requirements (Martin, 2019). Auditing is a methodical and autonomous analysis of information, statements, records, activities, and achievements (financial or otherwise) of a business, conducted for a specific objective. During an audit, the auditor identifies and acknowledges the statements that need to be examined, gathers evidence, assesses it, and uses this information to make a judgement. The auditor then communicates their findings in an audit report (Bollecker, 2018). Auditors provide third-party assurance to stakeholders that a financial record is free from significant errors through their auditing process. The phrase is mostly used to refer to audits of the financial information pertaining to a legal entity. Additional areas that are frequently subject to audits include: internal controls, quality management, project management, water management, and energy saving. Through an audit, stakeholders can assess and enhance the efficiency of risk management, control, and governance related to the subject matter. The responsibility of an auditor to prevent, detect, and report fraud, illegal acts, and errors is a highly contentious issue in auditing. It has been a subject of frequent debate among auditors, politicians, media, regulators, and the public (Gay et al, 2018). The collapse of both small and large enterprises worldwide has brought significant attention to this subject.

The management of organisations exercises control over the accounting systems and is responsible for producing financial reports for investors and owners. Additionally, they have the power to determine the exact content of the information included in these reports. The management of the business is responsible for preparing and presenting the financial statement to the stakeholders. This information is necessary for the stakeholders to make informed decisions. Investors and creditors are given an impartial and knowledgeable assessment of the accuracy and integrity of financial statements to enhance their trust and assurance. This expert opinion will be initially offered by one or more stockholders, who will be appointed by the other stockholders to act as representatives of the remaining stockholders. This signifies the commencement of the auditing profession as it promptly arose to fulfil the demands of the market for their services. Legislation will soon be essential to allow non-stakeholders to conduct audits, leading to the establishment of auditing firms. These advancements led to an increased need for the expertise of professionals in the fields of bookkeeping and auditing. Therefore, the establishment of audit as a profession will inevitably occur in the future. Regrettably, the recent surge of corporate failures, financial scandals, and audit failures has resulted in a notable rise in criticism and legal action against the auditing profession (Maccarrone, 2017; Dan et al., 2017).

Auditing plays a crucial role in the governance structure by guaranteeing accountability, openness, and integrity in financial reporting and management. Auditor's legal responsibility pertains to the articulation of the auditor's judgement on whether the management has accurately represented the information in the financial statements. In order to achieve this, the auditor gathers information in order to gain a reasonable level of confidence that the accounts are free from significant errors or omissions (Miko, 2018).  Cameroon has created legal audit regulations to govern and oversee the auditing process in both the public and private sectors. Legal audit requirements establish the criteria and anticipations for the conduct of audits. These standards guarantee that auditors comply with defined guidelines, hence ensuring consistency, reliability, and accuracy in audits. OHADA (2017) states that a crucial element of the legal audit need is Regulatory Compliance, which involves ensuring that audits adhere to both local and international laws and regulations. Quality Assurance - Ensuring the implementation of strict auditing standards to promote high-quality audits, Transparency and Accountability - Strengthening the reliability of financial statements and cultivating public trust. This study aims to examine the influence of these legislative mandates on auditor performance, with a specific focus on the difficulties and possibilities they offer.

1.2 Statement of the problem

Auditing has a crucial role in guaranteeing the responsibility, openness, and effectiveness of financial management in both the public and private domains. Cameroon's legislative audit criteria serve to govern the auditing process, establish standards, and guarantee adherence to both national and international norms. Nevertheless, the diverse legal obligations might exert different effects on the proficiency of auditors, so altering both the calibre and efficacy of their job.

Auditing standards are crucial for stakeholders who rely on accounting reports, including banks, local communities, shareholders, government, and creditors. The standards elucidate the legal obligation and autonomy of the auditor from the perspective of both management and shareholders. International standards have been developed to synchronise auditing methods across different countries and are to be used in cases when there are no local standards. The companies listed on the Cameroon Stock Exchange in Cameroon are required to follow the International Standards on Auditing (ISA) since there are no specific auditing standards in Cameroon. Many scholars have seen a growing interest in audit, inspections, and oversight of the public sector in both the public and commercial sectors (Gendron et al., 2017; Paracini & Gendron, 2019). The growth is not solely motivated by efficiency concerns, but also by the assurance that external auditing of the public sector enhances the overall legitimacy of the democratic society. However, in response to the unique characteristics of the Cameroonian environment, the OHADA Uniform Act, national legislation, and standards established by the Institute of Chartered Accountants of Cameroon (ONECCA) were recently introduced (Ndika, 2021). These had a higher importance than the ISAs in the context of Cameroon. The purpose of conducting an audit of financial statements is to allow the auditor to provide an assessment on whether the financial statements were prepared, with significant accuracy, in compliance with a specified financial reporting structure. An auditor's role is to provide an opinion that increases the credibility of the financial accounts, as required by law. In order to accomplish these goals, there are legal obligations that must be met, including auditor independence, objectivity, honesty, confidentiality, and adherence to technical standards as outlined by the International Accounting Standards, OHADA, and ONECCA. There is a claim that numerous auditors in Cameroon are not adhering to the overall auditing standard, legal requirements, field work standards, and reporting standards. It is suggested that guidelines are necessary to apply the broad concept of these legal auditing responsibilities to the specific circumstances in Cameroon.

Caleb (2023) notes that although there are established legal frameworks, the procedures for enforcing and overseeing them are inadequate. Lack of proper implementation of legal obligations can lead to disparities in the quality and effectiveness of audits among various companies and industries. Furthermore, the dynamic nature of auditing standards and processes requires ongoing professional development (Ngew, 2023). Nevertheless, auditors in Cameroon frequently have deficiencies in training and skill enhancement, which adversely affects their capacity to properly fulfil legal obligations. In addition, numerous audit firms, particularly smaller ones, encounter limitations in resources that impede their capacity to completely adhere to regulatory obligations. These restrictions encompass constraints in terms of financial resources, staffing, and access to contemporary auditing methods and technologies (Ngew, 2023). This study aims to analyse the influence of regulatory requirements on the performance of auditors in Cameroon, considering the current situation.

Objectives of the study

The primary objective of this study is to critically analyze the impact of legal requirements on auditor’s performance in Cameroon. Specific objectives of this study are to:

To assess the impact of legal audit requirement on audit quality in organizations in Cameroon

To analyze the impact of legal audit requirement on audit efficiency in organizations in Cameroon

To evaluate the impact of legal audit requirement on fraud detection in organizations in Cameroon 

To identify the challenges auditors face in meeting legal audit requirements in Cameroon.

To offer recommendations to enhance auditor performance and the overall effectiveness of the auditing process in 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:

What is impact of legal audit requirement on audit quality in organizations in Cameroon?

What is the impact of legal audit requirement on audit efficiency in organizations in Cameroon r?

What is the impact of legal audit requirement on fraud detection in organizations in Cameroon?

What are the challenges auditors face in meeting legal audit requirements in Cameroon?

What are the recommendations to enhance auditor performance and the overall effectiveness of the auditing process in 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: Legal audit requirement has no significant impact on audit quality in organizations in Cameroon.

Ha: Legal audit requirement has significant impact on audit quality in organizations in Cameroon.

1.6 Significance of the study

This study is important because it aims to enhance auditing methods in Cameroon and also adds to the wider discussion on audit quality and regulatory efficacy. The study will establish a fundamental reference point for auditors, policymakers, stakeholders, students, and academics.

This study aims to examine the influence of legal audit requirements on auditor performance, with the goal of gaining insights into how these requirements affect the quality and dependability of audits. Enhancing audit quality is essential for preserving investor confidence, guaranteeing precise financial reporting, and augmenting overall market integrity.

Moreover, the results of this study can provide valuable guidance to policymakers and regulatory organisations in Cameroon for improving and revising the legal and regulatory frameworks pertaining to auditing. This can aid in rectifying deficiencies and inefficiencies in existing rules, guaranteeing that legal obligations successfully bolster exemplary audit processes. Stakeholders, including investors, regulatory authorities, and the public, can gain a better knowledge of the impact of legal audit requirements, which in turn ensures that audits are done with exceptional levels of accuracy and integrity. Trust is crucial for upholding the legitimacy of financial reporting and the whole financial system.

Moreover, the study might assist in pinpointing areas where auditors may require supplementary training or resources. This can result in the implementation of focused professional development initiatives, which can enhance auditors' ability to comply with legal obligations and carry out their responsibilities with greater efficiency.

Moreover, organisations can derive advantages from the study's findings by acquiring insights into how regulatory requirements impact their audit procedures. This can aid in the optimisation of internal controls, enhancement of financial processes, and guaranteeing adherence to regulatory standards.

In essence, this study can be used as a standard for future research in the area of auditing and legal compliance, specifically in developing economies. This study establishes a basis for further investigation into the impact of legislative frameworks on auditor performance and may serve as a catalyst for similar research in different geographical areas or nations.

1.7 Scope of the study

Broadly, this study focus is to critically analyze the impact of legal requirements on auditor’s performance in Cameroon. Specifically, this study seeks to assess the impact of legal audit requirement on audit quality in organizations in Cameroon, analyze the impact of legal audit requirement on audit efficiency in organizations in Cameroon and evaluate the impact of legal audit requirement on fraud detection in organizations in Cameroon. 

Further, this study will focus on identifying the challenges auditors face in meeting legal audit requirements in Cameroon and it also seeks to offer recommendations to enhance auditor performance and the overall effectiveness of the auditing process in Cameroon.

 The study is carried out in Cameroon. 

1.8 Limitations of the study

As with any human endeavour, the researchers faced 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 the influence of regulatory requirements on auditor's performance in Cameroon. Hence, a significant allocation of time and exertion was necessary to ascertain the appropriate materials, books, or information and amass 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 researcher's restrictions primarily stemmed from financial constraints, as they are a student without any source of income to sustain themselves. The exorbitant transportation costs at the research location posed a significant challenge in covering the expenses for transportation.

Furthermore, the researcher faced a time constraint due to the need to do this research while still 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.