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