UNIVERSITY OF GHANA

AUDIT REPORTS: A MERE COMPLIANCE TO LEGISLATIONS OR A TRUE

AND FAIR VIEW OF FINANCIAL STATEMENTS. THE CASE OF SELECTED

PUBLIC INSTITUTIONS IN GHANA.

BY

SACKYI DICKSON KOFI

OWUSU DONKOR GIDEON

ANTWI OSEI-ASENSO

A LONG ESSAY SUBMITTED TO THE DEPARTMENT OF ACCOUNTING,

UNIVERSITY OF GHANA BUSINESS SCHOOL, LEGON IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A BACHELOR

OF SCIENCE DEGREE IN BUSINESS ADMINISTRATION (ACCOUNTING

OPTION)

MAY 2013

i

DECLARATION

We hereby declare that this work is the result of our own original research and to the best of

our knowledge, no part of it has been presented for another Bachelor’s Degree in this

university or elsewhere.

However, works by other authors which served as sources of information, have been dully

acknowledged by references to the authors thereafter.

SACKYI DICKSON KOFI (10309792) ………………………. …..……………...

Student Signature Date

OWUSU DONKOR GIDEON (10304426) ………………………. …..……………...

Student Signature Date

ANTWI OSEI-ASENSO (10315397) ………………………. …..…………...

Student Signature Date

ii

CERTIFICATION

This is to certify that this long essay is conducted under my supervision according to the rules

and regulations of the University of Ghana Business School, Legon.

Mr. Edward Nartey ………………………… ...………………..

(Supervisor) Signature Date

iii

DEDICATION

This study is dedicated as follows:

Sackyi Dickson Kofi – To my one and only Nephew, HilkiahAdjeiMensahBoamah.

OwusuDonkor Gideon – To my family especially my Mum, Mrs. Esther OwusuDonkor

AntwiOsei-Asenso - To my family especially my Dad, Mr. OseiAsibeyAntwi.

iv

ACKNOWLEDGEMENTS

The completion of this study gives us joy and affection. It has really tasked us mentally,

physically and financially and tested our mettle as students. We hope it will be of great help

to all who may use the valuable information in it later.

To start with, we thank the Almighty God for his abundance grace and mercies for granting

us good health without which this study cannot be done.

We are deeply grateful to our supervisor Mr. Edward Nartey whose patience, guidance,

suggestions and encouragement has brought this work to fruition despite his heavy schedules.

We are equally grateful to the officials of the Intercity STC, the state institution we used as a

case study. We are also indebted to Mr. Kennedy Segbenya and Mr. Rev. Ghunney of the

Ghana Audit Service and all the staff at both IMANI Ghana and the Institute for Democratic

Governance (IDEG).

Our final indebtedness goes to everyone, who in diverse ways made this study possible. May

God whose help and blessing has brought us this far bless them.

v

ABSTRACT

Audit Reports remain a key source of third party assurance to parties engaged in agency

relationship. This is where a principal engages the services of hired agent to manage

resources on his behalf. Inherent in these relationships are risks that develop into agency

costs if not managed properly.

The main aim of this research among other things is to examine the audit report as a

reflective and evidential indicator of the true and fair view of financial statements of business

or a mere compliance to legislation in Ghana regarding the performance of public

institution.The research primarily focused on the public sector with Intercity STC being the

Public Institution used as a case study. Also, the views and perceptions of other stakeholders

are summarized by a way of engaging Civil Society Organizations (CSOs) which exist to

articulate and serve the very interest of the public in general.

The research first and foremost established the central problem it seeks to address and related

objectives and research questions. The relevant literature was reviewed to gather previous

information on the subject matter as well as identify research Gaps suitable to provide a

fitting place for the research in the body of knowledge already established.

The research methodology came up with the grand approach on which the conduct of

theresearchwas based. It covered the questionnaires issued; the interview conducted and spelt

out the methods of data analysis and interpretation to set the tone for a meaningful discussion

on the subject matter. In chapter four and five of the research, the puts the findings in

perspective and discusses the key finding of the research. Our findings underscores the

institutional importance and relevance of the concepts of “True and Fair view”and Audit

compliance with compliance been the main approach unless there is a need for a substantive

audit. Finally, arecap of the study was done with recommendations drawn from the study as

well as directions for future research.

vi

TABLE OF CONTENTS

Title Page

Declaration i

Certification ii

Dedication iii

Acknowledgements iv

Abstract v

Table of Content vi

List of Tables x

List of Figures xii

List of Acronyms xiii

CHAPTER ONE………………………………………………………………………....1

INTRODUCTION………………………………………………………………………1

1.1 Background to the Study……………………………………………………………...1

1.2 Problem Statement…………………………………………………………………….3

1.3 Research Objectives…………………………………………………………………...4

1.4 Research Questions……………………………………………………………………4

1.5 Significance of the Study……………………………………………………………..5

1.6 Research Methodology………………………………………………………………..5

1.7 Conceptual Framework………………………………………………………………..6

1.8 Literature Review……………………………………………………………………..7

1.7 Scope and Limitation of Study……………………………………………………….8

vii

1.8 Chapter Disposition……………………………………………………………………9

CHAPTER TWO..............................................................................................................10

LITERATURE REVIEW……………………………………………………………....10

2.0 Introduction…………………………………………………………………………...10

2.1 Meaning of Auditing within the Context of the Public Sector………………………..11

2.2 Government Activities and the need for Auditing in the Public Sector……………....12

2.3The Objective of Auditing in the Public Sector………………………………………15

2.4 Types of Audit within Public Sector………………………………………………….17

2.4.1 Financial Statement (Regularity) Audit…………………………………………….18

2.4.2 Internal Control Audit……………………………………………………………...18

2.4.2.1 Budgetary Control in the Public Sector, the role of Internal Audit……………....19

2.4.3 Performance Audit………………………………………………………………….19

2.4.4 Compliance Audit…………………………………………………………………..20

2.4.5Audit Reports............................................................................................................22

2.5 Regulatory Framework……………………………………………………………….23

2.6 The Auditor General (A-G)…………………………………………………………..25

2.7 Meaning of ‘True and Fair’ View…………………………………………………....26

2.7.1 How to arrive at ‘True and Fair’ View……………………………………………..27

2.8 Public Sector Auditing in Ghana……………………………………………………..29

2.9 Public Interest in State Auditing……………………………………………………..31

viii

CHAPTER THREE…………………………………………………………………….32

METHODOLOGY……………………………………………………………………...32

3.1 Introduction…………………………………………………………………………..32

3.2Research Design……………………………………………………………………...32

3.3 Target Population………………………………………………………………….....34

3.4 Sample Size…………………………………………………………………………..34

3.5 Sampling Technique………………………………………………………………….35

3.6 Data Collection………………………………………………………………………36

3.6.1 Data Collection Instrument………………………………………………………..36

3.6.2 Data Collection Procedure………………………………………………………....37

3.7 Data Reliability and Validity.......................................................................................37

3.7.1 DataReliability…………………………………………………………………….37

3.7.2Data Validity……………………………………………………………………....38

3.8 Pretesting the Questionnaire………………………………………………………....39

3.9 Data Organisation and Analysis……………………………………………………..39

CHAPTER FOUR………………………………………………………………….....40

DATA ANALYSIS AND DISCUSSION…………………………………………….40

4.1 Introduction…………………………………………………………………………40

4.2Methods of Data Analysis and Presentation………………………………………..40

4.3 Interpretation of Findings…………………………………………………………..41

4.3.1-6Demographic Relationship and Study Variables……………………………....41

ix

4.4 Audit Report and Associated Perceptions………………………………………....50

4.5 Audit Compliance and ‘True and Fair View’……………………………………...52

4.6 Public Sector Accountability and Audit Reports………………………………….59

4.7 Post Audit Report: The role of the Public Accounts Committee (PAC)…………..64

4.8 Summary....................................................................................................................70

CHAPTER FIVE……………………………………………………………………..71

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS.............................71

5.1 Introduction………………………………………………………………………..71

5.2 Summary…………………………………………………………………………...71

5.2.1 Objectives of Study……………………………………………………………...71

5.2.2 Restatement of Research Questions……………………………………………...71

5.2.3 Research Methodology…………………………………………………………..72

5.3 Key Findings …………………………………………………………....................72

5.4 Conclusions………………………………………………………………………...79

5.5 Recommendations………………………………………………………………….81

5.5.2 The Stakeholders of the Public Institutions……………………………………...81

5.5.1 The Public Accounts Committee (PAC) of Parliament………………………….81

5.6Research Gap and Direction for Future Research…………..……………………...82

References……………………………………………………………………………...83

APPENDICES

x

LIST OF TABLES

Table Page

Table 1- Sex Distribution- Civil Society Organizations (IMANI & IDEG)………………...42

Table 2- Age Distribution- Intercity STC……………………………………………………43

Table 3- Age Distribution- Civil Society Organizations (IMANI & IDEG)………………...44

Table 4- Educational Qualification- Intercity STC…………………………………………..45

Table 5- Educational Qualification- Civil Society Organizations (IMANI & IDEG)……….46

Table 6- Departmental Distribution- Intercity STC………………………………………….47

Table 7- Departmental Distribution- Civil Society Organizations (IMANI & IDEG)……....48

Table 8- Years of Experience………………………………………………………………...50

Table 9- Ever seen an Audit Report…………………………………………………………50

Table 10- Importance of Audit Report………………………………………………………51

Table 11- Essence of Audit Report………………………………………………………….52

Table 12- Whether or not ‘True and Fair View’ supersedes compliance to legislation……..53

Table 13- Audit Compliance to Legislations – Civil Society Organizations (IMANI)……..54

Table 14- Audit Compliance to Legislations – Civil Society Organizations (IDEG)………55

Table 15- ‘True and Fair View’ (IMANI)…………………………………………………..58

Table 16-‘True and Fair View’ (IDEG)……………………………………………………..59

Table 17- Public Sector Accountability and Audit Report………………………………….60

Table 18- Audit Report, Fraud and Mismanagement……………………………………….60

Table 19- Audit Report and Forecast……………………………………………………….61

Table 20- State Auditor (Ghana Audit Service) and Effective Audit……………………...62

Table 21-Audit Reports and Remedial Actions of Management…………………………...63

xi

Table 22-Auditing in the Public Sector and meeting its purpose…………………………..63

Table 23- Responsibility of Public Accounts Committee (PAC)…………………………..64

Table 24- Follow Ups Made by Public Accounts Committee (PAC)……………………....65

Table 25- Remedial Actions Taken………………..……………………………………….66

Table 26- Advice Against Fundamental Risks………………………………………...…...67

Table 27-Post Audit Outcome (IMANI)…………………………………………………...68

Table 28- Post Audit Outcome (IDEG)………………………………………………….....69

xii

LIST OF FIGURES

Figure Page

Figure 1: The three party relationship………………………………………………………..15

Figure 2: Oversight Process:A model for Supreme Audit Institutions on Compliance Audit.22

Figure 3: Schematic Representation on the Research Design Employed……………………34

xiii

LIST OF ACRONYMS

AICPA- American Institute of Certified Public Accountants

CEPA- Center for Policy Analysis

GAS- Ghana Audit Service

ICA- Institute of Chartered Accountants (Ghana)

ICAEW- Institute of Chartered Accountants of England and Wales

IFRS- International Financial Reporting Standards

IIA- Institute of internal Auditors

INTOSAI- The international organization of supreme audit institutions

ISA- International Standards on Accounting

MDAs - Ministries, Departments and Agencies

PAC- Public Accounts Committee

PSA- Public Sector Auditing

SAI- Supreme Audit Institutions

SAS- Statements on Auditing Standards

1

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Audit reports have become one of the essential documents in financial statement reporting

among businesses in Ghana and the world at large. In present day business, audit reports seek

to establish the degree of correspondence between the declarations made with regards to

economic events and the established criteria by objectively obtaining and evaluating evidence

(Arens et al., 2002).

In the industrial revolution, where owners hired the services of managers to run the

operations of companies due to the growth in manufacturing concerns, audit reports were

primarily to detect fraud. However in the latter half of the 20th

century, there was a shift in

the audit report usage to establish whether or not financial statements give a true and fair

picture of operations within institutions, both profit making and nonprofit making

organizations and also for public institutions (Wittington &Pany, 2004). The shift in

emphasis was in response to the growing demands of shareholders, new investors on the

stock exchange, governmental agencies, banks and other interested third parties who might

rely on the financial information to make decisions.

The various public institutions, despite the need for them to ensure societal welfare and not to

maximize and generate profits are held in check due to the auditors’ role in ensuring

transparency in their activities through the issuing of audit reports. This work of the auditor

expands to profit making enterprises and also to public institutions set up by either

government or through acts of parliament.

Public institutions represent the largest provider of services through the various public

corporations established by government and also act as the body which utilizes state funds in

2

carrying out their operations. The demand for auditing and assurance service in the public

sector can be understood through the need for accountability when governments, being the

largest business owner, hire others to manage their business as is typical in modern pubic

corporations and sectors. The choice of the State Transport Corporation (STC) presents an

ideal public corporation described above for our research.

The international organization of supreme audit institutions (INTOSAI) define public sector

audit, as “an examination of operations, activities and systems of a specific entity, to verify

that they are executed or function in conformity with certain objectives, budgets, rules and

requirements” ( Marques, 2002)

As can be noted, there are common aspects in the definition of auditing and public sector

audit but public sector auditing can be said to be still far from what is done in the private

sector. For private enterprises, it is of the greatest importance that financial statements

transmit a true and appropriate image of the financial situation especially that of the financial

statement and also of the cash flow statement. For public enterprises however, what matters

most is that the management of public funds has been adequate and was regulated by criteria

of legality; therefore the traditional branch of public control (compliance).

After independent examination by Auditors, an unqualified audit report seeks to portray that

the auditor’s opinion on a complete set of general purpose financial statements are prepared

in accordance with a financial reporting framework that is designed to achieve fair

presentation and states whether the financial statement ‘‘give a true and fair view'' or ''are

presented fairly, in all material respects,''.

Our exploratory research seeks to reconcile these two stands in an attempt to bridge the

expectation gap between the compliance required by legislation and the “true and fair view”

interested third parties would rely on to make decisions.

3

1.2 PROBLEM STATEMENT

During the industrial revolution, investors with a reasonable assurance regarding the internal

operations of a business entity provided the needed capital to undertake expansion, product

research and improved technology to enhance productivity. This provides value to the

economy as investors align their investment portfolios in the best possible fashion in relation

to the associated risk. (Wallin, 1992)Public institutions are not exempt from the related

expectations of what the management and leadership of the public institutions are to do which

is to work in the best interest of the public and also to be accountable to the public whom

they represent.

Audit reports issued have been questioned in some high profile financial disasters such as

cases involving Enron, and WorldCom which has suggested that the auditors involved have

compromised the “true and fair view” principle despite complying with applicable legal

requirements and giving unqualified opinions regardless of the consequences and cost to

innocent investors. This implies a breach of stakeholders trust in financial statements (Satava,

Caldwell & Richards, 2006).

In relation to public institutions in Ghana, the Auditor General’s reports pertaining to the

performance of the public institutions is not indicative of the true internal operations, the

collapse of these institutions like Ghana Airways and the recent performance unrest in the

State Transport Corporation corroborate this.

Little has been written about the public interest role in the management of public enterprises

in Ghana especially involving the Ghana audit service which is in charge of public sector

auditing in Ghana. This is not surprising, as traditionally, performance auditing systems are

perceived as a mere compliance to legislations and not to reveal a true and fair view of

financial performance (Emmanuel et al., 1997; Drury, 2008; Garrison et al.,2002).

4

1.3 RESEARCH OBJECTIVES

The overall objective of this study is to examine the audit report as a reflective and evidential

indicator of the true and fair view of financial statements of business or a mere compliance to

legislation in Ghana regarding the performance of public institution.

Specifically, this study is

To understand what it meant by true and fair view of audit reports and how the

conduct of audit strategy can lead to true and fair view in the public sector.

To examine whether the mere compliance of audit reports to legislations, standards

and statutes are prioritized over the “true and fair view” principle of the financial

statements

To identify the influence of audit reports issued on the public over the performance of

the various public institutions

1.4 RESEARCH QUESTIONS

This research is guided and shaped by the following questions:

Do the audit reports reflect the true and fair view of financial statements in Ghana?

Does the compliance to legislations override the true and fair view principle of

financial statements reporting?

To what extent are stakeholder’s (citizens) perceptions affected by the audit reports on

the various public institutions?

5

1.5 SIGNIFICANCE OF THE STUDY

Findings and Recommendations from this study would perhaps help citizens, the principal

stakeholders of the public institutions, in understanding the importance and the impact of

audit reports issued on the financial statements which are supposed to reflect the true and fair

view of the performance of the public institutions and not just a mere compliance to

legislations. The recommendations would go a long way to improve the public sector auditing

trail in Ghana where the various stakeholders and public institutions like the Public Accounts

Committee (PAC) of parliament are expected to act on the audit reports from the State

Auditor- Ghana Audit Service (GAS).

1.6 RESEARCH METHODOLOGY

This explains the data required how they were gathered and methods of analysis employed to

achieve the objectives of the study.

The study employs both primary and secondary data to examine and determine the current

use and relevance of audit reports among stakeholders of public institutions in Ghana. Also,

existing information made up of publications such as books, journals, articles, internet

sources and many other already established facts were used. Secondary data by way of audit

reports, financial statements, and other performance reports were investigated to assess the

impact of audit reports on the decisions of stakeholders.

As a precursor to the other quantitative methods like charts and graphs employed in this

research, observations, interviews, and questionnaires werealso employed to analyze our data.

Quantitatively, the research seeks to elicit information by the use of surveys conducted for

the intended users of audit reports and to assess the impact of this report on their decisions.

6

The research covered identifiable stakeholders of the public institutions with case studies

focused on two (2) institutions. The samples of our research were representative of the

various stakeholders of the public institutions in Ghana whose perceptions the audit reports

would have impacted on.

Data obtained from respondents were analyzed using excel spreadsheet application. The

result would be presented using statistical tools such as tables and charts. Descriptive

statistics was used to analyze the data. Details of the methodology are contained in the

Chapter Three to this work.

1.7 CONCEPTUAL FRAMEWORK:

For our research, the underlying concepts are applicable:

True and fair view:‘True and fair view’ is used by auditors to convince the user group or the

stakeholders that the financial statements are free from error and are factual.

Pollitt and Summa describe‘true and fair’ as one of the most common expressions used in the

financial industry today. It is used to describe the required standard of financial reporting but

equally to justify decisions, which require a certain amount of arbitrary judgement making. It

is the principle that is used in guidelines ranging from auditing and financial standards to the

company law acts.

Audit Compliance: For private enterprises, it is of the greatest importance that financial

statements transmit a true and appropriate image of the financial situation especially that of

the financial statement and also of the cash flow statement. For public enterprises however,

what matters most is that the management of public funds has been adequate and was

7

regulated by criteria of legality; therefore the traditional branch of public control (audit

compliance).

The new Public Management: In recent times, new ways of management are being adopted

– New Public Management (NPM) where relevance and information transparency as well as

control are equally crucial and important to the public who are the main stakeholders of the

public institutions. (Baker, C. Richard; Owsen, Dwight M. [2002])

These concepts provide a solid basis for our research topic and would help in understanding,

explaining and drawing conclusions that would benefit stakeholders of Public institutions.

1.8 LITERATURE REVIEW

The American Accounting Association, Committee On Basic Auditing Concepts(1973),

defines the term auditing refers to the systematic process of objectively obtaining and

evaluating evidence regarding assertions about economic actions and events to ascertain the

degree of correspondence between those assertions and established criteria and

communicating the results to interested users. The International Organization of Supreme

Audit Institutions (INTOSAI) defined auditing in terms of public sector audit as “an

examination of operations, activities and systems of a specific entity, to verify that they are

executed or function in conformity with certain objectives, budgets, rules and requirements”

The Wilson Committee posited that need for financial accountability has existed ever since it

became necessary for one individual to entrust the care of his possessions or business to

another” (Wilson Committee, 1980).

Adeyemi (2011), asserts that external auditor reports add credibility to the financial reporting

by ensuring that accounting statements follow the generally accepted guidelines and are

8

accurate, but when the state auditor’ performance is below public expectations then his

signature together with his brief opinion will no longer be useful to the citizens who are the

main stakeholders of these public institutions.

Apart from the usual financial statement (regularity) audit performed by State auditors,

Messier et.al (2008) identified three other types of audit. This includes:

Internal Control Audit

Compliance Audit

Performance/Operational Audit

A true and fair view is one of the bedrock principles of preparing financial statements. This

can be linked back to the four basic concepts on presenting this information: going concern,

accruals (matching), consistency, and prudence as stated in Financial Accounting (Arnold,

et.al,1994, p56)

The literature on the public interest role of accounting and Auditing has focused mainly on

corporate financial reporting, auditing, social environmental reporting and the accountancy

profession (Briloff, 1986; Canning and O’Dwyer, 2001; English, 2003). Details of the

literature review are contained in the Chapter Two of this work.

1.9 SCOPE AND LIMITATIONS OF THE STUDY

The study would be limited to Management and Staff of the public institution of choice -

STC,specifically the internal audit unit and the finance departmentof this institution. Only

two Civil Society Organizations (CSOs) being IMANI Ghana and the Institute of Democratic

Governance (IDEG) were sampled for the research. Our interview is limited to the State

Auditor, the Ghana Audit Service (GAS)

9

Also, the study would be solely carried out in Accra and hence the findings may not hold for

other regions outside and beyond Accra.

Again, data provided by respondents may be skewed to reflect their individual biases and to

curb this, there will be more sampling of opinions concerning a particular topic so that one

person’s opinion does not become binding.

1.10 CHAPTER DISPOSITION

This study is divided into five chapters as follows:

Chapter One deals with the introduction to the study.

In Chapter Two, relevant literatures are reviewed to present the theoretical conceptual

framework that relates to the study.

Chapter Three focuses on how the whole research was carried out while Chapter Four

isdevoted to the analysis and discussion of data.

In Chapter Five, the summary of the main findings, conclusions are provided.

10

CHAPTER TWO

LITERATURE REVIEW

2.0 INTRODUCTION

Government auditing is a necessary tool in good public governance and as such, it is crucial

to maintain an appropriate configuration with a broad mandate to achieve the organization’s

governance objectives. The government audit activity’s mandate should be as broad as

possible to enable it to respond to the full scope of the government’s or governmental unit’s

activities.

Although auditors may be able to add value to any segment of the organization for which

they can provide independent, objective assurance, at a minimum, every government requires

some form of independent audit activity that has authority to evaluate the full range of the

government’s activities.

Ultimately, government auditing strengthens public governance by providing for

accountability and protecting the core values of government thus ensuring managers and

officials conduct the public’s business transparently, fairly, and honestly, and with equity

and probity. Elected and appointed officials at all levels of government should support

effective audit activities by establishing independent audit functions that meet all of the key

elements.

This chapter presents the literature on the auditing in the public sector, highlighting the scope

in terms of performance and compliance and its role in ensuring effective and sound public

financial management. It also discusses the various stakeholders in the public institutions

with their increasing roles in public accountability, corporate governance and risk

11

management within the legal framework of Ghana which centralizes around the Auditor

Generals Department.

2.1 MEANING OF AUDITING WITHIN THE CONTEXT OF THE PUBLIC SECTOR

The word ‘audit’ is derived from the Latin word meaning ‘to hear’. It is about upholding the

integrity of financial reporting and business conduct and is about seeking truth (Percy, 1997).

The American Accounting Association, Committee On Basic Auditing Concepts(1973),

defines the term auditing the systematic process of objectively obtaining and evaluating

evidence regarding assertions about economic actions and events to ascertain the degree of

correspondence between those assertions and established criteria and communicating the

results to interested users.

The International Federation of Accountants ( IFAC) defined auditing as “a verification or

examination of the documents of accountability executed by an auditor with the objective of

providing him the ability to express an opinion of those documents in such a way as to

provide them with greater credibility”

The definition by International Organization of Supreme Audit Institutions (INTOSAI) tends

towards public finances and defined public sector audit, as “an examination of operations,

activities and systems of a specific entity, to verify that they are executed or function in

conformity with certain objectives, budgets, rules and requirements”

A vital element for a strong public sector is the community (citizenry) and business

confidence in government. Audit is one tool that can reinforce confidence in government, or

where necessary communicate authoritatively that, confidence is misplaced. In other words,

12

audit can be a tool for public sector reform, alongside the other mechanisms for reforming the

market and making it more efficient.

The credibility of the audit within the context of the public sector activity strengthens public

governance by providing for accountability and protecting the core values of government,

which it does by assessing whether managers and officials conduct the public’s business

transparently, fairly, honestly, and in accordance with laws and regulations (Waring, 2012).

2.2 GOVERNMENT ACTIVITIES AND THE NEED FOR AUDITING IN THE

PUBLIC SECTOR

The Center for Policy Analysis (CEPA) identified that the primary role of government is to

provide the legal framework within which all economic transactions occur. It is common to

divide the activities of government into three broad categories:

(a) the production of goods and services and the regulation of private producers;

(b) the direct purchase of goods and services from firms and households such as the

employment of civil servants to the services of street cleaners; and

(c) the redistribution of income.

To undertake its numerous activities CEPA recognizes that the government organizes itself

into Ministries, Departments and Agencies who undertake these functions on behalf of the

executive for the benefit of the public at large. Performing these activities require the flow of

financial resources, mobilizing or spending public resources. Good economic governance

entails, among other things, having in place the appropriate laws, rules and regulations to

govern the management of public financial resources. Government therefore has a special

13

responsibility to provide assurances to the public a clear picture of where public finances

come from, how they are utilized and accounted for in an open and credible framework

(CEPA, 2005).

The demand for auditing and assurance service in the public sector can be understood through

the need for accountability when governments, being the largest business owner, hire others

to manage their business as is typical in modern pubic corporations and sectors.

Chatfield (1974) asserted that until late 18th

and early 19th

centuries, most organizations (both

public and private) were relatively small and were owned and operated as sole

proprietorships or partnerships. Because businesses were centrally run by governments, there

was little accountability to outside parties. The birth of modern public accounting and

auditing occurred during the industrial revolution, when government (public) companies

became larger and needed the services of hired managers (Samson 2005). The coming

together of the two entities being government as the investor (principal) and managers as

agents to facilitate business brings about the agency relationship and its associated costs.

Gerrit and Mohammad (2007) see the agency theory as a useful economic theory of

accountability that helps to explain the development of the audit. Agency theory posits that

agents have more information than principals and the information asymmetry adversely

affects the principals’ ability to monitor whether or not their interests are being properly

served by the agents.

As noted by the in Institute of Chartered Accountants of England & Wales (ICAEW), audit

provides an independent check on the work of agents and of the information provided by an

agent who helps to maintain confidence and trust, (ICAEW, 2005). The simplest agency

model assumes that no agents are trustworthy and if an agent can make himself better off at

14

the expense of a principal then he will. Auditing in this regard serves as monitoring tool

which will lead to an overall reduction of agency costs

However, the institute of internal auditors sees the public sector to represent a principal-

agent relationship: The officials acting as the principal’s agent must periodically account to

the principal for their use and stewardship of resources and the extent to which the public’s

objectives have been accomplished.

Canadian Comprehensive Audit Foundation, 1991 understands that an effective audit activity

reduces the risks inherent in a principal-agent relationship. The principal relies upon the

auditor to provide an independent, objective evaluation of the accuracy of the agent’s

accounting and to report on whether the agent uses the resources in accordance with the

principal’s wishes. The need for a third party to attest to the believability (credibility) of the

financial reporting, performance results, compliance, and other measures arises from several

factors inherent in the relationship between the principal and its agent:

1. Moral hazards — conflicts of interest: Agents may use their resources and authority to

benefit their own interests, rather than the principal’s interests.

2. Remoteness: Operations may be physically removed from the principal’s direct oversight.

3. Complexity: The principal may not possess the technical expertise needed to oversee the

activity.

4. Consequence of error: Errors may be costly when agents are stewards of large amounts of

resources and are responsible for programs affecting citizens’ lives and health.

15

Figure 1: A three (3) Party Relationship (Adapted from: The Institute of Internal Auditors -

www.theiia.org)

2.3 THE OBJECTIVE OF AUDITING IN THE PUBLIC SECTOR

“The need for financial accountability has existed ever since it became necessary for one

individual to entrust the care of his possessions or business to another” (Wilson Committee,

1980).

The UN Guidelines for effective Financial Management (2000, p. 48) observed that public

sector auditing identifies and highlights instances where laws and regulations of public

financial management have not been complied with, where financial systems need

strengthening, and possibly, where value for money has not been achieved. In particular,

internal audit provides the first line of defense against misuse or mismanagement of public

funds whiles external auditing by the office of the Auditor-General provides broader

oversight functions over public sector accountability.

16

The principal objective of an audit of financial statements is to enable the auditor to express

an opinion whether the financial statements are prepared, in all material respects, in

accordance with an applicable financial reporting framework (Millichamp& Taylor, 2008).

The primary responsibility of an auditor is to verify whether the financial statements exhibit a

true and fair view of the state of affairs of an institution or business and their secondary

responsibility is the prevention and detection of errors and frauds.

Adeyemi (2011), asserts that external auditor reports add credibility to the financial reporting

by ensuring that accounting statements follow the generally accepted guidelines and are

accurate, but when the state auditor’ performance is below public expectations then his

signature together with his brief opinion will no longer be useful to the citizens who are the

main stakeholders of these public institutions. For instance, if the public auditing profession’s

governing body issues a standard that says that auditors should observe the client company’s

stock-taking procedures but the auditor fails to do so then his performance would be said to

be deficient because he has not behaved in a manner consistent with professional auditing

standards.

According to Knox (1994) the detection of frauds in the public sector is in the interest of the

user of financial information and the auditor concerned, because on the one hand it is seen as

a job well done and on the other hand it is a sign for the auditor of the risk that the client

shows.

Epstein and Geiger (1994) conducted a survey of public stakeholders that revealed a startling

evidence of the expectation gap between the assurances state auditors provided on the

financial statements compiled by management and the expectations of public and other users

of financial statements. Over 70 per cent of the 246 citizens surveyed believed that public

sector auditors should be held responsible for detecting material misstatements due to fraud,

17

and some 47 percent expect auditors to provide absolute assurance that the financial

statements of state institutions and corporations contain no material misstatement due to

errors. Epstein and Hill (1995) concluded that:

1. public sector stakeholders expected greater amount of assurance concerning the frauds and

errors than the state auditors could provide in relation to the management of state funds.

2. there seemed to be a general lack of understanding concerning the differences in the

auditors’ ability to detect a misstatement due to the frauds and errors in the management of

public institutions.

3. stakeholders/citizens did not grasp the difficulty of detecting material misstatements due to

the frauds or the cost of doing so in public institutions.

2.4 TYPES OF AUDIT WITHIN THE PUBLIC SECTOR FRAMEWORK

Government auditors conduct audits with different types of objectives. Financial reporting

requirements and performance indicators for government functions vary between

jurisdictions and types of activity (e.g., public health, law enforcement, national security, and

environmental protection) and results may take years to materialize. Consequently, the means

to assess government financial regularity and performance vary widely. Accordingly,

individual government auditors demonstrate different types of skills, competencies, and

specializations.

Apart from the usual financial statement (regularity) audit performed by State auditors,

Messier et.al (2008) identified three other types of audit. This includes:

Internal Control Audit

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Compliance Audit

Performance/Operational Audit

The selection of the type of audit or service to be performed is based upon the audit activity’s

authority and purpose, as well as the needs and issues to be addressed. The audit activity’s

scope of work depends on the authority granted to it by its enabling legislation and the needs

or risks the organization faces.

2.4.1 FINANCIAL STATEMENT (REGULARITY) AUDIT:

In a financial (or regularity) audit, the auditor expresses an opinion whether the financial

statements are prepared, in all material respects, in accordance with the applicable financial

reporting framework (regularity). This is often performed by external auditors — either

commercial auditors or auditors from another branch of government. This type of audit

within the public sector focuses on properly accounting for assets and expenditures as

reported by the government. In addition to the financial statement opinion, financial audits

can also examine the reliability of specific financial information, compliance with relevant

procedures and rules, or the safeguarding of assets

2.4.2 INTERNAL CONTROL AUDIT

“Internal auditing is an independent, objective assurance and consulting activity designed to

add value and improve an organization’s operations. It helps an organization accomplish its

objectives by bringing a systematic, disciplined approach to evaluate and improve the

effectiveness of risk management, control, and governance processes.” (The Institute of

Internal Auditors, 1999)

19

Waring (2002) identified that Auditing has evolved as systems, transactions, and operations

have become more complex. In its earliest origins (evidence points to audits conducted in

Babylonia and Mesopotamia as early as 3,000 B.C.), auditing verified the existence of assets.

According to Waring, over time, auditing shifted from a detailed focus on confirming or

validating individual transactions to evaluating the effectiveness of the systems that control

transactions. In the 20th century, public sector auditors also moved well beyond evaluating

economic and financial transactions and conditions. Since the introduction of social

programs, some government auditors have been called upon to validate the effectiveness of

the government services themselves or, they may be required to determine whether the

organization has established mechanisms to measure and report on its effectiveness.

Waring concluded that the credibility of the audit activity strengthens public governance by

providing for accountability and protecting the core values of government, which it does by

assessing whether managers and officials conduct the public’s business transparently, fairly,

honestly, and in accordance with laws and regulations.

2.4.2.1 Budgetary Control in the Public Sector, the Role of Internal Audit

An internal audit function is an essential part of any public expenditure management system

and should ensure that public spending is within budgetary provisions; disbursements comply

with specified procedures, provides for the timely reconciliation of accounts and effective

systems for managing and accounting for physical and financial assets (Commonwealth

Secretariat, 2005).

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2.4.3 PERFORMANCE AUDIT

Determine whether an authority is achieving objectives & operating economically, efficiently

and effectively in compliance with all relevant Acts. The International Organization of

Supreme Audit Institutions (INTOSAI) sees the adoption of performance auditing in the

public sector as one of the most significant new additions to the traditional auditing role

(financial audit). In a performance audit, the auditor expresses an opinion whether, in all

material respects, the administration of a particular program or entity has been carried out

economically and/or efficiently and/or effectively.

This new type of audit in the view of INTOSAI has evolved to meet the need for greater

information by the taxpayer’s representative, Parliament, mainly regarding the efficiency and

economy in the use of resource by the public managers acting on behalf of the executive. A

significant part of audits have two audit objectives, either expressing opinion on financial

statements and on compliance with the regulations, or expressing opinion on compliance with

the regulations and on the performance of operations. Opinions expressed within performance

audits were descriptive and consisted of assessments of economy, efficiency and

effectiveness of operations.

2.4.4 COMPLIANCE AUDIT

Governments frequently establish governmental audit requirements for entities to undergo an

audit of their compliance with applicable compliance requirements.

Geffken, Carl, (2004, October) identified three (3) levels of compliance:

• External (legislative)

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• External (policies and frameworks)

• Internal (control frameworks)

As part of selected performance and probity audits, the Auditor-General may audit

compliance with relevant legislation and external/internal policies, review the effectiveness

of some external/internal compliance frameworks

The questions remains whether Good compliance = good management = good performance

and why do some agencies experience compliance as restricting their performance?

The role of the Auditor-General in public sector compliance includes:

• To monitor and report on compliance

• To review effectiveness of compliance frameworks (www.audit.vic.gov.au)

There are varying types of audits that may be used in contract compliance testing. They

include: financial audits, social responsibility audits, those that focus on internal controls and

procedures, and audits defined by the Sarbanes Oxley legislation, which encompasses a

myriad of fiduciary concerns. Supplier performance evaluations are another tool where a

procurement official can review the suppliers’ performance in terms of meeting the

requirements of the contract.

With the intent to avert fraud and collusion, and to maintain the public trust, a well-designed

audit will address all of the critical steps needed for contract compliance by evaluating the

entire procurement process, providing the needed oversight throughout the operations of

supreme audit institutions. The flow chart below shows how the oversight process that relates

to compliance audit in a supreme audit institution which is called the Ghana Audit Service

(GAS) within the Ghanaian context.

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Figure 2: Oversight process: a model for Supreme Audit Institutions on compliance audit.

(internationalbudget.org)

2.4.5 AUDIT REPORTS

The basic outcome of every audit process seeks to provide an opinion that:

(1) The audit was performed in conformity with generally accepted auditing standards and

(2) Expressing an opinion that the client’s financial statements are presented fairly and in

conformity with generally accepted accounting principles.

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Depending on the circumstances surrounding the audit process, the auditor may issue either

of the two main types of reports:

1. Standard Unqualified ( “clean”) Audit Report

2. Qualified / Modified report

For the purposes of this study, the Standard Unqualified Audit Report would be adopted and

examined in detail. For the auditor to issue a Standard Unqualified Audit Report, Gray and

Manson (2005) identified that the following conditions most be satisfied:

• All financial statements are included.

• The general and applicable standards have been followed in all respects on the

engagement.

• Sufficient evidence has been accumulated to conclude that the underlying records are

free from material error.

• The financial statements are presented in accordance with generally accepted

accounting principles.

• There are no circumstances requiring the addition of an explanatory paragraph or

modification of the wording of the report.

2.5 THE REGULATORY FRAMEWORK

The audit profession globally is heavily regulated by legislations, codes, standards, statutes

and principles. This harmonizes the work of auditors irrespective of the geographical or

territorial boundaries. However, modifications are incorporated to meet the varying needs of

certain jurisdictional laws.

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The auditing environment at the international level has the international Standards on

Auditing (ISA) and Statements on Auditing Standards (SAS) issued by the International

Auditing and Assurance Standards Board (IAASB) of the International Federation of

Accountants. In the US, Generally Accepted Auditing Standards (GAAS) was issued by the

American Institute of Chattered Public Accountants (AICPA).

In Ghana, the legal framework that governs the work of the Auditor-General and the auditing

of public accounts in general are:

a) The financial provisions of Article 187 of the 1992 Constitution of the 4th

Republic.

b) Audit Service Act, 2000 (Act 584).

c) The Financial Administration Act, 2003 (Act 564) and prior to that the Financial

Administration Decree (1979) and the Financial Administration Regulations (1979).

d) Internal Audit Agency Act, 2003 (Act 658).

The profession is also regulated by the chartered accountant act 1963, Act 170 which spells

out the basic qualifications of an auditor both for public and private entities inter alia:

To qualify for appointment as an auditor of a private or public company, a person must be a

member of ICA and not disqualified by any Legislative Instrument (The Chartered

Accountant’s Act, 1963 (Act 170). These standards and jurisdictional laws regulate the

practice of auditing in different parts of the globe with an audit report as an end product of

the audit process.

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2.6 THE AUDITOR-GENERAL

Article 187(2) of the 1992 Constitution enjoins the Auditor-General to audit and report on all

the public accounts of Ghana and of all public offices, including the courts, the central and

local government administration, the Universities and public institutions of like nature, any

public corporation or other body or organization established by an Act of Parliament. Article

187(5) of the same constitution sets the time frame of 6 months after the end of the

immediately preceding financial year within which each of the auditing responsibilities

defined above should be completed and submitted to Parliament.

Sections 40 and 41 of the Financial Administration Act (FAA), 2003, clearly define the

responsibilities of the heads of department and the Controller & Accountant-General in the

preparation of monthly and annual statements of public accounts and the time limits by

which these accounts are to be transmitted to the Auditor-General. The most fundamental,

sections 40(1) and 41(1) stipulate what should be included in the public accounts by way of

reporting.

Section 13 of the Audit Service Act, 2000 (Act 584) spells out the manner and the specific

expectations of auditing to be carried out by the Auditor-General on the public accounts

referred to in Article 187(2) of the 1992 Constitution. To paraphrase, the Auditor-General is

expected to ascertain whether in his opinion:

a. The accounts have been properly kept.

b. All public monies have been fully accounted for, and rules and procedures have been

followed to ensure effective check on all aspects of revenue assessment, collection and proper

allocation.

c. Monies have been expended for purposes approved in the appropriations bill (budget).

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d. Essential records are maintained and the rules and procedures applied; and

e. Programmes and activities have been undertaken with due regard to economy, efficiency

and effectiveness.

2.7 THE MEANING OF ‘TRUE AND FAIR’ VIEW

‘True and fair view’ is used by auditors to convince the user group or the stakeholders that

the financial statements are free from error and are factual. Researchers have explored and

tried to identify the function of ‘true and fair view’ in auditing. While it is known from

various legal regulations and accounting standards, that ‘true and fair view’ is a concept used

to give an opinion on the financial statements, many still find it a very confusing and vague

term (Cowan, 1965; Walton 1993; Elliot and Elliot, 1997; Hulle, 1993; Gill, 1983). ‘True and

fair’ view as is being applied currently by the external auditors lacks clarification and is not

likely to be clarified in the future (Higson, 1991; Porter 1992; Rutherford, 1985).

Pollitt and Summa describe ‘true and fair’ as one of the most common expressions used in the

financial industry today. It is used to describe the required standard of financial reporting but

equally to justify decisions, which require a certain amount of arbitrary judgement making. It

is the principle that is used in guidelines ranging from auditing and financial standards to the

company law acts.

A true and fair view is one of the bedrock principles of preparing financial statements. This

can be linked back to the four basic concepts on presenting this information: going concern,

accruals (matching), consistency, and prudence as stated in Financial Accounting (Arnold,

Hope, Southworth and Kirkham; 1994, p56)

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Traditionally the "true and fair view" in Great Britain has implied a connection between the

internal accounting and the external accounting (Cunningham, 2003).

In US, they see the concept to imply that accounting should be informative and that it should

disclose real transactions. But in many other countries where they have tried to follow the

"true and fair view" they have used much time in trying to interpret this concept, without

being successful (Cunningham, 2003).

True and fair view in general can be explained to reflect the verifiability and reasonability of

financial statements prepared and how it discloses all the relevant and material items captured

in the public institutions.

2.7.1 HOW TO ARRIVE AT A TRUE AND FAIR VERDICT

True and fair view is linked to materiality in SAS 220 (page 2) and describes that, a matter is

material if its omission would reasonably influence the decisions of an addressee of the

auditors report. Likewise a misstatement is material if it would have a similar influence

(SAS220: Materiality and the Audit, 1995). This (SAS220) is the auditors’ code; those who

are responsible for assessing the statements in light of the ‘true and fair’ doctrine. Elsewhere

in this standard it is stated:

‘auditors plan and perform the audit to be able to provide reasonable assurance that the

financial statements are free from material misstatement and give a true and fair view’. (SAS

220, 1995, p2)

Contrary to this Lewis &Pendrill (2000, p191) suggest, ‘if the accountant digs deep enough,

the reality of the transaction will emerge’.

However, examining every transaction is not practical and in a large company the scope is

28

immense whiles in a small company the resources are not there. If marginal cost is greater

than marginal benefit, chances are that it’s not worth checking,

A true and fair view is not a guarantee, but an opinion, as SAS 300 (1995, p13), paragraph 50

states:

‘Audit evidence is generally persuasive rather than conclusive; some detection risk is usually

present even if they [auditors] examine all evidence available of an account balance or an

entire class of transactions’.

The essence of the concept "true and fair view" differs in different countries. Hence, its

contribution to the consistency in the financial disclosure is far from self-evident. The

flexibility in accounting is undermining the comparability of accounting (Dunk, Kilgore,

2000).

Dunk and Kilgore (2000) mean that the concept "true and fair view" still is unclear, even if

the many authors in the literature have attempted many times to define it. They mean that the

"true and fair view" is nothing but a generally accepted accounting practice, which in turn

gives a pragmatic solution on valuation problems in accounting. The large importance that

"true and fair view" has got in accounting internationally; imply that the more mechanical use

of accounting rules is given up. The concept "true and fair view" is seen as rather vague,

ambiguous and misdirected. A "true and fair view" is then not even incompatible with

creative accounting and income equalization. Moreover, different groups have different

interests in accounting statements. The executives in the companies want to view that the

company runs well, the employed want better salaries, and government want more taxs

whiles shareholders want more dividends. Therefore, these groups can have different views

on what the "true and fair view" is. The concept "true and fair view" can be applied relatively

subjective, and can then be adapted to different situations (Gearing, 1995)

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2.8 PUBLIC SECTOR AUDITING IN GHANA

As noted in the preceding discussion, the auditing profession and Auditor General’s

Department are among the ensemble of institutions, technologies and tactics that are core to

governance processes (Power, 1994; Dean, 2003). This is also applicable in the Ghanaian

context where the auditor general audits all the government accounts.

Financial audits are an instrumental aspect of the accountability relationship between the

governors and the governed, a process that enhances the reason for the state.

Globally, over the last decade, the audit profession has experienced an expanded

responsibility for fraud detection and deterrence requiring increased professional skepticism

(AICPA Statement on Auditing Standards No. 99, 2002). Consistent with the growing global

expectations of the profession, the Auditor General’s Department in Ghana has, over the

years, directed considerable amount of energy and resources towards the detection and

fighting of public sector fraud.

The upsurge in fraud investigations by the Auditor General’s Department has become

necessary, in part, because of the general weakness of the institutional structures for public

financial administration (Braughtigam and Knack, 2004).

Akotia (2000, p. 6) observes more generally: A major defect in financial administration arises

from failure to integrate accounting and registry systems, with the result that essential

information is lost or becomes subject to inaccuracies. Ideally, registry systems and account

records systems should be used where each is most appropriate. For many tasks, both are

required and there needs to be adequate cross-reference between the two. However, too often

users do not receive the support they require to make maximum use of these systems.

30

While there are petty-fraud cases among low-income earning government employees, there is

the argument that the growing allegations against highly paid senior government officials’,

including fraud charges against the former Auditor General, seems to suggest that some

perpetrators of fraud are simply exploiting the existence of weak control systems in the

government sector.

Consistent with Power’s (2003) view, according to a survey organized, we find that the

control systems in government departments serve a legitimating purpose and do not

necessarily function according to design as noted by a respondent in this respect.

Besides the World Bank, other key international agencies such as United States Agency for

International Development (USAID) and Canadian International Development Agency have

provided assistance aimed at improving governmental financial management to support the

government’s fight against fraud in public bureaucracies. Like the World Bank, such attempts

have also focused on providing funding for capacity building; targeting the three key

institutions involved in the country’s financial governance. For example, in a seminar, the

then US Ambassador to Ghana, Bridgewater (2006, pp. 4-5) remarked:

I applaud the government’s public statements in support of zero tolerance for corruption. It is

good that laws are passed that are designed to reduce corruption such as the public

procurement, financial management and audit laws. [...] Nonetheless, the US and other

companies consistently express concern about the corruption in Ghana’s ports, police and

ministries responsible for licensing new businesses.

The ambassador then went on to state that: USAID Ghana program is preparing to launch an

anti-corruption assistance program. Our Public Affairs Section is hosting an internationally-

known author and lecturer on good governance to conduct a series of workshops throughout

Ghana beginning July 24 (Bridgewater, 2006, p. 8)

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2.9 PUBLIC INTEREST IN STATE AUDITING

The literature on the public interest role of accounting and Auditing has focused mainly on

corporate financial reporting, auditing, social environmental reporting and the accountancy

profession (Briloff, 1986; Canning and O’Dwyer, 2001; English, 2003).

Little has been written about the public interest role of management controls especially for

the public sector auditing. This is not surprising, as traditionally, management accounting

systems are perceived as external decision facilitating tools (Emmanuel et al., 1997; Drury,

2000; Garrison et al., 2002). However, a management control system, such as a budgetary

system, assumes a public interest role once it has been delegated a public accountability role.

The State Enterprises’ Commission (SEC) in Ghana assumed the position of an external

auditor, with the budgetary performance of State Owned Enterprises (SOEs) providing a

basis for carrying out its evaluation and reporting on their control, accountability,

transparency and the efficient use of resources. In this context, SOEs’ budgetary systems

have direct implications for the pursuit of their public interest role. Public sector reforms in

Ghana and in most other Less Developed Countries (LDCs) have been advocated by

transnational bodies such as the World Bank and the IMF based on neo-classical economic

policies (Stiglitz, 2002). To neo-classical variants, public sector reforms will bring about

private management styles, which should lead to better public service.

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CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION

This chapter focuses on the approach to carry out the research. It provides details of data

analysis which includes the description of the relevant variables and method of data

collection, type, source, and procedure. The study employs both primary and secondary data

to examine and determine the current practices and involvement of the Ghana Audit Service

in public sector auditing in Ghana.

3.2 RESEARCH DESIGN

A qualitative approach was followed. Burns and Grove (1997) define qualitative research as a

formal, objective, and systematic process to describe and test relationships and examine cause

and effect interactions among variables. A survey is one of the basic tools of a qualitative

research.

Survey can be used for descriptive, explanatory and explorative research. Using a descriptive

survey, we try to collect original data for describing a population too large to observe directly

(Mouton, 1996). A survey obtains information from a sample of people by means of self-

report that is, the people respond to a series of questions posed by investigator/researcher

(Pollit and Hungler, 1993).

In this study, the information was collected through self-administered questionnaires

distributed personally to the subjects of the study.

The descriptive survey was selected because it is an accurate portrayal or account of

characteristics for example behaviors, opinions, abilities, beliefs, and knowledge of a

33

particular individual, situation or group. This design was chosen to meet the objectives of the

study namely:

To understand what it means by true and fair view of audit reports and how the

conduct of audit strategy can lead to true and fair view in the public sector.

To examine whether the mere compliance of audit reports to legislations, standards

and statutes are prioritized over the “true and fair view” principle of the financial

statements

To identify the influence of audit reports issued on the public over the performance of

the various public institutions.

In this chapter, the schematic approach begins from the aggregation of data from three key

research areas / respondents namely; the Ghana Audit Service, the State Transport

Corporation and Civil Society Organizations (CSOs), and secondary sources being the

publications, journals, articles, and reports of these institutions.

The data from these sources were represented by way of statistical tools like graphs, tables

and charts. Descriptive tools were employed and inferences drawn from the data collected.

The main findings and results obtained were summarized to set the tone for further analysis and

interpretation. Finally, the data was thoroughly analyzed and discussions concluded to sum

up the research.

The flow is shown in the diagram (Figure 3.1)

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Figure 3.1: A Schematic Representation of the Research Design Employed

Source: Adapted from Leedy, (1993)

3.3 TARGET POPULATION

The target populations for the study were the Management and Staff of the Ghana Audit

Service, the management of the State Transport Corporation and Civil Society Organizations

(CSOs).

3.4 SAMPLE SIZE

A structured interview was conducted with a team from the Ghana Audit Services. A

convenient sample of 40 respondents was selected from the State Transport Corporation

(STC) and the Civil Society Organizations (CSOs). Mouton (1996) defines a sample as

Capture the data and inspect the

data using descriptive, inferential

statistics and frequency tables

Main findings and summary of the

results obtained

Analyze and discuss results

Administer Questionnaires/

Interview to management and

staff of Ghana Audit Service

Obtain Secondary data

from publish articles,

reports, books, journal,

etc.

Administer Questionnaires/

Interview to public interest groups,

and State Transport Corporation.

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elements selected with the intentions of finding out something about the population from

which they were taken. A convenient sample consists of subjects included in a study because

they happen to be at the right place at the right time (Pollit and Hungler 1993:172).

A total of 40 questionnaires are issued out to various categories of correspondents who were

willing to participate in the research within a one month frame. 20 questionnaires will be

issued to the staff and management of the State Transport Corporations. Also, 20

questionnaires will be given to two different Civil Society Organizations (CSOs) to ascertain

their views on the audit reports issued on public corporations.

3.5 SAMPLING TECHNIQUE

The subjects selected to be included in each sample should meet specific criteria. The

workers at the Ghana Audit Service and the State Transport Corporation (STC) should meet

the following criteria to be included in a sample:

Must have worked in the Service for at least a year or more

Must be mentally sound in order to consent to participation

Must be willing to participate

Obtain the consent of senior management before participation if participation is

against working rules

Be of either sex or any race.

For the Civil Society Organizations (CSOs) the following criteria apply:

Must be a Ghanaian by birth

Must be a registered voter

Must be a registered tax payer

36

Must be mentally sound in order to consent to participation

Must be willing to participate

Be of either sex or any race.

3.6 DATA COLLECTION

3.6.1 Data collection instrument

A questionnaire was chosen alongside a formal interview as data collection mediums. A

questionnaire is a self-printed report form designed to elicit information that can be obtained

through the written responses of the subjects. The information obtained through the

questionnaire is similar to that obtained from the interviews except that the questions tend to

have less depth (Burns and Grove 1993).

Two distinct questionnaires were used to collect the data. One was administered for the

public enterprise in question, State Transport Corporation and the other for the Civil Society

Organizations (CSOs) who stand out as major stakeholders in governance and public

accountability.

The questionnaires consisted mostly of close ended questions and a few open ended questions

providing the researchers with diverse detail. In the open ended questions, the subjects were

required to respond in writing, whereas closed ended questions had options which were

determined by the researcher (Burns and Grove 1993). Open ended questions were included

because they afford the subjects to respond to questions in their own words providing further

insight and perspective.

The questionnaires were only in English since the population sample selected understands

English and can read and write for themselves. Here anonymity was guaranteed based on the

37

fact that the researchers would not be able to link their responses to them at the data analysis

stage. Questionnaire one (Q1) administered to the State Transport Corporation (STC) consists

of four (4) sections; A, B, C and D. The section A is aimed at gaining demographic data like

age, gender, and education. It also looks at the working experience (in years), position in the

Corporation, and specific departments of the respondents. This information could assist the

researcher when interpreting the results to gain insight into whether or not the subjects

perception of the audit report is linked to the department they belong or whether education is

linked to their understanding of the relevance of audit reports in their establishment. The

sections B, C, and D are focused on the subject matter of the research.

Questionnaire two (Q2) for the CSOs is also structured just as the Questionnaire one (Q1).

3.6.2 Data collection procedure

The questionnaires are personally distributed by the researchers to the STC and the CSOs’

employees and management to complete. The questionnaires administered were collected

within weeks after they were completed.

3.7 DATA RELIABILITY AND VALIDITY

3.7.1 Reliability

Polit and Hungler (1993) refer to reliability as the degree of consistency with which an

instrument measures the attribute it is designed to measure. The two questionnaires were

answered by both groups of subjects as well as an interview for the state auditor, The Ghana

Audit Service (GAS), and were structured in a way to ensure consistency. Reliability was

38

also ensured by minimizing sources of measurement error like data bias. The researchers

being the sole administers of the questionnaires providing the privacy, confidentiality and

general comfort attempts to reduce bias.

3.7.2 Validity

The validity of an instrument is the degree to which an instrument measures what it is

intended to measure (Polit and Hungler 1993). Content validity refers to the extent to which

an instrument represents the factors under study. To achieve validity, the questionnaires

included a variety of questions on Audit reports and its importance in the public sector of

Ghana.

Questions were based on the data gathered during the literature review to ensure that they

were representative of what the public stakeholders should know regarding the Audit reports

and its real essence in the public sector of Ghana. Also, content validity was further ensured

by consistency in administering the questionnaires with the questions formulated in simple

language for clarity and ease of understanding. Clear instructions were given to the subjects

to reduce errors and misstatements.

All persons approached to participate in the study completed questionnaires and participated

in the interview. With no person refusing to participate in the study, external validity was

ensured. Burns and Grove (1993:270) refer to external validity as the extent to which study

findings can be generalized beyond the sample used. Using 100% participation, generalizing

the findings to all members of the population is therefore justified. In a research, the number

of people who are approached and refuse to participate in the study should be reported so that

39

threats to external validity can be judged. As the percentage of those who decline to

participate increases, external validity decreases (Burns and Grove, 1993)

3.8 PRETESTING THE QUESTIONNAIRE

Before implementing the study, the researchers had to ensure that the measurement

procedures and the measurement instrument had acceptable levels of reliability and validity.

To pretest a questionnaire refers to a trial administration of an instrument to identify its flaws.

The researchers carried out a pretest on five people who do not form part of the research

sample.

3.9 DATA ORGANIZATION AND DATA ANALYSIS

Data collected from the field was organized using frequency distribution tables. Tables,

charts, graphs, frequencies and percentages were used to demonstrate the response that was

obtained from the respondents. The data was also analyzed by the use of an Excel

Spreadsheet to lend more credibility to the analysis. Qualitative methods of investigations are

also be employed alongside the quantitative methods in the analysis and interpretation of data

for the study.

40

CHAPTER FOUR

DATA ANALYSIS AND RESEARCH FINDINGS

4.1 INTRODUCTION

This chapter describes the analysis of data followed by a discussion of the research findings.

The findings relate to the research questions that guided the study. Data were analyzed to

identify, describe and explore whether or not audit reports reveal a true and fair view or are

only a mere compliance to legislations. This analysis and discussion is done using selected

public stakeholders and institutions that have interests in the audit outcomes of public

institutions. The chapter begins with a description of the demographic characteristics of the

respondents. The total number of respondents was forty. Out of the entire number of

respondents twenty of the respondents were for the selected public institution (intercity STC).

The remaining twenty respondents were for civil society organizations represented by

IMANIGhana and the Institute of Democratic Governance (IDEG). Ten respondents were

selected from IMANI and ten respondents were selected from IDEG to form the total number

of respondents of the civil society organization.

4.2 METHODS OF DATA ANALYSIS AND PRESENTATION OF DATA

Details of the survey instruments were given under chapter 3 and a copy of the questionnaire

is attached as Appendices. For ease of reference, the questionnaires were numbered one (1)

and two (2).

As far as possible, data were tabulated and displayed through tables, with the aim of

identifying and discerning any patterns that provided the best interpretation of the results

of the study.

41

4.3 INTERPRETATIONS OF FINDINGS

4.3.1 Demographic Relationships and Study Variables

Although it was not part of the purpose of the study, this set of data was intended to describe

demographic variables of the sample and to assess for any influence on the research findings.

The demographic data consisted of age, sex, years of experience and adequacy of training and

support. Respondents largely omitted the open- ended question in this section of the

Questionnaire.

4.3.2 Gender differences of the participants in the sample

From Intercity STC, males make up the majority of the respondents. Twelve, which

represents 60% of the respondents, were males whiles eight, which represents 40% were

females.

Table 1:Sex Distribution- Intercity STC

Sex No. Percentage

Male 12 60.0%

Female 8 40.0%

Total 20 100.0%

Source: Field Work, 2013

0

10

20

30

40

50

60

MALE FEMALE

SEX DISTRIBUTION

42

On the other hand, from IMANI majority from the civil society organization of the

respondents were females. Three (30.0%) were males from IMANI. There was another three

(30.0%) of the respondents from IDEG. Seven (70.0%) of the respondents from IMANI were

females and another seven (70.0%) of the respondents were females from IDEG.

Table 1:Sex Distribution- Civil Society Organizations (IMANI & IDEG)

Source: Field Work, 2013

4.3.3 Age ranges of the participants in the sample

From Intercity STC, the age group that has the greatest percentage is 50 years or more. Nine

of the respondents are aged between 50 years or more which has a percentage of 45%. Four

of the respondents are also aged between 20-29 years which has the second highest

percentage of 20%. The age group that comes third is 40-49 years which has 3 members

representing 15%. At the bottom are the age groups 30-39 years and 19 years or less, both of

which have a percentage of 10%. Table (2)

0

10

20

30

40

50

60

70

MALE FEMALE

SEX DISTRIBUTION

IMANI

IDEG

Sex No Percentage No Percentage

Male 3 30.0% 3 30.0%

Female 7 70.0% 7 70.0%

Total 10 100.0% 100.0% 100.0%

43

Table 2: Age Distribution- Intercity STC

Age No. Percentage

19 or less 2 10.0%

20-29 4 20.0%

30-39 2 10.0%

40-49 3 15.0%

50 or more 9 45.0%

Total 20 100.0%

Source: Field Work, 2013

On the other hand, respondents from IMANI had their ages falling between 19 and 50 years

and above. Five (50.0%) of the respondents from IMANI had their ages falling between 20

and 29 years old. The same number respondents were from IDEG. Two (20.0%) of the

respondents had their ages falling from 30 and 39 years old. Four (40.0%) of the respondents

from IDEG had their ages falling between 30 and 39 years old. None of the respondents from

IDEG had their ages falling between 40 and 49 years old.

AGE DISTRIBUTION

19 OR LESS

20-29

30-39

40-49

50 OR MORE

44

Table 3: Age distribution-Civil Society Organizations (IMANI & IDEG)

Source: Field Work, 2013

AGE DISTRIBUTION (IMANI)

19 OR LESS

20-29

30-39

40-49

50 OR MORE

AGE DISTRIBUTION (IDEG)

19 OR LESS

20-29

30-39

40-49

50 OR MORE

IMANI

IDEG

Age No. Percentage No. Percentage

19 or less 1 10.0% 1 10%

20-29 5 50.0% 5 50%

30-39 2 20.0% 4 40%

40-49 1 10.0% 0 0%

50 or more 1 10.0% 0 0%

Total 10 100.0% 10 100%

45

4.3.4 Educational Qualification

From Intercity STC,majority of the respondents hold a degree, masters or a PhD. 50% of the

respondents possess a degree, masters or a PhD, forming the majority. 25% of the

respondents are professionals and closely in third position are diploma/HND holders who

form 20%. None of the respondents hold a WASSCE certificate whiles just 5% hold other

qualifications. Table (3)

Table 4: Educational Qualification- Intercity STC

Highest Qualification No. Percentage

WASSCE 0 0.0%

DIPLOMA/HND 4 20.0%

DEGREE/MASTERS/PHD 10 50.0%

PROFESSIONAL 5 25.0%

OTHERS 1 5.0%

Total 20 100.0%

Source: Field Work, 2013

Educational Qualification- Intercity STC

On the other hand, none of the respondents from IMANI had professional qualification.

Respondents from IDEG had a professional qualification

0123456789

10

46

Table 5: Educational Qualification- Civil Society Organizations (IMANI & IDEG)

IMANI

IDEG

Highest Qualification No. Percentage No. Percentage

WASSCE 0 0.0% 0 0.0%

DIPLOMA/HND 0 0.0% 0 0.0%

DEGREE/MASTERS/PHD 10 100.0% 9 90%

PROFESSIONAL 0 0.0% 1 10%

OTHERS 0 0.0% 0 0.0%

Total 10 100.0% 10 100%

Source: Field Work, 2013

Educational Qualification- Civil Society Organizations (IMANI)

0123456789

10

47

4.3.5 Departmental Distribution

From Intercity STC, the department with the greatest share of respondents is Accounting and

finance. Accounting and finance has twelve members which represents 60% of the

respondents. Administration and Other departments are both in second place with 15% each.

Also, sales and marketing has a percentage of 5%, same for technical. None of the

respondents are from the Human Resource department. Table (4)

Table 6: Departmental Distribution- Intercity STC

Department belonging to No. Percentage

Sales and marketing 1 5.0%

Administration 3 15.0%

Technical 1 5.0%

Accounting and Finance 12 60.0%

Human Resource 0 0.0%

Other 3 15.0%

Total 20 100.0%

Source: Field Work, 2013

0

1

2

3

4

5

6

7

8

9

Educational Qualification- CivilSociety Organizations (IDEG)

48

Departmental Distribution- Intercity STC

On the other hand, at IMANI, two respondents (20.0%) of the respondents belong to the sales

and marketing department. Three (30.0%) of the respondents belong to the finance and

administrative department. Five (50.0%) of the respondents were from the supply chain

department. On the other hand, four (40.0%) of the respondents from IDEG were from the

finance and administrative department but six (60.0%) of the respondents from IDEG were

from other departments.

Table 7: Departmental Distribution-Civil Society Organizations (IMANI & IDEG)

IMANI IDEG

Department belonging to No. Percentage No. Percentage

Sales and marketing 2 20.0% 0 0.0%

Finance and Admin 3 30.0% 4 40.0%

Technical 0 0.0% 0 0.0%

Internal Control 0 0.0% 0 0.0%

Supply Chain 5 50.0% 0 0.0%

Other 0 0.0% 6 60.0%

Total 10 100.0% 10 100.0%

Source: Field Work, 2013

0

2

4

6

8

10

12

49

Departmental Distribution-Civil Society Organizations (IMANI)

Departmental Distribution-Civil Society Organizations (IDEG)

4.3.6 Years of Experience

Six of the respondents have about 0-5years of experience in their current position, which is

the same for those with 15 years and above worth of experience. They both form the highest

percentage share of 30%. Respondents with 10-15years of experience make up 25%. Whiles,

those with 5-10 years of experience are at the bottom with 15%. Table (5)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Sales andmarketing

Finance andAdmin

Technical Internal Control Supply Chain

0

1

2

3

4

5

6

Sales andmarketing

Finance andAdmin

Technical InternalControl

Supply Chain other

50

Table 8: Years of Experience

Years of experience in current position No. Percentage

0-5 6 30.0%

5-10 3 15.0%

10-15 5 25.0%

15 and above 6 30.0%

Total 20 100.0%

Source: Field Work, 2013

Years of Experience

4.4 Section B-The Audit Report and associated perception

4.4.1 Ever seen an Audit Report

Nineteen (95%) of the respondents have seen an audit report before. Just one of the

respondents, which represents 5% have never seen an audit report. Table (6)

Table 9: Ever seen an Audit Report

Have you ever seen an audit report? No. Percentage

Yes 19 95.0%

No 1 5.0%

Not sure 0 0.0%

Total 20 100.0%

Source: Field Work, 2013

0

1

2

3

4

5

6

0-5 years 5-10years 10-15years 15 and above

51

4.4.2 Importance of audit report

The greatest proportion of the respondents believes that an audit report is important. 85% of

the respondents are in the affirmative. None said no but, 15% of the respondents are not sure

of the importance of the audit report. Table (7)

Table 10: Importance of audit report

Do you think it is really important? No. Percentage

Yes 17 85.0%

No 0 0.0%

Not sure 3 15.0%

Total 20 100.0%

Source: Field Work, 2013

Ever seen an Audit Report

Yes

No

Not sure

Importance of Audit Report

Yes

No

Not sure

52

4.4.3 Essence of Audit Reports

Two (10%) of the respondents mentioned that to reveal compliance to legislation gives them

the real essence of audit reports in their firms. On the other hand, 20% feel that to pass true

and verdict on financial statements give them a real essence of audit reports. 60% think that

both of the two criteria listed above gives them real essence of audit reports but 10% think

that some other criteria gives them that real essence.

Table 11: Essence of Audit Reports

Which of the following gives you the real essence of audit reports

in your establishment? No. Percentage

To reveal compliance to legislations 2 10.0%

To pass true and verdict on financial statements 4 20.0%

Both 12 60.0%

Other 2 10.0%

Total 20 100.0%

Source: Field Work, 2013

SECTION B – Audit Compliance and True and Fair View

4.5.1 Whether or notTRUE AND FAIR view principle Supersedes or Overrides compliance

to legislation

Essence of Audit Reports

To reveal compliance tolegislations

To pass true and verdict onfinancial statements

Both

Other

53

Majority of the respondents believe that to reveal compliance to legislations supersedes

passing true and verdict on financial statements. Forty five percent (45%) of the respondents

agree to the former whiles, just 25% go with the later. 30% of the respondents believe that

none of them supersedes the other.

Table 12: Whether or notTRUE AND FAIR view principle Supersedes or Overrides

COMPLIANCE to legislation

With reference to question 8, which of the above supersedes the

other? No. Percentage

To reveal compliance to legislations 9 45.0%

To pass true and verdict on financial statements 5 25.0%

None 6 30.0%

Other 0 0.0%

Total 20 100.0%

Source: Field Work, 2013

4.5.2 Audit Compliance to Legislations

Six of the respondents form IMANI (60.0%) strongly agrees that there should be adherence

to audit regulation and four of the respondent representing 40.0% also agree that there should

be adherence to audit regulation. None of the 10 respondent disagrees to that. In contrast two

of the respondents from IDEG (20.0%) strongly agree that there should be adherence to audit

Whether or not TRUE AND FAIR view principle Supersedes or Overrides COMPLIANCE to legislation

To reveal compliance tolegislations

To pass true and verdict onfinancial statements

None

Other

54

regulation and eight of the respondent representing 80.0% also agree that there should be

adherence to audit regulation. None of the 10 respondent disagrees to that.

Out of the 10 respondent, only two of the respondents form IMANI (20%) agrees to it that the

regulations regarding public sector are duly followed. Three of the respondent disagree

representing 30% of the total respondent while five (50%) strongly disagree. Majority of the

respondent strongly disagree that regulations are duly followed at the public sector. In

contrast out of the 10 respondent from IDEG, four (40%) agree to it that the regulations

regarding public sector are duly followed. Five of the respondents disagree representing 50%

of the total respondent while one (10%) was not sure. Majority of the respondent disagree

that regulations are duly followed at the public sector.

Table 13: Audit Compliance to Legislations-Civil Society Organizations - IMANI

VARIABLE Strongly

Agree

% Agree % Disagree % Strongly

Disagree

% Not

Sure

%

Sample 10.00 100% 20.00 100% 20.00 100% 20.00 100% 20.00 100%

Adherence to

audit regulation

9 90.0% 6 30.0% 0 0.0% 0 0.0% 0 0.0%

Regulations are

duly followed

0 0.0% 2 10.0% 3 15.0% 0 9 45.0%

Regulations

have a bearing

in the public

sector

2 20.0% 9 45.0% 1 5.0% 0 0.0% 2 10.0%

Adherence to

audit regulation

in public sector

1 10.0% 1 5.0% 1 5.0% 2 10.0% 1 5.0%

Importance of

audit

compliance

1 10.0% 1 5.0% 3 15.0% 1 5.0% 0 0.0%

Source: Field Work, 2013

55

Audit Compliance to Legislations-Civil Society Organizations - IMANI

Table 14: Audit Compliance to Legislations-Civil Society Organizations - IDEG

VARIABLE Strongly

Agree

% Agree % Disagree % Strongly

Disagree

% Not

Sure

%

Adherence

to audit

regulation

3 30.0% 2 10.0% 0 0.0% 0 0.0% 0 0.0%

Regulations

are duly

followed

0 0.0% 1 5.0% 2 10.0% 3 0 0.0%

Regulations

have a

bearing in

the public

sector

1 10.0% 3 15.0% 0 0.0% 1 15.0% 1 5.0%

Adherence

to audit

regulation in

public sector

1 10.0% 2 10.0% 6 30.0% 0 0.0% 5 25.0%

importance

of audit

compliance

0 0.0% 5 25.0% 2 10.0% 0 0.0% 6 30.0%

Source: Field Work, 2013

0

2

4

6

8

10

12

14

16

Adherenceto audit

regulation

Regulationsare dulyfollowed

Regulationshave a

bearing inthe public

sector

Adherenceto audit

regulation inpublic sector

Importanceof audit

compliance

Not Sure

Strongly Disagree

Disagree

Agree

Strongly Agree

56

4.5.3 True and Fair View

Out of the 10 respondent from IMANI, six (60%) agree that true and fair has a bearing a

financial reports while two (20%) strongly agree. Only two (20%) of the respondent disagree.

But out of the 10 respondent from IDEG, eight (80%) agree that true and fair has a bearing a

financial reports while two (20%) of the respondent were not sure. None of the respondent

disagrees

Three (30%) of the respondent from IDEG strongly agree that audit regulations have a

bearing on the performance of the audit work in the public sector. Two of the respondent

representing (20.0%) also agree while two (20%) also disagree. Three (30%) of the total

respondent were not sure. At the other hand, two (20%) of the respondent from IMANI

strongly agree that audit regulations have a bearing on the performance of the audit work in

the public sector. Four of the respondent representing 40.0% also agree while two (20%) also

strongly disagree. Two (20%) of the total respondent were not sure. (Table 17)

0

2

4

6

8

10

12

14

16

Adherenceto audit

regulation

Regulationsare dulyfollowed

Regulationshave a

bearing inthe public

sector

Adherenceto audit

regulationin public

sector

Importanceof audit

compliance

not sure

stongly disagree

disagree

agree

strongly agree

57

Out of the 10 respondent from IMANI, two (20%) strongly agree that adherence of audit

regulation pose some limitations to the performance of audit work in the public sector. Two

(20%) of the respondent agree. Two (20%) disagree while two (20%) also strongly disagree.

Two (20%) of the respondent were not sure. In contrast out of the 10 respondent, only two

(20%) strongly agree that adherence of audit regulation pose some limitations to the

performance of audit work in the public sector while eight (80%) also strongly disagree.

(Table 15)

Two (20%) of the respondent strongly agree that audit compliance are of importance. Two

(20%) of the respondent also agree .Four 0f the respondent representing 40% disagree while

two (20%) of the respondent strongly disagree. On the contrary seven (70%) of the

respondent agree that audit compliance are of importance while only three (30%) of the

respondent disagree. (Table 15)

True and Fair View - IMANI

0

1

2

3

4

5

6

Audit presenta true

performance

True and fairhas a bearingon financial

reports

Adherencepose a

limitation tofinancial

statements

Financialstatements isindicative of

future growthand survival

Importanceof true and

fair viewsupersedes

the auditcompliance

Not Sure

Strongly Disagree

Disagree

Agree

Strongly Agree

58

Table 14: True and Fair View - IMANI

VARIABLE Strongly

Agree

% Agree % Disagree % Strongly

Disagree

% Not

Sure

%

Audit

present a

true

performance

2 20.0% 3 15.0% 0 0.0% 0 0.0% 0 0.0%

True and fair

has a bearing

on financial

reports

1 10.0% 4 20.0% 1 5.0% 0 0.0% 0 0.0%

Adherence

pose a

limitation to

financial

statements

0 0.0% 2 10.0% 2 10.0% 2 10.0% 0 0.0%

Financial

statements is

indicative of

future

growth and

survival

0 0.0% 5 25.0% 1 5.0% 0 0.0% 0 0.0%

Importance

of true and

fair view

supersedes

the audit

compliance

0 0.0% 1 5.0% 4 20.0% 0 0.0% 1 5.0%

Source: Field Work, 2013

True and Fair View- IDEG

02468

101214

NOT SURE

STRONGLY DISAGREE

DISAGREE

AGREE

STRONGLY AGREE

59

Table 16: True and Fair View- IDEG

VARIABLE Strongly

Agree

% Agree % Disagree % Strongly

Disagree

% Not

Sure

%

Audit

present a

true

performance

8 80.0% 3 15.0% 1 5.0% 1 5.0% 1 5.0%

True and fair

has a bearing

on financial

reports

6 60.0% 5 25.0% 0 0.0% 0 0.0% 3 15.0%

Adherence

pose a

limitation to

financial

statements

2 20.0% 2 10.0% 4 20.0% 0 0.0% 5 25.0%

Financial

statements is

indicative of

future

growth and

survival

1 10.0% 5 25.0% 1 5.0% 2 10.0% 5 25.0%

Importance

of true and

fair view

supersedes

the audit

compliance

1 10.0% 1 5.0% 6 30.0% 0 0.0% 4 20.0%

Source: Field Work, 2013

4.6 Section C- Audit Reports and Public Sector Auditing

4.6.1 Public sector accountability and Audit Reports

Most of the respondents do not believe that the audit report is not an end to itself as far as

public sector accounting is concerned. 50% of the respondents affirmed to the above

statement, while 35% do not. Three of the respondents (representing 15%) are not sure.

60

Table 17: Public sector accountability and Audit Report

Is the audit report an end to itself as far as public sector

accountability is concern? No. Percentage

Yes 7 35.0%

No 10 50.0%

Not sure 3 15.0%

Total 20 100.0%

Source: Field Work, 2013

4.6.2 Audit reports, fraud and mismanagement

Majority of the respondents believe that audit reports can reveal fraud and mismanagement in

the public sector. 85% agree with the above statement. None where in the negative, while

three of the respondents (representing 15%) are not sure. Table (18)

Table 18: Audit reports, fraud and mismanagement

Can audit report reveal fraud and mismanagement in the public

sector?

No

.

Percentag

e

Yes 17 85.0%

No 0 0.0%

Not sure 3 15.0%

Total 20 100.0%

Source: Field Work, 2013

Public sector accountability and Audit Report

Yes

No

Not sure

61

4.6.3 Audit report and forecast

Sixteen (80%) of the respondents say that audit reports have the ability to forecasts a

company’s doom. Three, which represents 15% of the respondents, disagree. Just 5% of the

respondents are not sure.

Table 19: Audit report and forecast

If yes, can the audit report forecast doom for a company? No. Percentage

Yes 16 80.0%

No 3 15.0%

Not sure 1 5.0%

Total 20 100.0%

Audit reports, fraud and mismanagement

Yes

No

Not sure

Audit report and forecast

Yes

No

Not sure

4th Qtr

62

4.6.4State Auditors (Ghana Audit Service) and effective audit

Four (20%) of the respondents think that the state auditors are adequately resourced to

perform a good audit. The same number of respondents thinks otherwise. But 60% of the

respondents are not sure if the state auditor’s resources are adequate or not. Table (20)

Table 20: State Auditors and effective audit

Are the State Auditors adequately resourced to perform a good

audit? No. Percentage

Yes 4 20.0%

No 4 20.0%

Not sure 12 60.0%

Total 20 100.0%

Source: Field Work, 2013

4.6.5 Audit reports and remedial actions on management Out of the total respondents, 65.0% agreed that, management issues identified by audit

reports lead to a change in management of the company whereas 5.0% did not agree and

30.0% weren’t sure

State Auditors and effective audit

Yes

No

Not sure

63

Table 21: Audit reports and change in management of the company

Can the management issues identified by audit reports lead to a

change in management of the company No. Percentage

Yes 13 65.0%

No 1 5.0%

Not sure 6 30.0%

Total 20 100.0%

Source: Field Work, 2013

4.6.6 Auditing in the Public Sector and meeting its purpose

Most of the respondents believe that auditing in the public sector serves its purpose. Half of

the respondents say that auditing in the public sector serve its purpose. On the other hand

45% of the respondents think otherwise. 5% were not certain. Table (16)

Table 22: Auditing in the Public Sector and meeting its purpose

Does auditing in the Public Sector serve its purpose? No. Percentage

Yes 10 50.0%

No 9 45.0%

Not sure 1 5.0%

Total 20 100.0%

Source: Field Work, 2013

Audit reports and change in management of the company

Yes

No

Not sure

64

4.7 Section D- Post Audit Report: the role of the Public Accounts Committee of

Parliament.

4.7.1 Responsibility of Public Accounts Committee of Parliament (PAC)

Public Accounts Committee Responsibility

Fourteen (70%) of the respondents have knowledge about the responsibilities of the Public

Accounts Committee in public sector responsibility. Two (10%), on the other hand, have no

idea about the Public Accounts Committee’s responsibility. Lastly, four (representing 20%)

are not sure if they know those responsibilities. Table (23)

Table 23: Responsibility of Public Accounts Committee

Are you aware of Public Accounts Committee's responsibility in public

sector responsibility

N

o.

Percent

age

Yes 14 70.0%

No 2 10.0%

Not sure 4 20.0%

Total 20 100.0%

Source: Field Work, 2013

Auditing in the Public Sector and meeting its purpose

Yes

No

Not sure

4th Qtr

65

4.7.2 Follow ups made by Public Accounts Committee

With respect to weather the Public Accounts Committee of Parliament has followed up on

any 50% of the respondents were not sure if any follow ups had been made by the Public

Accounts Committee on any management issues raised from their corporations audit reports.

Two of the respondents (representing 10%) were positive that the Public Accounts

Committee had made some follow ups. On the other hand 40% of the respondents said no.

Table (24)

Table 24: Follow ups made by Public Accounts Committee

Has the Public Account Committee of Parliament followed up on any

management issues raised from your corporations Audit Reports? No.

Percent

age

Yes 2 10.0%

No 8 40.0%

Not sure 10 50.0%

Total 20 100.0%

Source: Field Work, 2013

Responsibility of Public Accounts Committee

Yes

No

Not sure

4th Qtr

66

4.7.3 Remedial Actions Taken

Nine of the respondents, which represent 45%, have not experienced any remedial action

being taken against their corporations for adverse audit report. Also, 30% of the respondents

have had some remedial actions taken against their firms for bad audit reports. The number of

respondents which were not sure of any action being taken was five, which represents 25%.

Table (25): Remedial Actions Taken

Has any remedial action been instituted against your corporation in case

of adverse Audit Report?

N

o.

Percent

age

Yes 6 30.0%

No 9 45.0%

Not sure 5 25.0%

Total 20 100.0%

Source: Field Work, 2013

Follow ups made by Public Accounts Committee

Yes

No

Not sure

Remedial Actions Taken

Yes

No

Not sure

67

4.7.4 Advice against fundamental risks

75% of the respondents say that public sector audit identify and advise against fundamental

risks faced by public firms. Two of the respondents (representing 10%) disagree. But 15% of

the respondents are not sure. Table (26)

Table (26): Advice against fundamental risks

Does the Public Sector Audit process identify and advise against

fundamental risks faced by most public institutions? No. Percentage

Yes 15 75.0%

No 2 10.0%

Not sure 3 15.0%

Total 20 100.0%

Source: Field Work, 2013

4.7.5 Post Audit Outcome

Majority of the respondent from IMANI, seven (70%) agree that there are institutional

provisions to address weakness in audit work in public sector. While only three (30%)

disagree. In contrast six (60%) of the respondents from IDEG agree that there are institutional

provisions to address weakness in audit work in public sector. Two (20%) of respondent

disagree while two (20%) were not sure.

Advice against fundamental risks

Yes

No

Not sure

4th Qtr

68

Out of the 10 respondent from IMANI, only two (20%) agree that there have been remedial

actions instituted against their corporation. Six (60%) disagree while two (20%) strongly

disagree. On the other hand out of the 10 respondent from IDEG, only two (20%) agree that

there have been remedial actions instituted against their corporation. Four (40%) disagree and

also four (40%) strongly disagree.

Three (30%) of the respondent from IMANI agree that such institution has affect the work of

their organization. Majority of the respondent five (50%) disagree while two were not sure.

Quite the reverse five (50%) of the respondent from IDEG agree that such institution has

affect the work of their organization. And five (50%) of the respondent disagree.

Table 27: Post Audit Outcome–IMANI

VARIABL

E

Strongl

y Agree

% Agree % Disagree % Strongl

y

Disagre

e

% Not

Sur

e

%

Institutional

provisions

address

weaknesses

0 0.0

%

5 25.0

%

1 5.0% 0 0.0

%

0 0.0%

Institutions

have

capacity and

requisite

tools

0 0.0

%

3 15.0

%

3 15.0

%

0 0.0

%

0 0.0%

Remedial

actions

instituted

against your

corporation

0 0.0

%

1 5.0

%

4 20.0

%

1 5.0

%

0 0.0%

Such

institutions

affects the

work

0 0.0

%

2 10.0

%

3 15.0

%

0 0.0

%

1 5.0%

Source: Field Work, 2013

69

Post Audit Outcome – IMANI

Table 28: Post Audit Outcome - IDEG

VARIABLE Strongly

Agree

% Agree % Disagree % Strongly

Disagree

% Not

Sure

%

Institutional

provisions

address

weaknesses

3 30.0% 5 25.0% 1 5.0% 1 5.0% 6 30.0%

Institutions

have

capacity and

requisite

tools

0 0.0% 4 20.0% 0.0% 1 5.0% 9 45.0%

Remedial

actions

instituted

against your

corporation

0 0.0% 1 5.0% 3 15.0% 1 5.0% 6 30.0%

Such

institutions

affects the

work

2 20.0% 3 15.0% 2 10.0% 1 5.0% 1 5.0%

Source: Field Work, 2013

0

1

2

3

4

5

6

Institutionalprovisions

addressweaknesses

Institutionshave capacityand requisite

tools

Remedialactions

institutedagainst yourcorporation

Suchinstitutionsaffects the

work

NOT SURE

STRONGLY DISAGREE

DISAGREE

AGREE

STRONGLY AGREE

70

Post Audit Outcome - IDEG

4.8 SUMMARY

In this chapter, data analysis methods, study results and a discussion of the findings have

been presented. Findings from this study have been found to be consistent with the findings

of several related studies on Auditing in the public sector. In addition the impact of various

demographic data on the research topic has been explored.

Data findings were described as correlations to the study variables and presented as

tabulations. In the next chapter, the implications of the findings for audit reports in the public

sector will be discussed in relation to the various stakeholders. The limitations to this study

will also be presented.

0

2

4

6

8

10

12

14

16

Institutionalprovisions

addressweaknesses

Institutionshave capacityand requisite

tools

Remedialactions

institutedagainst yourcorporation

Suchinstitutionsaffects the

work

NOT SURE

STRONGLY DISAGREE

DISAGREE

AGREE

STRONGLY AGREE

71

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 INTRODUCTION

The purpose of this chapter is to summarize the study that was conducted. Included in this

summary are a review of the purpose of the study, a restatement of the research questions, the

research methodology used, and a summary of the study’s results, conclusions and

discussion. Recommendations for further research and possible studies conclude this chapter.

5.2SUMMARY

5.2.1 Objective of the Study

The overall objective of this study was to examine the audit report as a reflective and

evidential indicator of the true and fair view of financial statements or a mere compliance to

legislation in Ghana regarding the performance of public institution.

5.2.2 Restatement of Research Questions

The research questions for this study were:

1. Do the audit reports reflect the true and fair view of financial statements in

Ghana?

2. Does the compliance to legislations override the true and fair view principle of

financial statements reporting?

3. To what extent are stakeholder’s (citizens) perceptions and interests affected

by the audit reports on the various public institutions?

72

5.2.3 Research Methodology

This provided details of data analysis which includes the description of the relevant variables

and methods of data collection, data type, source, and procedure. The study employed both

primary and secondary data to examine and determine the current practices and involvement

of the Ghana Audit Service in public sector auditing in Ghana. The study employed interview

and two sets of questionnaires to elicit the relevant data for the research.

Questionnaire one (Q1) which was administered to the State Transport Corporation (STC)

consists of four (4) sections; A, B, C and D. The section A is aimed at gaining demographic

data like age, gender, and education. It also looks at the working experience (in years),

position in the Corporation, and specific departments of the respondents. This information

could assist the researcher when interpreting the results to gain insight into whether or not the

subjects perception of the audit report is linked to the department they belong or whether

education is linked to their understanding of relevance of audit reports in their establishment.

The sections B, C, and D are focused on the subject matter of the research.

Questionnaire two (Q2) for the CSOs is also structured just as the Questionnaire one (Q1).

5.3 FINDINGS AND DISCUSSION

The findings suggest that in the case of the Public Sector, there is the need for a third party to

attest to the believability (credibility) of the financial reports, performance results,

compliance, and other measures emanating from factors inherent in the relationship between

the principal and its agent. These factors include:

1. Moral hazards/conflicts of interest: Agents may use their resources and authority to benefit

their own interests, rather than the principal’s interests.

73

2. Remoteness: Operations may be physically removed from the principal’s direct oversight.

3. Complexity: The principal may not possess the technical expertise needed to oversee the

activity.

4. Consequence of error: Errors may be costly when agents are stewards of large amounts of

resources and are responsible for programs affecting citizens’ lives and health (The Institute

of Internal Auditors, 2013).

In a typical public institution, the Audit Reports represents the attestation of a third party to

the credibility of the financial reporting, true & fair performance results, and compliance

where the citizens are the principals/owners/stakeholders of these institutions. The principal-

agent relationship that come with the management of these public institutions leave them

vulnerable in the face of the factors inherent in the relationship between the principal and its

agent listed above. A true ascertainment of whether Audit Reports reflect true and fair view

of financial statements or a mere compliance to legislations is critical to the citizens who

remain the principal owners of the public institution.

Mr. Kennedy Segbenya, Director, Commercial Audit, Ghana Audit Service had this to say on

the true essence of the audit report to the ordinary Ghanaian:

Audit Reports in the public sector has a great bearing on the public institutions in that it

constrains the clients to act within the criteria set out, analyzing cause and effect and

implementing the audit recommendations. He stressed that the audit reports issued to these

public institutions are monitored by the donor agencies and development partners whose

continuous support to these institutions are dependent on how well they perform. This helps

to generate a lot of money for the nation and helps improve the welfare of the ordinary

Ghanaian. (Field interview, 2013)

This is to say that the Audit Reports, carrying a true verdict on financial statements and not

necessarily compliance to legislations, have a positive bearing on the public institutions and

74

as such the ordinary citizen being the owners. This would tend to reduce the agency costs

associated with engaging others to man these public institutions.

The findings also confirm the observation of Messier et.al (2008) that compliance is key to

auditing to the extent that he identified Internal Control Audit and Performance/Operational

Audit as other ways of auditing. It shows the need for the public sector to focus on properly

accounting for assets and expenditures as reported by the government and also to examine the

reliability of specific financial information, compliance with relevant procedures and rules, or

the safeguarding of assets. The findings also confirm that a significant part of audits have two

objectives:

1. expressing opinion on financial statements and

2. compliance with the regulations or expressing opinion on compliance with the

regulations and on the performance of operations.

The findings support the idea that government entities are being required to undergo an audit

of their compliance with applicable legislative requirements. It also relates the legislations,

policies and control frameworks as being the different levels of compliance as observed

Geffken, Carl, (2004, October).

The findings confirm monitoring and reporting on compliance and the review of the

effectiveness of compliance frameworks, as being part of the roles of the Auditor-General in

Public Sector compliance. Mr. Kennedy Segbenya who works directly under the Auditor-

General as a Director confirmed this when asked about the how compliance works in Public

Sector Auditing:

On compliance audit, he described the process as taking all the applicable laws into

consideration and the audit carried out in the light of them. He pointed out the Financial

Administration Act (FAA), the Financial Administration Regulation (FAR), and Generally

Accepted Accounting Principles (GAAP) as examples of them. He noted that compliance

75

audit is mostly used in their work and that a substantive audit is only carried out when

serious issues are detected. (Field Interview 2012)

On the ability and competence of the Ghana Audit service to provide credibility to the

financial statementspublic institutions they own, majority of the respondents did express a

low level trust in the work of the state auditor as expressed in the data analyzed above.

Mismanagement in the public sector they believe cannot be entirely addressed by the audit

report.

However, the findings also confirm that a well-designed audit will address all of the critical

steps needed for contract compliance by evaluating the entire procurement process and

providing the needed oversight throughout the operations of supreme audit institutions being

the Audit Service in Ghana. Mr. Segbenya however disagreed largely with the respondents

from IMANI Ghana and IDEG by suggesting that:

Auditing in the public sector is a very necessary requirement (backed by law) and without it a

lot would go wrong in the management of public resources at the Ministries, Departments

and Agencies (MDAs), and other public institutions. The Public Sector Auditing he described

as procedural looks at three key things called the 3Es-thus performing audit Effectively,

Economically and Efficiently. Overall, I can say state audit is not 100% in terms of the 3Es

but an 80% score is a fair rating.

The discussion on true and fair view of financial statements has yielded the understanding

that there should be no material misstatement contained in the financial statements reported.

This view was echoed by respondents through the data collected using the questionnaires.

However, the concept looks vague in itself and remains relative and debatable in many

circles. Controversies still surround how to arrive at the verdict of true and fair view and

Once again, Mr. Segbenya has this to say concerning true and fair verdict in Public Sector

Auditing:

76

Within the commercial audit unit of the GAS where I work, true and fair view guides our

work to qualify, not qualify or issue except for audit reports. The true and fair view criteria

he said depends largely on materiality levels set when performing the audit work and adverse

reports are issued only when then the accounts being audited do not satisfy the levels of

materiality set. The other criterion used in establishing true and fair view is the presentation

of the accounts and the underlying records. Qualified reports exist in the public sector but

are very rare. Last year for example, we recorded none. In extreme cases where true and fair

view has been breached, the Auditor General (AG) can withhold the emoluments of the

institutions concerned. He however noted that the laws are not seriously applied in this

regards.

Although the concepts of audit compliance and true and fair view are inextricably related to

generate a quality audit report, public sector auditing tends to look towards compliance than

true and fair view and this tends to give a greater importance to compliance. The respondents

rightly pointed out the fact that compliance supersedes true and fair view in the public sector.

This is what Mr. Segbenyahas had to say:

On the issue of precedence, he underscored that a careful blend is sought to reconcile the two

stance-thus true and fair view and compliance stressing the relative importance of each in

producing a quality audit report. He emphasized the need for quality especially when the

reports are meant for foreign consumption.

The findings relate to the literature that good compliance leads to good management which

leads to good performance. Nevertheless some agencies experience compliance as restricting

their performance. This was the case of the staff of Intercity STC who pointed out that strict

adherence/compliance is a limiting factor to the day to day management of this Public

Institution.

77

The findings of this research with regards to post audit reports is consistent with varying

literature which identifies implementation of the audit outcomes as the single most important

stage in the public sector audit trail. Audit reports are not ends in themselves, thus they must

be implemented fully to address the challenges identified by auditors. The state auditor

through the audit report plays a major role in the public institutions by adding value and

giving assurance to the third parties involved. This can only be realized when the reports are

fully implemented. Here in Ghana, the constitution through the Parliamentary center

mandates the Public Accounts Committee of Parliament to review the work of the state

auditor and to implement the audit recommendations contained in the Auditor-General’s

notes that is submitted to it.

Follow-ups to ensure compliance must therefore go beyond the receipt of reports from

auditees to actual verification. While Parliament may rely on the Audit Service to carry out

such verifications, spot checks by the PAC are absolutely essential to motivate recalcitrant

MDAs to carry out corrective actions recommended by Parliament.

The respondents in the research suggest that Ghana lacks a clear public sector audit trails and

as such the various institutions do a disjointed work in terms of in terms of safeguarding the

interest of the citizens as stakeholders. Literature from the parliamentary center identified

system failure rather than poor supervision by political authorities to be the cause of poor

accountability in the public sector. A 2013 research report that revealed that the government

of Ghana is not fully implementing the PAC recommendation are clear drawbacks in

ensuring transparency and accountability in the financial administration of the country. In the

view of the researcher, Mr. Roland Akabzaa, a consultant at the Ghana Anti-Corruption

Coalition (GACC), misappropriations and corruption issues in the PAC recommendations are

often not fully implemented. The report pointed out that the heavy dependence on the

78

executive for resources was seriously undermining the ability to provide effective oversight

responsibility over resource management.

Also, Mr. Agyeman Manu, Chairman of PAC, said the limited time allocated for the

discussion of the Auditor General’s reports is problematic because it was impossible to go

through the sectors and provide appropriate suggestions. (Daily Graphic, 21st March 2013)

The gap between the number of reports submitted by the Auditor-General and the number of

reports reviewed by the PAC is principally as result of the time lag between the submission of

the Auditor-General’s Report to Parliament and the decision of the Business Committee of

the House to list the report on the Order Paper for the consideration of Parliament. Insiders

argue that the lag is often motivated by political considerations of the impact of such reports

during politically active periods such as election years. At the time of conducting this study,

the Auditor-General’s Reports on MDAs, during 2010 and 2011 financial years as well as

the Report of the Auditor-General on the District, Metropolitan and Municipal Assemblies

were in the mail room yet to be considered by the Business Committee and referred to the

PAC.

Mr. Segbenya has this to say on the public sector audit trail in Ghana:

After the AG compiles the reports submitted from all divisions within the service into a single

document called the AG’s notes, he forwards it to the Public Accounts Committee (PAC) of

parliament where it is perused. The PAC then invited parties concerned to seek clarifications

when needed and help to implement audit recommendations. The PAC sitting on the audited

accounts of Ghana tries to put right what is not correct but this takes a long time he noted.

79

5.4 CONCLUSION

This research sought to elicit information as to whether Audit Reports of the public

institutions of Ghana comply to legislations or they actually reflect a true and fair verdict on

which the citizens can rely on to improve transparency and accountability in the use of public

resources.

We first established the fundamental essence of audit reports on public institutions through

the well-researched agency theory where an independent third party assurance remains key in

a principal-agent relationship.

In conclusion, we found out that, the audit reports in the public sector fulfill two principal

objectives:

1. expressing opinion on financial statements (true and fair verdict or otherwise) and

2. expressingopinion on compliance with the regulations and on the performance of

operations.

As rightly identified in the topic, there is a tendency to esteem one of the objectives well

above the other. Our study has revealed that even though a careful blend is sought to

reconcile the two stance-thus true and fair view and compliance, considering the relative

importance of each in producing a quality audit report, there is a body of evidence suggesting

that compliance is strictly followed in the Public Sector Audit process as compared to true

and fair verdict. Although the true and fair view principle is not compromised in real terms,

compliance auditing remains the key process unless very serious and material issues are

identified which would require a substantive audit. The substantive audit procedure gets

deeper to investigate true and fair verdict.

80

It is safe to conclude on the basis of data and evidence gathered on this research that the

normal audit procedure employed in Ghana by the state auditor is principally centered on the

compliance to legislations and other relevant codes that regulate the management of public

resources.

Other areas of the research generated very useful findings as summarized below:

1. the conduct of state audit is very essential in safeguarding the overriding interest of

the citizens in the management of public resources without which mismanagement

would collapse the public institutions.

2. The Public Accounts Committee (PAC) remains key in the conduct of effective audit

by the state auditor. The area of audit implementation seeks to obtain answers to

questions the state auditor feels were not satisfactorily addressed by the auditees.

3. Audit recommendations when strictly adhered to devoid of any political influence,

would go a long way to add value to the public institutions and to consolidate and

sustain growth. The opposite is true in that, the circumvention of audit

recommendations can spell doom for a public institution and this explains the recent

mismanagement and subsequent collapse of most public institutions.

4. The state auditor (Ghana Audit Service) is not 100% efficient as with all

organizations but its adequately resourced to conduct audit within the 3Es-thus

performing audit Effectively, Economically and Efficiently.

5. The stakeholder interest in these public institutions is served according to the State

Auditor in terms of ensuring that there is transparency and accountability in the

management of public institutions. However, this remains a hoax in the eyes of the

citizens because explanations on the collapse of most public institutions fall short of

the expected. This is because the citizens expect the fraud in these institutions to be

revealed by the audit reports of the preceding years and this goes to confirm the

81

assertion carried out in the research topic that the audit process remains a mere

compliance to legislations and not that which is to reveal hidden fact in the pursuance

of a true and fair verdict.

5.5 RECOMMENDATIONS.

The following recommendations are offered to assist in improving the public sector auditing

in ensuring effective work that adds value to public institutions in Ghana. They are addressed

to the specified groups stated below:

5.5.1 The Stakeholders of Public Institutions (Citizens)

The audit reports are to report on the financial statement and as such can only reveal truth on

the basis of the statements audited. The state auditor although with an inherent responsibility

of detecting frauds, focuses on the true and fair verdict of which compliance is key in public

sector. Identifying and managing this audit expectation gap would help clear the minds of the

parties involved.

5.5.2 The Public Accounts Committee (PAC) of Parliament

In the pursuit of good governance and ensuring transparency and accountability in the Public

sector, it will be proper for the PAC to carry out pre-emptive investigations in the

performance of its function as a watchdog Committee of Parliament in matters of public

finance. It has been suggested that whenthere are hints of malfeasance in public financial

management, the PAC must be empowered to institute immediate investigation into any

credible allegations with the view of preventing fraudulent, inefficient and less cost effective

application of public resources.

82

The qualitative improvements in the performance of the PAC by the combination of factors

including training and support from an array of stakeholders are highly needed and the

government has to take a center stage in getting the PAC to function properly.

The budget of the PAC should be separated and treated with urgency considering the crucial

role they play in public sector accountability. Very often when the budget of the PAC is

incorporated into the budget of Parliament, it is difficult to distinguish the budget for the PAC

and for that matter Committee activities from the overall budget of Parliament. Thus, while

Parliament may release resources to the Committee for its work,very often there is no link

between the budget submitted by the Committee and the release of funds to the Committee

The Public Accounts Committee must also collaborate effectively with other stakeholders to

make maximum use of available resources in all the independent governance institutions and

among the Civil Society Organization (CSO) community to improve transparency and

accountability in the use of public resources.

5.6 RESEARCH GAP AND POSSIBLE RESEARCH RECOMMENDATION

We acknowledge the fact that this research work is not exhaustive on the purpose of audit

reports in public institutions and does not wholly fill the gap in audit reports’ functions in the

public sector as either serving as mere compliance to legislations or depicting true and fair

view of financial statements. We advise that any research on this topic or similar to this work

focus on an extensive research on the work of the Public Accounts Committee (PAC) and the

limitations they face in addressing issues raised the state auditors’ reports. Research can also

be done to understand why public institutions fail to despite the seemingly compliant means

of presenting financial statements.

83

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DEPARTMENT OF ACCOUNTING

RESEARCH TOPIC:

AUDIT REPORT: A MERE COMPLIANCE TO LEGISLATION OR A TRUE AND FAIR

VIEW OF FINANCIAL STATEMENTS. THE CASE OF SELECTED PUBLIC

INSTITUTIONS IN GHANA

Research Questionnaire One (Q1)

We are students of University of Ghana Business School (UGBS) undertaking a research on

the above stated topic. We need information to help us in our research work in partial

fulfillment of the requirements for the award of a bachelor’s degree in Administration

(Accounting Option).

We promise that the questions and answers in this questionnaire will be treated with utmost

confidentiality. They will not be used for any other purpose than research.

Tick (√ ) to brackets fitting the answer to the question posed. Thank you for participating.

Section A-Background information:

1. Sex: Male [ ] Female [ ]

2. Age: 19 or less [ ] 20─29 [ ] 30─39 [ ] 40─49 [ ] 50 or more

[ ]

3. What is the highest qualification you have attained?

WASSCE [ ] DIPLOMA/HND [ ] DEGREE/MASTERS/PHD [ ]

PROFESSIONAL [ ] OTHERS [ ]

4. Which Department do you belong?

Sales and Marketing [ ] Administration [ ] Technical [ ] Accounting & Finance [

] Human Resource [ ] other[ ]

89

5. Years of experience in current position: 0-5 [ ] 5-10 [ ] 10-15 [ ] 15 and above [ ]

Section B- The Audit Report and associated perception

6. Have you ever seen an audit report?

Yes [ ] No [ ] Not sure [ ]

7. Do you think it is really important?

Yes [ ] No [ ] Not sure [ ]

8. Which of following gives you the real essence of audit reports in your establishment?

To reveal compliance to legislations [ ] To pass true and fair verdict on financial

statements [ ] Both [ ]

Other

(SPECIFY)………………………………………………………………………………..

9. With reference to question 8, which of the above supersedes/ overrides the other

To reveal compliance to legislations [ ] To pass true and fair verdict on financial

statements [ ] None [ ] Other

(SPECIFY)………………………………………..

10. Is the audit report an end in itself as far as public sector accountability is concerned?

Yes [ ] No [ ] Not sure [ ]

Section C- Audit Reports and public sector auditing

11. Can audit reports reveal fraud and mismanagement in the public sector?

Yes [ ] No [ ] Not sure [ ]

12. If yes, can the audit report forecast doom for a company?

Yes [ ] No [ ] Not sure [ ]

13. Are the State Auditors (Ghana Audit Service) adequately resourced to perform a good

audit?

Yes [ ] No [ ] Not sure [ ]

14. Can the management issues identified by audit reports lead to a change in management of

the company?

90

Yes [ ] No [ ] Not sure [ ]

15. Does auditing in the Public Sector serve its purpose? Yes [ ] No [ ] If yes,

how?.............................................................................................................................................

......................................................................................................................................................

......................................................................................................................................................

Section D- The post Audit Report the role of the public Accounts committee of

Parliament.

16. Are you aware of the responsibility of the Public Accounts Committee of Parliament

(PAC) in ensuring accountability in the public sector of Ghana?

Yes [ ] No [ ] Not sure [ ]

17. Has the Public Accounts Committee of Parliament followed up on any management

issues raised from your corporations Audit Reports?

Yes [ ] No [ ] Not sure [ ]

18. Has any remedial action been instituted against your corporation in case of adverse Audit

Report?

Yes [ ] No [ ] Not sure [ ]

19. Does the Public Sector Audit process identify and advise against fundamental risks faced

by most public institutions?

Yes [ ] No [ ] Not sure [ ]

20. How best can you describe the Public Sector Auditing trail in Ghana?

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

91

DEPARTMENT OF ACCOUNTING

RESEARCH TOPIC:

AUDIT REPORT: A MERE COMPLIANCE TO LEGISLATION OR A TRUE AND FAIR

VIEW OF FINANCIAL STATEMENTS. THE CASE OF SELECTED PUBLIC

INSTITUTIONS IN GHANA

Research Questionnaire Two (Q2)

We are students of University of Ghana Business School (UGBS) undertaking a research on

the above stated topic. We need information to help us in our research work in partial

fulfillment of the requirements for the award of a bachelor’s degree in Administration

(Accounting Option).

We promise that the questions and answers in this questionnaire will be treated with utmost

confidentiality. They will not be used for any other purpose than research.

Tick (√ ) to brackets fitting the answer to the question posed and indicate the degree of

acceptance to the statements posed in sections B, C and D. Thank you for participating.

Section A-Background information:

1. Sex: Male [ ] Female [ ]

2. Age: 19 or less [ ] 20─29 [ ] 30─39 [ ] 40─49 [ ] 50 or more

[ ]

3. What is the highest qualification you hold?

WASSCE [ ] DIPLOMA/HND [ ] DEGREE/MASTERS/PHD [ ]

PROFESSIONAL [ ] OTHERS [ ]

4. Which Department do you belong?

92

Sales and Marketing [ ] Finance and Admin.[ ] Technical [ ] Internal Control [

] Supply Chain [ ] other[ ]

5. Which staff category do you belong? Junior staff [ ] senior staff [ ] Management [ ]

SECTION B: AUDIT COMPLIANCE TO LEGISLATIONS

Strongly

agree

Agree Disagree Strongly

disagree

Not Sure

6. Adherence to audit regulation

(Audit Compliance) is important

7. The regulations regarding audit

work in the Public Sector are duly

followed

8. Those regulations have a bearing

on the performance of the audit

work in the Public Sector.

9. The adherence to audit regulation

pose any limitation to the

performance of the audit work in

the Public Sector

10. The importance of audit

compliance to legislation

supersedes the true and fair view

nature of audit report in the Public

Sector

SECTION C: TRUE AND FAIR VIEW

Strongly

agree

Agree Disagree Strongly

disagree

Not Sure

11. Audit reports should always

present a true and fair view of

performance in the Public Sector

12. True and fair view has a bearing

on the financial reports presented?

14. The true and fair view poses a

limitation to the financial statements

93

presentation in the public sector.

14. True and fair verdict of financial

statements is indicative of future

growth and survival in the Public

Sector.

15. The importance of the true and

fair view supersede the audit

compliance to regulations

SECTION D: POST AUDIT OUTCOME

Strongly

agree

Agree Disagree Strongly

disagree

Not Sure

16. There institutional provisions to

address weaknesses in the work of

audit in public institutions

17. Those institutions (Eg: Public

Accounts Committee of parliament)

have the capacity and requisite tools

necessary to carry out their work as

may be required

18. There have been remedial

actions instituted against your

corporation in case of adverse Audit

Report?

19. The work of such institutions

affects the work of your

organization

20. To what extent has this affected

your organization. Please specify

94

UNIVERSITY OF GHANA BUSINESS SCHOOL

DEPARTMENT OF ACCOUNTING

RESEARCH TOPIC:

AUDIT REPORT: A MERE COMPLIANCE TO LEGISLATION OR A TRUE AND FAIR

VIEW OF FINANCIAL STATEMENTS. THE CASE OF SELECTED PUBLIC

INSTITUTIONS IN GHANA

Structured Research Question for Interview

(Ghana Audit Service)

We are students of University of Ghana Business School (UGBS) undertaking a research on

the above stated topic. We need information to help us in our research work in partial

fulfillment of the requirements for the award of a bachelor’s degree in Administration

(Accounting Option).

We promise that the questions and answers generated from this interview would be treated

with utmost confidentiality. They will not be used for any other purpose than research.

Thank you.

Interviewee: Mr. Kennedy Segbenya (BSc. Admin, CA)

Director, Commercial Audit,

Ghana Audit Service (20 years’ experience)

QUESTIONS

1. What are your impressions about auditing in the public sector?

2. What is the impact of your work and the report you issue on the public institutions of

Ghana?

3. How do you interpret true and fair view in the context of your work as the state

auditor?

4. How does compliance audit work in public sector auditing?

5. Between true and fair view and compliance auditing, which takes precedence over the

other?

95

6. What follows after your audit work has ended (that is when you present your audit

report on the public institutions)?

7. What happens to the findings and recommendations contained in your report on

public institutions?

8. To what extent does your work help In mitigating the collapse of the public

institutions

9. In your view, do you think the stakeholders interest being served through your work

as the state auditor

10. What other comment do you have on your role as a state auditor and our topic in

general?