Client's Staff Management for Audit Practice Development

by: Hameed Gbolahan Soaga B.Sc,M.Sc,ACA,ACIT Published by uPublish.info

Abstract The purpose of this study is to examine client's staff relationship management as an important tool to achieve practice development - successful audit exercise, effective and efficient audit, client relationship building and business development. This paper makes use of descriptive research method to examine the importance, analysis, and influence of client's staff management on audit practice. It ascertains the strong impact of client's staff management on getting information and explanations, retention and obtaining more clients by referrals, and maintaining objectivity and independence principles. It also analyses the causes and management of client's staff excesses. Audit firms should make training on ethics a continuum and consistently train staff on the area of communication skill and personality building in order to achieve good client's staff relationship. Auditors should be smart: adopt alternative approach were system is poor, use public relationship and communication skills to improve the quality of financial statements. Introduction Client's staff management is the skilful handling by auditors of persons in the employment of a person or organization to which audit service is provided to in order to achieve a successful audit exercise, practice development and client relationship building. Good client's staff management improves auditor's business; quality of financial statement, retention/continuity of audit engagement, more referral through current engagements, and improved goodwill that will attract more clients. Good client's staff management is required in other assurance engagements, such as due diligence, management audit, and environmental/social audit among others. Spin off services performed such as accounting service (i.e. writing up books, balancing books, preparing final accounts), tax consultancy, liquidation and receivership, secretary services, legal services, financial advisory services etc require good client's staff management as well. A good client's staff management involves the use of vital resources like excellent verbal and writing communication skills, professional competence and due care, public relations skill, strong interviewing skills, and experience in the field of audit practice. The audit staff are expected to employ communication skills and experience in the field of audit to relate with the client's staff, without familiarity that affects free and fair sense of judgement but with cordial working relationship, that is necessary for a successful audit exercise. At the end of the fieldwork, auditors should gathered all necessary information and explanations that will assist in forming opinion on the true and fair few of the financial statements. One of the unexplored areas of research in audit practice is client's staff management. Client's staff management is a crucial part of audit practice. This aspect of audit practice is giving little or no attention by audit firms. The better a firm can manage the relationships it has with its client's staff the more successful it will become. It is practical: no working paper, no matter how explicit, can explain how clients' staff were managed during the audit process. Sound client's staff management grows with training, audit practice experience, adequate communication skill among others. A good client's staff management is a key to effective and appropriate audit service and other professional services provision. When audit staff is in disagreement with the management a result of poor client's staff management, such disagreement may lead to conflict with the management. Conflict with management can lead to the firm losing the client. However, The firm's income dwindles as the firm revenue comes from such fee. Audit firms should cultivate good client's staff management to achieve success in practice. This paper consists of ten sections. The second section discusses client's staff management and auditors' independence; the third section explains why client's staff act-up; the fourth section

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examines personality of audit staff while the fifth section presents client's staff intimidating practices. Section six discusses audit staff and situation management on field; section seven examines unlawful acts of clients and their staff; section eight examines auditors and management fraud prevention and management; section nine discusses audit staff wrong practices; and lastly, section ten is the conclusion and recommendations. Client's staff Management and Auditors' Independence According to Gunny, K., Krishnan, G., Zhang, T., (2007), the "regulatory view", the U.S. Senate (1976) noted that the long association between a client and the auditor may lead to closer identification of the auditor with the interests of the client and could lead to impaired auditor independence. Thus, mandatory auditor rotation could enhance auditor independence. Gunny, K., Krishnan, G., Zhang, T., (2007), further identify the "economic view", auditor independence and audit quality could be impaired in the early years of auditor tenure because auditors could be more accommodating to the client to extract future quasi-rents to recover losses incurred due to low-balling. Thus, restricting auditor tenure could exacerbate auditor independence rather than enhancing it. There are mix results on relationship between auditor tenure and audit quality; while many results revealed positive, many others find the opposite, however, they find that auditor tenure has a favourable impact on audit quality by mitigating audit and serious deficiencies for the non-Big 4 auditors Gunny, K., Krishnan, G., Zhang, T., (2007). Learning curve sets in and auditors gain mastery of client's business, system, environment (internal and external). One of the areas of client's staff management is audit staff ability to ensure independence and objectivity in carrying out the audit assignment. The audit staff should ensure that the familiarity between them and the client's staff does not affect objectivity - their free and fair sense of judgement. Auditors' independence is a critical component for an enterprise to have an audit that can add value to the organization. Familiarity threat impedes effective performance of audit assignment. Statement on Auditing Standards No. 99 states that auditors "should conduct the engagement with a mindset that recognizes the possibility that a material misstatement due to fraud could be present, regardless of any past experience with the entity and regardless of the auditor's belief about management's honesty and integrity" (AICPA; 2002, Statement on Auditing Standards No. 99, paragraph 13, p. 10). The audit report and opinion must be free of any bias or influence if the integrity of the audit process is to be valuable and recognized. The audit team members must not allow or welcome any form of excessive hospitability that affects their objectivity and integrity. Notable accounting scandals such as Nugan Hand Bank (1980), One.Tel (2001), in Australia; Global Crossing (2002), Tyco International (2002) in Bermuda; Parmalat (2003) in Italy; Nortel (2003) in Canada; Royal Ahold (2003) in Netherlands; ZZZ Best (1986), MiniScribe (1989), Par-Mor (1992), Informix (1996), Cedant (1998), Waste Management Inc. (1999), Microstrategy (2000), Unify Corporation (2000), Computer Associates (2000), Xerox (2000), Enron (2001), Adelphia (2002), Bristol-Myers Squibb (2002), CMS Energy (2002) in United States. Others are Duke Energy (2002), Dynergy (2002), El Paso Corporation(2002), Freddie Mac (2002), Halliburton (2002), Homestore. Com (2002), InClone Systems (2002), Kmart (2002), Merck & Co (2002), Meryl Lynch (2002), Mirant (2002) Nicor (2002) Peregrine Systems (2002), Qwest Communications (2002), Reliant Energy (2002), Sunbeam (2002), and WorldCom (2002). Also in America are HealthSouth Corporation (2003), Chiquita Brands International (2004), AIG (2004), and Bernard L. Madoff (2008); Barlow Clowes (1989), Polly Peck (1991) Bank of Credit and Commerce International (1991), in UK; and Satyam Computer Services (2009), Upcoming Karvy (2009) in India. In Nigeria, the recent sack of Managing Directors/CEOs of banks for financial mismanagement has raised concerns regarding auditor-client relationship. As the relationship between auditors and client lengthens, a bond develops and auditors' professional scepticism may be replaced with trust. The decision to trust a client's management should be an ethical decision because excessive trust may impair auditors' scepticism, which auditors are required to maintain by their professional responsibilities (Kerler and Killough; 2008). There is need for audit firms to expose there professional staff to different business areas and help ensure their objectivity and integrity. Rotation of audit assignments every two to three years is an

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approach to attain this. Hence, the firm should continuously balance the need for team continuity with the need for career development and objectivity. Audit firms training are mostly on enhancing professional competence. Some practice ethics is limited to employees' annual confirmation on declaration of compliance with accounting ethical code of conduct and thereby sign off on ethics for the year. The greatest challenge bedevilling the accountancy profession is ethnicity. Audit firms should have a number of training and awareness programmes every year to immune the audit staff morality against unethical challenges in practice, moreover, ethical is not a black and white phenomena, it is a complex, delicate and inescapably devastating issue. Why Client's staff Act-Up? By nature, auditors break down the financial statements and explore the accounts and records with scepticism, in order to carry out detailed audit work. Auditors work on control reduces opportunity, enjoyed by the client's staff, as an important step to take to reduce fraud. Auditors propagate control rather than trust. This is because of the need of auditors to reduce risk to a negligible level by exercising professional scepticism and adhering to the requirements of the control of the audit process including, in particular, appropriate arrangements for direction, supervision, and quality control. These and more makes client's staff view auditors as intruders. In accordance with International Standard on Auditing (ISA) 200, the auditor shall maintain professional scepticism throughout the audit, recognizing the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor's past experience of the honesty and integrity of the entity's management and those charged with governance. Similarly, ISA 315 requires a discussion among the engagement team members, this discussion shall place particular emphasis on how and where the entity's financial statements may be susceptible to material misstatement due to fraud, including how fraud might occur. The discussion shall occur setting aside beliefs that the engagement team members may have that management and those charged with governance are honest and have integrity. Hence, while auditors see control as a solution; clients' staff view it as a problem. Contrary to auditors risk base approach, accountants in industry are performance focus. Expectation gap is another cause of client's staff misbehaviour. Many client's staff expect that auditors should carry out accounting work alongside the audit. The auditors should come in and correct the poor accounting work done by the client's staff. This is common among unlisted companies, largely due to the stringent disclosure requirements by regulatory authorities on listed companies not applicable to their unlisted counterparts. Such client expectations of auditors go beyond the actual standard of performance by auditors and impose additional duties and conflicts. Management is primarily responsible for maintaining proper accounting records and preparing financial statements, which give a true and fair view, and comply law and regulations. According to ISA 315, an important management responsibility is to establish and maintain internal control on an ongoing basis. Management's monitoring of controls includes considering whether they are operating as intended and that they are modified as appropriate for changes in conditions. Hence, the accuracy and completeness of the accounting records are the responsibility of the Company's management. The auditor is responsibility to report to the members of the company whether the financial statements give a true and fair view of the state of the Company's affairs and of the profit or loss for the year, and whether they are properly prepared in accordance with law. An example of expectation gap problem is stock, which often is a major item in financial statements; correct identification of stock and work in progress, correct ascertainment, record and condition assessment of physical quantities and proper valuation bases of stocks are the responsibilities of directors. During stock take, the auditor is to attend the stock take as an observer. Client's staff often view auditor's presence as for physically counting stock, whereas auditor is purely to witness stock take. Stock take is not part of auditor's responsibilities. Client's staff may even expect auditor to prepare stock take instruction, which obviously is client's duty. Stress is another cause of client's staff excess antipathy to auditors. It could be because of poor organisational system: poor filling system, locating supporting documents i.e. receipts, memo, schedule, accounts, invoices, etc are difficult. It can be a result of incompetence or lack of adequate training of the clients' personnel involved. Mere sighting auditor is stress inducing for some members of client's staff.

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Another common cause is past ugly experience with an external auditor. Client's staff could generalise first impression: poor management of situation can create an impression before a client's staff that auditors from a particular firm or auditors in general are terrible. There was an experience where the auditors by no means talked about thorny issues during the fieldwork but the client's staff got awareness when management letter was presented. Auditors know more than the client because of their multidisciplinary experience, exposure to a lot of industries, in-house and on the job trainings, however, a good auditor will not brag about this. Often, client's staff are of the believe that auditors are mischievous because of failure of an auditor to understand and appreciate the nature of the client's industry; listen to the client's staff; advice client's staff modestly; keep away from argument where the client's staff is obstinate and compassionately enlighten the client's staff of the consequence of the issue at stake. Personality of Audit Staff Auditor-client relationship skills are apparent through the auditor's personality. There are some audit staff not fit to be auditors, in the sense that the firm does not have the competence, time or money required to bring about the requisite personality development. Personality of staff is an important and significant variable in client's staff management. Audit firms a times smear the image of the audit profession by recruiting incapable hands and taking them to the field without adequate training. Such green intakes ask infuriating questions that are elementary accounting in nature and is least expected from audit staff. Intensive training course on client's staff management will have the most striking effect. Such training will support the effectiveness of the audit staff training in altering their attitudes by increasing their tolerance of client's staff behaviour, as well as influencing their own tolerance of their own excesses. Well-trained auditors are not dogmatic on issues that are not obligatory. Auditors must have a good communication and report writing skills. Communication skill is essential to an auditor's job right from the planning stage of the task through to writing up findings, conclusion and recommendations in a report. An auditor's role can be varied and will encompass a wide range of different communication methods including meetings, interviewing, telephoning, e-mailing, and report writing. Audit firms should develop an action plan to improve the way audit staff communicate with others and the reports that they write in order to enhance their performance. Audit firm should fill communication gap of audit staff by identifying the different ways in which they communicate with others, identify their strengths and areas for development in their communication skills, understand how they can communicate effectively with different types of people and in different situations, practically improve communication skills, write a clear and effective report for audit purposes and conclude on their main areas of focus in order to improve their skills. There was an experience an in-charge accountant repeatedly asked a Chief Finance Officer (CFO) he does not understand the CFO's explanation when he intended to state that he does not have the same opinion with the CFO's and will note the issue in the report, this episode ended up in a scuffle. Audit firm can accomplish improvement in audit staff personality through lectures, supported by exercises, quizzes, and group case study work. The training should be as practical as possible by involving the participants at all times and ensuring that they are encouraged to reflect on what they can do to improve their skills. The style should be interactive, with the participants encouraged to contribute their views and questions. The challenges that practitioners face when considering training audit staff is often hard to find the time to devote to practice management, especially in a small firm with only a few staff. Moreso, as a practice grows, it is more likely to spend more time and resources addressing workflow and productivity issues. All audit staff should have the training and up-to-date information that allow them to provide seamless, consistent services to clients. Training raises expectations. Audit firm should put in place regular training and induction programme for the newly employed. This will assist audit staff understand and develop the correct attitude to their career, be aware of personal responsibilities with regards to own skill development, lay down progressive performance and developmental goals to ensure that they become proficient at the full complement of core experience required in terms of their training contracts, and manage time, stress and personal budgeting. Cordial working relationship between auditors and the client's staff is necessary for a successful

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audit exercise. An auditor should spend the first contact with client's staff discussing thereby building rapport. The amount of information an auditor could obtain is determined by the relationship between auditor and client's staff, hence, public relation skills is essential to auditors. Where the relationship is not okay, the auditor could be treated like a third party, which might use information to personal advantage. Client's staff relationship management is crucial for a successful audit. Every time the audit staff have contact with client's staff, they have an opportunity to improve the firm reputation with the client and increase the likelihood of reappointment as auditors. An indication of pleasant relationship is the client push for the audit staff to be designated for during the next exercise. However, this could lead to familiarity threat where the rapport is unethical. It is advisable to work smarter, not harder, this will aid audit team to work fewer hours where there is a good client's staff management. Audit staff have to know their client's staff. This makes the execution of the assignment easy to accomplish. Audit staff should have a smart and friendly manner of handling client's staff. Approach to issues is very crucial in obtaining information from client's staff. Tactical communication skill is essential in the audit process: refrain from using authoritative approach in obtaining information. This might arouse the anger of even a gentle client's staff. Direct questions and seemingly attacking mode of inquiry in interrogating and gathering facts from the client's staff should be avoided. Audit staff should keep away from intimidating practices such as quoting standards and laws at every point in time before the client's staff. This could makes the client's staff assume that the auditor is accusing them of illegality or connotes they do not have adequate financial and accounting knowledge. This kind of practice is common among qualified members of audit team. Client's staff Intimidating Practices As people learn from their many experiences throughout their lives, they form beliefs and opinions based on those experiences. People become more closed-minded or dogmatic after having learned from their lives "the way things go." As people age, they become more dogmatic or their beliefs and opinions on things become more "set in stone." Although there do seem to be many factors that could attribute to becoming more dogmatic, age appears to be a major, common factor (Kelsey and Neumann: 2009). Client's staff could be stiff on old practice and fervent in resisting correction. Client's staff could put forward believe of being on the job for decade(s) and has been doing a particular practice ever since in a manner and cannot withstand somebody coming a day to correct his common business cliche even when such practice is against the standard and or statutory requirements. Experience as demonstrated that inertia sets in and the so-called staff with decades' years experience inadvertently commits error. Client's staff could ask intimidating questions such as when did each of you become qualified? How long have you spent in practice? What kind of audit assignments have you carried out? And other irritating and anger provoking questions. This is common among qualified members of client's staff. It is noteworthy that longevity of year of qualification can be synonymous with been out of date save qualified accountant that continually update knowledge. Temperamental person may not last in audit practice; such a person may give a harsh reply to infuriating statements. Audit staff should manage the aggression of client's staff. Maturity is greatly essential in handling the client's staff antipathy. Humorous hit-back that is not personal and cannot lead to hullabaloo is often appropriate response. At the point of gathering information on the knowledge of the client business that will assist the auditors obtain facts on general and specific risks areas as well as identify fraud factors; often clients' staff are infuriated on making inquiry on the business operation thereby impeding investigative independence. They go to the extent of alleging that the auditors do not understand their job by asking questions on client's operation. Auditors are outsiders and can only know about the client business through enquiry. It is specifically expected according to the auditing standard/guidelines that the auditor obtain understanding of the business through questionnaire, observation, etc. Auditors must have unlimited access to all the organisation information, collect essential evidence, be unrestricted in any way by the client's staff and any queries on the organisation business and accounting treatment must be answered by the organisation. The Institute of Chartered Accountants of Nigeria (ICAN) Auditing Guideline: prospectus and the reporting accountant stressed this under professionalism and excellence that auditor should

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carefully consider whether there are matters which impinge on the nature of the business activities. Client filling system should be smart and organised. Because of poor filling system, locating documents are difficult and lots of audit time are wasted, thus thereby prolong the assignment gratuitously. Certainly, average client experience a number of review/inspection exercises aside statutory audit yearly, examples are tax audits by federal and state tax authorities, various internal audit exercises, related companies inspection of records, among several others based on the nature of the enterprise business and structure. These raison-d'tre could make substantive tests, such as vouching, sighting of salient documentary evidence, a headache. However, auditors should adopt alternative audit approach where the system is poor. This will enhance the audit, thwart squander of valuable audit time, and in the end enhance communication with client's staff. Client expects the same audit team members who have good understanding of the enterprise business to come every time, so that the client will save time and strain of coming back on continual issues concluded in the previous year. Such usual recommendation can lead to familiarity threat; the independence of the audit staff that recurrently goes for the audit may be jeopardised. Practically, this may be almost unfeasible for the reason that audit is one of the professions with the highest turnover rate the world over because of versatility of auditors. Moreso, it is a training ground for aspiring and recently qualified accountants, majority of who in the end, progress to several respective area of specialisation in the field of finance and management. Audit Staff and Situation Management on Field The client's staff may not make available needed and necessary documents. They may say the trial balance is not ready yet; present unbalanced trial balance; refuse to give needed schedules; decline to make ledger accounts available; give excuse of being too busy and on that ground refuse to grant audience for inquiry. Client's staff may not be able to figure out the auditor's request, while Non-financial measures could be the available facts to carry out the task. Auditor's inventive analytical skill is germane. Heuristic skill is vital in audit process. At every time client's staff will always say they provided all needed and requested information even while they acted in sharp contrast. The reaction is edgy and terrible when inadequate audit exercise is carried out at the expiration of the audit timetable. The funny end is the client pesky accusation that the audit staff are not up to it. The client pressures the firm and passes the blame to the firm at the termination of the audit period. The audit team must keep the firm aware of the situation at the client's office. The in-charge accountant must keep the manager-in-charge and the partner(s) abreast of the situation on the field. This can be in form of a phone call or an e-mail to the manager-in-charge and the partner(s). This is the way out of accusation of incompetency and public humiliation. Ultimately, the in-charge-Accountant should forward written memorandum stating official situation to date; hence, a temporary matters at the attention of partners should be forwarded to both manager-in-charge and the partner(s). A file copy of such memorandum should be maintained in the current audit file for future reference purpose. The audit team should ensure the files are well arranged. Permanent audit file and the current audit files should be adequately organised. This makes a good filing system. The format of filing used by the firm must be complied with. This makes review easy and convenient for the manager and the review partner. Audit trainees should not be allowed to go about to make enquiry without audit senior vetting the issue to be enquired upon. This will protect the firm from embarrassments as a result of its staff asking funny questions. Espirit-de-corp is a necessary tool; audit members must work as a team. Where a member of the team commits a mistake, such a member should not be reproached in the public. The team must devise a way of washing their dirty teeth elsewhere aside the public. Ordinarily, auditors know better than the client's staff. This is traceable to multidisciplinary exposure, challenges, regular training etc. However, auditors must not exhibit this in their behaviours towards client's staff. Auditors should operate at level neither lower nor higher than that of the client's staff; auditors should rather operate at the level of the client. Auditor must display maturity in managing aggressive and arrogant client's staff. You have to possess some sense of humour to be in control of the situation. No matter how intolerant a client's staff is, a humorous auditor will change a frowned face to a smiling one. Absolutely, at the end of audit exercise client's staff applauds such an auditor

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most and often do not forget encounters. It will be marvellous how much the client's staff will appeal that the auditor should be at the next audit exercise. Unlawful Acts of Clients and Their Staff According to Milichamp (1978), Auditor must act scrupulously and correctly and in accordance with the law. For auditor not to commit a criminal offence, he should avoid: advising the client to commit a criminal offence; aids client in devising or executing a crime; agrees with a client to conceal or destroy evidence or mislead the police with untrue statements or knows a client has committed an prosecutable offence and acts with intent to impede his arrest or prosecution. If an auditor discovers an unlawful act he will not usually disclose this to the police or other authorities unless: the client authorise disclosure, disclosure is required in the auditor's own interest; or the circumstances are such that the auditor has a public duty to disclose in observance of confidentiality code of conduct. Comprehensive understanding of the client's business and deep investigation of issues to garner sufficient evidence is very important. Client could use legal form over economic substance to defraud the enterprise like the case of Enron Special Purpose Entities (SPE) to circumvent debt in the consolidated audited financial statements. For transactions or items that have inconsistent substances and forms, auditors must follow the substance-over-form convention in accounting. By this way, auditors can guarantee the quality of accounting information, regulate the accounting, and promote the development of market economy (Chen; 2009). Auditors' client management skill come to place in the adequately documentation of violation(s) of this convention, carrying the management, directors, and audit committee along on the implication and ability to convince the client to comply. Where all efforts failed, the auditors may disengage the account after careful risk assessment analysis. Conversely, auditors must watch out and professionally manage client's prank of hiding under commercial rule to evade legal reality for the purpose of profit objective. Specifically, managers try to manage the reported earnings as a result of bonus plans motivations (Healy, 1985), the motivations to reduce the political costs (Cahan; 1992, Jones; 1991), or the motivations to satisfy the debt covenants (Sweeny; 1994, De Angelo et al.; 1994). The earning management motivations may exist also around the time of CEO change. On one hand, the CEO of a poorly performing firm may try to increase the reported earnings to prevent or postpone being fired. On the other hand, consistent with the findings of (De Angelo et al.; 1994), a new CEO may take a "big bath" in the year of change to increase the probability of higher future earnings when his/her performance will be measured, especially when low earnings in the change year can be blamed on the previous CEO. Firms may also try to manage reported earnings before going public. Because these firms usually do not have an established market price, their managers may try to increase the reported earnings to receive higher price for their shares. For example, (Friedlan; 1994) reported that IPO firms made income-increasing discretionary accruals in the latest period prior to IPO relative to accruals in a comparable previous period. On the other hand, the concern about the quality of accounting numbers and its relation with the quality of the auditing process is increasing over time following the periodical clusters of business failures, frauds, and the litigation (Tie; 1999, Chambers; 1999). In developing countries, one of the quandaries is often tax evasion schemes hoodwink as tax avoidance. Loss of confidence is a cankerworm; due to ethical scandals, the big Arthur Anderson sink with Enron. Practice need to be long term oriented, unethical conduct barely provide benefits in the short run. Professional accountants claim to act in professional manner and in public interest, yet they are involved in aggressive and abusive tax avoidance, tax haven, tax shelters, schemed transfer pricing, tax evasion and in some cases close-eye on drug trafficking, money laundry and other similar bad practices by their clients. These immoralities has grown wide with far reaching consequences, the global financial melt-down is an outcome. Occupy Wall Street protests and similar protests in some western countries are the public outcry against non protection of public interest. Currently, accountants are called names, for example, in United States unpatriotic, in United Kingdom law offenders. The onus is on risk management. Where the firm assesses the risk and ascertain that the risk is too high to be mitigated, it is advisable to pull out of such engagement or stick to its gun thus allow the client to go opinion shopping. Otherwise, this will amount to a penny wise, pound-foolish situation.

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Like an example given by (Foote and Hora; 2007) of one international public accounting firm paid US$6 million to defend successfully a lawsuit involving a client with US$20,000 annual audit fees. At least one major insurance company has responded by refusing to insure accounting firms for legal liabilities (Whittington and Pany; 2008). Audit firm can reduce exposure to risk by operating as a limited liability partnership (LLP), limit liability in the engagement letter base on the risk areas of the risky client, exist as a partnership or operate as an affiliate member of an associated professional practice, give adequate training to audit staff, obtain representation aptly, and take professional indemnity insurance cover. Auditor and Management Fraud Prevention and Management Even though internal control over financial reporting may appear to be well designed and effective, controls that are otherwise effective can be overridden by management in every entity. Many financial statements frauds have been perpetrated by intentionally overriding the substance by senior management of what might otherwise appear to be effective internal controls. Because management is primarily responsible for the design, implementation, and maintenance of internal controls, the entity is always exposed to the danger of management override of controls, whether the entity is publicly held, private, not-for-profit, or governmental. When the opportunity to override internal controls is combined with powerful incentives to meet accounting objectives, senior management may engage in fraudulent financial reporting. Thus, otherwise effective internal controls cannot be relied upon to prevent, detect, or deter fraudulent financial reporting perpetrated by senior management (AICPA; 2005). External Auditors can reduce the risk of material misstatement in the financial statements due to management fraud by maintaining an appropriate level of scepticism, brainstorming about fraud risks, addressing the risk of management override of internal controls system and the internal control auditors in order to ensure a true and fair state of affairs. However, the main remedies against the consequences of management fraud, especially litigation, are properly documented working paper in such a manner that average person will easily comprehend the information therein, and adequate and comprehensive letter of weaknesses. Auditor should dwell a lot and document findings on override of controls for journal entries or adjustments resulting in misstated financial statements and management direct involvement in journal entries or adjustment to manipulate reports. Auditor must be mindful and probe to the bottom where there are alterations to records, and change of the timing of transactions particularly for the ones close to the end of the accounting period. Auditors must go through statutory records i.e. register of directors and shareholders, Memorandum and Article of Association and other forms obtained through the Corporate Affairs Commission (CAC), minutes of the meetings of the company. In addition, agreements between the client and third party should be thoroughly reviewed. These documents are vital and highly sensitive. Client's staff, particularly management can take advantage of the ignorance of the auditors on one or more of these documents to perpetrate management fraud or manage earnings. A good client management can be an effective tool for fraud detection. (Zikmund, 2008) states that it is important to watch the client's staff mannerisms, body language, and overall demeanour. It is also important to listen to an individual's tone of voice, willingness to volunteer information, and style of answering questions. Once an auditor establishes a rapport with the client's staff, he can proceed to the line of questioning associated with the audit. It is at this point that an auditor needs to be aware of any change in verbal or nonverbal behaviour. This will aid the auditor in uncovering a fraud where rules are not always effective in exposing purposely disguised information by a dishonest client's staff. It is needed as a tool to know the client: identified as Customer identification - Know Your Customer, in Know Your Money Laundering Reporting Responsibilities: an Overview for Members' Guidance, issued by ICAN. According to this publication, accounting firms/accountants are required to establish and verify the identity of a person or entity and the nature of business they do before entering into a business relationship. This will assist auditors to comply with the provisions of the Acts in assisting the anti-graft agencies and the economy. Consequently, it will save the firm from collapse because of litigation and loss of reputation. (Khan; 2006) states that corruption is distinct from fraud as it does not leave any telltale in the records of an organization and the auditors, who generally work with documents, find it difficult to

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play an effective role in fighting corruption. There may be hidden facts behind a figure. Often, competent client professional accountant sees virtually everything; however, auditor can detect what is not strictly concealed from detection by the management. Scheme can be pretty discovered through behavioural means than through financial analysis. For auditors to accomplish great and outstanding findings, interactive tools, which are qualitative and thus behavioural, have to be deployed. There was an experience where management massively inflated operating profit by refusal to write off huge obsolete assets that board resolution had sanctioned to be taken off the company's record. In another incident, management refused to write off a huge debt the board had resolved non-recoverable because of the going concern status of the debtor company. In the process of interaction with client's staff, auditors inadvertently stumbled upon minutes on each of the mentioned case in point. In a research published by Alexander Dyck, Adair Morse and Luigi Zingales (2010), employees of the company uncovered 17% of cases, thus client's staff recorded the highest among people that brings corporate fraud to light. Every smart auditor would definitely take advantage of this group of stakeholder Audit Staff Wrong Practices Although, auditor must be proficient in accountancy and have strong confidence to effectively carry out audit engagement, this does not translate to loss of professional behaviour. Audit staff could be pompous. Auditors should ensure that they add value to the clients business by recommending ways to improve the system. Aside management letter, which is formal way of passing across the recommendations on the observations made during the audit, auditors can add value to client's staff by enlightening the client's staff on accounting treatment of salient transactions, best financial reporting practices, sound treasury management etc devoid of distressing the apt carry out of audit, and obliquely render gratis accountancy service. Teamwork outperforms individual competence and speed. An audit team member could be disproportionately thorough by taking up nearly all the parts of the task, leaving insignificant portion for competent colleague(s). This renders the idle colleague(s) redundant and create rift among the team members. The daunting staff is often an in-charge accountant with controlling power. Possible reason for this attitude is selfish ultra zealousness to take the most of the on-the-job training advantage, swank resume, create a scenario that the co-staff are worthless. Audit team members should eschew wrong practices such as internet browsing, chatting, job search etc. These attitudes seriously affect limited audit time, divert attention from serious audit business, and depict the audit staff and the firm as irresponsible and unprofessional before the client. Lateness to client office, early closure, and irregular punctuality to carry out audit functions by audit staff paints the firm in bad light and destroy the image of both audit staff and the firm before the client. The appropriate safeguards against these are adequate and regular training, audit timetable, pre engagement meeting, good allocation of work, and supervision by the audit manager and partner. A manager was amazed to see the numbers of hours an audit staff spent chatting and job searching through the setting on the computer system. Unscheduled visits, timely, regular review of concluded sections of the audit work could improve the behaviour of audit staff. Audit staff may attempt to cover up by filling up the management letter with knotty issues not examined, due to superfluous diversions, during the fieldwork and exit meeting. Conclusion and Recommendations Client's staff relationship management is very vital for client relationship building and practice development. To achieve a successful audit exercise, auditors must have cordial relationship with their client's staff without altering their objectivity. Poor client's staff management in audit practice affects both relationships with the client's staff as well as sense of judgement of auditors. A good client's staff management is a key to effective and appropriate audit service provision; it assists auditors to gather all necessary information and explanations that will assist in forming opinion on the true and fair view of the financial statements of the firm. Information is the bedrock of an effective and efficient audit and this could only come up from the client's staff, so, auditors should have suitable tactics to issues, which are very crucial in obtaining information from the client's staff. Audit firms should avoid taking green auditors to field without

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adequate training and professional personality; auditors should be less dogmatic on issues that are not compulsory and material; auditors should adopt alternative audit approach where the system is poor. Ethics is the biggest challenge confronting the accountancy profession, thus, practice should regularly train auditors on accounting ethics to uphold the professional morality of accountants to safeguard public interest. Audit firm should assess the risk and ascertain that the risk is not too high to be mitigated. Every audit firm should appraise client relationship vis-a-vis the firm's image, independence, client satisfaction (value added to client), audit staff personality, fraud management, communication competence, technical capability and capacity, commercial/entrepreneurial capabilities. Findings and conclusions thereafter should be developed to improve client's staff relationship management. BIBLIOGRAPHY American Institute of Certified Public Accountants (AICPA), 2005, Management Override Of Internal Controls: The Achilles' Heel of Fraud Prevention the Audit Committee and Oversight of Financial Reporting. Cahan, S., 1992, The Effect of Antitrust Investigation on Discretionary Accruals: A Refined Test of the Political Cost Hypothesis, The Accounting Review, January. Chambers, R., 1999, The Poverty of Accounting Disclosure, Abacus, October. Chen, Yingxin, 2009, Use the Substance-over-Form Convention to Regulate the Related Transaction, International Journal of Business and Management, Vol. 4, No. 3, March 2009, School of Management Shandong University of Technology Zibo 255049, China Coenen, Tracy L., 2006, The Fraud Files Why didn't our auditors find the fraud? The Daily Reporter Publishing Co. Jan. 25 Companies and Allied Matters Act (CAMA), CAP C20 Law of Federal Republic of Nigeria, 2004 DeAngelo, H., DeAngelo, L., and Skinner, D. J., 1994, Accounting choice in troubled companies. Journal of Accounting and Economics 17 (1/2). Dyck, Alexander, Morse, Adair and Zingales, Luigi, 2010, "Who Blows the Whistle on Corporate Fraud?" The Journal of Finance, December. Ebrahim, Ahmed, 2001, Auditing Quality, Auditor Tenure, Client Importance, and Earnings Management: An Additional Evidence, dissertations work Rutgers University October, 2001 Foote, P. Sheldon and Hora, Reena, 2007, Biometrics and Fraud Mitigation Following SOX Friedlan,J., 1994, Accounting Choices of Issuers of Initial Public Offerings, Contemporary Accounting Research , Summer. Gene, Smith, 2005, Communication skills are critical for internal auditors. New Mexico University, Portales, New Mexico, USA, Emerald Group Publishing Limited Gunny, K., Krishnan, G., Zhang, T., (2007), Is Audit Quality Associated with Auditor Tenure, Industry Expertise, and Fees? Evidence from PCAOB Opinions, Seminar presentation at City University, Hong Kong, and the Hong Kong Polytechnic University, Hong Kong, China Handbook Of International Auditing, Assurance, And Ethics Pronouncements, 2007, Edition International Standard on Auditing (ISA) 2007 International Federation of Accountants 545 Fifth Avenue, 14th Floor New York, New York 10017 USA ISBN: 1-931949-66-2 Healy, 1985, The Effect of Bonus Schemes on Accounting Decisions, Journal of Accounting and Economics. ICAN Auditing Guideline: Prospectus and the Reporting Accountant, ICAN. Know Your Money Laundering Reporting Responsibilities An Overview For Members' Guidance issued, ICAN Faculty 1 Jones, J., 1991, Earnings management during import relief investigations. Journal of Accounting Research 29, 193‒228. Kelsey, Pugh l., and Neumann, Margaret E., 2009, Effect of Age on Dogmatic Traits, Department of Psychology, Missouri Western State University Khan, Muhammad Akram, 2006, Role of audit in fighting corruption, United Nations Mission in Sudan (UNMIS) Paper Prepared For Ad Hoc Group Meeting On "Ethics, Integrity, and Accountability in the Public Sector: Re-building Public Trust in Government through the Implementation of the UN

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Convention against Corruption" 26-27 September 2006 St. Petersburg, Russia Lindow, Paul E., and Race, Jill D., 2002, Beyond Traditional Audit Techniques, July 2002. Journal of Accountancy, aicpa. Millichamp, A.H., 1978, Auditing (An instructional Manual for Accounting Students). London: DP Publications Ltd. U.S. Senate. 1976. The Accounting Establishment. Prepared by the Subcommittee on Reports, Accounting and Management of the Committee on Governmental Affairs. Washington, D.C: Government Printing Office. Statement on Auditing Standards No. 99, Consideration of Fraud in a Financial Statement Audit (AICPA, Professional Standards, vol. 1, AU sec. 316). Sweeny, A., 1994, Debt Covenant Violations and Managers' Accounting Responses, Journal of Accounting and Economics, May. Tie, R.., 1999, Concerns Over Auditing Quality Complicate the Future of Accounting, Journal of Accountancy, December. Whittington, O. Ray, and Pany, Kurt, 2008, Principles of Auditing and Other Assurance Services, Sixteenth Edition, McGraw-Hill Irwin Wikipedia, 2009, Accounting scandals - Wikipedia, the free encyclopedia, 8 October 2009. Wikimedia Foundation, Inc. Kerler, William A., and Killough, Larry N., 2008, The Effects of Satisfaction with a Client's Management During a Prior Audit Engagement, Trust, and Moral Reasoning on Auditors' Perceived Risk of Management Fraud. Springer Netherlands Zikmund, Paul E., 2008, Reducing the Expectation Gap Forensic Audit Procedures, August 2005

Written by: Hameed Gbolahan Soaga B.Sc,M.Sc,ACA,ACIT

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