Yesterday, Nigeria's Financial Reporting Council (FRC) hosted its inaugural Audit and Assurance Providers' Leadership Summit. In his keynote address, FRC CEO Dr. Rabiu Olowo announced that the regulator was taking steps to be more proactive in improving audit quality and preventing fraud.
"Enormous sums of money are lost every year by investors to fraud and corporate collapse," Olowo said. "Nigerian investors have lost several billions of dollars because of companies that falsified and deliberately overstated their accounts and consequently failed or got into serious trouble."
Such scandals have deleterious effects on public trust in the markets, economy, and auditors, Olowo warned. "The loss of investors' trust and confidence in the capital market hurts the economy badly as fresh funds cannot be mustered to drive rapid economic growth and development," he argued. "The auditors, on the other hand, have had their reputation sullied. Audit clients switch firms that have a reputation for low audit quality."
However, reform efforts must go beyond creating more rules for auditors to follow, he acknowledged. Instead, regulators must also address the human elements of audit failure. "Law is limited by the degree of compliance by people," Olowo said. "If people are not going to obey laws, or are going to find ways around it, the laws will be ineffective. Therefore, good rules and laws must consider how to get people to be compliant, such as creating a conducive social context, for the greater good."
"It is on this ground and because the council wants to be more proactive in its approach to regulation that I am calling on everyone here today… to deliberate on how to prevent another audit failure in our country because prevention they say is better than cure," Olowo concluded.
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