(a) A company qualifies as a small company as per section 351 of CAMA CAP C20 LFN 2004, for that year, if the following conditions are satisfied:
i. It is a private company having a share capital;
ii. The amount of its turnover for that year is not more than ₦2 million or such amount as may be fixed by the Corporate Affairs Commission;
iii. Its net assets value is not more than ₦1 million or such amount as may be fixed by the Corporate Affairs Commissions;
iv. None of its members is an alien;
v. None of its members is a government or a government corporation or agency or its nominee; and
vi. The directors between them hold not less than 51 per cent of its equity share capital.

(b) The benefits and limitations of audit:
(i) The benefits include:
• Enhancement of the credibility of published financial statements;
• Confirmation to management that they have performed their statutory duties correctly;
• Provision of assurance to management that they have complied with non-statutory requirements, such as corporate governance requirements, where these are subject to audit or review;
• Provision of feedback on the effectiveness of internal controls. Where internal controls are weak or inadequate, the auditor will give recommendations for improvement. This will assist management in reducing risk and improving the performance of the company;
• Insistence of potential lenders, such as banks, finance houses, etc., that the company should submit audited financial statements as a pre-condition for lending money. Investors and business partners are more persuaded when accounts are audited than when such accounts are unaudited;
• Disagreements in partnerships can better be resolved when accounts are audited;
• Improvements in compliance with laws and regulations are ensured;
• Assisting the management in carrying out risk assessment exercises; and
• Ensuring improvement in the economy, efficiency, or effectiveness of operations.

(ii) The limitations include:
• The cost of an audit can be very high. However, if the audit firm is already hired to carry out non-audit work such as accounts preparation or advisory work, the additional cost of an audit may be relatively small;
• There may be disruption to a company’s operations during the audit, as some of the company’s staff may be required to assist the auditors by answering questions, providing documents, and other information;
• Some items in the financial statements might be estimates, which truth and fairness will not be known with certainty until sometime in the future. This means the assurance opinion is ultimately subjective and judgmental;
• Most frauds will include attempts to deliberately conceal the truth or misrepresent information;
• In order to balance cost and efficiency, the auditor routinely uses sampling rather than checking every item;
• Irrespective of how robust a client’s systems are, they will always incorporate some degree of inherent limitation; and
• Audit evidence is persuasive rather than conclusive.

(c) The eligibility for qualification of an external auditor:
A person to be eligible to become an external auditor must:
i. Be a member of a body of accountants in Nigeria, established by an Act;
ii. Not be an officer or servant of the company;
iii. Not be a person who is a partner of or in the employment of an officer or servant of the company;
iv. Not be a body corporate;
v. Not be a person or firm who or which offers to the company professional advice in a consultancy in respect of secretarial, taxation or financial management; and vi. Effect registration or clearance from the appropriate regulatory body like the Central Bank of Nigeria, Securities and Exchange Commission, relevant to the organisation concerned.

(d) Scope of statutory audit:
The scope of the statutory audit as described in the independent auditor’s report contains the following points:
i. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements;
ii. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the financial statements, whether due to fraud or error;
iii. In making the risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control; and
iv. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

(e) Benefits of adequate planning of an audit:
The objective of the auditor, per ISA 300: Planning an Audit of Financial Statements is to plan the audit work so that the audit will be performed in an effective manner. The benefits of adequate planning include:
i. Assisting the auditor to devote appropriate attention to important areas of the audit;
ii. Assisting the auditor to identify and resolve potential problems;
iii. Assisting the auditor to organise and manage the audit engagement, so that it is performed in an effective and efficient manner;
iv. Assisting in the selection of staff with appropriate experience and the proper assignment of work to them;
v. Allowing for the direction and supervision of staff and review of their work by the auditor; and vi. Allowing the auditor to identify and focus attention on critical and high-risk areas of an audit.

(f) Three risk assessment procedures required by ISA 315:

ISA 315 requires the auditor’s risk assessment procedures to include the following:
i. Inquiries of management and others, that is, asking questions and getting answers. The auditor will ask questions on transactions and balances that are most susceptible to material misstatements;
ii. Analytical procedures, which involve the computation of ratios and trends to identify the existence of unusual transactions or events or amounts, that might have implications for the audit, for example, an analysis of payable days compared to previous years might indicate that the company is having difficulty in paying its debts. As a result, the auditor may plan to do more audit procedures in this area. Information technology may be of use in calculating changes to balances in the financial statements from previous years and graphing trends; and
iii. Observation and inspection include observation of controls in inventory counts, invoices, wages payout among others, and inspecting internal control manuals or business plans.