Audit and the Role of Auditing: An Exposition of the Underpinning Theories

  • Idowu Eferakeya, Patani Edgars


The theoretical underpinning that girds the existence of audit and its role in organizations has remained a largely unexplored area. The reason may not be far fetched. This explains why there is scanty theoretical as well as empirical research undertaking on the subject matter. It is in recognition of this knowledge gap that the study x-rayed relevant theories behind the existence of auditing and the hypotheses that underscore the audit role. In doing so, the study employed the literaturere view methodology. The objectives were to highlight the relevant theories that underpin the existence of auditing and the hypotheses that underlined the auditing role. Five auditing theories were found to underpin the very existence of auditing, which are: the policeman theory, credibility theory,rational expectationtheory, agency theory and signalling theory. In the course of the study, it was found that each theoryhighlights its main focus about the existence of audit. That apart fundamental hypotheses such as the monitoring(stewardship)hypothesis, information hypothesis and insurance hypothesis through the review revealed the very essence of the audit. Each of the hypotheses indicatesthe specific role auditing plays in an organizational context.Based on the review, the study was able to provide several reasons and explanationswhy auditing is considered very important by owners, shareholders’ and other claimants in the firm. It further reinforced a mechanism that provides the much-needed assurance bothering on reliability, the credibility of accounting information; securing of accountability, preservation of public trust based on development and design of executable performance contracts between managers of firms and shareholders,  and the need for monitoring compliance through the instrumentalism of auditing