AUDIT COMMITTEE INDEPENDENCE AND CORPORATE GOVERNANCE IN NIGERIA (A CASE STUDY OF SELECTED LISTED COMPANIES)


Content

Abstract

Determinant of audit committee’s independence in corporate governance has been an issue on the front burner of public discuss. This premised on the fact that the audit committee to some is of no importance while to others certain things should be effective and independence so as to build the confidence of investors in taking investment decisions. Different writers have viewed the committee’s from different perspective but however, this research work is centered on those factors that will determine the committee’s independence on this basis, issues like external auditors, auditor committee, audit committee independence, proposed rules by SEC qualification of audit committee members, composition of audit committee, size of audit committee, audit committee meeting etc were reviewed. The primary source of data collection was used in this study where chi-square statistical tool was used to test the stated hypotheses. The study recommended among others that audit committee member should have knowledge of financial accounting, auditing and corporate finance.

 

 

 

 

 

 

 

 


TABLE OF CONTENTS

Title Page                                                                                i

Certification                                                                            ii

Dedication                                                                              iii

Acknowledgements                                                                iv

Abstract                                                                                  v

Chapter One: Introduction                                                            1

1.1    Background to the Study                                                      1

1.2    Statement of Problem                                                            2

1.3    Research Questions                                                               3

1.4    Objective of the Study                                                            3

1.5    Statement of Hypotheses                                                       4

1.6    Significance of the Study                                                       4

1.7    Scope of the Study                                                                 5

1.8    Limitation of the Study                                                          5

Chapter Two: Review of Related Literature                        6

2.1    Introduction                                                                           6

2.2    Audit Committee                                                                             6

2.3    What is independence                                                           14

2.4    Phases of independence                                                        16

2.5    Adult committee independence                                             20

2.6    Composition of Adult Committee                                          32

2.7    Adult Committee and External Auditor                                34

2.8    Adult Communication with Adult Committee                      36

2.9    Adult committee Relationship with Management                 38

2.10  Effective and Ineffective Adult Committee                                      39

2.11  Corporate Governance and Adult Committee                     41

2.12  Factors Influencing Corporate Governance                         45

2.13  Role of Corporate Governance in monitoring Auditors Independence                                                                     49

 

          Chapter Three: Research Method and Design                             53

3.1    Introduction                                                                           53

3.2    Research Design                                                                              53

3.3    Description of Population of the Study                                53

3.4    Sample Size                                                                            54

3.5    Sampling Techniques                                                            54

3.6    Sources of Data Collection                                                    54

3.7    Method of Data Presentation                                                          55

3.8    Method of Data Analysis                                                       58

Chapter Four: Data Presentation, Analysis and Interpretation

4.1    Introduction                                                                           57

4.2    Presentation of Data                                                              57

4.3    Data Analysis                                                                         57

4.4    Hypothesis Testing                                                                 63

Chapter Five: Summary of Findings, Conclusion and Recommendations                                                   67

5.1    Introduction                                                                           67

5.2    Summary of Findings                                                            67

5.3       Conclusion                                                                             68

5.4    Recommendations                                                                 68

References                                                                              69

Appendices                                                                             70

 


CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

The governance structure of an entity can play an important role in monitoring and safeguarding the independence of its external auditor. The exact form of an entity governance structure and the role any government body perform in relation to the external auditor may vary depending on the requirements of national laws. In some jurisdictions, a single body commonly known as a “audit committee” oversee all matters relating to the external auditors.

Stricter standards of accountability cannot be achieved without an effective internal control structure. One way that public officials can enhance accountability and demonstrate proper stewardship over public funds is to establish and support on adequate control environment within their organizations. A critical element of the control environment is an independent of management on matters of financial reporting and internal control.

An effective audit committee can provide several important aspect of control including ensuring the independence of the internal auditing function and ensuring appropriate action is taken on audit findings.

The audit committee serves in a unique capacity as an important communication link between external and internal auditors and operating management and means of reducing the risk management override of key elements of the organization internal control structure.

Hence an attempt to find out what will determine the audit committee independence in corporate government is what this research work seeks to address.

1.2   Statement of Problem

One of the foremost functions of the audit committee is to review the financial data of the company on continuous basis and strengthen internal accounting controls, in order to enhance reliability and integrity of financial reporting.

The spate of audit failure in the world, especially in Nigeria, has brought great disappointments to the users of financial reports. The cause of the problem has been linked to lack of effective oversight of audit committee which has also been linked with creative accounting. In Nigeria, the challenge of audit committee and audit quality reporting have not attracted much empirical studies beyond mere unreliable opinions.

Given the above scenario, the major problem for this study is to determine whether audit quality can significantly be influenced by audit committee characteristics of Nigerian Listed firms. The study attempts to ascertain and establish whether there are significant relationships between audit committee independence and corporate governance in Nigerian Listed firms.

1.3   Research Questions

The research questions of this study are as follows:

i.        To what extent does the composition of audit committee affect decision making?

ii.     To what extent does independence influence audit quality?

iii.      To what extent do audit committee members’ qualifications influence decision making?

1.4   Objectives of the Study

The following are the objectives of the study;

i.        To find out if the composition of audit committee affect decision making.

ii.     To ascertain if independence influence audit quality.

iii.      To determine if audit committee members’ qualification influence decision making.

1.5   Statement of Hypotheses

This study will rest the hypothesis below.

Hypotheses One

The composition of audit has no significance effect on decision making.

Hypothesis Two

        Independence does not influence audit quality.

Hypothesis Three

There is no significant relationship between audit committee members qualifications and decision making.

1.6   Significance of the Study

Since the inception of audit committee public companies as stated in CAMA section 359 (3) many have underscored the roles and responsibilities of the committee. Hence, in attempt to revive the committee this research work will assist companies to know how they can revive the committee redirect individual minds and assist future researchers to know areas when they should research.

The specific significance includes:

a.       It will ensure free and fair play, in terms of investment by investors.

b.      It will enable corporate owners to know how exactly to motivate the committee members for effective accountability and transparency in corporate reporting.

c.       It will encourage government to insist that audit committee should be setup even by private companies.

1.7   Scope of the Study

The scope which is otherwise referred to as delimitation of the study shall cover the Nigeria Stock Exchange Benin City. Emphasis is placed on the following areas: significance of the determinant of audit committee independence. A time frame of five years (2011 to 2015) was adopted in this study using a sample size of 120 was used for effective result.

1.8   Limitations of the Study

The major limitation of the study as it was with several studies in developing economies was data accessibility and accuracy. Also, there was the challenge of inappropriate measurement of variables. Another challenge faced in the course of this field work was time factor and inadequate funds.

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