AUDIT COMMITTEE AND FINANCIAL REPORTING IN NIGERIA

(Accounting)
AUDIT COMMITTEE AND FINANCIAL REPORTING IN NIGERIA
                  TABLE OF CONTENTS

CHAPTER ONE
Introduction                             
Statement of the Research Problem                    
Objectives of the Study                        
Research Hypotheses                            
Scope of the Study                            
Relevance and Significance of the Study                
Limitations of the Study                         
References                                
CHAPTER TWO: LITERATURE REVIEW
2.1     Introduction                            
2.2    Historical Background of Audit Committees: The History and
Conceptual Benefits of Audit Committees                
2.3    The Audit Committee’s and Financial Reporting        
2.4    Audit Committee Challenges                    
2.5     The Function and Practices of Audit Committees in Nigeria        
2.6    Composition of Audit Committees in Nigeria and the Ambiguity in the
Provision of CAMA 2004                        
2.7    Qualification of Audit Committee Members                
2.8    Quality of Audit Committees                        
Audit Effectiveness and its Relevance to Financial Reporting        
2.10    Audit Committee Independence                    
2.11    Audit Committee Relationship With Management, Internal Auditor and
External Auditors                    
2.12    Audit Committees and the Independence of External Auditors    
2.13    Audit Committees and Corporate Financial Reporting: Audit
Committee Characteristics and Financial Reporting Quality        
2.14    Financial Reporting                            
2.15    The Concept and Definition of Financial Reporting            
2.16    Components of Financial Reports                        
2.17    Form and Content of Financial Statements            
2.18    Types of Financial Statement                        
References                                
CHAPTER THREE: METHODOLOGY
Introduction                             
Research Design                         
The Population and Sampling                     
Sources of Data                            
The Research Instrument                 
Operationalization of Variables                 
Model Specification and Data Analysis Plan             
CHAPTER FOUR: DATA PRESENTATION AND ANALYSES
4.1    Introduction                            
4.2    Presentation and Analysis of Results                    
Test of Hypotheses                        
Discussion of Findings                         
CHAPTER FIVE:    SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Introduction                             
Summary of the Finding                     
Conclusion                            
Recommendations                        
Bibliography                             
Appendix                         
CHAPTER ONE
INTRODUCTION
BACKGROUND OF STUDY
The separation of management (control) from shareholders (ownership) necessitated the need for the former to account for the resources (capital) entrusted to them by the latter. According to Jensen and Meckling (1976:305), an agency problem arises whenever one person employs another to perform a task on his behalf. Agency problem involves management (agent) attempt to maximize its welfare at the expense of shareholders (principal) and on the other hand, a deliberate attempt by shareholders to maximize their returns by establishing a monitoring system designed to ensure that management do not maximize its welfare at shareholders expense.
This agency problem precipitated the need for a means by which management could make itself accountable to shareholders. This need is met by the preparation and presentation of accounts (financial statements) to shareholders and other users. This arrangement has been made compulsory by law.
In Nigeria, the law governing the preparation of the financial statement of corporate entities is the Company and Allied Matter Act, 1990. Section 334 of CAMA 1990 made it mandatory for directors of companies to prepare financial statements at the end of each accounting year.
 Base  on the importance of such financial, statements, together with the considerable influence it has on the perception and decision of various users, not forgetting the belief or assumption that management may be bias when accounting for their own activities, there was need to wide-out all element of doubt and embrace a high level of assurance that the financial statement prepared and presented by management shows the true financial position of the reporting corporate entity. This assurance can only be attained when such financial statements are subjected to an “Audit”, through the process of “auditing” by an independent person called “Auditor”.
During an audit, an independent an competent accountant throws an investigative searchlight on the financial activities of the company over the period under review and issues a report informing the shareholders as to whether the account presented to them is a reflection of what happened during the period or not. Agency problem gave rise to accountability which is incomplete without an audit. Audit assumes accountability through the detection of existing malpractice, errors and fraudulent practices and tendencies.
Since the milestone case of Mckessen and Robin in 1939 in the USA in which auditors were blamed by the regulatory bodies and users for whom the accounts were meant, efforts have been intensified to enhance the quality of audits as well as the independence of auditors in order to make financial statement more reliable and credible worldwide. One of such efforts manifested in the introduction of the Audit Committee of the board of directors. In fact it was the Security and Exchange Commission’s investigation report in the aforesaid case in USA that recommended that public companies must have Audit Committees of the Board of Directors to oversee the internal control system and the financial reporting process (Abel, A. 2001: 26).
The passing of the Sarbanes-Oxley Act in 2002 in which the US Congress took the unprecedented step of vesting each public company Audit Committee with direct management responsibilities (Richard and Gale, 2003), set a new tone of the song of assurance in Financial Reporting across the globe. Similar  steps were taken in UK and China and this expanded the duties, responsibilities and powers of Audit Committees.
According to Gwilham and Killommins (1998), the presence of Audit Committees has been found to create a perception of enhanced auditor’s independence and more reliable financial reporting among financial statements users. Jensen and Meckling (1997) suggested that, because of the conflicting interest between managers and debtholders, higher leverage increases debtholders need to monitor managers. Managers have incentives to control the agency cost of debt and can do so by providing increased monitoring through Audit Committees.
In this period of economic crisis, the need for accountability becomes more conspicuous. The questions of effective audit is therefore worth examining in the Nigeria context. The nature and essence of an audit is such that the person performing it must be independent. By this it means that the auditor is impartial and free from all direct and indirect influence of those affected by his work.
In Auditing, the importance of independence is so overwhelming that various attempts have been made by law makers and accounting bodies to ensure its existence. In this research study an attempt is made to evaluate the relevance of Audit Committees to financial reporting in Nigeria and also to look at the extent to which Audit Committees have contributed to the independence of auditors.
PROBLEM OF STUDY
Audit Committees are by reference to relevant Sections of CAMA 1990 expected to bridge the expectation gap in providing a means by which the opinion expressed by auditors on a firm’s financial statement can be seen to be unbiased and independent. It is argued that the presence of Audit Committees is likely to lead to unnecessary rift between shareholders and directors as well as management and auditors. Also, were the managing director is a very influential member in the board and succeeds in hijacking authority form others, the Audit Committees would have no choice but to dance tot his tune, given the composition of the Audit Committees  of equal number of directors and representatives of the shareholders of the company subject to a maximum of six (6) members. This makes the appointment of the committee unnecessary.
In view of the above, the study intends to find answers to the following questions:
Is there significant relationship between Audit Committee and return on asset?
Is there significant relationship between Audit Committee and earnings per share?
Is there significant relationship between Audit Committee and leverage.
OBJECTIVES OF STUDY
The basic objective of this study among others is to evaluate the relevance of Audit Committees to financial reporting in contemporary Nigeria. Moreso, for the purpose of clarity, simplicity and avoidance of ambiguity, this study intends to expose on;
To determine the relationship between Audit Committee and return on asset.
To examine the relationship between Audit Committee and earnings per share.
To verify the relationship between Audit Committee and leverage.
HYPOTHESIS OF THE STUDY
The following hypothesis have been formulated ot serve as a base for this research;
Hypothesis I
Ho:    There is no significant relationship between Audit Committee and return on asset.
H1:    There is a significant relationship between Audit Committee and return on asset.
Hypothesis II
Ho:    There is no significant relationship between Audit Committee and earnings per share.
H1:    There is a significant relationship between Audit Committee and earnings per share.
Hypothesis III
Ho:    There is no significant relationship between Audit Committee and leverage.
H1:    There is a significant relationship between Audit Committee and leverage.
SCOPE OF STUDY
This research work is an empirical study of the relevance of Audit Committees and financial reporting in Nigeria. The population of the study is Nigeria, while the sample is some selected public companies in Nigeria. This study will involve assessing the effectiveness of Audit Committees in making the external auditors independent. It also looks at the performance of Audit Committees in Nigeria.
RELEVANCE OF THE STUDY
The relevance of this study is the benefits that both the corporate entities and the general public (within the Nigerian context) are expected to gain from this research work. The result of this study will be very useful not only to other researchers in this area of study but also to corporate bodies in Nigeria as it will help them understand the role that Audit Committees play in improving and ensuring an effective internal control system, corporate governance and ultimately, a sound and reliable financial reporting framework.
LIMITATIONS OF THE STUDY
As in the case of every study, there are some factors which have impaired the progress of this study and some more are anticipated in the course of this research work.
Below are some of the limitations of the study.
Low co-operation from respondent. This stem from fear that the Audit Committee of the company will be criticized when compared with the Audit Committees of other companies.
Another important constraint encountered was time. There was no adequate time to carry out elaborate study which the researcher would have desired.
Finance was also a major constraint encountered during this research work.
Ineffective access to internet and internet information (materials).
Inadequate availability of current or up-to-date materials on the subject.
In spite of these limitations efforts were made to reduce the effects on the study to ensure that the results of the study are reliable and consistent with actual expectations.
REFERENCES
Agbonifoh, B.A. and Yomere, G.O. (1999), “Research Methodology in the  Social Sciences and Education”, (Uniben Press, University of Benin, Benin City).
Izedonmi, F.O. (2008), “A Quick Guide to Project Writing”, (Ambik Press, Benin City).
Oladipupo, A.O. (2005), “Auditing and Investigation., Theory and practices”. (Mindex Publishing Company Limited, Benin City).
Abel, A.A. (2001), “The Challenge of Corporate Governance in Nigeria”: The Nigerian Accountant, vol. 34. No.3.

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