TABLE OF CONTENT
Title Page………………………………………………………………………………………………………………………..i
Certification…………………………………………………………………………………………………………………….ii
Dedication………………………………………………………………………………………………………………………iii
Acknowledgement…………………………………………………………………………………………………………..iv
Abstract………………………………………………………………………………………………………………………..viii
CHAPTER ONE: INTRODUCTION
1.1 Introduction……………………………………………………………………1
1.2 Statement of Research Problem………………………………………………..2
1.3 Objectives of Study……………………………………………………………2
1.4 Research Hypothesis……………………………………………………….…..3
1.5 Scope of study……………………………………………………………….…4
1.6 Significance of the Study………………………………………………….……4
1.7 Limitations of the study……………………………………………………….….5
REFERENCES…………..…..…………………………………………………….6
CHAPTER TWO: LITERATURE REVIEW
2.1 Historical Background…………………………………………………………7
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2.2 Functions and Practices of Audit Committees in Nigeria………………………9
2.3 Composition of Audit Committees in Nigeria and the Ambiguity in the Provision of
CAMD‟90(Now CAMA 2004)…………………………………………………………….10
2.4 Qualifications of Audit Committee Members………………………………….12
2.5 Quality of Audit Committees……………………………………………………14
2.6 Audit Effectiveness and its Relevance to Financial Reporting………………….15
2.7 Audit Committee Independence…………………………………………………18
2.8 Audit Committee Relationship with Management, Internal Auditor and External
Auditors……………………………………………………………………………………..21
2.9 Audit Committees and the Independence of External Auditors…………….….22
2.10 Audit Committees and Financial Reporting: Audit committee Characteristics and
Financial Reporting Quality…………………………………………………………………24
2.11 Corporate Reporting……………………………………………………………26
2.12 Forms and Contents of Financial Statements…………………………………..26
2.13 Types of Financial Statement…………………………………………………..27
REFERENCES…………………………………………………………………….28
CHAPTER THREE: RESEACRH METHODOLOGY
3.1 Introduction…………………………………………………………………….30
3.2 Research Design………………………………………………………………..30
3.3 Population of Study……………………………………………………………30
3.4 Sample and Sampling Technique………………………………………………30
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3.5 Sources of Data………………………………………………………………..31
3.6 Instrument of Data Collection…………………………………………………32
3.7 Actual Field Work……………………………………………………………..32
3.8 Data collection Method………………………………………………………..32
3.9 Data Analysis Method…………………………………………………………32
3.10 Justification for the use of Chi-Square test……………………………………33
3.11 Decision Rule…………………………………………………………………33
REFERENCES……………………………………………………………………33
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION.
4.1 Introduction……………………………………………………………………35
4.2 Data Presentation………………………………………………………………35
4.3 Data Analysis and Interpretation ………………………………………….…..35
4.4 Test of Hypothesis……………………………………………………………..48
REFERENCES……………………………………………………………………54
CHAPTER FIVE: FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.1 Introduction…………………………………………………………………..55
5.2 Findings………………………………………………………………………55
5.3 Recommendation(s)…………………………………………………………..56
5.4 Conclusion……………………………………………………………………57
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BIBLIOGRAPHY………………………………………………………………………59
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ABSTRACT
Out of the worries ignited by the incessant occurrence of organizations failure and
liquidation in Nigeria, even with the presence of audit committees in these organizations, this
project topic was born. A topic aimed at evaluating audit committee and financial reporting
Nigeria. In carrying out this investigation, the likert-scale questionnaire was drawn to extract
correct and direct data from respondents in some randomly selected firms. Data extracted were
presented, analyzed and interpreted. Hypothesis were tested using chi-square with five percent
(5%) level of significance, indicating ninety five percent (95%) assurance or confidence on the
accuracy reliability and validity of the data collected and information gathered therefrom. After
rigorous research and study, it was revealed that audit committees have contributed immensely to
the financial reporting in Nigeria, though at some point they just exist without making any
considerable impact in the financial reporting system in the firm they are established. It was
recommended that it is not enough for companies to establish audit committees because the law,
CAMD 1990, says so but that the company and its board of directors must show full
commitment to accountability by providing a conducive environment in which their audit
committees can discharge their responsibilities effectively and efficiently.
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CHAPTER ONE
1.1 INTRODUCTION
One mechanism that has been widely used in worldwide organizations to monitor the financial
reporting process is the establishment of an audit committee comprising a majority of
independent directors. The existence of an audit committee could improve the monitoring of
financial reporting and internal control. This could be done by bridging the communication gap
between the auditors and management and through strengthening the role of the internal auditors.
Although audit committees have been in existence for decades, there are criticisms of the
practices of audit committees and a large amount of research have been undertaken to identify an
ideal audit committee that would act in the interest of shareholders (Abbott and Parker, 2000;
Krishnan, 2005).
Audit committees serve as a bridge in the communication network between internal and external
auditors and the board of directors, and their activities include review of nominated auditors,
overall scope of the audit, results of the audit, internal financial controls and financial
information for publication (FCCG, 1999). Indeed, the existence of an audit committee in a
company would provide a critical oversight of the company‟s financial reporting and auditing
processes (FCCG, 1999; Walker, 2004).
Audit committee could also enhance auditor independence. Knapp (1987) discovered that an
audit committee is more likely to support the auditor rather than management in audit disputes
and the level of support is consistent across members of the committee, regardless of whether the
member is in a full-time or part-time position, such as managers, academicians and retired
partners.
In addition, audit committees could play a role in selecting auditors, determining their
remuneration and in the dismissal/retention of auditors. Goldman and Barlev (1974) pointed out
that audit committees could observe the financial reporting process and provide
recommendations in the selection of auditors, negotiation of fees and termination of external
auditors, which would ultimately diminish management‟s power over the auditor. An audit
committee is anticipated to ensure that a business organization has sufficient internal controls,
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proper accounting policies, and independent external auditors that will prevent the incidence of
fraud and promote high quality and timely financial statements.
1.2 STATEMENT OF RESEARCH PROBLEM
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 from others, the audit committee would have no
choice but to dance to his tune, given the composition of the audit committee 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:
1. How relevant is the establishment of audit committee to the financial reporting of
organisations in Nigeria?
2. Does the frequency of audit committee meetings in a given financial reporting year
determine to a large extent, the effectiveness of that audit committee?
3. How effective are audit committee composition of equal number of directors and
representative of shareholders?
1.3 OBJECTIVES OF THE STUDY
The basic objective of this study among others is to evaluate audit committees to
financial reporting in contemporary Nigeria. More so, for the purpose of clarity, simplicity and
avoidance of ambiguity, this study intends to;
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1. Find out the relevant of the establishment of audit committee to the financial reporting of
organisations in Nigeria.
2. Examine whether the frequency of audit committee meetings in a given financial
reporting year determine to a large extent, the effectiveness of that audit committee.
3. Verify how effective are audit committee composition of equal number of directors and
representative of shareholders.
1.4 RESEARCH HYPOTHESIS
The following hypotheses have been formulated to serve as a base for this research;
Hypothesis I
Ho: The establishment of audit committee is not relevant to financial reporting of
organisations in Nigeria.
H1: The establishment of audit committee is relevant to financial reporting of organisations in
Nigeria.
Hypothesis II
Ho: The frequency of audit committee meetings in a given financial reporting year does not
determine to a large extent, the effectiveness of that audit committee.
H1: The frequency of audit committee meetings in a given financial reporting year determines
to a large extent, the effectiveness of that audit committee.
Hypothesis III
Ho: There is no significant relationship between audit committee composition of equal
number of directors and representative of shareholders.
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H1: There is a significant relationship between audit committee composition of equal number
of directors and representative of shareholders.
1.5 SCOPE OF THE STUDY
This research work is an empirical study of audit committees to financial reporting in Nigeria.
The population of the study is Nigeria, while the sample is some selected companies in Benin
City, Edo State. This study will involve assessing the effectiveness of audit committees and
financial reporting in Nigeria. It will also look at the performance of audit committees in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
This research work on its conclusion, together with whatever solution or findings that may arise,
will prove useful to some particular group of persons or otherwise for various reasons in
accordance with their varying needs.
Beneficiaries
– Stakeholders: This study will be important and beneficial to stakeholders of
organisations to know the essence of the audit committee and financial reporting in
Nigeria.
– The Government: It will acquaint the government of the importance of audit committee
and financial reporting and how it should be properly managed.
– The public: This study will help to restore the lost confidence of the public as regard
audit committee and financial reporting in Nigeria.
– Academic/future researcher: Both academic and other future researchers in this similar
subject matter will find it a useful source of learning and research.
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1.7 LIMITATION OF THE STUDY
The main constraints of this research work are:
i. Time: The study was done within a short period of time and this affected the scope of
the study.
ii. Availability of Data: The study will be feasible within the context of available
information that could reach the researcher.
iii. Finance: This is an essential tool of research study. Money was another strong
constraint since most materials were gotten from the Internet. It was so much
expensive to browse the net through the night and print materials so found.
iv. Simple Size: This is limited to the available respondents who are knowledgeable on
the subject matter.
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REFERENCES
Abbott, L. J. and Parker, S. (2000)‟Auditor selection and audit committee characteristics‟,
Auditing: A Journal of Practice & Theory, vol. 19, no. 2, pp. 47-66.
Finance Committee on Corporate Governance (FCCG) (1999) Report on Corporate Governance,
Malaysia: Ministry of Finance.
Goldman, A. and Barlev, B. (1974), „The auditor-firm conflict of interests: its implications for
independence‟, The Accounting Review, October, pp. 707-718.
Knapp, M. C. (1987)‟An empirical study of audit committee support for auditors involved in
technical disputes with client management‟, The Accounting Review, vol. 62, no. 3, pp. 578- 588
Krishnan, G. V. (2005)‟Did Houston clients of Arthur Andersen recognize publicly available bad
news in a timely fashion?‟, Contemporary Accounting Research, vol. 22 no. 1, pp. 165-193.
Walker, R. G. (2004)‟Gaps in guidelines on audit committees‟, Abacus, vol. 40, no. 2, pp. 157-
192
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