ACCOUNTANTS’ PERCEPTION OF THE EFFECTIVENESS OF AUDIT COMMITTEE OF NIGERIAN LISTED DEPOSIT MONEY BANKS

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

In response to worldwide corporate scandals, there was a significant increased regulatory demand for accountability in the world business environment. This, according to Sengur, (2007) has in the last decade, brought organizations’ risk management and internal control systems into the public policy debates on corporate governance. Originated in the 19th century, corporate governance came up in response to the separation of ownership   and control,   following   the   formation   of   common   stock companies   (Berle   &   Means, 1932) as cited in Tankiso (2008).   The separation between ownership and control resulted in the agency relationship which refers to the situation where shareholders own the firm while managers control it.

Managers mostly do not always pursue the best interests of the company, but rather their own interests.   This   situation   leads   to   the   agency   problem,   which   forms   the theoretical framework for current corporate governance practices.

The existence of the agency problem results from the owner’s inability to run the company on a day-to-day basis. Managers are hired to manage the affairs of company owners, with the instruction of pursuing the owners’ objective (Tankiso, 2008).  Deviation from these objectives and instructions results in the agency problem.

Good  corporate  governance  is  used  as  a  measure  for  solving  the  agency  problem, where the board of directors is regarded as the focal point of the governance system and therefore  is  accountable to  shareholders  and  responsible  for  the  performance  and  the affairs of the company (IOD 2002). The practice of corporate governance is a combination of a number of mechanisms, amongst which is the audit committee.  Audit committee effectiveness has been a focus of international corporate governance reform for many years. Kalbers and Fogarty (1998) asserted that the genesis of audit committees as a part of corporate governance structure is rooted in the reactions to the abuse of power by corporate management which led to financial scandals, financial reporting defalcations, and unjustifiable manipulation of accounting policies.

1.2 STATEMENT OF PROBLEMS

Audit committee is a key factor of efficient corporate control systems. Deposit money banks (companies) around the world have been required by their various corporate regulations to have audit committee which primarily is to ensure the integrity of financial reporting and the audit process by ensuring that the external auditor is independent, objective and does a thorough job. An effective audit committee practice is for good corporate governance. It ensures that the statement of affairs presented by the agent is accurate or rather that the report can be trusted and also to ensure that the performance reported is aligned with the goals of the principal. A lot of research has been carried out in the field Deposit money banks looking at different they can governed and managed to ensure that the interest of all stakeholders, most especially shareholders are been protected. The purpose of this research is to examine the accountants’ perception of the effectiveness of audit committee of Nigerian listed deposit money banks.

1.3 OBJECTIVE OF THE STUDY

The main objective of the study is to examine Accountants’ perception of the effectiveness of Audit Committee of Nigerian Listed Deposit Money Banks.

The specific objectives are as follows:

1. To investigate the perception of accountants’ about the effectiveness of audit committees of deposit money banks
2. To find out whether the perceptions of accountants’ about the effectiveness of audit committees of deposit money banks differ between one group of accountants and others.

1.4 RESEARCH QUESTION

1. To what extent is the perception of accountants’ about the effectiveness of audit committees of deposit money banks?
2. What is the extent to which the perceptions of accountants’ about the effectiveness of audit committees of deposit money banks differ between one group of accountants and others?

1.5 RESEARCH HYPOTHESES

HO: There is no significant relationship between accountant’s perception and the effectiveness of audit committee of deposit money bank

HI: There is a significant relationship between accountant’s perception and the effectiveness of audit committee of deposit money bank

1.6 SIGNIFICANCE OF THE STUDY

This research is on accountants’ perception of the effectiveness of audit committee of Nigerian listed deposit money banks, and it will be beneficial to the Nigerian banking sector, this research work will serve as a framework for scholars and students who are researching into similar topics, most especially students of Accountancy department of KEN SARO-WIWA POLYTECHNIC, and other institutions of learning. The study is also intended to provide a yardstick for the manufacturing firms, Nigerian government, accountant, auditors and the society at large on accountants’ perception of the effectiveness of audit committee of Nigerian listed deposit money banks.

1.7 SCOPE OF THE STUDY

Basically, the scope of this research work covers accountants’ perception of the effectiveness of audit committee of Nigerian listed deposit money banks. All financial organizations in Nigeria could have been covered but for time and cost constraints.  So the researcher decided to limit the study to the Audit unit of some selected firms in Rivers State, comprising of First Bank PLC Refinery Junction, Accountants and academician from selected firms in Rivers State.

1.8 LIMITATION OF THE STUDY

The most limiting factor encountered in course of carrying out this research work was lack of fund, the limitation to the research work includes the uncooperative attitude of the respondents who were not willing to give confidential information and sometime-based answers were given. Most of information and data needed for the research work were not easy to gather because some respondents believe that the information involved in gathering and processing the data into meaningful information was also short.

Also, the time duration required for the completion was too short, hence not encouraging sourcing of material was a difficult task due to the fact that some materials were not available at the time of writing.

1.9 DEFINITION OF TERMS

Auditing: An independent examination of an expression of opinion on the fundamental statement of an entity by an appointed auditor (Ihe and Umeake(2008).

Accountability: This simply is a requirement on public servant entrusted with certain financial responsibilities to render and account of or answers for their actions to their superior officers.

Audit committee: Is the committee of company’s board of directors vested with important responsibilities to on behalf of the company shareholders, to oversee the financial reporting process, the integrity of companies’ financial statement, the company’s compliance with legal requirements, the external auditor’s qualification, independence and performance and the internal audit function.

Deposit Money Banks: Tthese are otherwise known as commercial banks, central in financing economic activity in any economy, most especially the developing countries like Nigeria.