AUDIT COMMITTEE AND CORPORATE REPORTING QUALITY IN NIGERIA

Abstract

This study investigates audit committee and corporate reporting quality in Nigeria. The broad objective of the study is to ascertain the significance relevance of audit committee to corporate reporting and also to ascertain the significant relationship between the role of audit committee in establishing and ensuring effective organization governance to corporate reporting in Nigeria. This study used a sample of 50 which was chosen using simple random technique. In analyzing the data, the primary source of data collection was used where the chi-square statistical tool was employed to test the stipulated hypotheses. The findings revealed that there is significant relationship between the audit committee and corporate reporting and that there is significant relationship in the coordination between internal and external audit function and audit committee. It was concluded that the roles of auditor enhance corporate reporting and promote independence of auditors. This study therefore, recommended that the external auditor should continually report their findings and submit their report to the external auditors as the independence of the external auditors is enhanced by the audit committee.

TABLE OF CONTENTS

Title Page                                                                                i

Certification                                                                            ii       

Dedication                                                                              iii      

Acknowledgements                                                                iv      

Abstract                                                                                  v

Table of Contents                                                                   vi

          Chapter One: Introduction                                                1

1. Background to the Study                                                      1
2. Statement of Problem                                                            3
3. Research Questions                                                               3
4. Objectives of the Study                                                          4
5. Statement of Hypotheses                                                       4
6. Significance of the Study                                                       6
7. Scope of the Study                                                                 6
8. Limitations of the Study                                                        7      
9. Definition of Terms                                                                7      

Chapter Two: Review of Related Literature                9     

2.1    Introduction:                                                                          9

2.2    Brief History of Auditing / Audit Committee                       9

2.3    External Auditor and Audit Committee                               13

2.4    Audit Committee and the Nature of Independence             16

2.5    The Structure of Organization Governance                         19

2.5.1 The Director                                                                           20

2.6    Audit Committee in Corporate Governance                         21

2.7    The role of Audit Committee over Internal and External

Audit Function in Corporate Reporting:                     25

2.8    Problem Associated with Audit Committee in Corporate Reporting in Nigeria                                                                 28

2.8.1 Effective Audit Committee                                                     29

2.8.2 Ineffective Audit Committees                                       30

Chapter Three: Research Method and Design             32

1. Introduction                                                                           32
2. Research Design                                                                     32    
3. Description of Population of the Study                                 32    
4. Sample Size                                                                            33    
5. Sampling Techniques                                                             33    
6. Sources of Data Collection                                                    33    
7. Method of Data Presentation                                                34    
8. Method of Data Analysis                                                       34    

Chapter Four: Data Presentation, Analysis and

Hypotheses Testing                                                  36   

1. Introduction                                                                           36    
2. Presentation of Data                                                              36    
3. Data Analysis                                                                         37    
4. Hypotheses Testing                                                                46    

Chapter Five: Summary of Findings, Conclusion

and Recommendations                                              55   

1. Introduction                                                                           55
2. Summary of Findings                                                             55    
3. Conclusion                                                                             55    
4. Recommendations                                                                 57    

References                                                                 59   

Appendix I                                                                              61

Appendix II                                                                           62

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

Over the years, public organization has experienced gross monetary toss due to fraud, lack of documentation of statements of accounts and the general misappropriation of fund. These occur as a result of lack of auditor in the organization. Jean, Paul and Pascal (2008) opined that all organization whatever the size, can suffer large monetary loss so long as there is no proper investigation and tracing of asset of the organization. Thus the need for auditing and audit committee in corporate reporting cannot be overemphasized. Auditing is the examination of records and reports of a company in order to check that what is provided is relevant and accurate that is to say, its assets and liabilities are properly recorded in balance sheet and all profit and loss are properly assessed. This assessment is dome through two methods firstly by assessing internal control procedures and by checking the consistency of items in the book.

Howard (2011) considered an audit as an examination by an auditor of the evidence from which the final revenue accounts and balance sheet of an organization have been prepared in order to ascertain that they present a true and fair view of the summarized transactions for the period under review and of the financial state of the organization at the end date, thus enabling the auditor to report thereon. However, in modern sense Oladipupo (2005) stated that audit refers to a process where by the accounts of business entities are subjected to scrutiny such detail as well as enabling the auditor (which is the independent person) to opinion as to their truth and fairness. In a private organization, auditing is been done by internal and external auditor as it deem fit by the owner(s) of the organization. While as, in a public/corporate organization, the audit committee is been set up to look into the work of the internal and external auditor before it is been reported to the board of directors of the company. CAMA (2004) required all public/corporate organizations to constitute audit committee shall consist of an equal number of the company subjects to a minimum of six (6) members. Their function is to examine the auditors report and make recommendation during the annual general meeting as it may think fit.

1.2   Statement of Problem

It has been observed over the years soon after most audit committee report on the financial statement, declaring the company healthy, but soon after few weeks the company runs into bankruptcy. The research wants to find out the reasons behind this act.

1.3   Research Questions

The research tends to ask the following questions;

i.      How is audit committee relevance to corporate reporting?

ii.     What significant relationship exists between the role of audit committee in establishing and ensuring effective organization governance to corporate reporting in Nigeria?

iii.    What significant relationship exists between internal and external audit function and audit committee?

1.4   Objective of the Study

The broad objective of the study is examines audit committee and corporate reporting quality in Nigeria. The sub-objectives are to:

i.      ascertain the significant relevance of audit committee to corporate reporting,

ii.     ascertain the significant relationship between the role of audit committee in establishing and ensuring effective organization governance to corporate reporting in Nigeria,

iii.    determine the significant relationship in the coordination between internal and external audit function and audit committee.

1.5   Statement of Hypothesis

In order to achieve the objectives of this research work, the following hypothesis are to be tested.

Hypothesis One

HO:   There is no significant of audit committee to corporate reporting

HI:    There is significant relevance of audit committee to corporate reporting.

Hypothesis Two

HO:   There is no significant relationship between the role of audit committee in establishing and ensuring effective organizational governance to corporate reporting in Nigeria.

HI:    There is significant relationship between the role of audit committee in establishing and ensuring effective organization governance to corporate reporting in Nigeria.

Hypothesis Three

HO:   There is no significant relationship in the coordination between internal and external audit function and audit committee function in organizational governance to corporate reporting.

HI:    There is significant relationship in the coordination between internal and external audit function and audit committee.

1.6   Significance of the Study

The result of this research will be helpfully for:

i.      Firms: Amplify the need for audit committee to corporate reporting in Nigeria. It will also Emphasize the need for individual firm and public enterprises to incorporate audit committee to corporate reporting, in various organizations

ii.     The Nation: This study will help identify problems associated with audit committee to corporate reporting in Nigeria society. And also, find solution to the problem associated with audit committee to corporate reporting in Nigeria.

iii.    Future Researchers: Serve as a basis for further research work on evaluation of relevance of audit committee to corporate reporting in Nigeria

1.7   Scope of the Study

The study focus on audit committee and corporate reporting quality in Nigeria. The research sample size was 50 respondents, the investigation covers a period between 2008 to 2015. Edo state Nigeria is the geographical coverage of the study.

1.8   Limitations of the Study

The study was subjected to certain inherent constraint such as:

1.     Low cooperation form respondent, this stem form fear that the audit committee of the company will be criticized when compared to other companies audit committee

2.     Another important constraint encountered was time. There was no adequate time to carry out elaborate study has the researcher would have desired.

In spite of these limitation efforts were made to reduce the effects to ensure that the result of the study are reliable and consistent with actual expectations.

1.9   Definition of Terms

1.     Audit Committee: It has been defined as a committee of directors of a company whose specific responsibility is to review the annual financial statement before submission to the board of directors

2.     Auditing: Auditing is a systematic process of objectively obtaining and evaluating evidence regarding as sections about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the result to interest users.

3.     Directors: These are a group of senior managers who run a company.

4.     Internal Control: Internal control is the examination, monitoring and analysis of activities related to a company’s operation, including its business structure employee behaviour and information systems.

5.     Audit Committee Quality: It is defined as at least one member of the audit committee having accounting or financial expertise.