Abstract
Audit Committee role is very important to the protection of shareholders and other stakeholders interests. This research study explores the influence of audit committee effectiveness on firm's performance using four characteristics: independence, financial expertise, size, and meetings of the audit committee. The performance measures were Return on Equity (ROE), Return on Asset (ROA) and Return on Capital Employed (ROCE). Twenty- five (25) manufacturing firms were selected and from which data were collected for the period (2004-2011). Empirical analysis was carried out using regression and correlation. The result of the analysis showed a positive significant relationship between independence and financial expertise of the audit committee and ROA, ROE and ROCE. However, the size and meetings of audit committee showed no significant relationship with all performance variables. This study therefore recommends that the audit committee should be made more effective by ensuring that members are made up of independent non-executive directors and also ensure that more members with financial expertise especially accounting expertise be drafted into the audit committee and lastly ensure that audit committee meetings are tailored towards relevant issues that enhance the financial performance of the firm.
Highlights
The firm performance was measured by Return on Equity (ROE), Return on Asset (ROA) and Return on Capital Employed (ROCE) as the dependent variables, while the independent variables were measured by four audit committee characteristics namely: audit committee independence (ACINDP), audit committee financial expertise (ACSFEXP) and one control variable, board size (BSIZE), audit committee meetings (ACMEET) and audit committee size (ACSIZE), Table 3.1: Synopsis of Variables’ Measurement/Description
This study investigated the relationship between audit committee effectiveness and the firm’s financial performance in Nigeria
The results showed that certain measures of audit committee effectiveness have positive coefficients and significantly influence the firm’s financial performance
Summary
Plc. Quadri (2010) posited that “the recent insider trading, massive and prevalent frauds, mandatory retirement of CEOs of banks, due to corrupt practices and inefficient rubber-stamped board, have. The responsibilities bestowed on them due to information asymmetry between the management and the owners of the business was expected to ease the agency problems which would invariably lead to the reduction of agency cost when the substantial interests of the owners are aligned with the company’s interests (Yayah, Abdullah, Faudziah & Ebrahim, 2012) This objective seems not to have been realized in Nigeria. Mohiuddin and Karbhari (2010) found that an audit committee that will influence corporate financial reporting positively and effectively carry out their agency duties must possess certain attributes such as independence, financial expertise, membership mix, size and number of meetings. These are in line with the revised SEC Code of 2011.
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