Measures of Audit Committee Effectiveness in Nigeria

Veronica Ekundayo ,Adeyinka A Ilori

doi:10.7176/rjfa/10-10-13

Abstract

There has been increased focus on the activities of audit committees due to high-profile cases of financial scandals unsettling business executives and organizations. A reliable audit report facilitated by an effective audit committee is now imperative in corporate organizations. Empirical and statistical evidence supports committee tenure, financial expertise, and independence as having significant direct correlation with audit committee effectiveness. However there is no statistical evidence proving that committee size and the frequency of committee meetings impact positively on audit committee effectiveness, as these are discretional, charter-based determinants. Therefore, to forestall the occurrence of anomalies in financial disclosures and to protect corporate reputation and diverse interests of various stakeholders, audit committees must be seen to have the power to probe, forensically and otherwise, management programs and other financial projects. In addition the audit committee has the corporate governance role to monitor, in stricter details, the activities of both Internal and External Audit to prevent biased and scandalous disclosures. The foregoing role of the committee is of utmost importance, as the credibility of financial statements remains the most accurate way of informing shareholders and other stakeholders about the financial performance, progress and position of the company. Keywords: Audit Committee, External Auditors, Governance, Financial Disclosures. DOI : 10.7176/RJFA/10-10-13 Publication date :May 31 st 2019

Highlights

The audit committee is one of the operating committees of the board of directors of organizations saddled with the board responsibility for financial reporting and disclosures
The purpose of this paper is to review key literature to espouse the perceptions of the effectiveness of audit committees from the practice-theory perspective
It is fast becoming the practice for a Nigerian company especially public companies, to have a two tier audit committee alongside independent auditors, It is believed that this will translate into higher audit quality, improved risk management environment, and higher professional fees to be borne by the firm

Summary

INTRODUCTION

All over the world there has been cases of corporate financial scandals and abuse of power by top executives of organizations, leading to losses for investors. As a result there have been increased demand for the establishment of effective audit committees. The audit committee’s role is one of oversight and monitoring, and in carrying out this responsibility, the committee may rely on management, the External Auditors, and any advisers the committee might engage, provided its reliance is reasonable. The audit committee is one of the operating committees of the board of directors of organizations saddled with the board responsibility for financial reporting and disclosures. Membership, compensation and tenure of the committee is dependent on the charter of the company in question. Studies show that organizations doing the right things disclose quality information faster than firms fabricating financial reports and using more than necessary external auditors and analysts whose activities are marred by a lack of objectivity, partiality, and corporate connivance in information disclosure scandals. Some of such laws and codes includes The Company and Allied matters Act (CAMA) 2011, Security and Exchange Commission Code of Corporate Governance for Public Companies (SEC Code 2011) 2011, the Financial Reporting Council of Nigeria Act 2011 and the most recent Codes which are the Nigerian National Code of Corporate Governance 2018 (NCCG) and the Code of Conduct for Microfinance Banks 2018.

THE BOARD OF DIRECTORS

BOARD AND AUDIT COMMITTEE

Findings

CONCLUSION AND RECOMMENDATIONS