Reform of Nigerian Company Law: Rethinking the Membership of Audit Committees of Public Companies

Abstract

An audit committee is one of the essential committees for good corporate governance practice. Beyond the provisions of corporate governance codes regarding audit committees, by virtue of the provisions of the Companies and Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria 2004, it is compulsory for every public company in Nigeria to have an audit committee. The statute further provides for the membership and responsibilities of the audit committee. Rather curiously, it requires the membership of audit committees to be made up of both directors and shareholders' representatives. This paper is a critical review of the membership of audit committees and the impact the dual membership structure of audit committees is having on such committees' performance. It concludes that apart from the negative impact of such awkward composition, the practice is inconsistent with international best practice, detracts from the agency theory of corporate structure and defeats the essence of having audit committees. It consequently recommends that the membership of audit committees of public companies in Nigeria should be made consistent with international best practice.