Audit Committee And Financial Reporting In Nigeria

Audit Committee And Financial Reporting In Nigeria

Chapter One

Preface

Background of Study

The part of inspection commission is of important interest to controller and the public in commercial governance. before, the function of the inspection commission was to oversee commercial fiscal reporting and exposure for public companies. still, in recent times, the part of inspection commission has come more pronounced by Securities and Exchange Commission( SEC), Public Company Accounting Oversight Board( PCAOB) and Blue Ribbon Commission( BRC) due to the colorful profitable events that have shaken the stability of the fiscal requests and investor’s confidence. Due to a number of commercial account dishonors, the Sarbanes- Oxley Account of 2002( SOX), also know as the public Company Account reform and Investor Protection Act of 2002 has stressed the significance of inspection commission responsibility by adding the conditions in terms of inspection commission class and composition.

The separation of operation( control) from shareholders( power) needed the need for the former to regard for the coffers( capital) entrusted to them by the ultimate. According to Jensen and Meckling( 1976) an agency problem arises whenever one person employs another to perform task on his behalf. Agency problem involves operation( agent) attempt to maximize its weal at the expenditure of shareholders( star) and on the other hand, a deliberate attempt by shareholders to maximize their returns by establishing a monitoring system designed to insure that operation don’t maximize its weal at shareholders charges.

This agency problem rained the need for a means by which operation could make itself responsible to shareholders. This need is met by the medication and donation of accounts( fiscal statements) shareholders and other druggies. This arrangement has been made mandatory by law.

In Nigeria, the law governing the medication of the fiscal statement of commercial realities is the Company and Allied Matter Act, 1990. Section 334 of CAMA 1990( as amended) made it obligatory for directors of companies to prepare fiscal statements at the end of each account time. Grounded on the significance of fiscal statements, together with the considerable influence it has on the perception and decision of colorful druggies, not foregetting the belief or supposition that operation may be bias when counting for their own conditioning, there was need to wide- out all element of mistrustfulness and embrace a high position of assurance that the fiscal statement prepared and presented by operation shows the true fiscal position of the reporting commercial reality. This assurance can only be attained when similar fiscal statements are subordinated to an “ inspection ”, through the process of “ Auditing ” by an independent person called “ Adjudicator ”.

During an inspection, independent and competent accountants throw an investigative searchlight on the fiscal conditioning of the company over the period under review and issues a report informing the shareholders as to whether the account presented to them is a reflection of what happed during the period or not. Agency problem gave rise to responsibility which is deficient without an inspection. inspection assumes responsibility through the discovery of being malpractice, error and fraudulent practice and tendencies.

Since the corner case of Mckessen and Robin in 1939 in the USA in which adjudicators were criticized by the nonsupervisory bodies and druggies for whom the accounts were meant, sweats have been boosted to enhance the quality of checkups as well as the independence of adjudicators in order to make fiscal statement more dependable and believable worldwide. One of similar sweats manifested in the preface of the inspection commission of the board of Directors. In fact, it was the Security and Exchange Commissions disquisition report in the forenamed case in USA that recommended that public companies must have inspection panels of the Board of Directors to oversee the internal control system and the fiscal reporting process( Abel, 2001).

The end of the Sarbanes- Oxley Act in 2002 in the US Congress took the unknown step of vesting each public company inspection commission with direct operation responsibility( Richard and Gale, 2003) set a new tone of the song of assurance in fiscal reporting across the globe. analogous way were taken in UK and China and this expanded the duties liabilities and power of Audit Committee.

According to Gwilham and Killommins( 1998) the presence of Audit Committee has been set up to produce a perception of enhanced adjudicators independence and further dependable fiscal reporting among fiscal statements druggies. Jensen and Meckling( 1997) suggested that because of the disagreeing interest between directors and debt holders, advanced influence increases debt holders need to cover directors. directors have impulses to control the agency cost of debt and can do so by furnishing increased covering through inspection panels.

In this period of profitable extremity, the need for responsibility becomes further conspicuous. The question on the effectiveness of inspection is thus worth examining in the Nigeria environment. The nature and substance of an inspection is similar that the person performing it must be independent. By this, it means that the adjudicator is unprejudiced and free from all direct and circular influence of those affected by his work.

In Auditing the significance of independence is so inviting that colorful attempts have been made by law makers and counting bodies to insure its actuality. In this exploration study an attempt is made to estimate the applicability of inspection panels to fiscal reporting in Nigeria and also to look at the extent to which inspection panels have contributed to the independence of Adjudicators.

Statement of the Research Problem

Audit panels are by reference to applicable sections of CAMA 1990 anticipated to bridge the anticipation gap in furnishing a means by which the opinion expressed by adjudicators on a establishment’s fiscal statement can be seen to be unprejudiced and independent. It’s argued that the presence of Audit panels is likely to lead to gratuitous rift between shareholders and directors as well as operation and adjudicators. Also, were the managing director is a veritably influential member in the board and succeeds in kidnapping authority from others, the inspection panels would have no choice but to cotillion to this tune, given the composition of the inspection panels of equal number of directors and representatives of the shareholders of the company subject to a outside of six( 6) members. This makes the appointment of the commission gratuitous. In view of the below, the study intends to find answers to the following questions

Does the fiscal knowledge of inspection commission members enhance fiscal reporting in Nigeria?

How does the frequence of meetings and inspection commission members enhance fiscal reporting in Nigeria?

What’s the effect of multiple directorships of inspection commission on fiscal reporting in Nigeria?

Objects Of The Study

The introductory ideal of this superstud among others is to estimate inspection panels and fiscal reporting in Nigeria.

To examine if the fiscal knowledge of inspection commission members enhance fiscal reporting in Nigeria.

To ascertain if the frequence of meetings of inspection commission enhance fiscal reporting in Nigeria.

To determine the effect of multiple directorships on fiscal reporting in Nigeria.

Suppositions of the Study

The following suppositions have been formulated to serve as a base for this exploration

H1 fiscal knowledge of inspection commission members doesn’t enhance fiscal reporting in Nigeria.

H2 frequence of meetings of inspection commission members doesn’t enhance fiscal reporting in Nigeria.

H3 Multiple directorships don’t have an effect on fiscal reporting in Nigeria.

Compass of Study

This exploration work is an empirical study on inspection commission and fiscal reporting in Nigeria for the period 2012 cut across fifty quoted enterprises.

Significance of the Study

The significance of this study is the benefits that both the commercial realities and the general public( within the Nigerian environment) are anticipated to gain from this exploration work.

The result of this study will be veritably useful not only to other experimenters in this area of study but also to commercial bodies in Nigeria as it’ll help them understand the part that inspection panels play in perfecting and icing an effective internal control system, commercial governance and eventually, a sound and dependable fiscal reporting frame.

Limitations of the Study

The limitation encountered in the course of the study includes

Finance is a significant limitation The available fund isn’t acceptable to carry out the demanded exploration grounded on high cost of transportation and the adding rise in the buying of time to pierce information from the internet.

Time This exploration was carried out alongside with my lectures, balancing both isn’t an easy task.