RELEVANCE OF AUDIT COMMITTEE TO CORPORATE REPORTING IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1    BACKGORUND TO THE STUDY
    The spate of corporate failures in recent times has instituted the need for serious examination and investigation of their causes and possible solution. This helped foster the need for a committee to critically and thoroughly oversee and monitor the performance regulation of the financial statements disclosures and internal control procedures relating to corporate reporting. Audit committees are statutorily compulsory component of the management of corporate organizations in Nigeria (CAMA 1990) and constitute a credible component of corporate governance and reporting element. It becomes expedient to ask how significant, the contribution of audit committee is to corporate reporting in Nigeria.
    The financial statement as prepared by company directors is a statutory report, conveying both qualitative and quantitative information to assist users of accounting information in making informed decisions. For the financial statements to be credible and relevant for decision-making, Generally-Accepted Accounting principles (GAAP) must be followed in their preparation, hence, the appointment of external auditors to enhance and ensure compliance. Furthermore, to improve the quality of financial statements, the audit committee is constituted. According to pitt (2001); Ruder (2002), the incidence that led to the collapse of Enron made the public call out to improve the performance of their functions
    According to Lindsell (1992), the audit committee is a mechanism of corporate governance to check the quality, credibility, and objectivity of financial reporting; it performs an oversight function in the financial reporting process and communicates to user through a report in the financial statement. This committee has a monitoring responsibility over management and external auditors alike. They are intermediaries or watchdogs. The financial statement users will normally take actions based on the analysis of the various reports in the financial statements. An audit committee comprises a majority of independent directors. The existence of an audit committee could improve the monitoring of corporate financial reporting and internal control. This could be done by bridging the communication gap between the auditors and corporate management and through strengthening the role of the internal auditors.
    Although, audit committee have been in existence for decades, there are criticisms of the practices of audit committees and a large amount of research have been undertaken to identify an ideal audit committee that would act in the interest of shareholder (Abbott and Parker,2000; Krishnan, 2005). Audit committees serve as bridge in the communication network between internal and external auditors and the board of directors and their activities include review of nominated auditors, overall scope of the audit, internal financial controls and financial information for publication (FCCG, 1999 Walker 2004).
    Audit committee could also enhance auditor independence. Knapp (1987), discovered that n audit committee is more likely to support the auditor rather than management in audit disputes and the level of support is consistent across members of the committee, regardless of whether the member is in a full-time or part-time position such as corporate managers, academicians and retired partners. In addition, audit committees could play a role in selecting auditors, determining their remuneration and in the dismissal/retention of auditors. Goldman and Barlev (1974) pointed out that audit committees could observe the financial reporting process and provide recommendations in the selection of auditors, negotiation of fees and termination of management’s power over the auditor. An audit committee is anticipated to ensure that a business organization has sufficient internal controls, proper accounting policies, and independent external auditors that will prevent the incidence of fraud and promote high quality and timely financial statements. The effectiveness of the audit committee determines to a large extent of the integrity of a company’s financials.
    Apart from the statutory audit committee as required (of public companies) by the companies and Allied Matters Act, Cap C20, LFN, 2004 (CAMA) which is made up of an equal number of directors and shareholder representatives. Indeed, the Central Bank of Nigeria (CBN) Code of Corporate Governance provides for the establishment of a Board Audit Committee made up of non-executive directors and chaired by an Independent Director. The statutory duties and role of the audit committee are clearly encapsulated in Section 359(3) and (4) of CAMA. To be effective, the audit committee should have a charter that should clearly define its modus operandi and the qualities required of members of the committee.
1.2    STATEMENT OF THE RESEARCH PROBLEM
    Audit committees are by reference to the relevant sections of CAMA 1990 expected to bridge the expectation gap in providing a means by which the opinion expressed by auditors on a firm’s financial statement can be seen to be unbiased and independent. It is argued that the presence of audit committees Is likely to lead to unnecessary rift between shareholders and directors as well as management and auditors. Also, where the managing director is a very influential member in the board and succeeds in hijacking authority from others, the audit committee would have no choice but to dance to his tune, given the composition of the audit committee of equal number of directors and representatives of the shareholders of the company subject to a maximum of 6 members. This makes the appointment of the committee unnecessary.
However, there are criticisms of the practices of the audit committees and their relevance to corporate reporting; hence the study intends to finds answers to the following question?
Is there any significant relationship between audit committee size and corporate reporting?
Is there any significant relationship between audit committee independence and corporate reporting?
Is there any significant relationship between audit committee meetings and corporate reporting?
1.3        OBJECTIVE OF THE STUDY    
         The major objective of the study is to examine the impact of audit committee to corporate reporting in Nigeria, using some Nigerian quoted companies. However, the specific objectives are to:
1.    Find out whether audit committee size has any significant relationship on corporate reporting.
2.    Examine whether audit committee independence affects corporate reporting.
3.    Examine the impact of audit committee meetings on corporate reporting.
1.4      RESEARCH HYPOTHESES
      In order to achieve the research objectives the following null hypotheses shall be tested at the end of the study:
1.     Ho: there is no significant relationship between Audit Committee Size and corporate reporting.
2.     Ho:    there is no significant relationship between Audit Committee Independence and corporate reporting.
3.     Ho: there is no significant relationship between Audit Committee meetings and corporate reporting.
1.5      METHODOLOGY OF THE STUDY
        This study would be based on literary research materials with the application of descriptive, analytical and statistical methods. The research work would involve the use of secondary data which involves the extraction of information from The Nigerian Stock Exchange on 40 companies out of the 250 quoted companies in the Stock Exchange, also references from Central Bank of Nigeria, relevant textbooks, journals, seminar papers and other research sources.
1.6. SCOPE OF THE STUDY
The spotlight of this research work is to evaluate the relevance of audit committee to corporate reporting in Nigeria. The researcher seeks to focus on quoted companies from the financial sector of the Nigerian Stock Exchange (NSE). Hence, data shall be extracted from the financial statement of quoted companies for a period six financial years ranging from 2006 to 2012.
1.7. SIGNIFICANCE OF THE STUDY
 Studies on the evaluation of the relevance of audit committee to corporate reporting in Nigeria share divergent views. A study of this nature shall be beneficial to regulators responsible for ensuring high quality financial reporting such as Nigerian Securities and Exchange commission, Nigerian Accounting Standard Board, Corporate Affairs Commission, to mention a few.
Nevertheless, financial experts, stock brokers and stakeholders, board of directors of Nigerian companies, will find this study of immense contribution to their activities. It can also contribute to and influence decisions of policy makers in Nigeria. The beneficiaries include:
    Stakeholders: this study will be important and beneficial to stakeholders of corporate bodies to know the essence of audit committee and financial reporting in Nigeria.
   The Government: it will acquaint the government of the importance of audit committee and financial reporting and how it should be properly managed.
   The Public: This study will help to restore the lost confidence of the public as regards audit committee and financial reporting in Nigeria.
   Academic and future researcher: Both academic and other future researchers in this similar subject matter will find it a useful source of learning and research.
LIMITATIONS TO THE STUDY
The study was subject to certain inherent constraints such as:
Finance was a major constraint encountered by the researcher.
Another importance constraint encountered was time. There was no adequate time to carry out elaborate study as the researcher would have desired.
Another constrain was supervisor’s time due to the number of students allocated to particular supervisor, and the time of interaction with the supervisor was limited.
Despite these limitations, efforts were made to reduce their effects to ensure that the results of the study are reliable and consistent with actual expectations.
REFERENCES
Lindsell,D. (1992). Blueprint for an effective Audit committee
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Abbott, L.J., & Park. S. (2000).Audit Selection and Audit Committee
Characteristics, Auditing: A Journal of practice and Theory, 19(2),47-66.
Krishnan, J. (2005). Audit Committee quality and internal control: An
empirical analysis. The Accounting Review, 80(2),649-675.
Finance Committee on Corporate Governance [FCCG]  (1999).
Report on Corporate Governance, Malaysia, Ministry of Finance.
Walker, R. G. (2004). Gaps in Guidelines on Audit Committee.
Abacus, 40(2), 157-192.
Knapp, M.C. (1987). An empirical study of audit committee support
for auditors involved in technical disputes with client management, The Accounting Review, 62, 578-588.
Goldman, A., & Barlev, B. (1974). The auditor-firm conflict of
interests: Its implications for independence. The Accounting Review 49 (October); 707-718.