Abstract
Determinant of audit
committee’s independence in corporate governance has been an issue on the front
burner of public discuss. This premised on the fact that the audit committee to
some is of no importance while to others certain things should be effective and
independence so as to build the confidence of investors in taking investment
decisions. Different writers have viewed the committee’s from different
perspective but however, this research work is centered on those factors that
will determine the committee’s independence on this basis, issues like external
auditors, auditor committee, audit committee independence, proposed rules by
SEC qualification of audit committee members, composition of audit committee,
size of audit committee, audit committee meeting etc were reviewed. The primary
source of data collection was used in this study where chi-square statistical
tool was used to test the stated hypotheses. The study recommended among others
that audit committee member should
have knowledge of financial accounting, auditing and corporate finance.
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgements iv
Abstract v
Chapter
One: Introduction
1
1.1 Background
to the Study 1
1.2 Statement
of Problem 2
1.3 Research
Questions 3
1.4 Objective
of the Study 3
1.5
Statement of Hypotheses 4
1.6 Significance
of the Study 4
1.7
Scope of the Study 5
1.8 Limitation
of the Study 5
Chapter
Two: Review of Related Literature 6
2.1 Introduction
6
2.2
Audit Committee 6
2.3
What
is independence 14
2.4 Phases of independence 16
2.5 Adult committee independence 20
2.6 Composition of Adult Committee 32
2.7 Adult
Committee and External Auditor 34
2.8 Adult Communication with Adult Committee 36
2.9 Adult
committee Relationship with Management 38
2.10 Effective and Ineffective Adult Committee 39
2.11 Corporate Governance and Adult Committee 41
2.12 Factors
Influencing Corporate Governance 45
2.13 Role of
Corporate Governance in monitoring Auditors Independence 49
Chapter Three: Research Method
and Design 53
3.1 Introduction
53
3.2
Research
Design 53
3.3 Description
of Population of the Study 53
3.4 Sample Size
54
3.5 Sampling
Techniques 54
3.6 Sources
of Data Collection 54
3.7 Method
of Data Presentation 55
3.8 Method of Data Analysis 58
Chapter
Four: Data Presentation,
Analysis and Interpretation
4.1 Introduction
57
4.2 Presentation
of Data 57
4.3 Data
Analysis 57
4.4 Hypothesis
Testing 63
Chapter
Five: Summary of Findings,
Conclusion and Recommendations
5.1 Introduction
67
5.2
Summary of Findings 67
5.3 Conclusion 68
5.4
Recommendations 68
References
69
Appendices 70
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
The
governance structure of an entity can play an important role in monitoring and
safeguarding the independence of its external auditor. The exact form of an
entity governance structure and the role any government body perform in
relation to the external auditor may vary depending on the requirements of
national laws. In some jurisdictions, a single body commonly known as a “audit
committee” oversee all matters relating to the external auditors.
Stricter
standards of accountability cannot be achieved without an effective internal
control structure. One way that public officials can enhance accountability and
demonstrate proper stewardship over public funds is to establish and support on
adequate control environment within their organizations. A critical element of
the control environment is an independent of management on matters of financial
reporting and internal control.
An
effective audit committee can provide several important aspect of control
including ensuring the independence of the internal auditing function and
ensuring appropriate action is taken on audit findings.
The
audit committee serves in a unique capacity as an important communication link
between external and internal auditors and operating management and means of
reducing the risk management override of key elements of the organization
internal control structure.
Hence
an attempt to find out what will determine the audit committee independence in
corporate government is what this research work seeks to address.
1.2
Statement of Problem
One of the
foremost functions of the audit committee is to review the financial data of
the company on continuous basis and strengthen internal accounting controls, in
order to enhance reliability and integrity of financial reporting.
The spate of
audit failure in the world, especially in Nigeria, has brought great
disappointments to the users of financial reports. The cause of the problem has
been linked to lack of effective oversight of audit committee which has also
been linked with creative accounting. In Nigeria, the challenge of audit
committee and audit quality reporting have not attracted much empirical studies
beyond mere unreliable opinions.
Given
the above scenario, the major problem for this study is to determine whether
audit quality can significantly be influenced by audit committee
characteristics of Nigerian Listed firms. The study attempts to ascertain and
establish whether there are significant relationships between audit committee independence
and corporate governance in Nigerian Listed firms.
1.3
Research Questions
The
research questions of this study are as follows:
i. To what extent does the composition of
audit committee affect decision making?
ii. To
what extent does independence influence audit quality?
iii. To what extent do audit committee members’
qualifications influence decision making?
1.4
Objectives of the Study
The
following are the objectives of the study;
i. To find out if the composition of audit
committee affect decision making.
ii. To
ascertain if independence influence audit quality.
iii. To determine if audit committee members’
qualification influence decision making.
1.5 Statement of Hypotheses
This
study will rest the hypothesis below.
Hypotheses
One
The
composition of audit has no significance effect on decision making.
Hypothesis Two
Independence
does not influence audit quality.
Hypothesis
Three
There
is no significant relationship between audit committee members qualifications
and decision making.
1.6
Significance
of the Study
Since
the inception of audit committee public companies as stated in CAMA section 359 (3) many have underscored the
roles and responsibilities of the committee. Hence, in attempt to revive the
committee this research work will assist companies to know how they can revive
the committee redirect individual minds and assist future researchers to know
areas when they should research.
The
specific significance includes:
a.
It will ensure free and fair play,
in terms of investment by investors.
b.
It will enable corporate owners to
know how exactly to motivate the committee members for effective accountability
and transparency in corporate reporting.
c.
It will encourage government to
insist that audit committee should be setup even by private companies.
1.7 Scope of the Study
The scope which is otherwise referred to as
delimitation of the study shall cover the Nigeria Stock Exchange Benin City.
Emphasis is placed on the following areas: significance of the determinant of
audit committee independence. A time frame of five years (2011 to 2015) was
adopted in this study using a sample size of 120 was used for effective result.
1.8
Limitations of the Study
The major
limitation of the study as it was with several studies in developing economies
was data accessibility and accuracy. Also, there was the challenge of
inappropriate measurement of variables. Another challenge faced in the course
of this field work was time factor and inadequate funds.
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