CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Corporate governance has been defined as
the way and manner in which the affairs of companies are conducted by those
charged with the responsibility. It is a system that ensures optimal
utilization of resources for the benefits of shareholders while meeting
societal expectations. Given the high correlation between corporate governance
and investor decisions, the government of Nigerian is keen to position the
country to take advantage of the opportunities in the global market by adhering
to principle of good governance, thus, Securities and Exchange Commission (SEC)
and the Corporate Affairs Commission (CAC) came out with seventeen (17) member
committee and drafted the code of best practices for corporate governance in
Nigeria.
Depending of the jurisdiction, different
bodies may have responsibility of corporate governance, board of Directors,
Audit Committee and other supervision committees. International Standards on
Auditing (ISA) 260, requires the auditor to determine those persons charged
with corporate governance. The most direct of corporate governance is to
shareholders. However, the ultimate benefit is the more efficient allocation of
capital to its most productive uses. In the real sense, no governance system,
no matter how well designed, will fully prevent greedy and dishonest people
from putting their personal interests ahead of the interests of the companies
they manage. Many steps can be taken to improve corporate governance and
thereby reduce opportunities for accounting fraud. This is where the role of
auditing (through proper audit reports) comes into play.
The auditor does not have a direct
corporate governance responsibility, but rather provides a check on the
information aspects of the governance system. The role of auditors in corporate
governance involves reporting, decision making, accountability and monitoring.
Decision requires relevant and reliable information, accountability involves
measuring, reporting and transparency, and monitoring includes system and
feedback. Auditor’s primary role is to check whether the financial information
given to investors is reliable, i.e. if its expressed the true and image of the
organization. The objective of an audit is to express an expert opinion on the
fairness with which the financial statement are prepared and presented, in all
material aspects a company’s financial position, results of operations, and
cash flow in conformity with GAAP to be able to express such an opinion. This
must be done using sound auditing techniques.
People rely on financial statements to
make economic decision, especially the shareholders, that is, an enterprise
outside the organization. With the help of audit work by the external auditor,
risk and uncertainty are reduced. Error and fraud can cause irregularity in the
case of financial report or statement of any organization. It is the
responsibility of the auditor to verify the cause of any irregularity of the
auditor to verify the cause of any irregularities in the financial statement.
One perception to corporate failures has been to focus on public companies
internal controls. Sarbanes-Oxley Act (2002) (SOX) requires a separate report
on the effectiveness of internal controls. Recent changes to ISAs place a much
higher focus on the auditors understanding internal controls as a part of the
audit.
Corporate governance is
nothing more than how a corporation is administered or controlled. Corporate
governance takes into consideration company stakeholders as governmental
participants, the principle participating being shareholders, company
management, and the board of directors. Adjunct participant may include
employees and suppliers, partners, customers, governmental and professional
organization regulators and the community in which the corporation has a
presence.
There are so many
interested parties, its inefficient to allow them to control the company
directly. Instead, the corporation operates under a system of regulations that
allow stakeholders to have a voice in the corporation commensurate with their
stake, yet allow the corporation to continue operating in an efficient manner.
Corporate governance also takes into account audit procedures, in order to
monitor outcomes and how closely they adhere to goals, and to motivate the
organization as a whole to work toward corporate goals, by using corporate governance
procedures widely and sharing results, a corporate can motivate all
stakeholders to work toward the corporation goals by demonstrating the benefits
to stakeholders of the corporation success.
According to Alfaki
(2005), corporate governance are the rules and practices that govern the
relationship between managers and shareholders contributes not only to the
growth and financial stability of corporate enterprise but also promotes
financial intensity and economic efficiencies.
1.2 Statement of Problem
In
Nigeria
like most countries, the failure of companies can be due to internal or
external factors or in rare cases, the combination of both which basically has
to do with poor corporate governance.
The
researcher intends to focus on reforms as aspect of corporate governance and
indicators of business failure as well as the linkage between the two concepts.
The
study also intends to raise the consciousness and institutionalize good
corporate governance and business sustainability.
For effective corporate governance
reduces “control rights” shareholders and creditors confer on managers,
increasing the probability that managers invest in positive net present value
projects
1.3 Research
Questions
In the study the
following research questions are asked in order to achieve the objectives of
the studies
i. Does
corporate governance affects vital issue of firm’s performance?
ii. Is
corporate governance essential in achieving public confidence in corporate
entities?
iii. Is company failure a result of non existence
of corporate governance?
1.4 Objectives of the Study
The primary objectives of this study
are:
i. To
find out if corporate governance affects vital issue of firm’s performance.
ii. To
ascertain if corporate governance is essential in achieving public confidence
in corporate entities.
iii. To determine if company failure is as a
result of non existence of corporate governance.
1.5 Research Hypotheses
Hypothesis
One
HO: Corporate governance
affects vital issue of firm’s performance
HI: There is no significant relationship between
corporate governance and firm performance.
Hypothesis
Two
Ho: The effect of corporate governance is not
essential in achieving public confidence in corporate entities
HI: The effect of corporate governance is
essential in achieving public confidence in corporate entities.
1.6 Significance of the Study
In regards to the
relevance of the study it covers areas which are useful to the board of
directors as regard to their mission, vision, objectives and strategy of a
company. It is relevance to shareholders by booming their confidence to invest
in a particular business which involves protecting their rights.
Companies will benefit
as it ensures, the financial availability business. It also indicates that the
way in which companies are directed and controlled through governance
principles of disclosure and accountability of a company. It is also relevant
to the public sector. Public sector will benefit as it will ultimately improve
economic growth and functional position of the country on a global level. It is
also used as a determinant in developing policy, social economic analysis and
poverty resolute issue.
1.7 Scope of the Study
This study examines
corporate governance and firm’s performance using Guinness Nigeria Plc as a
case study. This research essentially focuses on the process and structure in
which firm performance and corporate governance are directed, manage and
controlled. A time frame of 5 years was used which range from 2010 to 2015. For
effective correlation, a sample size of 100 was used.
1.8 Limitations of the Study
The
study certainly suffers from a number of limitations prominent among them
includes:
1.
Primary data collected by previous
researcher could have been manipulated hence, altering good conclusion in that
could have been drawn from them.
2.
Sizeable quality of information
obtained from papers were in pigmentation and sometimes complex.
3.
Reduction of the respondent to full
the Questionnaire
4.
Limited literature in this area of
study
a.
Sizeable quantity of information
obtained from papers were in fragmentations and sometimes complex.
b.
Reluctant of the respondent to fill
the questionnaires.
1.9 Definition of Terms
Management: Is a distinct process consisting of planning, organization,
starring, directing, coordinating, reporting and budgeting, performed to
determine and accomplished stated objectives with the effective use or human
being and other resources.
Cooperation: Cooperation is a big company or group of companies acting
together as a single organization for a particular purpose with a legal entity
distinct from its owners.
Strategic Planning: Strategic planning
is a process of determining the major objective of an organization and the
policies and strategies that will govern the acquisition, use disposition of
reassures to achieve set objectives.
Planning: Planning is the establishing of objectives and the formulation,
evaluation and selection of policies strategies, faction and actions required
to achieve set objective.
Efficiency: A level of performance that describe a process that uses the
lowest amount of inputs to create the greater amount of outputs.
Business: An economic system in which goods and services are exchanged for
one another or money, on the basis of their perceived worth.
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