Abstract
This project analyzes the relevance of audit
committee functions on the quality of financial statement in Nigeria, the
users’ perception. The broad objective of the study is to ascertain if audit
committee reports strengthen the decision relevance of corporate report and
also to find out if the information content of audit committee reports relevant
to its users. The primary source of data was used where questionnaires were
distributed to gather information. The simple random sampling technique was
used to select a sample size of 145 and the chi-square statistical tool was
used to test the stated hypotheses. The findings revealed that that audit
committee reports is very imperative to the users of corporate or published
financials. It was concluded that the extent to which audit committee function
has been achieved and is quite encouraging. The study recommends among others
that audit committee of companies should meet regularly as the situation
demands, as this impact positively on the shareholders investment.
TABLE OF CONTENTS
Title
Page i
Certification
ii
Dedication
iii
Acknowledgements
iv
Abstract
vi
Table
of Contents vii
Chapter
One: Introduction 1
1.1
Background to the Study 1
1.2
Statement of Problem 4
1.3
Research Questions 4
1.4
Objectives of the Study 5
1.5
Statement of Hypotheses 5
1.6
Significance of the Study 6
1.7
Scope of the Study 7
1.8
Limitations of the Study 8
1.9
Definitions of Terms 8
Chapter
Two: Review of
Related Literature 10
2.1
Introduction 10
2.2 Concept of Audit Committee 13
2.3 Audit Committee Formation 14
2.4 Audit
Committee Report 15
2.5 Audit Committee Characteristics 17
2.6 Concept
of Financial Statements 22
2.7 Purpose
of a Financial Statement Audit 26
2.8 Elements of Financial Statement 27
2.9 Purpose
and Objectives of Auditing Financial Statements 30
2.10 Presence of Financial Expertise in Audit Committee
and Audit
Quality 33
2.11 Frequency
of Audit Committee Meetings and Audit Quality 39
Chapter
Three: Research Method
and Design 44
3.1
Introduction 44
3.2
Research Design 44
3.3
Description of Population to the Study 44
3.4
Sample Size 45
3.5 Sampling
Techniques 45
3.6 Sources of Data Collection 45
3.7 Method of Data Presentation 46
3.8 Method of Data Analysis 46
Chapter
Four: Data
Presentation, Analysis and Hypothesis Testing 48
4.1
Introduction 48
4.2
Presentation of Data 48
4.3
Data Analysis 49
4.4
Hypotheses Testing 58
Chapter
five: Summary of
Findings, Conclusion and Recommendations 63
5.1 Introduction
64
5.2 Summary
of Findings 64
5.3 Conclusion
66
5.4 Recommendations
67
References
67
Appendices
70
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
In
public companies, it is generally the shareholders who ultimately approve the
auditor’s appointment, and the auditors are primarily responsible to and
overseen by those representing the shareholders’ interests with regards to
financial reporting and internal controls. Typically an audit committee (or its
equivalent), acting as a largely independent body, will be charged with
representing the shareholders’ interests. Companies may not necessarily have an
audit committee and this interchange may be dealt with less formally but in an
equivalent manner. The audit committee is a sub-committee of those charged with
governance, and is typically made up of a majority of non-executive directors
who are the shareholders’ representatives in relation to the external audit.
They are usually responsible for overseeing the audit and evaluating the
independence and performance of the auditors.
An
important role of the audit committee is to assess and recommend the
appointment or reappointment of the audit firm. The audit committee also
provides a forum for the auditors to escalate and discuss any significant concerns
they may have about any aspect of the financial statements prepared by
management. The chair of the audit committee has a vital role to play in
assessing management’s tone from the top with respect to the company’s
financial reporting. As well as their public report on the financial
statements, the auditors will typically have more detailed communications with
the audit committee. These communications may include a description of how the
audit was carried out, the audit plan, the auditor’s views about the company’s
accounting practices (including accounting policies, estimates and
disclosures), how the auditors satisfied themselves on the key issues that
arose, and significant difficulties, if any, encountered during the audit. The
auditors may also comment to the audit committee on their insights in areas
such as the strength of the organization’s internal control systems.
There
has always been a curious intention for men since the inception of life to
exploit the necessary avenues and opportunities that would make him self
reliant being. This gave birth to the hunting and gathering of goods the very
days of men. As he developed more skills and tools, he discovered he could
adequately provide for himself and have some left over.
This
was known as subsistence way of living man’s daily exploit lead to a graduation
from this subsistence way of living, paving way for trade as a tool or means
through which he will get the things which he desired but did not have. Consequently,
there was the birth of trade and sole proprietorship. This is the base of the
theory of the firm, which recognizes man (the entrepreneur) as a focal point
for effective combination of other factors.
The
emergence of sole proprietorship paved way for more efficient markets, there
was need for an enlargement of the market, leading to increased capacity
utilization. The seeming successful discovery was faced with lack of fund, this
was an enormous, and an important factor militating against the average
entrepreneur in the industry whose pooling of capital in the form of
partnership could not adequately satisfy.
1.2 Statement of Problem
The
statement of the problem gives a view, if having a chairman who is a chartered
accountant makes the committee to be effective and independence or should audit
committee members be separated from equity holders? The involvement of outside
directors is having diverse effect on the performance and efficiency of the
organization. Thus, the problem of this study is to the engagement of external
directors which makes the committee less effective and independent.
1.3
Research Questions
The
following are the research questions of the study;
i. How do audit committee reports strengthen
the decision relevance of corporate report?
ii. How is the information content of audit
committee reports relevant to its users?
iii. To what extent do the users of corporate
report rely on audit committee in making decisions?
1.4
Objective of the Study
The
broad objective of the study is to analyze the relevance of audit committee
functions on the quality of financial statement in Nigeria, the users’
perception. The following are the sub-objectives of the study;
i. To ascertain if audit committee reports
strengthen the decision relevance of corporate report.
ii. To find out if the information content of
audit committee reports is relevant to its users.
iii. To determine if the users of corporate
report rely on audit committee in making decisions.
1.5
Statement of Hypothesis
The
following are the hypotheses of the study and are presented in the null and
alternative forms;
Hypothesis
One
HO: Audit committee report
does not strengthen the decision relevance of corporate report.
HI:
Audit committee reports strengthen the
decision relevance of corporate report.
Hypothesis Two
HO:
The scope and information content of
audit committee reports is not adequate to its users.
HI: The scope and
information content of audit committee reports is adequate to its users.
Hypothesis Three
HO: Users of corporate
report do not rely on audit committee in making decisions.
HI: Users of corporate
report rely on audit committee in making decisions.
1.6
Significance of the Study
The
significance of the study is to reveal the perception of the users of financial
audit committee report, and will also:
i.
Enable users of financial statement
report to make an evaluation on the relevance of audit committee report.
ii.
It will expose the shortcomings of the
audit committee report as it affect users of financial statements and offers
suggestions on how those shortcomings can be amended.
iii.
To evaluate users of corporate report
to have a better understanding of the general working of the audit committee.
iv.
To the academicians, it will increase
the body of their knowledge.
1.7
Scope of the Study
This
research work focus on the relevance of audit committee functions on the
quality of financial statement in Nigeria. The study will involve assessing the
effectiveness of audit committee since introduction. It will assess the
relevance of audit committee report to users of financial statements. The geographical
location for this study is Benin City, Edo State. Using a time frame of five
(5) years, i.e. 2011 to 2015 (both years inclusive), a large sample size of 145
was used for effective survey.
1.8
Limitations of the Study
It
is important to mention that some constrains were experienced. In the course of
this study which slightly affected scope and details of the study. These
constraints are as follows:
Lack
of some current information: Most libraries in the country are shelved with old
books which information is out-dated or insufficient coupled with the absence
of recent journals publication and research result.
Also
the un-co-operative behavior of some library staff i.e. is somebody went there
collect project topic due to their behavior to people they will just tell you
to copy it there instead of giving it out or even help you to photocopy of for
you to pay them but they don’t.
1.9 Definition of Terms
i.
Auditing: Auditing
could be defined as a service activities demanding by society (the demand
having it not in some things called the agency theory) with the expressed aim
of adding to the perceived credibility of the published financial statement of
limited liability enterprises.
ii.
Audit committee: This
is a standing committee established to enhance the corporate accountability by
working with the board and management to improve the financial reporting
practices of an entity and ensure proper conduct of corporate affairs.
iii. Independence:
This
implies freedom from include influence. This is imperative if the auditor is to
make true and unbiased comments on the financial statement.
iv.
Audit Programe:- An
audit programme is the list of work an auditor does on the occasion of his
audit.
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