Evaluation of the Impact of Audit Committees on Performance : Current School News

Evaluation of the Impact of Audit Committees on Performance of Listed Deposit Money Banks in Nigeria

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Evaluation of the Impact of Audit Committees on Performance of Listed Deposit Money Banks in Nigeria.

ABSTRACT

The observable weaknesses in corporate governance of companies and the cases of accounting and audit failures have heightened concern of investors about corporate reports.  This has led to the need for the establishment of Audit Committees to ensure the credibility of financial statements. This study seeks to evaluate the impact of Audit Committees (AC) on the performance of listed Deposit Money Banks (DMBs) in Nigeria.

The specific objectives of the study are to evaluate the impact of components of Audit Committees (size, independence, meetings and financial expertise) on return on assets, net interest margin, Tobin’s Q, financial standard compliance, and investors’ confidence of Deposit Money Banks in Nigeria. The study employs qualitative and quantitative research methods using correlation and survey research designs.

Panel regression and Kendall’s coefficient of concordance technique of data analysis were used for the analysis. The population of the study includes all the listed Deposit Money Banks. The secondary data was analysed using sample size of 16 through census sampling technique. The primary data was analysed using a sample size of 281 from a population of 950 members of registered shareholders’ Associations using Yamane (1968) formula.

The study reveals a significant positive relationship between components of audit committee (size, independence, meetings and financial expertise) and the performance of listed deposit money banks in Nigeria, and that audit committee function has significant positive impact on investors’ confidence.

INTRODUCTION

The past few years have seen several well-known companies with significant international operations become mired in financial scandals. In some of these cases, investors have lost hundreds of millions or even billions of dollars. A number of the companies involved have been forced into bankruptcy as a direct or indirect result of the scandals, International Organization of Securities Commissions (IOSCO, 2005).

Collectively, these financial scandals caused many to be concerned about investors‟ confidence in the integrity of companies. As means of reducing the weaknesses in corporate governance, several mechanisms have been introduced among which is the adoption of Audit Committee 3(AC). Audit Committee as a concept has now acquired mass coalesce as a mandatory element of corporate governance code (Tricker, 1978).

Instances of accounting and audit failures and heightened concern of investors about the corporate reports of companies in the developed world led to the establishment of Treadway Commission (1987) in US, Cadbury Committee (1992) in United Kingdom and mcdonald Commission (1987) in Canada (Spira, 2003).

The aforementioned committees emphasized on the need for the establishment of audit committee as a board sub-committee comprising of independent directors to ensure the credibility of financial statements. Audit committee was promoted on voluntary basis as part of corporate governance reforms (Turley and Zaman, 2004), and gained significant acquaintance with the formation of specialized committees like Blue Ribbon committee (BRC) in 1999.

REFERENCES

Abbott, L. J., and S. Parker, (2000), Auditor Selection and Audit Committee Characteristics, Auditing: A Journal of Practice & Theory 19, 47-67.

Abbott, L. J., & Parker, S. (2001). Audit Committee Characteristics and Auditor Selection: Evidence from Auditor Switches. Research in Accounting Regulation, 15,151-166.

Abbott, L. J., S. Parker, and G. F. Peters, (2002). Audit Committee Characteristics and Financial Misstatement: A study of the Efficacy of certain Blue ribbon Committee Recommendations, Available at SSRN: http://ssrn.com

Abbott, L.J., Parker, S., Peters, G.F., &Raghunandan, K. (2003).An Empirical Investigation of Audit Fees, Non-audit Fees, and Audit Committees. Contemporary Accounting Research, 20(2), 215-234.

Abbott, L. J., Parker, S., & Peters, G. F., (2004). Audit Committee Characteristics and Restatements of Auditing: A Journal of Practice & Theory 23, 69-87.

Adenikinju, O. And F. Ayonrinde. (2001). “Ownership Structure, Corporate Governance and Corporate Performance: The Case of Nigerian Quoted Companies”. Unpublished Final Report Presented at the AERC Bi-Annual Workshop, Nairobi, May.

CSN Team.

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