CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
According to Wikipedia the term audit is described or defined as the independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon. An audit committee is a committee that is made up of members of a company’s board of directors and oversees its financial statement and reporting. Therefore the primary purpose of the committee is to provide oversight of the financial reporting process, the audit process, the company’s system of internal controls and compliance with laws and regulations.
The critical role of an audit committee is believed to be a means of improving economic efficiency and stakeholder’s confidence through financial standard compliance. However to achieve this , an audit committee should possess some certain attributes which include independence of the committee, frequency of meetings, the size of the committee, gender diversity and financial knowledge of the committee members .
(nasser, 2015)Explains that an audit committee responsibility is to assist in the oversight of the integrity of the company financial statements, compliance with legal and other regulatory requirements, assessment of the qualification of independence of external auditors and the performance of the company’s internal audit functions as well as that of the external auditors.
The concept of audit committee differs according to the goals, functions and responsibilities assigned to them, however the need to determine the impact of audit committee characteristics on financial performance quality has become the focus of increasing attention among accountant’s academics, researchers and investors. Many countries across the world local, international and vocational bodies have spent more effort tissue instructions and standards that when adopted restore credibility in the financial data declared. It will also help in activating the role of the audit committee which consolidates functioning and independence of the external auditor for playing an independent part in providing his opinions on the declared financial data fairly and objectively. One of those efforts is the recommendation of the Securities and Exchange Commission (SEC).
Over the years, there have been so many financial crises in the banking sector not only in Nigeria but in the world at large. For instance , the 1986 deregulation of London financial markets which as popularly known as the big bang, also the 2008 Washington mutual collapse which was recorded as the largest bank failure up to that point and others to.
Deposit money banks are said to be resident depository corporations which have any liabilities the form of deposits payable on demand, transferrable by checks or otherwise usable for making payments. One of the major functions of deposit money banks is granting of loans and advances to the productive sector for productive purposes. Other functions performed by deposit money banks are encouragement of savings, provision of capital needed for development, encouragement of trading activities through the use of cheques, encouragement of investment etc. deposit money banks are the most important institution for savings mobilizations and financial resource allocation. Consequently, they contribute to the economy growth of the country. Financial difficulties that many companies have faced in recent years have contributed to the need for ethical/professional standards and controls to gain credibility in the financial accounts. These deficiencies allegedly exist due to conflicts of interest, board inefficiency, in efficiency of external auditor’s lack of audit committee independence and shortcomings in corporate governance (Adeyemo, 2012). Those challenges intensely distressed numerous institutions such as oceanic bank, intercontinental bank, spring bank, afrikbank, wema bank, savannah bank, finbank, which in turn led to series of investment losses (Ojeka, 2014). Hence distinct and internal frameworks have been adopted by banks and other entities to prevent conflict and failure (Adeyemo, 2020). Constitutionally to protect and safe guard the firms environment , Nigerian deposit money banks are legally required by regulators to set up adequate corporate governance factors, including the audit committee and the board in other to minimize agency conflicts , to enhance growth, performance, profitability and overall company value (Bilal, 2018).
From the brief study, we are now going to carry out a research on how audit committee characteristics affect the financial performance of listed deposit money banks in Nigeria.
1.2 Statement of the problem
An ever-changing business and risk atmosphere, perpetually being reshaped by technology and digitisation, economic process, inflated regulation and social control , and expectation for larger transparency continues to lift the bar on audit committee oversight and board governance.to hone in on these pressing challenges, KPMGs international audit survey captured the read of 1800 audit committee members round the world on problems starting from monetary news and disclosures ,audit quality and oversight of internal and external auditors to risk management and crisis readiness, rising technologies and audit committee effectiveness. The demands on audit committee are increasing on a daily, and at an equivalent time their primary responsibility to administrate management’s activities together with monetary news and compliance remains elementary to company governance. It are often difficult for audit committees to target their ancient core duties whereas staying up so far on rising problems like cyber security, projected regulative changes and international developments. as an example, analysis has shown that cyber security is one amongst the highest agendas for audit committees and management at firms of all sizes and industries since the generality of cyber problems connects them to monetary issues and control. The audit committee plays an important role in observance management’s preparation for and response to cyber threats, note that this can be not a part of their functions however they need to worry of true as a result of it’s planning to have an effect on them within the polishing off of their duties. Gender diversity is a vital characteristic of AN audit committee and it's been a problem in board of firms, regulators and investors, and Federal Republic of Nigeria is not any exception. the popular spoken communication that ladies don't seem to be allowed to try to to or major in some sure space of profession as a result of the society at giant believe that, that individual profession is reserved for the male gender . Recently ladies in each senate and house of representative met and united to pursue thirty fifth appointments publically appointments and also the ladies sent a representative to debate this to president Mohammadu buhari. Gender diversity is extremely common once discussing board composition. (Pfeffer) Introduced the conception of structure sociology. He declared that demographic composition could be a higher predictor of outcomes in organization. in line with him structure sociology is that the composition in terms of basic attributes like sex, age, instructional level, residence, race, length of service, unit of understudy. Regulators and teachers has emphasised that board diversification has LED to the collapse of some big firms and company scandals. National gender policy was established in Federal Republic of Nigeria in 2006. the primary lady to chair the board of a bank was bola Kuforiji Olubi, United Bank for Africa (UBA) 1n 1984, and at an equivalent time Mrs. Ibukun Awosika was appointed the primary banks chairman on Sept seven, 2105. Recently, Fidelity bank plc. And Fcmb plc. appointed Mrs. Nneka Onyenali Ikpe and Mrs. Yemisi Edun as their director and acting director. in line with a search conducted by (sener & karaye, 2014)the inclusion of girls among board members of a corporation are detected to possess an honest consequence on a company’s monetary performance. ladies have higher attending record of board conferences compared to men thereby increasing the reassurance of all parties to a corporation. the decision for additional ladies on the board of firms is increasing. analysis has shown that the illustration of girls on boards of administrators could be a important issue as a result of it will increase the supply of qualified human resources therefore conducive to inflated fight among companies. (soltana, 2015) Argued that gender variations on an audit committee could ruin the activity of a tiny low cluster, resulting in the formation of a majority and minority within the cluster and a decline within the effectiveness of the audit committee. In distinction gender diversity on audit committees composition and also the presence of knowledgeable members with totally different concepts will facilitate the audit committee with a good vary of accounting problems thereby resulting in the reduction of fraud chance and monetary misstatements (gul, 2011). but (chen, 2016) noted that some firms could appoint feminine administrators with the intention of simply change criticism. Although gender diversity isn't the most purpose of topic although it's a part of it, we will see that from the assorted analysis that has been disbursed that's poses as a serious issue within the board of the audit committee. in line with (osuala, 1982) the statement of analysis drawback serves to elaborate upon the knowledge implicit within the study. thence during this analysis work, the scientist seeks to look at the impact that audit committee characteristics has on the monetary performance of listed deposit banks in Federal Republic of Nigeria, to grasp whether or not it's been of excellent consequence or not.
1.3 Objectives of the study
The broad objective of this study is to evaluate the impact of audit committee characteristics and financial performance of listed deposit money banks in Nigeria. The specific objectives are:
I. To ascertain whether audit committee independence positively influence the return on equity (ROE) of deposit money banks listed in Nigeria.
II. To investigate the effect audit committee gender diversity have on ROE of deposit money banks listed in Nigeria.
III. To explore the impact of audit committee size on the return on asset (ROA) of deposit money banks listed in Nigeria.
1.4 Research question
In order to adequately address the above issues the following questions were designed to inquire into the Audit committee characteristics and financial performance of listed deposit many banks in Nigeria.
I. Does audit committee independence positively influence the earnings per share(EPS) of listed deposit money banks in Nigeria?
II. To what extent does the audit committee gender diversity affect the ROE of listed deposit money banks in Nigeria?
III. What is the impact of audit committee size on the ROA of deposit money banks listed in Nigeria?
1.5 Research hypothesis
To answer the above questions, the following hypothesis has been subjected to test the validity of the study:
I. H01: audit committee independence does not positively influence earnings per share(EPS)of listed deposit money banks in Nigeria.
II. H02: the audit committee gender diversity does not affect the ROE of listed deposit money banks in Nigeria.
III. H03: audit committee size does not affect the ROA of listed deposit money banks in Nigeria.
1.6 Significance of the study
The findings of this study will be able to shed a new light on how the characteristics of an audit committee(gender diversity, independence and size) ensures strict rules and in compliance with helps to improve the performance of deposit money banks in Nigeria.
The findings will also address most of the issues of audit committee characteristics , for instance gender diversity which is one of its characteristics and how its resistance of not allowing a female (even though it’s the equitable representation of people of different genders) to be part of the board of directors or part of the committee and how it affects the overall performance of the audit committee.
1.7 Scope of the study
This study is on audit committee characteristics and financial performance of listed deposit money banks in Nigeria. It will cover a period of five years, which is form the year 2015 to 2020.
1.8 Definition of terms
Audit: According to Wikipedia, audit is an independent examination of financial information of an entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon.
Committee: The dictionary meaning of committee is a group of people appointed for a specific function by a larger group and typically consisting of members of that group.
Audit committee: An audit committee is made up of members of a company’s board of directors and overseas its financial statements and reporting.
Audit committee characteristics
Audit committee Gender diversity: This is the fair or equal representation of people of different genders.
Audit committee independence: This expressly means the committees ability to not be influenced by other person’s thoughts and opinions.
Audit committee size: This is determining the number of persons that will make up the audit committee. It is usually made up of a maximum six persons.
More light will be thrown on the characteristics of the audit committee in the literature review.
