AUDITORS REPORT ON CORPORATE GOVERNANCE IN NIGERIA NON-FINANCIAL INSTITUTION A case study of Guinness Nigeria Plc
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AUDITORS
REPORT ON CORPORATE GOVERNANCE IN NIGERIA NON-FINANCIAL INSTITUTION
A case
study of Guinness Nigeria Plc
Abstract
The
major corporate collapses and related frauds which occurred in Nigeria and
around the world have raised doubts about the credibility of the operating and
financial reporting practices of companies in Nigeria.
This
stirred a number of professional and regulatory organizations to recommend
reforms that will improve transparency in financial reporting and thereby
increase audit quality and corporate governance practices.
Although
evidence of corporate governance practices and audit report exists from
developed economies, very scanty studies have been conducted in Nigeria where
corporate governance is just evolving. Therefore, this study provides evidence
on corporate governance, audit report, and firm related attributes from a
developing country,Nigeria. Logistic regression was used in investigating the
questions that were raised in the study. Findings from the study show that ownership
by non-executive director has the possibility of increasing the quality of
audit report.
Evidence
also exist that size of the company and business leverage are important factors
in audit report for companies on the Nigerian Stock Exchange. The study
suggests that the composition of non-executive directors as members of the
board should be sustained and improved upon in order to enhance audit quality.
CHAPTER ONE:
1.1 INTRODUCTION
According to McConomy and Bujaki, 2000), there has been a considerable
debate in recent times concerning the need for strong corporate governance
globally(,with countries around the world drawing up guidelines and codes of
practice to strengthen governance (Cadbury, 1997, Corporate Governance Code of
Nigeria, 2005). The rationale for this emphasis can be linked to increased
concerns over the integrity of securities markets (International Federation ofAccountants-IFAC, 2010; Millstein, 1999).
Good corporate governance by boards of directors is recognized to
influence the quality of financial reporting, which in turn has an important
impact on investor confidence (Levitt, 1998 and 2000). Studies have shown that
good governance reduces the adverse effects of earnings management as well as
the likelihood of creative financial reporting arising from fraud or errors
(Beasley, 1996; Dechow, et al., 1996; McMullen, 1996).
Traditionally, the external auditor has also played an important
role in improving the credibility of financial information (Mautz and Sharaf,
1961; Wallace, 1980).
In recent times, a series of well-publicized cases of accounting
improprieties in Nigeria has captured the attention of investors and regulators
alike. The search for meansto ensure reliable and high financial reporting has
largely focused on the structure of audit report. The auditing profession has
been proactive in attempting to improve audit report by issuing standards
focused on discovery and independence. As a result, there has been a concerted
effort to devise ways of enhancing independence (Corporate Governance Code of
Nigeria, 2005; Blue Ribbon Committee, 1999). The profession has also responded
to denigrations on audit report. It emphasized that, by its nature, the
inherent limitations of an audit make it impossible to eliminate the risk of
audit failure (Ricchiute, 1998; IFAC, 2009). The effect of sound governance
practices on the quality of financial reporting has recently received attention
from researchers, particularly in the United States (McMullen, 1996; Beasley,
1996; Beasley,
et al., 2000; Abbott, et al., 2000). The main focus of these
studies is the relation between auditcommittees and fraudulent financial
reporting, with results generally supporting a negative relation between
anactive audit committee and the likelihood of a company being cited for
fraudulent reporting. While these resultsprovide evidence from a strong and
sophisticated capital market environment, very little research has
beenconducted in countries where capital markets are less developed and where
governance mechanisms are stillevolving. However, sound corporate governance
practices are equally, if not more important, in countries thatare attempting
to gain credibility among global investors.
This
is particularly so in Nigeria as the countryattempts to regain investor
confidence following widely reported financial crises
1.2
STATEMENT OF THE PROBLEM
The
weakness of corporate governance has proved to be the most important factor
blamed for the corporate failure consequences from the economics and corporate
crises. There is much that can be done to improve the integrity of financial
reporting through greater accountability, the restoration of resources devoted
to audit function, and better corporate governance policies (Saudagaran, 2003).
Concerns have also emerged about reduced audit report. Economist (2004) noted
that there are questions about the independence of the “Big 4” and suggested
that concentration is lowering the quality of audits. Therefore, our study
extends and contributes to the body of research using Nigerian data to
investigate the likely impact of audit report and governance related
attributes.
This
study is motivated by the interest surrounding the appropriateness of reforms
instituted by corporate governance code in Nigeria in response to the corporate
failures, global best practice and their implied efficacy in the face of
significant implementation and audit report. We investigate empirically the
relationship of attributes in the code in improving financial reporting
quality.
1.3
OBJECTIVES OF THE STUDY
This
study specifically identified the following objectives:
i.
To examine if board independence affects audit
report.
ii.
To investigate ifnon-executive directors’ ownership
affects audit
report.
iii.
To examine if executive directors’ ownership and audit
report
iv. To identify the
structure of the CEO/Chairmanship of companiesin Nigeria; and
v.
To examine the relationship between board
compositions, ownership, institutional structures, CEOChairmanship and firm
characteristics on audit report.
1.4
RESEARCH QUESTIONS
The
main research problem is broken down into sub-problems stated as research
questions, which guided thestudy. Attempts were made in the course of the
research to resolve the following questions which are raised:
i.
Does board independencehave any relationship
with audit report?
ii.
Does non-executive directors’ ownership affects audit
report?
iii.
Is there a relationshipbetween executive directors’
ownership and audit report?
1.5
RESEARCH HYPOTHESES
The
null hypotheses stated below, were tested in order to provide answers to the
research questions mentioned.
Hypothesis
1:
H
(0):There is no significant relationship
between boards
independence
and audit report.
H
(1):There is significant relationship
between board’sindependence and audit report.
Hypothesis
2:
H
(0):There is no significant relationship
between non-executive directors’ ownership and audit report.
H
(1):There is significant relationship
between non-executive directors’ ownership and audit report.
Hypothesis
3:
H
(0):There is no significant relationship
between executive directors’ ownership and audit report.
H
(1):There is significant relationship
between executive directors’ ownership and audit report
1.6
SIGNIFICANCE OF THE STUDY
The
importance of auditing can be illustrated under the principal-agent
relationship. The demand for external audits is directly related to the fact
that it is the directors (the agents) who prepare the financial statements,
which is primarily based on cost reasons. Therefore, this study is expected to
provide useful insight into improving audit report. This study contributes to
the audit literature as it provides additional empirical evidence on the impact
of the size of audit firm on the level of audit report. The study also reflects
the quality of audit report in Nigeria. This study will be useful to
stakeholders in the Nigerian Stock Exchange (NSE), as it provides evidence on
the relationship between audit report and the reform instituted by them in
formulating the Code of Corporate Governance for listed companies in Nigeria.
1.7
SCOPE OF THE STUDY
This
study is premised on the appraisal of audit report and corporate governance in
Nigeria. Therefore, data on corporate organisations in Nigeria were sought in
providing answers to the problems and questions that have been raised in this
research work. The study focuses on Guinness Nigeria plc.
1.8 RESEARCH METHODOLOGY
The
hypotheses formulated for this studywill be carried
out using primary data and secondary data. The primary data consists of
self-administered questionnaires and personal interviews, while the secondary
data consists of data from various journals, magazines, annual reports of
banks, the internet and other literatures. Data collected will be gathered,
presented and analyzed accordingly using chi-square. Data will be presented
using tables and percentages.
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