CHAPTER ONEINTRODUCTION1.1 BACKGROUND OF THE STUDYAudit committees are regarded as contributing to auditing process since they are established to assist in improving audit quality. Audit committee’s primary duties are to oversee the financial reporting, auditing processes and monitor management tendencies to manipulate earnings and other accounting malpractices. Part of the audit committee’s attributes to facilitate monitoring activities over the auditor and to ensure greater audit quality are expertise of members and regular meetings of audit committee. Section 359 of Companies and Allied Matters Act of 1990 made it mandatory for public companies in Nigeria to establish audit committees. Audit Committees play very important roles in financial aspects of corporate governance as they help ensure audit quality while at the same time protecting the interest of investors (Okaro & Okafor 2010). However, in recent times a lot of corporate collapses and related frauds have taken place in Nigeria including the distress saga in Nigerian Banks and the Cadbury (Nig)Plc. accounting scandal(Otusanya & Lauwo, 2010); (Madawaki & Amran, 2013); (Okaro & Okafor 2013)These have cast aspersions on the credibility of corporate governance in Nigeria. In particular, the effectiveness of audit committees has being called into question. The composition of audit committees in Nigeria has been criticized as being skewed in favour of management thus reducing the visible independence of the body. This in turn tends to compromise the quality of their work believes that audit committees in Nigeria still need a lot of mileage to move closer to the global trend that have seen audit committees in recent times becoming more and more accountable and responsible. In the case of Cadbury (Nig.) Plc, the audit committee of the company was heavily indicted by the Nigerian SEC report on the accounting scandal in that company. The Audit committee was found guilty of complete dereliction of Five vital characteristics identified by the Blue ribbon committee in the US for effective audit committees are independence, financial expertise, commitment to duties and responsibilities, firm specific knowledge and governance expertise Financial reporting is one of the primary responsibilities of management which enables them give account of their stewardship. Managers of firms are expected to prepare and present annual financial reports to shareholders, who are owners of the firm and other interested users such as creditors, analysts, government, and the general public to enable them assess the performance and financial position of the reporting entity. The main objective of financial reporting therefore is the provision of information on the financial performance and position of the reporting entity that is useful to different users, to enable them assess the stewardship of management and make informed economic decisions (International Accounting Standards Board. This means that published financial reports that fail to meet the information needs of its users do not achieve their intended purpose. In order to achieve this objective, information contained in financial statements has to meet basicQualitative attributes of relevance and faithful representation in addition to quantitative attributes. Relevance of financial statements information is associated with the extent to which published financial information is able to influence the decision of the users. Faithful representation on the other hand entails that published financial statements information should be verifiable, neutral and complete.
1.2 STATEMENT OF THE PROBLEMAudit committee expertise is an important attribute in fulfilling its oversight functions and protects shareholders’ interests. It is imperative for all members in the audit committee to have some expertise (accounting, finance and supervisory) knowledge in order to understand the challenges of auditing practices. Accounting, finance and supervisory expertise of the members is the ability to contribute to auditing process in order to improve audit quality. Also, audit committees that meet frequently are always up to date on auditing challenges being faced by the auditor, proactive in discharging their oversight responsibilities and ensuring the expected audit quality.Audit quality is the outcome of an audit conducted in accordance with generally accepted auditing standards to provide reasonable assurance that the audited annual financial statements and related disclosures are presented in accordance with generally accepted accounting principles. It is also an indication that these statements are not materially misstated whether due to errors or frauds.
1.3 OBJECTIVE OF THE STUDYThe objective of the study is intended to answer the following questions;