CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In response to worldwide corporate scandals, there was a significant increased regulatory demand for accountability in the world business environment. This, according to Sengur, (2007) has in the last decade, brought organizations’ risk management and internal control systems into the public policy debates on corporate governance. Originated in the 19th century, corporate governance came up in response to the separation of ownership and control, following the formation of common stock companies (Berle & Means, 1932) as cited in Tankiso (2008). The separation between ownership and control resulted in the agency relationship which refers to the situation where shareholders own the firm while managers control it.
Managers mostly do not always pursue the best interests of the company, but rather their own interests. This situation leads to the agency problem, which forms the theoretical framework for current corporate governance practices.
The existence of the agency problem results from the owner’s inability to run the company on a day-to-day basis. Managers are hired to manage the affairs of company owners, with the instruction of pursuing the owners’ objective (Tankiso, 2008). Deviation from these objectives and instructions results in the agency problem.
Good corporate governance is used as a measure for solving the agency problem, where the board of directors is regarded as the focal point of the governance system and therefore is accountable to shareholders and responsible for the performance and the affairs of the company (IOD 2002). The practice of corporate governance is a combination of a number of mechanisms, amongst which is the audit committee. Audit committee effectiveness has been a focus of international corporate governance reform for many years. Kalbers and Fogarty (1998) asserted that the genesis of audit committees as a part of corporate governance structure is rooted in the reactions to the abuse of power by corporate management which led to financial scandals, financial reporting defalcations, and unjustifiable manipulation of accounting policies.
1.2 STATEMENT OF PROBLEMS
Audit committee is a key factor of efficient corporate control systems. Deposit money banks (companies) around the world have been required by their various corporate regulations to have audit committee which primarily is to ensure the integrity of financial reporting and the audit process by ensuring that the external auditor is independent, objective and does a thorough job. An effective audit committee practice is for good corporate governance. It ensures that the statement of affairs presented by the agent is accurate or rather that the report can be trusted and also to ensure that the performance reported is aligned with the goals of the principal. A lot of research has been carried out in the field Deposit money banks looking at different they can governed and managed to ensure that the interest of all stakeholders, most especially shareholders are been protected. The purpose of this research is to examine the accountants’ perception of the effectiveness of audit committee of Nigerian listed deposit money banks.