CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The role of audit committee is of much interest to regulators and the general public. Earlier, the role of the audit committee was to oversee companies financial reporting and discourse for such quoted companies. However nowadays the role of audit Committee has became very pronounced party due to the numerous economic events that have affected the stability of the financial markets and investors confidence at large. Section 334 (1) requires corporate directors to prepare the annual financial statement in line with extant laws. This is usually airmed by the statutory auditors who audit the books of account. The credibility of such auditors report is enhanced through the audit committee of such corporate organizations. According to Lindsell (1992), the audit committee is a Mechanism of corporate governance to check the quality, credibility and objectivity of financial reporting it performs an oversight function in the financial reporting process and communicates to users through a report in the financial statement. Given the vital roles of audit committee, listed companies required to include in their annual reports a summary of activities carried out by their audit committees (Madawaki, 2013). For audit committee to perform its role, the members must be independent, have good financial knowledge; expertise enough and amongst others.
In terms of independence, Davidson, Godwin-stewart and Kent (2005) specifically noted that independent audit committee members are more objective and likely to handle possible deficiencies in the manipulation of financial reports. They noted further, that financial reporting quality improved greatly in the year audit committee is farmed. It suggests that the role of audit committees is integral to quality financial reporting. Companies establish audit committee to help improve quality of financial reporting practices and earnings (Ramsay, 2001). Several studies have examined the relevance of audit committee in corporate financial reporting in Nigeria (Okoye and Cletus, 2010, Owolabi and Ogbechia, 2010). Madawaki (2013) noted that none explored the association between the role audit committee in relation to financial reporting. In filling this research gap, this study attempts to make a key contribution to the current literature on the role of audit committee to financial reporting quality specifically. In other words, this study makes a bold attempt to critically examine the role of audit committee in financial reporting in Nigeria.