CORPORATE GOVERNANCE AND AUDIT QUALITY IN NIGERIA: AN EMPIRICAL ANALYSIS
ABSTRACT
    This study was motivated by a desire to examine the relationship between corporate governance and audit quality. A sample of five banks listed in the Nigeria Stock Exchange was selected as the sample size covering the period of 2006 – 2010 financial years. In light of the empirical review and other discussions, a number of questions arose as to how related are auditor independence, size of firm, nature of firm, board size and audit committee to audit quality in Nigeria. This then lead to the formulation of model were auditor independence, size of firm, nature of firm, board size and audit committee was used as explanatory variables, while audit quality was used as the dependent variable in the study, using the Binary Logistic Regression technique with the aid of a computer software Eviews 7. The empirical findings revealed among other things that, there is a relationship between auditor independence and audit quality. The OLS result also supported that there is a relationship between size of a firm and audit quality. The OLS result however reveals that, board size and audit composition has no significant influence on audit quality in Nigeria. Recommendation therefore made in the concluding chapter of this study based on the findings obtained.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study                 
Statement of the Problem                 
Research Questions                         
Objectives of the Study                    
Significance of the Study                
Research Hypothesis                     
Scope of Study                        
Definitions of Terms                        
References                     
CHAPTER TWO: LITERATURE REVIEW
Overview of Corporate Governance                
Corporate Governance And Accountability             
Analytical Tools for Examining Corporate Governance         
A Framework for Corporate Governance            
Principle of Corporate Governance             
Priorities For Reforming Systems Of Corporate Governance
The Importance Of Good Internal Corporate Process     
Strengthening External Incentives For Good Corporate
Governance                             
Bank Performance and Corporate Governance              
Definition of Audit Quality                    
The Role of Auditors in the Nigerian Banking Crisis    
Theoretical Framework                         
References                            
CHAPTER THREE: RESEARCH METHODOLOGY
3.1    Introduction                         
The Research Design                        
Sources of Data Collection                    
The Population of the Study                    
Model Specification                         
Method of Data Analysis                    
References                            
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1    Introduction        
4.2    Descriptive Statistics                    
4.3    Correlations Analysis                    
4.4    Regression Analysis                    
4.5    Test of Hypotheses                    
Discussion of Findings              
CHAPTER FIVE:    SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1    Summary of Findings                    
5.2    Conclusion                           
Recommendations                        
Bibliography                        
Appendix                                 
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
In the aftermath of Enron Corporation World Corn Incorporated and a blend of other corporate financial scandals, issues on corporate governance took the center piece in public discourse, as poor governance practice was identified as a major contributor to most of the failures. Moreover, the tragic event of the Russians financial scandal and Asian financial crises brought into global focus the critical roles of good corporate governance practice is ensuring banking soundness and financial sector stability, indeed, the fundamental cause of banking failure is poor management and more generally, weak internal governance by the board and management.
Given the central role of the banking system as the primary mobilization and allocate of financial resource, provider of the payment and settlement service and the channel of the transmission of monetary policy effect to the real sector in the economy, the issue of government is key not only in the developing countries but also in the nature market economies. Against this background, international standard and guidelines on corporate governance have been established by various multilateral organizations such as the Organization for Economic Co-operation and Development (OECD), and the Basle Committee. The objective is to provide improved legal, institution and regulatory framework for enhancing corporate governance in the financial sector. At the individual country level, the strategy for addressing the challenges of corporate governance has also received priority attention. In this endeavour while regulatory authorities are expected to play a central role in establishing the legal, institutional and regulatory framework, the primary responsibility for promoting good corporate governance remain with individual banking institution and it’s board of directors.
Corporate governance refers to the process and structure by which the business and the affairs of an institution are directed and managed, in order to improve long term shareholder value by enhancing corporate performance and accountability, while taking into account the interest of other stockholder, (Unegbe, 2004). Corporate governance is therefore, about building credibility, ensure transparency and accountability as well as maintaining an effective channel of introduction disclosure that would foster good corporate performance.
Corporate governance, which involves a combination of laws, regulations and practice of integrity in corporation, help in mobilizing local and foreign capital, a country where good corporate governance practice has been entrenched will grow. Countries need to develop a system of law, regulation and private sector practice that will assist in attracting foreign investment capital. Difference in culture and value will influence corporate governance law and practice because of theory of path dependence (Licht 2001). A nation’s culture can be perceived as the mother of all path dependencies in corporate governance systems. This is why any laws to be enacted should take into account individual so that it’s implementation will be effective. However, the difference in culture should not be a barrier, to change that will take into recognition the nations need for growth based on the need to attract foreign capital for development.
The International Monetary Fund and World Bank are some of the organizations fraught with the problem of how to resolve the problem of corporate governance in the modern day organizations. Moreso, the absence of proper corporate governance even in an organization that is performing very well financially and otherwise may create an issue of suspectability from the shareholders perspective, because to them the organization is not properly positioned to deal with challenges that may arise in the future. Proper corporate governance is about further promoting corporate fairness, transparency and accountability. These also ensure that providers of fund to organizations are adequately assured on their return on investment (Shleifer and Vishny, 1997).
Audits are carried out to ascertain the validity and reliability of financial statement and presented corporate information. It also provides an assessment of organization internal control. However, the goal of an audit is to express a professional opinion on the financial statements being examined, based on work done on a test basis. Evans and Parker (2008), describe auditing as one of the most powerful safety monitoring technologies and effective way to avoid complacency and highlight slowly deteriorating conditions especially when the auditing focuses not just on compliance but effectiveness.
However, the rise in accounting regulations has re-opened questions about audit quality (Brick 2002). Accounting profession seeking to improve financial reporting practices should increase auditor reporting responsibilities and establish programs to monitor audit quality. Although every country has different accounting regulations but mostly require quality financial report for investment, financing and tax purposes. These are usually performed by independent auditing firms. The results of the audit are summarized in an audit report that either provides a qualified opinion on the financial statement or qualification as to its truth and fairness. On the other hand, De Angelo (1981), defines audit quality as the probability that an auditor will both discover and report a breach in the client’s accounting system.
Audit quality deals with the influence of the audit on financial statement and ability of the auditors to control the quality of information produced through the assured Generally Accepted Accounting Principle (GAAP) and relevant supporting legislations. Therefore, the Auditor’s expertise which consists of both the ability to discover misappropriations and form an opinion is very important in financial reporting. These abilities are useful to internal and external users of financial statements i.e. shareholders, managers, employers, investors, banks and government among others.
In light of audit quality, auditors who are not well grounded on these principles are not likely to perform well in terms of judgment and decisions as it relate to assigned task. So Auditor must retrieve knowledge from memory and form sources (Bonner and Pennington, 1991). These are accounting research insights into the potential determinants of Auditor expertise, which consist of knowledge and ability factors evident to impact task performance (Libby and Luft, 1993, Libby and Tan, 1994). Bonner and Walker (1994) argue that expertise have been having higher effects on performance as task complexity increases. Hence Auditors expertise is a very important role in corporate governance for decision making users. Hopefully, the Auditor expertise will have been mitigated in changing rapidly which increase the emphasis on complex decision-making and problem-solving skills of Auditor. Besides, the accounting profession is established to monitor audit quality.
In the banking industry, a study carried out by Macey and Hara (2003), argue that the commercial bank pose unique corporate governance problems for managers and regulators as well as for claimants on the banks cash flow, such as investors and depositors. The Nigerian banking industry has passed from crisis to a period of restructuring, characterized by bank failures, distress and mergers. The continual distress of Banks has led to several questions being asked such as “who is responsible for the effectiveness of corporate governance and implementation?” however, sound corporate governance can be attributed to a collaborative working relationship between the management and bank supervisor.
STATEMENT OF THE PROBLEM
Failure in corporate governance is a real threat to future of every corporation. To ensure that this does not happen, proper governance mechanisms have to be in place. To achieve this, the enabling regulating environment has to be put in place. This brings to the fore the role the auditors has to play in ensuring proper audit quality.
Thus, this research is aimed at examining corporate governance and audit quality. It attempts to seek answers to the following research questions.
RESEARCH QUESTIONS
The following questions will be raised in this research works;
Does corporate governance have any impact on banks performance?
Is there any relationship between corporate governance and audit quality?
OBJECTIVES OF THE STUDY
The following are the objectives of this work.
To find out if corporate governance have any impact on banks performance.
To examine if there is any relationship between corporate governance and audit quality in Nigeria.
SIGNIFICANCE OF THE STUDY
The outcome of the research will be an immense value to bankers, customer, auditors, government, policy makers and other stakeholders. The study will provide useful explanation the good corporate governance help in building a stable and efficient banking system. It is also hoped that this research work would assist operator and regulatory authorities to objectively approach and improve the legal and institutional framework for corporate governance performance.
RESEARCH HYPOTHESIS
The hypotheses that would be tested in the course of the work are:
1.    Hi:    Corporate governance has positive impact on banks performance in Nigeria.
    Ho:    Corporate governance has no impact on banks performance in Nigeria.
2.    H1:    There is relationship between corporate governance and audit quality?
    Ho:    There is no relationship between corporate governance and audit quality?
SCOPE OF STUDY
This research work is an empirical study on corporate governance and audit quality. The population of the study is Nigeria, while the sample is selected twelve banks operating in Nigeria. This study will involve assessing corporate governance and audit quality in the banking industry.
DEFINITIONS OF TERMS    
Corporate Governance: It refers to the manner in which a corporation is directed and laws and customers affecting the direction. It includes the law governing the information of firms, the laws established by the firm itself, and the structure of the firms.
Auditor: A person appointed to conduct an examination of the records, to form an opinion about the authenticity and correctness of such records, by verifying the correctness and reliability of the recorded transactions from the evidences available, opinion and inference reachable based on his expertise
Audit Quality:
Shareholders: It an individual or company that legally owns one or more share of stock in a joint stock company.
Management: This consists of the people who run and control a business or similar organization.
Regulatory Authority: It refers to the people or organizations that are in charge of controlling an activities, processed, industry sector by rules.
REFERENCES
Barly, A. D. (1999), Corporate Governance and Accountability, What role for the regulator director or auditor 2. Quorum Books, USA.
Harajimi, G. D. (2000), Fundamental Management Principles and Management.