EFFECT OF AUDIT ROTATION AND AUDIT COMMITTEE ON  THE QUALITY OF FINANCIAL REPORTING
ABSTRACT
The major objective of the study is to examine the impact of audit committee to financial reporting in Nigeria, using some Nigerian quoted companies. However, the specific objectives are to: Find out whether audit committee has any significant relationship on corporate reporting., Examine whether audit firm rotation has an effect financial reporting.    To find out whether audit partner rotation affects financial reporting.     Examine the impact of audit committee meetings on corporate reporting.
In the study, we conducted a descriptive statistics, correlation matrix and Ordinary Least Squares (OLS) regression technique to empirically examine corporate social responsibility practices
The cross-sectional survey research design was adapted in this study because the data were collected at a particular point in time The nature of this study necessitated the use of secondary data. The data for the selected quoted companies will be sourced from Nigerian Stock Exchange fact books and companies annual reports for a period of seven (7) years (i.e. 2006-2012). Corporate reporting has attracted much attention over the past three decades. As a critical avenue of stakeholder management, corporate reporting shapes external perception of the firm, helps relevant stakeholders assess whether the firm is a good corporate citizen, and ultimately justifies the firm’s continued existence to its stakeholders. A greater level of reporting is itself a form corporate reporting. It also provides a channel through which the firm can manage its public image.     However, managers tend to weight the benefits and cost of corporate reporting information. The study provides insight into the determinations of corporate reporting decision. In this regards a negative relationship is observes between the extent of items disclosed and Firm Size. The effect of industry of operation shows a negative relationship. The effect of company origin was found to be positively related to the extent of corporate reporting by companies.  Profit is found to be positive and significantly related to the extent of corporate reporting by companies. It is also recommended that further studies should evaluate the influence of other corporate factors on corporate reporting decision
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1    Background to the Study    -    -
1.2    Statement of the Research Problem    -    -    -    -    -    
1.3        Objective of the Study        -    -    -    -    -
1.4      Research Hypotheses    -    -    -    -    -    
1.5. Scope of the Study    -    -    -    -    -    -    
1.6. Significance of the Study    -    -    -    -    -    -    
  Limitations to the Study    -    -    -    -    -    
CHAPTER TWO: LITERATURE REVIEW
2.1     Introduction    -    -    -    -    -    -    -    
2.2    Review of Related Literatures    -    -    -
2.3    External Auditors-    -    -    -    -    -
2.3.1    Audit Committees-    -    -    -    -    -    -    
2.4    Audit Committee and Financial     Reporting Quality-    -    -
2.5    Qualification of Audit Committee Members    -    -    -    
2.6     The Role and Contribution of Management to audit Committee Practice:    
2.8     Effective and Ineffective Audit Committee    -    -    -    
2.9     Financial Reporting    -    -    -    -    -    -    -
2.10     Types of Financial Statements    -    -    -    
CHAPTER THREE: METHODOLOGY
Research Design     -    -    -    -    -    -    -
The Population and Sample Size-    --    -    -    -    
Source of Data    -    -    -    -    -    -    -    
3.3    Model Specification    -    -    -    -    -    -    
  3.5     Data Analysis    -    -    -    -    -    -
CHAPTER FOUR
4.1     Data Analysis and Interpretation    -    -    -    -
4.2    Hypothesis Testing    -    -    -    -    -    -    -
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATION
Summary of Findings    -    -    -    -
5.2. CONCLUSION     -    -    -    -    -    -
5.3. Recommendation    -    -    -    -    -
Bibliography    -    -    -    -    -    -    
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND TO THE STUDY
Audit involves performing procedures to obtain evidence about amounts and disclosures in the financial statements so as to evaluate the appropriateness of accounting estimates made by management (KPMG, 2008). Audit report quality is a basic requirement to enhance the credibility of financial statements within the stakeholders. The audit quality therefore, is a basic ingredient in enhancing the credibility of  financial statements to users of accounting information.
    Consequently, studies (Fairchild, 2008:Coat, Florence and Kral, 2002) note that audits add credibility to the financial information by providing an independent verification  of management provided financial reports, thus reducing investor’s risk. Financial reporting credibility is reflected in the confidence of users in audit financial reports (Watkns, Hillison, and Morecroft, 2004). As opined by Levitt (2000), the perception of audit quality plays a critical role in maintaining systematic confidence in the integrity of financial reporting. The higher the perceived audit quality, the more credible the financial statements. This will consequently improve user’s confidence in those financial statement. Concerns about audit quality have gained increased ascendancy especially as a result of the spectacular financial reporting scandals in major corporations, such as Enron, World Com and other companies. The aftermath of these scandals has led to the identification of a perceived “expectation gap” in the audit quality as many users of audited financial statements have different expectations of the audit  function from what it actually delivers (Beattie, Brant and Fearnley, 1999). Therefore, there has been a call for sweeping changes in the auditing profession to ensure improved audit quality (Auditing Profession 2002).
    However, the non quantitative nature of “audit quality” as a variable has necessitated the existence of a plethora of proxies and indicators for its measurement (Cameran, Prencipe and Trombette 2007). De Angelo (1991) defined audit quality as the probability that an audit to will both discover and truthfully report materials errors, misrepresentation and omissions detected in a clients accounting system. This probability depends upon the broad concept of an auditor’s professional conduct, which includes factors as objectivity, due professionalism and conflict of interest. Some studies (Francis 2004, and Geiger & Raghunandan, 2002)
    The financial statement as prepared by company directors is a statutory report, conveying both qualitative and quantitative information to assist users of accounting information in making informed decisions. For the financial statements to be credible and relevant for decision-making, Generally-Accepted Accounting principles (GAAP) must be followed in their preparation, hence, the appointment of external auditors to enhance and ensure compliance. Furthermore, to improve the quality of financial statements, the audit committee is constituted. According to Isukwem Samuel Uchenna (2010), the incidence that led to the collapse of Enron made the public call out to improve the performance of their functions
    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 user through a report in the financial statement. This committee has a monitoring responsibility over management and external auditors alike. They are intermediaries or watchdogs. The financial statement users will normally take actions based on the analysis of the various reports in the financial statements. An audit committee comprises a majority of independent directors. The existence of an audit committee could improve the monitoring of corporate financial reporting and internal control. This could be done by bridging the communication gap between the auditors and corporate management and through strengthening the role of the internal auditors.
    Although, audit committee have been in existence for decades, there are criticisms of the practices of audit committees and a large amount of research have been undertaken to identify an ideal audit committee that would act in the interest of shareholder (Abbott and Parker,2000; Krishnan, 2005). Audit committees serve as bridge in the communication network between internal and external auditors and the board of directors and their activities include review of nominated auditors, overall scope of the audit, internal financial controls and financial information for publication (FCCG, 1999 Walker 2004).
    Audit committee could also enhance auditor independence. Knapp (1987), discovered that audit committee is more likely to support the auditor rather than management in audit disputes and the level of support is consistent across members of the committee, regardless of whether the member is in a full-time or part-time position such as corporate managers, academicians and retired partners. In addition, audit committees could play a role in selecting auditors, determining their remuneration and in the dismissal/retention of auditors. Goldman and Barlev (1974) pointed out that audit committees could observe the financial reporting process and provide recommendations in the selection of auditors, negotiation of fees and termination of management’s power over the auditor. An audit committee is anticipated to ensure that a business organization has sufficient internal controls, proper accounting policies, and independent external auditors that will prevent the incidence of fraud and promote high quality and timely financial statements. The effectiveness of the audit committee determines to a large extent of the integrity of a company’s financial.
    Apart from the statutory audit committee as required (of public companies) by the companies and Allied Matters Act, Cap C20, LFN, 2004 (CAMA) which is made up of an equal number of directors and shareholder representatives. Indeed, the Central Bank of Nigeria (CBN) Code of Corporate Governance provides for the establishment of a Board Audit Committee made up of non-executive directors and chaired by an Independent Director. The statutory duties and role of the audit committee are clearly encapsulated in Section 359(3) and (4) of CAMA. To be effective, the audit committee should have a charter that should clearly define its modus operandi and the qualities required of members of the committee.
1.2    STATEMENT OF THE RESEARCH PROBLEM
    Audit committees are by reference to the relevant sections of CAMA 1990 expected to bridge the expectation gap in providing a means by which the opinion expressed by auditors on a firm’s financial statement can be seen to be unbiased and independent. It is argued that the presence of audit committees is likely to lead to unnecessary rift between shareholders and directors as well as management and auditors. Also, where the managing director is a very influential member in the board and succeeds in hijacking authority from others, the audit committee would have no choice but to dance to his tune, given the composition of the audit committee of equal number of directors and representatives of the shareholders of the company subject to a maximum of 6 members. This makes the appointment of the committee unnecessary.
However, there are criticisms of the practices of the audit committees and their relevance to corporate reporting; hence the study intends to finds answers to the following question?
Is there any significant relationship between audit committee size and financial reporting?
Is there any significant relationship between audit committee independence and corporate reporting?
Is there any significant relationship between audit rotation  and financial reporting?
1.3        OBJECTIVE OF THE STUDY    
         The major objective of the study is to examine the impact of audit committee to financial reporting in Nigeria, using some Nigerian quoted companies. However, the specific objectives are to:
1.    Find out whether audit committee has any significant relationship on corporate reporting.
2.    Examine whether audit firm rotation has an effect financial reporting
3.    To find out whether audit partner rotation affects financial reporting
4.    Examine the impact of audit committee meetings on corporate reporting.
5.    Examine the impact of audit committee expertise on financial reporting quality
1.4      RESEARCH HYPOTHESES
      In order to achieve the research objectives the following null hypotheses shall be tested at the end of the study:
1.     Ho: there is no significant relationship between Audit Rotation and financial reporting.
2.     Ho:    there is no significant relationship between Audit Committee Independence and financial reporting.
3.     Ho: there is no significant relationship between Audit Committee meetings and financial reporting.
1.5. SCOPE OF THE STUDY
The spotlight of this research work is to evaluate the relevance of audit committee to corporate reporting in Nigeria. The researcher seeks to focus on quoted companies from the financial sector of the Nigerian Stock Exchange (NSE). Hence, data shall be extracted from the financial statement of quoted companies for a period of six financial years ranging from 2006 to 2012.
1.6. SIGNIFICANCE OF THE STUDY
 Studies on the evaluation of the relevance of audit committee to corporate reporting in Nigeria share divergent views. A study of this nature shall be beneficial to regulators responsible for ensuring high quality financial reporting such as Nigerian Securities and Exchange commission, Nigerian Accounting Standard Board, Corporate Affairs Commission, to mention a few.
Nevertheless, financial experts, stock brokers and stakeholders, board of directors of Nigerian companies, will find this study of immense contribution to their activities. It can also contribute to and influence decisions of policy makers in Nigeria. The beneficiaries include:
    Stakeholders: this study will be important and beneficial to stakeholders of corporate bodies to know the essence of audit committee and financial reporting in Nigeria.
   The Government: it will acquaint the government of the importance of audit committee and financial reporting and how it should be properly managed.
   The Public: This study will help to restore the lost confidence of the public as regards audit committee and financial reporting in Nigeria.
   Academic and future researcher: Both academic and other future researchers in this similar subject matter will find it a useful source of learning and research.
  LIMITATIONS TO THE STUDY
The study was subject to certain inherent constraints such as:
Finance was a major constraint encountered by the researcher.
Another importance constraint encountered was time. There was no adequate time to carry out elaborate study as the researcher would have desired.
Another constrain was supervisor’s time due to the number of students allocated to particular supervisor, and the time of interaction with the supervisor was limited.
Despite these limitations, efforts were made to reduce their effects to ensure that the results of the study are reliable and consistent with actual expectations.
REFERENCES
Isukwem Samuel Uchenna (2010). Total Quality Management and Profitability in an Organization: A case study of Seven up Bottling company plc. Benin Plant.
Lindsell,D. (1992). Blueprint for an effective Audit committee
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Abbott, L.J., & Park. S. (2000).Audit Selection and Audit Committee
Characteristics, Auditing: A Journal of practice and Theory, 19(2),47-66.
Krishnan, J. (2005). Audit Committee quality and internal control: An
empirical analysis. The Accounting Review, 80(2),649-675.
Finance Committee on Corporate Governance [FCCG]  (1999).
Report on Corporate Governance, Malaysia, Ministry of Finance.
Walker, R. G. (2004). Gaps in Guidelines on Audit Committee.
Abacus, 40(2), 157-192.
Knapp, M.C. (1987). An empirical study of audit committee support