AUDIT INDEPENDENCE: ENHANCING ACCOUNTABILITY AND TRANSPARENCY IN CORPORATE ORGANIZATIONS

CHAPTER ONE

INTRODUCTION

1.1. Background of the study

The subject of transparency and accountability in modern day corporate organizations has continued to receive attention as never before. It has become a subject of discuss and empirical research both in developed and developing countries of the world simply because of some recent financial crises and corporate scandals. Greater transparency and accountability are argued to improve the performance of corporate organizations through better resource allocation, enhanced efficiency and increased  growth prospects (Chipwa, 2005).

Enhancing transparency and accountability are central to the improvement of corporate governance mechanisms. Basically, transparency is a vital means of enhancing the performance and accountability of firms  (Katra, 2003). Transparency is seen as critical for the culture of accountability especially where market competition thrives (Katera, 2003). This implies that those with stake in the corporate organization must have all relevant and material information regarding its affairs in order to make proper judgment and if very necessary take remedies. This becomes possible only if those charged with the day to day management of the corporate organization are transparent and accountable enough. This is premised on the fact that the task of managing the corporate organizations’ affairs is fast moving in the ever-changing market or business environment. The essence of transparency and accountability especially in Nigeria as a developing country cannot be over emphasized. In this regard, Katera (2003), submits that the key to business survival, creating and maintaining wealth for the corporate organizations lies primarily on systems of transparency and accountability built into governance structures of such corporations. There is therefore the need or quest to enhance transparency and accountability so as to ensure shareholders’ wealth maximization and overall performance of the corporate organization. Against this backdrop, this study focuses on enhancing accountability and transparency in corporate organizations in Nigeria.

1.2. Statement of the Research Problem

Transparency and accountability are increasingly more topical, broadly relevant, but also more under-researched in enterprises (Chipwa, 2005). Inspite of existing company regulation encompassing legislative framework and guidelines which govern corporate activities, the lack of or inadequate transparency and accountability encapsulated into sound corporate governance practices has partly led to organizational failures (Katera, 2003). To the best of our knowledge, literatures extensively dealing on transparency and accountability in corporate organizations in Nigeria are scanty. Similarly, the factors enhancing transparency and accountability in corporate organizations in Nigeria have also received little empirical research to the best of our knowledge. In the light of this existing gap, the following research questions are raised.

1.3. Objectives of the Study

The objectives of this study are broadly classified into two general objective and specific objectives. The general objective is basically on enhancing transparency and accountability in corporate organizations. However, the specific objectives of the study include:

• To find out if audit committee enhances transparency and accountability in corporate organizations.
• To determine if board independence enhances transparency and accountability in corporate organizations.
• To ascertain if ownership concentration enhances transparency and accountability in corporate organizations.

1.4. Scope the study

This study focuses on enhancing transparency and accountability in corporate organizations. The study further examines the variables that enhance the transparency and accountability in the Nigerian banking industry. The quoted banks whose operations are based in Benin metropolis are examined via structured questionnaire with a view to making inferences.

1.5. Research questions

• Do audit committee enhance transparency and accountability in corporate organizations?.
• Does board independence enhance transparency and accountability in corporate organizations?
• How does ownership concentration enhance transparency and accountability in corporate organizations?

1.6.  Research Hypotheses

H0: audit committee does not enhance transparency and accountability in corporate organizations.

H0: Board independence does not enhance transparency and accountability in corporate organizations.

H0: Ownership concentration does not enhance transparency and accountability in corporate organizations.

1.7.  Significance of the Study

The subject matter of this becomes relevant drawing from present day financial crises rocking firms in developed countries and in developing countries such as Nigeria.

Firstly, the results of this study will be of interest to corporate regulators such as the federal government and central bank of Nigeria. This is because regulation aimed at making businesses or corporate organizations more transparent and accountable will have benefits to ordinary investors who rely on company management’s corporate governance and financial disclosures and will aid the overall development of the Nigeria economy.

Secondly, the audit profession will be interested in the research results simply because evidence that corporate organizations are not transparent and accountable could suggest that auditors need to me more vigilant.

Thirdly, the findings of this study will be beneficial for company management who seek to attract external investment.

Very little academic research has been done on this subject matter in Nigeria. Thus, this study will enrich the literature on the corporate reporting practices, transparency and accountability of firms, thereby adding to the body of knowledge.

Lastly future, researchers definitely will find the outcome of the study useful in terms of reference materials.

1.8. Limitations of the Study

Difficulty in generating reasonable, adequate and reliable information from respondents- Respondents tend to provide information which they feel the researcher would be pleased to get, which may not be the right information.

Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (questionnaire and interview).

Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9. Definition of terms

Audit: this is an official examination of business and financial records to see that they are true and correct.

Independence: the freedom to organize a business and make decisions for the business.

Constraint: a strict control over the way that you behave or allowed to behave.