A Critical Appraisal of the Establishment of Audit Committee for Public Companies

Abstract

Introduction
Prior to the promulgation of the Companies and Allied Matters Decree1, there was no provision in the company legislation in Nigeria for the appointment or election of an Audit Committee. For purposes of good corporate governance and accountability, some companies, on their own, had such committees on ad hoc permanent basis2. According to Orojo3 Audit Committees are new in company management. In the United States, they were established in the seventies and later became a requirement of the New York Stock Exchange for listing of securities. Audit committees also became common in Canada and the United Kingdom about the same time. In all these cases, the composition was that of executive and independent directors. The mechanism was used by the independent directors to monitor the financial activities of the company as carried out by the executive directors.
In Nigeria, the Companies and Allied Matters Decree4 made the establishment of an Audit committee mandatory for public companies only. Thus in addition to the report made by the auditors of the company to the members, they (the Auditors) are also required to make a report to an audit committee which shall be established by the public company.
The purpose of this paper, therefore is to examine this provision and critically appraise its efficacy and utility. This is more so that members of the committee are not entitled to remuneration5 and yet, at almost all annual general meetings of companies the lobby for election into this committee makes this examination imperative.