Contributed Victor Atang Esq.
INTRODUCTION
The term Corporate Governance entails the effective and transparent oversight of an organization’s operations by its management and board, to foster stakeholder engagement. It encompasses managerial accountability, board structures, and the protection of shareholders’ rights. In the pursuit of sound corporate governance, various stakeholders are involved, including the board of directors, regulatory bodies, stakeholders, as well as internal and external auditors, particularly in ensuring financial accountability within the corporate sector.
In Nigeria, the primary legislation governing corporate governance, especially in recent times, is the Companies and Allied Matters Act, 2020. This legislation outlines mechanisms for corporate governance, including the appointment and removal of directors, the duties and liabilities of directors, the provision of auditors and audit committees, mandatory shareholder involvement in certain corporate decisions, and the determination of remuneration for these entities.
Furthermore, effective corporate governance relies heavily on the roles played by the board of directors and shareholders in general meetings. It is important to note that the articles of association of a company delineate the distribution of power between the board and the general meeting. If the articles vest power in the board, the general meeting cannot override the exercise of such power by the board of directors.
Despite the regulatory framework in place, there are instances of corporate malfeasance, including excessive remuneration of key stakeholders, mismanagement, manipulation of share prices for profit, and deliberate misstatement in financial statements. These internal corporate challenges underscore the necessity for periodic audits of companies’ financial activities, which informs the focus of this article.
THE CODES OF BEST PRACTICE ON CORPORATE GOVERNANCE IN NIGERIA.
The Code of Corporate Governance in Nigeria, 2011 issued by the Security and Exchange Commission is undoubtedly the most comprehensive regulation on corporate governance in Nigeria. These codes set the right standards and practices for companies to ensure fairness and accountability in the overall operation of a company. Some of the pivotal provisions enshrined in the Code of Corporate Governance 2011 issued by the Security and Exchange Commission are briefly examined below
- Prohibition of the Combination of the offices of the Chairman and Managing Director/Chief Executive Officer
To ensure optimal performance, the positions of the Chairman of the Board and the Chief Executive Officer shall be separate and manned by different individuals[1]. Furthermore, Section 5.1 (a) provides that the Chairman should not be involved in the day-to-day operations of the company. The day-to-day responsibility of running the company is vested in the Managing Director/Chief Executive Officer and his team. The essence of this separation is to put in place a system of internal checks and balances in the running of the affairs of the company and reduce abuse of power.
- Whistle Blowing
Section 32 of the SEC Code, 2011 provides for the establishment of a whistleblowing policy in public companies for reporting illegal and unethical activities going on in the company. Public companies are expected to have a means of communication which can be used anonymously for making such reports.
- Stakeholders Involvement
The SEC code also emphasizes the necessity of involving stakeholders of the company in the corporate governance of the company and this can be carried out through disclosure of company policy, plans, strategies as well as approach of implementation to the stakeholders[2]
- Performance Evaluation
Section 15 of the SEC Code, 2011, provides for the annual performance evaluation of the Board of Directors, its committees as well as the Chairman. This provision ensures accountability and objective criticism in the overall operations of the company. In carrying out such evaluation, the Board may engage the services of external consultants to facilitate an objective performance evaluation[3]
THE ROLE AND DUTIES OF AUDITORS IN ENSURING EFFECTIVE CORPORATE GOVERNANCE
Auditors play a crucial role in ensuring the financial accountability and stability of a company. This is why relevant legislation mandates the Director of a company to appoint an auditor saddled with the responsibility of auditing the financial statements of companies[4]. Importantly, there are no express provisions in the Company and Allied Matters Act, 2020, stipulating the qualification of an auditor. However, the provisions of any Act establishing a body of accountants shall have effect in relation to any investigation or audits for the purposes of the statutory provisions of the Company and Allied Matters Act, relating to audits[5]. It is also imperative to note that an officer of a company or any person who is a partner or in the employment of an officer or servant of the company as well as a body corporate are not qualified to be appointed as auditors of a company
TYPES OF AUDITING
There are majorly two types of audits, to wit
- Internal Audits
These are audits carried out by specially assigned staff of the enterprise or company and usually appointed by the management or Director[6]. The major role of internal audit is to provide independent assurance that an organization’s risk management, governance and internal control processes are operating effectively.
- External Audit
Section 407 of the Company and Allied Matter Act, 2020, provides for the duties of a company auditor which includes
- Prepare Financial Report
- Keep Accounting Record
- Ensure Compliance with Relevant Statutory Provisions
AUDIT COMMITTEE
The audit committee of a company is statutorily established by the Company and Allied Matters Act[7] and consists of five members comprising three members and two non-executive Directors who are not entitled to remuneration. By way of qualification, members of the audit committee should have basic financial literacy and should be able to read financial statements and at least one member of the committee must be a member of a professional accounting body in Nigeria[8]
DUTIES OF THE AUDIT COMMITTEE
The duties of the Audit Committee are set out in Section 404 (7) of the Company and Allied Matters Act and include the following
- The Audit Committee shall ascertain whether the accounting and reporting policies of the company are in accordance with the legal requirement and agreed ethical practices
- They are saddled with the responsibility of examining the auditors’ report and making recommendations thereon to the annual general meeting as it may deem fit
- They authorize the internal auditors to carry out investigations into any activities of the company which may be of interest or concern to the committee
- The committee is also statutorily authorized to keep under review the effectiveness of the system of accounting and internal control,
The above duties, when effectively carried out will ensure transparency in the operations of a company which is one of the essence of promoting corporate governance. In carrying out these duties, the audit committee needs to cooperate with the auditors.
CONCLUSION
This article focused on the role of auditors in corporate governance. There is no gainsaying that corporate governance is very important in contemporary times as the totality of this article has examined the concept of corporate governance, its structures vis-à-vis the indispensable role of the auditors in the operation of a company as well as the existence of liability and cause of action where the acts of the auditor results in damage or loss to the company.
