Role of Corporate Governance in the Implementation of Accounting Standards in Listed Companies
Chapter One
Objective of the study
The objective of this study is to investigate the Role of corporate governance in the implementation of accounting standards in listed companies in Nigeria. Specifically, the study aims;
- To determine the extent to which audit committee independence affect the implementation of accounting standards in listed companies in Nigeria.
- To examine whether there is any significant effect of board size on implementation of accounting standards in listed companies in Nigeria.
CHAPTER TWO
LITERATURE REVIEW
CONCEPTUAL REVIEW
Corporate governance refers to the processes, structures and information used for directing and overseeing the management of an institution (Duncan and Cameron, 2005). A good corporate governance framework establishes the mechanism for achieving accountability between the board, senior management and shareholders, while protecting the interests of relevant stakeholders and they also set structure through which the division of power in the organization is determined (Duncan and Cameron, 2005). Donaldson and Davis (2003) averred that corporate governance is a system by which corporate entity is directed. It relates to the functioning of the board of the company and the conduct of the business internally and externally. Theoretically, the control of a company is divided into two namely: the board of directors and the shareholders through the annual general meeting. Unlike in small private companies, in a public company, the board tends to exercise more of a supervisory role, and individual responsibility and management tends to be delegated downward to individual professional executive directors (such as a finance director or a marketing director) who deal with particular areas of the company’s affairs (McNamara, 2009). Governance is considered as that organ of small or big organizations or even the large society, which is charged with the responsibility of controlling resources of all types, within the spheres of its influences, and also having power to rule over the human and material resources, of the organization or community (Ogundele, 2005). The governing of a business organization is vested in the headship of such enterprise usually the board of directors that formulate policies, to guide the behaviour of the members of the organization and relevant associates of the organization. The objective of corporate governance is to achieve corporate excellence and enhance shareholders’ value, while not neglecting the need to balance the interests of all stakeholders (Chukwudire, 2005). Tricker, (1994) associated corporate governance with managing the organization in the interest of the shareholders. This implies the agency in the context of the separation of ownership and management in corporations. Dress and Lumpkin (2002) noted that modern corporation has the feature of the separation of ownership and management. There is a separation between those that own the corporation and those that manage, control, and direct it. It is from those who own the corporation that the boards of directors are elected during the annual general meeting. Duncan and Cameron, (2005) asserted that shareholders at the company’s Annual General Meeting legally appoint the directors. Hence, the directors individually and the board collectively should be responsible and answerable to the shareholders for their activities and practice. Furthermore, the directors should be willing to act as stewards of the corporation’s assets and consequently work to maintain and enhance the value.
Frank and Graeme, (2005) asserted that corporate governance is seen as a set of processes, rules to be complied with, rather than the desired outcome of directors, that is the authority exercised with probity and unquestionable integrity over the corporations’ affair. This means that the corporation has nurtured an opportunity for management to act more in its own interest rather than the shareholders’ interest and this is the genesis of Modern Corporation in the Companies’ Act of 1844. It was not accidental that the 1844 Companies Act required annual accounts and reports which must be audited which will better protect the interest of shareholders. Effective stewardship relies on justice, trust of the owners in, and in the probity of the stewards (Frank and Graeme, 2005). However, when the managers are not the owners, agency problems drag firm performance in as much as the managers as the decision makers are not the residual claimants of wealth and as such, these managers may have a tendency to act for their own interests (Fama 1980).
CHAPTER THREE
RESEARCH METHODOLOGY
Research Design
This study is based on Ex-post factor research design. Ex-post facto design is a non-experimental research technique in which pre-existing groups are compared on some dependent variables. Researchers attempt to discover whether differences between groups have resulted in an observed difference in the independent variable. The assignment of participants to the levels of the independent variable is based on events that occurred in the past, this is where the name is derived from. This non experimental research is similar to an experiment because it compares two or more groups of individuals with similar backgrounds who were exposed to different conditions as a result of their natural histories.
The researcher adopted the Ex-post factor research design because it helps to explain the relationship between independent and dependent variables as would help in actualizing the objectives of this study. Corporate governance variables which are compared with financial reporting quality variable in the study are based on events that occurred in the past. These variables are derived from the information provided in the annual corporate report of the studied companies. The ex-post facto research design compares two or more groups of individuals with similar backgrounds who were exposed to different conditions, corporate governance variables and financial reporting quality variable are both of similar backgrounds in that the figures are derived from the income statement and statement of financial position of the studied firms.
Population and Sample of the Study
The population of the study comprises of all the quoted consumer goods sector companies in the Nigerian Stock Exchange as at 31st December 2021 which are classified into 4 sub-sectors namely the foods and beverages, Building Materials, chemicals and paints and Conglomerates. In view of the nature of the model used in the study, a filter is employed to eliminate some of the firms that have no complete records of all the data needed for measuring the variables of the study within the period (2011-2021). Consequently, Annual reports of fifteen (15) consumer goods sector companies for the period 2012-2016 were obtained from the Nigerian Stock Exchange (NSE) were selected for the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Introduction
The chapter starts with the analysis of descriptive statistics. It is followed by the presentation of the results of the model estimations and the inferences drawn from the tests of the hypotheses. In addition, findings are analysed and policy implications are discussed.
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Summary
The study investigates the Role of corporate governance in the implementation of accounting standards in listed companies in Nigeria from 2011 – 2021. It has developed a multiple regression model for the purpose of explaining and predicting empirically the corporate governance as a result of changes in the implementation of accounting standard. The developed model of the study estimates the relationship and effect of 2 explanatory variables – board size, audit committee independence on one explained variable – Audit delay by means of the least square technique.
The findings of this work are based on the balanced panel data collected for the period 2011 -2022 from a sample of 15 out of all quoted consumer goods firms on the Nigerian Stock Exchange.
Conclusions
One measure of transparency and implementation of accounting standards in listed companies in Nigeria is timeliness. The study attempts to establish the association between corporate governance variables and implementation of accounting standards as represented by audit delay A sample of 15 companies from quoted consumer sector companies on the Nigerian Stock Exchange (NSE) from 2011-2021 was selected. There appears to be evidence of an unusually long time lag made by Nigerian quoted companies from the fiscal year to the audit date. In achieving the reduction of the timeliness to the barest minimum and in achieving the objective of making financial statements readily available for making timely decisions, the Nigerian stock exchange, securities and exchange commission, the Financial Reporting Council, the Central Bank of Nigeria and other regulatory bodies should put in place measures to ensure strict compliance with the laid down rules and regulations. Also, companies should put in place measures of reducing the time lag between the fiscal year and the annual general meeting in order to boost the confidence of financial statement users for timely decision making.
Recommendation
Based on this study, the following recommendations were made:
- Corporate policies should reflect commitment to company variables such as board size that will significantly impact the implementation of accounting standards. This position is borne out of the preponderance of the negative relationship between board size and audit delay.
- Future research should accommodate more corporate governance and implementation of accounting standards variables possibly combined at varying levels.
- Future research could broaden the pool of data and other sectors could be considered.
References
- Abdullah, H., & Valentine, B. (2009).Fundamental and ethics theories of corporate governance.Middle Eastern Finance andEconomics, 4.
- Adegbie, F. J. &Fofah, E.T. (2016).Ethics, corporate governance and financial reporting in the NigerianBanking Industry.Global Role of International ReportingStandards, 5 (1).
- Ahmed, H. L., Alam, J., Jafarr, A., &Zarmum, S. H. (2008). A conceptual review on corporate governance and its effect on firm’s performance: Bangladesh perspective. AIUB.
- AICPA (1970). APB statement no 4, basic concepts and accounting principles underlying financial statements of business enterprises.
- Anderson, R. C., Mansi, S. A. &Reeb, D. M. (2004). Board characteristics, accounting report integrity and the cost of debt. Journal of Accounting and Economics. 37(3)