The primary objective of financial reporting is to provide high-quality financial reporting information concerning economic entities, primarily financial in nature, useful for economic decision making. Financial statements are a structured representation of the financial position and financial performance of an entity. Financial statements also show the results of the management’s stewardship of the resources entrusted to it (IAS 1). The usefulness of published corporate reports depends on their accuracy and their timeliness.
The timeliness means presenting the financial accounting information for its users when they need it. This is because the information losses its benefit, if it is not available when it is needed. Timeliness of accounting information is essential for the financial report’s users because they require current information to make predictions and constructive decisions (Zeghal, 1984).
The quality of financial reports depends in part upon the frequency and timeliness of reporting (Miller & Bahnson, 1999). Timely disclosure and presentation of information improves the image of corporate bodies because they reflect managerial efficiency and effectiveness (Joshi, 2005). The importance of timeliness is further supported by the research of Abdulla (1996), who suggested that a shorter time between the financial year-end and publication date is more beneficial for users.
Furthermore, Leventis, Weetman, & Caramanis (2005) assert that in emerging market economies, timeliness in reporting of otherwise non-publicly available financial statement information remains, for the most part, the only means by which outside shareholders and investors keep themselves informed of the firms’ performance. In the present economic scenario, this concern for timely reporting becomes more acute as emerging market economies face greater uncertainties as they combat the ongoing global financial crisis. Therefore, as noted by Jaggi & Tsui (1999), it will be beneficial to both international and domestic investors in understanding the causes of delays in the release of audit reports in the context of an emerging economy. One of the reasons advanced by Awoyemi (2009) for the crises in some Nigerian banks had to do with inaccurate financial reporting. It was adduced that some loss-making financial institutions not only declared profits but paid dividends using depositors’ funds. The multiplier effect of such actions on the future financials of a firm is negatively affecting the economy at large.
In Nigeria, the need for high quality and timely financial information has become particularly imperative due to the increasing exposure of Nigerian business organizations to international capital markets. Thus, the business organizations are being obliged to satisfy the information demands of foreign investors and to provide them with more timely information in annual financial reports. Recognizing the importance of timely release of financial information, regulatory agencies and laws in Nigeria have set statutory maximum time limits within which listed companies are required to issue audited financial statements to stakeholders and also file such reports with relevant regulatory bodies.
Timeliness of financial reporting is regulated by the Companies and Allied Matters Act (CAMA) of 2004 as amended which prescribes the format and content of company financial statements and disclosure requirements in details. It is required that financial statements comply with the Statement of Accounting Standards (SAS) issued by the Nigerian Accounting Standards Board (NASB) (now referred to as the Financial Reporting Council of Nigeria, FRCN) and that the audit be carried out in accordance with Generally Accepted Auditing Standards. It further requires the submission of audited financial statements to the Corporate Affairs Commission (CAC) within 42 days of the annual general meeting and publication of audited financial statements by all public limited liability companies in at least one national daily newspaper.
Also, the Investments and Securities Act of 1999 provides that audited financial statements must be filed with the Security and Exchange Commission (SEC), Nigerian Stock Exchange (NSE), and the Corporate Affairs Commission (CAC) and be approved by the Stock Exchange before publication in newspapers within three months after the year-end. The Investments and Securities Act requires every market participant to maintain accurate and adequate records of its affairs and transactions, but it does not specify the standards to follow in preparation of financial statements, as companies have to comply with CAMA requirements.
The Banks and Other Financial Institutions Act (BOFIA) of 1991 contain provisions on financial reporting by banks in addition to CAMA requirements. The BOFIA requires banks to submit audited financial statements to the Central Bank of Nigeria for approval before publication in a national daily newspaper within four months of yearend. The Governor of the Central Bank may order a special examination of a bank’s books and affairs for any variety of reasons. Auditors of banks have a legal duty to report certain matters, including contraventions of legislation and irregularities, to the Central Bank of Nigeria (CBN). The activity of CBN has risen to sanitise the anomalies by the introduction of the common year-end and the adoption of International Financial Reporting Standards (FIRS) for all Deposit Money Banks
The bank credit scam in Nigeria despite the introduction of audit committees brought to the fore the inherent weakness of audit committees and the motivation for a clearer understanding of audit committee‟s efficacy. The scam also provided at least evidence to support concerns about the adequacies of monitoring provided by audit committees and provided the concerns that have been expressed on whether audit committees are functioning to maximize shareholders‟ value or increase corporate performance. Furthermore, banks default and distress have hampered their performance significantly and diminished investors‟ confidence in the banks, thereby casting doubt as to the efficacy of the audit committee functions.
There are divergent views on the relationship between Audit Committees and performance. Some of the arguments support the link between Corporate Governance and performance while others see no link between Corporate Governance and performance. There is a skew in approach and method on study relating to Audit Committees and the studies are mostly concentrated on studies conducted in advanced countries with more matured financial systems compared to the developing countries like Nigeria. Even though there are some studies related to developing countries, little or no evidence exist to the best of the researcher‟s knowledge on the extent of the relationship of Audit Committees as a corporate governance framework and corporate performance. The research results on Audit Committees produced a mixed grill and inconclusive findings thereby providing a ground to evaluate the link between audit committee and Deposit Money Banks performance in Nigeria
Therefore based on the above discussions the following research questions were answered in this study.
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