ABSTRACT
The impact of a Good Audit committee on the financial management of an organization can not be over emphasized. This is because internal control is the bedrock of any organization that wants continuity in the existence of the organization. The problem facing 7up bottling company plc is that the do not have an internal control system and also they lack organizational control. I make use of primary and secondary source of data collection, Oral interview, questionnaire, Newspaper etc. and found out that loses occur on daily bases due to there is no relationship between 7up company plc and audit committee. Then I came to a conclusion, therefore it is conclusively to say that the financial management of an organization via internal control system may never be possible if the board and senior managements are not committed in providing well planed internal control system.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
One mechanism that has been widely used in worldwide organizations to monitor the financial reporting process is the establishment of an audit committee comprising a majority of independent directors. The existence of an audit committee could improve the monitoring of financial reporting and internal control. This could be done by bridging the communication gap between the auditors and management and through strengthening the role of the internal auditors. Although audit committees have been in existence for decades, there are criticisms of the practices of audit committees and a large amount of research have been undertaken to identify an ideal audit committee that would act in the interest of shareholders (Abbott and Parker, 2000; Krishnan, 2005).
Audit committees serve as a bridge in the communication network between internal and external auditors and the board of directors, and their activities include review of nominated auditors, overall scope of the audit, results of the audit, internal financial controls and financial information for publication (FCCG, 1999). Indeed, the existence of an audit committee in a company would provide a critical oversight of the company’s financial reporting and auditing processes (FCCG, 1999; Walker, 2004).
Audit committee could also enhance auditor independence. Knapp (1987) discovered that an audit committee is more likely to support the auditor rather than management in audit disputes and the level of support is consistent across members of the committee, regardless of whether the member is in a full-time or part-time position, such as managers, academicians and retired partners.
In addition, audit committees could play a role in selecting auditors, determining their remuneration and in the dismissal/retention of auditors. Goldman and Barlev (1974) pointed out that audit committees could observe the financial reporting process and provide recommendations in the selection of auditors, negotiation of fees and termination of external auditors, which would ultimately diminish management’s power over the auditor. An audit committee is anticipated to ensure that a business organization has sufficient internal controls, proper accounting policies, and independent external auditors that will prevent the incidence of fraud and promote high quality and timely financial statements
According to Orjih John (2001) every business organization profit making has objectives and goals in mined to achieve their goals. It is to satisfy the social need of the citizens, and in the achievement of these purpose supervisor more often than not its activities, play a document role. The size and scope impossible for the executors to exercise personal and first hand supervision of operations. It is in this light that audit committee, financial or otherwise established by management is initiated.By section 360 of the companies and avoid matter act 2004, the auditor is expected to carry out investigations as would be necessary to enable him from a opinion.
It follows from above, that even the law does specify the extent of the examination to be carried out by the auditor. This is left to the director of the auditor. This decretion is not abused by the auditor. In practice he goes beyond the legal requirement in discharging his duties and his primary focus is to plan for the projects to be audited and how each project it’s the organization’s needs. This brings to bear on his job a very high standard of professional practice and considerations.An auditor will therefore involve for distinct practice and procedures via:Ascertain the validity of original transactions.Confirming the completeness and accuracy of the recording of these transactions.
Ensuring that the financial statements have been prepared from and are in agreements have been prepared from and are in agreements with the record and Confirming that the financial statements conform to the relevant status and accounting standards.According to Chambers Andrews (1974), a complex organization needs an auditor as an extension of the eyes and ears of management who however effective the organization might be unable to inspect the work of their subordinates whose stewardship is delegated to them.Internal control system can be broadly divided into two main categories.
1. Administrative control.
2. Accounting or financial It is the accounting or financial control function that internal audit, audit committee, internal checks and other accounting policies and systems built into the initial control network to promote and encourage the attainment of the objectives of the firm.Initial audit is an initial function which means that it is conducted by the employers of an organization specially designed for this purpose.It is an organization management responsibility to establish the department not to do so.The objective of audit committee as internal auditing is to assist all members of management in the effective discharge of their responsibilities, by furnishing them with analysis, appraisal, recommendation and pertinent commentary in the activities reviewed.
To attain such overall objective, initial audit involves such activities as:
1. Reviewing and appraising the soundness, adequacy and application of accounting, financial and other operating controls and recommending effective control at a reasonable cost.
2. Ascertain the reliability and relevance of management data development within the organization.
3. Appraising the quality performance in carrying out assigned responsibilities.Where an internal audit department operates the statutory auditor pays particular attention to its activities as these will have a direct bearing on the scope and depth required by members.
According to Onovo (2011:282), the auditor should consider whether analytical procedures that are perform at or near the end of the audit when forming an overall conclusion as to whether the financial statement as a whole are consistent with the audit’s knowledge of the business indicate a previously unrecognized risk of material misstatement due to fraud. Determining which particular tends and relationships may indicate a risk of material misstatement due to fraud require professional judgment.
Material misstatement of financial statement due to fraud offer involved the manipulation of the financial reporting process by recording inappropriate of unauthorized journal entries throughout the year or at period end, or making adjustments to amounts reported in the financial statements that are not reflected in formal journals entries, such as through consolidating adjustment and reclassifications.
1.2 STATEMENT OF PROBLEMS
It has been stated earlier that the duty of detecting frauds and irregularities lies with the management.This could only be done through effective and efficient audit committee of the internal control system in an organization. But even with the presence of the internal auditor some problem are still inherent in organization that interfere with goal attainment.
These include:Stock disappears in large numbers on their daily basis.Assets are either misappropriated or not accounted for.Those names appear in large numbers on payroll and are undetected for at longtime.Physical cash are stolen while signatures are forged in cheques also to steal cash frauds perpetuated are only being discovered after longtime.This project is intended to find out with the above or other problem. If any, is caused by lack of good internal control system by the audit committee in an organization.
1.3 OBJECTIVE OF THE STUDY
The objective of the study are as follows:
1. To find out the impact of audit committee on financial management in bottling company.
2. To ascertain whether audit committee on financial management of an organization is effective.
3. To evaluate the profitability of audit committee on financial management in achieving organizational objective.
4. To find the strategies adopted by 7up bottling company in achieving financial objectives.
1.4 RESEARCH HYPOTHESIS
The results of the research hypothesis of the study are as follows:
1. Ho: There is no relationship between audit committee and financial management.
Hi: There is relationship between audit committee and financial management.
2. Ho: There is no relationship between profitability of audit committee in achieving organization objective.
Hi: There is a relationship between profitability of audit committee in achieving organization objective.
3. Ho: There is no relationship between effective internal control system improvements in profitability.
Hi: There is relationship between effective internal control system improvements in profitability.
1.5 RESEARCH QUESTIONS
From the above objective of the research study, the research questions are as follows:
1. Is there any relationship between audit committee and financial management?
2. How does effective audit committee improve profitability?
3. How dos application of audit committee techniques improve effective profit?
4. Is there any relationship between committee and financial management in 7up bottling company?
1.6 SIGNIFICANCE OF STUDY
No internal control system never elaborate could be completely water tight, but a good audit committee operated in a company is an indispensable aid to efficient management, in that it assures management of the reliability of decisions taken by them and that these decisions are in line with goals to be attained
