The Effect of Audit Committee Characteristics on Financial Restatements in Nigeria

This study examines the effect of audit committee attributes on the incidence of annual financial restatement. A sample of 96 firms (66 of which were restatement firms) was examined for the period 2008 to 2017 and controlled for firm size. Using a logit model regression analyses were carried out to test whether audit committee characteristics are effective in curbing the incidence of a financial restatement. The results indicate that audit committee independence is effective in curbing the likelihood of restatement. Similarly, the results also show that audit committee meeting frequency mitigates the likelihood of restatement. This study finds no cause to associate either audit committee size or audit committee financial expertise to restatement. The findings are robust for the average marginal effects. Notwithstanding, this study has some limitations. First, lack of variation in audit committee characteristics might affect the results. Second, the corporate governance data were hand-collected from the annual reports of listed firms downloaded from the website of the Nigerian Stock Exchange. Third, this research outcome is based on a sample of 960 firm-year observations between 2008 to 2017. Future studies will find subsequent years more comprehensive with financial data available in the Thomson Reuters Eikon database. The findings underlie the regulatory action that strengthens the oversight function of audit committees in financial reporting. It affirms the Financial Reporting Council (FRC) of Nigeria’s position for a revised guideline to monitor reporting entities. A listed firm may leverage on its audit committee’s independence and meeting frequency profiles to send a signal to investors about its governance quality. This study contributes to the burgeoning literature on audit committee, by providing evidence from a West African reporting environment