Board Characteristics, Independent Audit Committee and Financial Reporting Quality of Oil Marketing Firms: Evidence from Nigeria

1.0 IntroductionFinancial reporting is the means of communicating information on the activities of the company to the users of accounting information; and the quality of financial reporting is a function of the quality of accounting standards and the corresponding regulatory enforcement of the standards. Financial reporting quality can be influenced by three variables namely, standard setters' decision; accounting method used by management; and management judgment and estimates in applying the selected substitutes. Therefore, enforcement is an important mechanism of enhancing financial reporting quality whose absence will make the best accounting standards incapable of providing credible and reliable accounting information to various users(Barde, 2009). Salehi and Nassirzadeh (2012) states that qualitative characteristics are attributes that makes the financial information provided in financial statement useful to users. These attributes include relevance, reliability, comparability and understandability. However, Hassan (2012) stated that financial statement is misleading if it lacks the qualities of accuracy, relevance, comparability and it contains fundamental errors or is prepared with the intention to deceive/confuse users.The management of public liability companies in Nigeria is responsible for the preparation of annual financial statement of which the auditor is to attest. Thus, financial report is one of the instruments used by stakeholders in assessing the board of directors' performance. However, through specific methods, the board of directors often manipulates the financial report in the recordings of the company's book keeping activities which are referred to as earning management in accounting. Corporate governance is a concept where management supervision takes place in the decision making process of an organization. The leadership (board) quality plays a vital role in the implementation of corporate governance as they are responsible in deciding the means to direct, control, and the management of resources in accordance with the company's objective.High profile accounting scandals at the turn of the century involving corporate firms such as Xerox, Enron, WorldCom, Aldelphia, Tyco, Parmalat, One-Tel,HIH, and Cadbury have raised serious concerns about corporate governance practices in general and brought into sharp focus on the issues relating to quality of financial reporting and the weak internal control systems in corporate firms (Sukeecheep, Yarram & Al-Farooque, 2013 and Ebrahim, 2007). The collapses of such large corporations in the past have highlighted the intentional misconduct of managers. There is also concern about the weakness of CG in the past, as it was not effective enough to protect investors from expropriation. These problems are envisaged to be much more significant in emerging markets where many market imperfections continue to persist.In Nigeria, concerns have been expressed about the large scale malpractices and abuse of the system by capital market operators in the past, especially following the recent incidence on the sale of forged shares of publicly quoted companies. Companies have gone into liquidation for reasons bordering on ineffective or non-existing system of CG. Examples are Onwuka Hitech, Abacus Merchant bank and others (Dabor & Tijjani 2010). In the Nigerian petroleum industry, the case of Africa Petroleum (now Forte Plc) where 24 billion naira credit facility was not disclosed in the financial statement was unethical. In response to calls for strengthening corporate governance mechanism to enhance the oversight function of the board of directors and to restore public confidence in the integrity of financial reporting, the Security and Exchange Commission promulgated the Nigerian Code of CG in 2003 which was later reviewed in 2011 to enhance its effectiveness. This code requires companies listed on the Nigerian Stock Exchange to appoint independent directors and supervisors, including at least one financial expert, and to establish an audit committee. …