STATUTORY AND REGULATORY

FRAMEWORK
Abstract
• The need to curb corruption, irregularities and fraud, and streamline the
oversight of accounting and corporate governance practices as a response to the
massive financial statement and corporate governance failures, has led to the
enactment of several international and local legislations that have effects on audit
and accounting. These legislations focused on auditor’s attention on disclosures as
well as the systems of internal controls and procedures of the reporting entity that
yielded the financial statements, and to provide investors with greater confidence
and allow them to rely on financial statements as an accurate representation of
the financial condition of the companies in which they are stakeholders. This
study examines the provisions of the Sarbanes Oxley Act of 2002, the Financial
Reporting Council of Nigeria Act, No.6, 2011, and the Nigerian Code of
Corporate Governance, 2018 and their effects on audit and accounting profession
in terms of good corporate governance.
• Keywords: Relevant legislations, Regulation, Corporate governance, Fraud,
Accounting practices
 1.1 STATUTORY AND REGULATORY
FRAMEWORK FOR AUDIT
• Essentially, audit is the examination or inspection of various books of accounts by an auditor and physical checking of inventory to make
sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial
statements provided by an organization. Audit can be done internally by employees or heads of a particular department and externally by
an outside firm or an independent auditor. The idea is to check and verify the accounts by an independent authority to ensure that all books
of accounts are done in a fair manner and there is no misrepresentation or fraud that is being conducted.
• It is mandatory for all the public listed firms to have their accounts audited by an independent auditor before they declare their results for
any quarter. This role is performed by Chartered Accountants i.e The Institute of Chartered Accountants of India in India, CPA or Certified
Public Accountant conducts audits in USA, Institute of Chartered Accountants of Nigeria (ICAN) and Association of National Accountants of
Nigeria (ANAN) in Nigeria,
• There are four main steps in the auditing process. The first one is to define the auditor’s role and the terms of engagement which is usually in
the form of a letter which is duly signed by the client. The second step is to plan the audit which would include details of deadlines and the
departments the auditor would cover. Is it a single department or whole organization which the auditor would be covering?. The audit could
last a day or even a week depending upon the nature of the audit. The next important step is compiling the information from the audit. When
an auditor audits the accounts or inspects key financial statements of a company, the findings are usually put out in a report or compiled in a
systematic manner, and the last and most important element of an audit is reporting the result. The results are documented in the auditor’s
report.
• The statutory and regulatory framework for audit is of critical importance for audit quality, proportionate regulation, and avoiding
unnecessary burdens on businesses. It underpins the overall integrity and financial stability of markets, in a situation of extensive market
and business interconnections amongst the globe.
• The term ‘statutory and regulatory requirements or framework’ can be expressed legal requirements and both are those frameworks that
are required by law. These requirements are non-negotiable and must be complied with. Failure to comply with a legal requirement may
result in a fine or penalty and possibly a custodial sentence for the person or persons responsible or organization for such failure.
• “Statutory refers to laws passed by a state and/or central government, while regulatory refers to a rule issued by a regulatory body appointed by
a state and/or central government.”
• Statutory requirements are those requirements which are applicable by virtue of law enacted by the government. These are enacted by passing
the law in the legislative assembly or parliament. A regulatory requirement can be termed as administrative legislation that constitutes or
constraints rights and allocates responsibilities.
• Accordingly, the organization should have a methodology in place for determining, maintaining and updating all applicable statutory and
regulatory requirements,
• For communicating all applicable statutory and regulatory requirements within the organization.
• The organization should ensure that determined statutory and regulatory requirements are utilized as ‘process inputs’.
• The organization should monitor ‘process outputs’ for compliance with statutory and regulatory requirements.
 1.2 Importance of Statutory and Regulatory
Framework:
• 1. Enhancing the quality of audit reports
• 2. Reducing auditor's liability
• 3. Addresses financial reporting anomalies
• 4. Ensures uniformity and standardization
thereby improving comparability
• 5. It also helps to strengthen public
confidence in the auditing and assurance
profession
 LEARNING OBJECTIVES
• 1. Discuss the statutory & regulatory
framework for audits.
• 2. Explain the appointment procedures of
auditors
• 3. Discuss the removal procedures and
resignation procedures of an auditor.
• 4. Identify the rights and duties of an
auditor under Companies Ordinance
2.1 Theoretical perspective on statutory and
regulatory framework
• The literature review of the Sarbanes Oxley Act, the Financial Reporting Council Act, Nigerian Code of Corporate
Governance as well as the future of the accountancy profession.
• The Sarbanes - Oxley Act 2002: The U.S.Congress ―passed the Sarbanes-Oxley Act of 2002 on July 30 of that year to
help protect investors from fraudulent financial reporting by corporations. Also known as the SOX Act of 2002 and the
Corporate Responsibility Act of 2002, it mandated strict reforms to existing securities regulations and imposed tough
new penalties on lawbreakers.
• The Sarbanes-Oxley Act of 2002 came in response to financial scandals in the early 2000s involving publicly traded
companies such as Enron 27258.
• The high-profile frauds shook investor confidence in the trustworthiness of corporate financial statements and led
many to demand an overhaul of decades-old regulatory standards. The act created strict new rules for accountants.
• Sen. Paul S. Sarbanes (D-Md.) and Rep. Michael G. Oxley (R-Ohio). Understanding the Sarbanes- Oxley (SOX) Act
The rules and enforcement policies outlined in the Sarbanes-Oxley Act of 2002 amended or supplemented existing laws
dealing with security regulation, including the Securities Exchange Act of 1934 and other laws enforced by the
Securities and Exchange Commission (SEC). The law set out reforms and additions in four principal areas:
• Corporate responsibility
• Increased criminal punishment
• Accounting regulation
• New protections Major Provisions of the Sarbanes-Oxley (SOX) Act of 2002 The Sarbanes- Oxley Act of 2002 is a
complex and lengthy piece of legislation.
• Three of its key provisions are commonly referred to by their section numbers:
• Section 302, Section 404, and Section 802. Because of the Sarbanes-Oxley Act of 2002, corporate officers who knowingly
certify false financial statements can go to prison.
• Section 302 of the SOX Act of 2002 mandates that senior corporate officers personally certify in writing that the
company's financial statements comply with SEC disclosure requirements and fairly present in all material aspects the
operations and financial condition of the issuer. Officers who sign off on financial statements that they know to be
inaccurate are subject to criminal penalties, including prison terms
• Section 404 of the SOX Act of 2002 requires that management and auditors establish internal controls and reporting
Continuation of theoretical framework
• methods to ensure the adequacy of those controls. However,
• ―some critics of the law have complained that the requirements in Section 404 can have a negative impact on publicly traded
companies because it's often expensive to establish and maintain the necessary internal controls.
• Section 802 of the SOX Act of 2002 contains the three rules that affect record keeping. The first deals with destruction and falsification
of records. The second strictly defines the retention period for storing records. The third rule outlines the specific business records
that companies need to store, which includes electronic communications. Section 802 of the Sarbanes-Oxley Act – Penalties for
Altering Documents
• IN GENERAL- Chapter 73 of title 18, ―United States Code, is amended by adding at the end the following: `Sec. 1519. Destruction,
alteration, or falsification of records in Federal investigations and bankruptcy. `Whoever knowingly alters, destroys, mutilates,
conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or
influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United
States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title,
imprisoned not more than 20 years, or both. Sec. 1520. Destruction of corporate audit records`(a)Any accountant who conducts an
audit of an issuer of securities to which section 10A(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1(a)) applies, shall
maintain all audit or review work papers for a period of 5 years from the end of the fiscal period in which the audit or review was
concluded.
• The Securities and Exchange Commission shall promulgate, within 180 days, after adequate notice and an opportunity for comment,
such rules and regulations, as are reasonably necessary, relating to the retention of relevant records such as work papers, documents
that form the basis of an audit or review, memoranda, correspondence, communications, other documents, and records which are
created, sent, or received in connection with an audit or review and contain conclusions, opinions, analyses, or financial data relating
to such an audit or review, which is conducted by any accountant who conducts an audit of an issuer of securities to which section
10A(a) of the Securities Exchange Act of 1934 applies. The Commission may, from time to time, amend or supplement the rules and
regulations that it is required to promulgate under this section, after adequate notice and an opportunity for comment, in order to
ensure that such rules and regulations adequately comport with the purposes of this section.
• Whoever knowingly and willfully violates subsection (a)(1), or any rule or regulation promulgated by the Securities and Exchange
Commission under subsection (a)(2), shall be fined under this title, imprisoned not more than 10 years, or both. Nothing in this section
shall be deemed to diminish or relieve any person of any other duty or obligation imposed by Federal or State law or regulation to
maintain, or refrain from destroying, any document. Besides the financial side of a business, such as audits, accuracy and controls, the
SOX Act of 2002 also outlines requirements for information technology (IT) departments regarding electronic records. The act does
not specify a set of business practices in this regard, but instead defines which company records need to be kept on file and for how
long. The standards outlined in the SOX Act of 2002 do not specify how a business should store its records, just that its the company
IT department's responsibility to store them (Kenton, 2019)
 2.2 The Financial Reporting Council of
Nigeria 2011
• The Financial Reporting Council Act No. 6 of 2011 was
signed into law on June 3, 2011 by the former President of
the Federal Republic of Nigeria, Dr. Goodluck Jonathan.
The Act marked the end of voluntary self-regulation of
professional accountancy bodies and the beginning of
formal, mandatory oversight under the ambit of the
Financial Reporting Council. The attempt of this section is
to evaluate the powers and functions of the Council,
especially as conferred under Sections 7 and 8 of the FRC
Act. These powers are both new in the history of regulation
of professional bodies in Nigeria and are a source of
tension.
 1. Registration of Professionals
• The Act empowers the Council to register all professionals who wish to
hold any appointment or offer professional services for remuneration in
public interest entities. Any professional whose activities impact on the
financial reporting processes of a public interest entity cannot effectively
carry out his/her duties unless s/he is registered under the FRC Act. The
Act requires that all professionals be registered with and by the FRC,
although some, such as accountants, argue that being licensed and
regulated by a professional accountancy body, it is superfluous to seek
yet another licensing or registration. The FRC makes its registration
mandatory for a variety of reasons. First, it is the underlying force of the
Council's other regulatory authority such as to require compliance with
its auditing standards and to conduct inspections. Second, FRC’s
registration serves as a filter -- albeit a crude one -- for who should and
should not be engaged in professional services in Nigeria.
 2. Professional Discipline
• Another important upshot of the FRC registration is that professional accountants will henceforth be under a new
disciplinary regime. However, there appears to be some level of public discontent and apprehension towards this new
regime of professional discipline. The apprehension relates to the functions of the Council under Section 8 in terms of
its disciplinary powers. In the main, these include: (a) Sections 8(1b): review, promote and enforce compliance with
the accounting and financial reporting standards adopted by the Council; (b) Sections 8(1j): conduct practice
reviews of registered professionals; (c) Sections 8(1l) enforce compliance with the Act and rules of the Council on
registered professionals and the affected public interest entities; In one of the very first activities in the exercise of its
mandate, the
• FRC ordered the Institute of Chartered Accountants of Nigeria to stop its 2012 Annual General Meeting (AGM) due
to perceived corporate governance breaches. This singular action, unprecedented in the history of accounting
profession in Nigeria, signals the potency of the law if its implementation is effectively and fairly sustained.
• 3. Require Management Assessment of Internal Controls, Including Information Systems Controls with Independent
Attestation.
• This is another salient but powerful agent of change which potentially has a significant impact on the accounting
profession. Ordinarily, external auditors are expected to assess the effectiveness of external internal control system so
as to determine the level of reliance to be placed on it and invariably the extent of work to be done. There has been
no published evidence to suggest the contrary in auditors‘ work schedule. The FRC is empowered to demand
independent attestation to the effectiveness of internal control and information systems control in line with Section
7(2f) of its enabling Act. There are three different attestations in financial statements required, namely:
• assurance attestation
• internal controls and information systems control attestation, and corporate governance attestation.
 4. Practice Review of Professional
Accountants
• Section 60(a) empowers the Council to inspect any
relevant book under the control of the auditor, partner
or employee and extracts, make copies from any such
book, document and record in relation to a company
under investigation subject to the consent of the public
interest entity (PIE). Section 61 deals with frequency of
the practice review, which is to be done annually for
professional accountants that audit more than 20 PIEs
while others shall be conducted every three years. The
FRC may however order a special inspection of any
professional accountant any time.
 5. Inspection and Monitoring
• The provisions of the FRC Act further envisaged the probability of non-compliance
and therefore allowed for modalities to ensure effective compliance with the
establishment of the Directorate of Inspection and Monitoring (Section 23). The
functions of the Directorate, which will potentially reshape the future of accounting
profession in Nigeria, are specified in Section 28(1) of the Act. Precisely, the
Directorate of Inspection and Monitoring is empowered to:
• Monitor compliance with auditing, accounting, actuarial and valuation and
guidelines reviewed and adopted by the Council;
• Recommend through the Technical and Oversight Committee sanctions as may be
necessary for the Council‘s approval; and
• Implement sanctions and fines as approved by the Council in sub-section (1) (b) of
this section. The Nigerian Code of Corporate Governance 2018 The Financial
Reporting Council (FRC) of Nigeria recently released the Nigerian Code of
Corporate Governance (known as the Code) on January 15, 2019. The Code
highlights key principles that seeks to institutionalize corporate governance best
practices in Nigerian companies.
 2.3 Audit Committee
• Consistent with section 359(3) and (6) of Companies and Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria 2004, every public company shall
establish a Statutory Audit Committee which shall perform the following functions:
• Ascertain whether the accounting and reporting policies of the company are in accordance with legal requirements and agreed ethical practices;
• Review the scope and planning of audit requirements;
• Review the findings on management matters in conjunction with the external auditor and departmental responses thereon;
• Keep under review the effectiveness of the company's system of accounting and internal control;
• Make recommendations to the board regarding the appointment, removal and remuneration of the external auditors of the company; and
• Authorize the internal auditor to carry out investigations into any activities of the company which may be of interest or concern to the committee. Without
prejudice to the provision of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004 every public company shall, in addition
to a Statutory Audit Committee, have a Board Audit Committee.
• All members of an audit committee (whether statutory or board) shall have financial literacy and shall be able to read and interpret financial statements. At
least one member of the committee shall be an expert and have current knowledge in accounting and financial management.
• The Board Audit Committee shall be composed of at least three members, all of whom shall be non-executive directors, a majority of whom shall be
independent non-executive directors.
• The chairman of the Board Audit Committee must be an independent non-executive director. In the case of the Statutory Audit Committee, its chairman shall
be either an independent non-executive director or an independent shareholder.
• The Board Audit shall meet at least once every quarter. The agenda for the meeting of the committee shall be developed by the chairman of the committee in
consultation with other members of the committee.
• The number, timing and duration of Board Audit Committee meetings shall be appropriate to ensure that the committee achieves its objectives.
• At least once in a year, the Board Audit Committee shall meet the head of internal audit and other members of the internal audit function without the chief
financial officer and the external auditors being present. The Bboard Audit Committee shall have the following additional responsibilities;
• Exercise oversight over the integrity of the company’s financial statements, compliance with legal and other regulatory requirements, assessment of
qualifications and
• independence of external auditor, and performance of the company’s internal audit function as well as that of external auditors;
• Establish an internal audit function and ensure there are other means of obtaining sufficient assurance of regular review or appraisal of the system of internal
controls in the company;
• Ensure the development of a comprehensive internal control framework for the company, obtain assurance and report annually in the financial report, on the
operating effectiveness of the company’s internal control framework;
• Oversee the process for the identification of significant fraud risks across the company and ensure that adequate prevention, detection and reporting
mechanisms are in place.
• Some Change Agents Contained in the Law Wilson, Iheanyi, Okoroafor, 2014 streamlined the following agents of change, especially in the areas of inspection
and monitoring, as a prelude to how they have shaped or are expected to shape the future of accounting profession in Nigeria.
 2.4 Internal Control
• Section 11 of the Code ―introduces additional responsibilities for the
audit committee. Specifically, the audit committee is expected to
ensure the development of a comprehensive internal control
framework and obtain annual assurance (internal and/or external)
and report annually in the audited financials on the design and
operating effectiveness of the company’s internal controls over
financial reporting. The internal Audit’s scope of work/audit plan to
include providing assurance on the design and operating effectiveness
of the company’s internal control over financial reporting. Internal
Audit’s methodology may need to be updated to include techniques
and approach for testing these controls. The audit committee would
need to also ensure that internal audit is adequately resourced and
skilled to provide this assurance or rely on external consultants where
there are skill gaps or resource constraints.
External Audit Firm & Audit Partner Rotation
• The Code stated that external audit firms may be retained for no longer than ten years
continuously and may not be considered for reappointment until after seven year period
after disengagement. Where an external auditor’s tenure has already exceeded ten years,
such auditor should cease to hold office as an auditor of the company at the next Annual
General Meeting from the commencement of the Code. In order to preserve independence,
there should be a rotation of the audit engagement partner every five years.
• Other Services Provided by External Auditors: The Code maintains that an external
auditor may provide to the company only such other services as are approved by the board
on the recommendation of the committee responsible for audit. These other services should
not create a self-review threat.
• External Audit Firm & Audit Partner Rotation: For a retiring partner from an audit firm
and his appointment to the board of an audit client, in order to preserve independence,
there should be an appropriate cooling off period spanning at least three years. Similarly,
there should be a cooling-off period before a company can engage any member of the audit
team
• as a staff member in the financial reporting function (Tapang, Kankpang, Inah, Bessong,
&Uklala, 2020).
 2.5 Internal Audit
• The Code requires the board to oversee and approve
the establishment of a framework that defines, among
other things, the company’s risk policy, risk appetite
and risk limits and review periodically relevant
reports to ensure the ongoing effectiveness of this
framework.
• The Code advocates for a proactive internal audit
function that adopts a risk-based audit process as
opposed to a compliance approach, limited to the
evaluation of adherence to procedures (Tapang,
Kankpang, Inah, Bessong, &Uklala, 2020).
The Future of the Accounting profession
• The recurring features of most corporate scandals such as the incriminating evidence of accountants and/or external auditors,
and the challenges imposed on the profession‖. Williams (1981) corroborates these challenges as follows: ―indeed, there are a
number of important challenges facing the accounting profession today. Interestingly, most of the challenges identified by
Zebley 63 years ago (in 1956) are still confronting the profession today. However, Zebley‘s challenges differ from those
outlined by Williams (1981) ―except on accounting principles and standard setting. According to Wilson et al, 2014,
pondering on the future of the accounting profession, the American Assembly (2003) isolated 9 critical challenges facing the
profession. These are summarized as follows:
• 1. Regulation and Oversight in Flux
• 2. The Value of the Audit
• 3. Structural Challenges Facing the Accounting Profession
• 4. Setting Achievable Goals
• 5. What Should Financial Reporting Look Like in the Future
• There is palpable anxiety among accounting professionals and standard setters on what the future of financial reporting will
look like. The reality is that the future is being constructed with vestiges of the past and present accounting standards and
practices wagging to determine the future. The perimeter of residual interest and emerging concerns comprises four
components, namely;
• a. Increased regulatory compliance requirement,
• b. Globalized accounting standards,
• c. Greater disclosures, and
• Streamlined communication of financial results.
• 6. Improving Auditing and Financial Reporting Standards
• 7. Licensing Issues: More Firms, More Depth
• 8 Changing the Current Regime
• 9 Adjusting Auditing Practices
 2.6 Observance of statutory and regulatory framework in
government sector financial reporting in Nigeria

• Government Sector Financial Reporting, which is the medium of rendering public accountability of the business of Government by public office holders, is carried out in
accordance with statutory and regulatory framework. But the level of compliance of financial reporting with regulatory framework has not been adequate. Statutory and
regulatory framework is violated every now and then with consequential colossal losses and frauds detectable only through special investigations. The purpose of this
paper is thus to seek improvement in the level of compliance of Government Sector Accounting, Financial Management, Auditing and Reporting to statutory and
regulatory framework. The paper examines users and uses of Government Sector Financial Reports; Statutory and Regulatory Framework for Government Sector
Accounting, Financial Management, Auditing and Reporting; Structure and Process of Government Accounting; Auditing of Government Accounting; Appraisal of
Government Accounting, Financial Management, Auditing and Financial Reporting, and gives recommendations. The recommendations include: instituting a code of
disciplinary measures for bureaucratic civil and public servants who violate different categories of statutory and regulatory framework relating to Accounting and
Finance; awakening of professional Accountancy bodies to the discipline of their members; reinforcing the war against corruption as well as public support for the EFCC,
ICPC and Conduct Bureau; harnessing the financial control duties of the Assembly; mandatory timely publishing of government sector financial statements at year-end
just as Government does for budgeting at the beginning of each year; wide computerization of government accounting and finance activities; the setting up of quasi-
private sector reporting parameters for public parastatals; professionalisation of Government Accounting; effective training and re- training of Accounting personnel.
The paper concludes on the need for all to act in oneness for proper observance of regulations in government sector financial reporting in Nigeria.
• The ultimate goal of Government Sector Financial Reporting is public accountability. Government Sector, also called Public Sector, is defined by Adams (2006, p.l) as "all
organizations, which are not privately owned and operated, but which are established, run and financed by the government on behalf of the public". The public sector
includes:
• (1) The Federal Arms of Government, Ministries, Departments, Agencies and Parastatals,
• (2) The Slates' Arms of Government, Ministries, Departments, Agencies and Parastatals,
• (3) The Local Governments in entirety.
• The legal formalities in the area of Government Accounting and financial control include laws, rules, regulations, customs and accepted norms of behaviour". In order to
have an effective work on this topic, this paper specifically examines the following areas:
• Users and Uses of Government Sector Financial Reports.
• Statutory and Regulatory Framework for Government Sector Accounting, Financial Management, Auditing and Reporting.
• Structure and Process of Government Accounting.
• Auditing of Government Accounting.
• Appraisal of Government Sector Accounting, Financial Management, Auditing and Reporting.
• Auditor-General the accounts showing the financial position of the Federation on the last day of such financial year. Such accounts were specified to include:
• an abstract account of receipts and payments;
• a statement of the assets and liabilities at the close of the financial year;
• detailed statements of revenue and expenditure.
 Continuation of regulatory framework in
government sector financial reporting in Nigeria
• The Accountant-General is legally authorized to prepare the Accounts of the Federation for audit and for
submission to the National Assembly through the Minister of Finance. Government accounting process is
designed in compliance with Section 13 of Audit Ordinance No. 38 of 1956 and Section 24 of Finance
(Control and Management) Act No. 33 of 1958; as stated above. These sections require the Accountant-General to
sign and present to the Auditor- General within'seven (7) months after the close of each financial year, accounts
showing fully the true. and fair view of the financial position of the Government on the last day of such financial
year. According to Ifuruenze (2007), the process is a complete sequence of accounting procedures repeated
annually. The sequence is the normal way of capturing accounting information from a financial transaction thus:-
• transactions are recorded in the books of original entry.
• the recorded data are classified according to the relevant heads and sub-heads from (i) above.
• the classified data are journalized and posted to the Main Ledger.
• the Data in the Main Ledger are summarized and a trial balance is produced.
• necessary adjustments, corrections, updating etc. are made.
• financial Statements are prepared.
• the Accountant- General's Report and Financial Statement are finally prepared.
• The major documents and books of accounts kept to maintain the process are:
• monthly Transcript
• the Main Ledger
• treasury Final Account. Thus, the whole Accounting Process is a phase of Government Financial Management
Cycle.
 2.7 LEGAL FRAMEWORK
• In practice, the auditor should be thoroughly familiar with statutes and other
pronouncement relevant to the client’s operations so as to be able to form an
independent opinion on the truth and fairness view of the client’s financial
statement. The auditor should be familiar with and address the following
pronouncements:
• 1. The Companies and Allied Matter Decree 1990 (CAMD) and as amended
Companies and Allied Matter Act (CAMA), 2016.
• 2. Bank and other Financial Institution Decree 1991 as amended in 1998 budget
(BOFIA) 1998) and as amended BOFIA, 2004
• 3. The Insurance Decree of 1997 as amended in 1998 budget.
• 4. The Mortgage Institution decree of 1989 as amended in 1998 budget
• 5. The Current CBN Regulation
• 6. The Current NDIC Regulation
• 7. The Securities and Exchange Commission Regulation
• 8. The Nigeria Stock Exchange Regulations
 1. Appointment section 357
• BASIC PRINCIPLE: Every company shall at each AGM appoint an
auditor to hold office from the conclusion of the AGM to the
conclusion of the next AGM.
• EXCEPTION The directors may;
• a) Appoint the first auditor or auditors to hold office until the
conclusion of the First AGM section 357(5)
• b) Fill a casual vacancy – section 357(6) A retiring auditor may be
reappointed under section 357(2) without passing any resolution
unless:
• 1. He is not qualified for reappointment
• 2. A resolution has been passed appointing another person in his
place
• 3. He has indicated his unwillingness to continue
 QUALIFICATION – SECTION 358
• The following persons are not qualified as an
auditor of a company.
• 1. A body corporate
• 2. An officer or servant of a company
• 3. A partner or employee of an officer or
servant of a company
• 4. A firm or person which or who provides
consultancy services on taxation, secretarial
and financial management.
 RIGHT – SECTION 363
• The auditor of a company has a right to
receive notice of meetings, has a right to
attend such meetings and the right to be
heard at such meeting on those matters that
concern him as the auditor.
 DUTIES AND POWER – SECTION 360

• The auditor of a company has a duty to carry out

enquiries and investigations to enable him form an
opinion whether the financial statement of a business
enterprise gives a truth and fair view and whether
proper books of accounts have been prepared. In
discharging these duties, the auditor by virtue of
section 360(3) has the right to access at all reasonable
times to the company books, records and vouchers
and the right to information he considered necessary
for audit purposes from the client’s officials.
 REMOVAL – SECTION 362
• The auditor of a company can be removed by the company by an ordinary
resolution. A special notice (28 days) of the meeting must be given. In removing a
company’s auditor, the following ethical procedure must be followed:
• a. The retiring auditor must be given a copy of notice of the meeting
• b. retiring auditor has a right to make representative in writing while he should
not be removed from the position
• c. On the receipt of the auditor representation, the directors shall notify the
members that a representation has been made and send a copy to each member
to whom notice of the meeting was sent
• d. If the representation is received late the auditor may request his
representation to be read at the meeting.
• e. The auditor’s representation may not be sent out or read at the meeting if on
the application of a person who feels aggrieved by the content and the court is
satisfied that the auditor is only seeking a needless publicity for a defamatory
matter.
 REPORT SECTION 359
• The auditor of a company has a duty to form an
independent opinion and report to the members
of the company expressing opinion on the truth
and fairness view given by the company financial
statement where the client’s company is a public
company, the auditor has an additional duty
under section 359 (3) to issue a report to the
member of the audit committee which must be
statutory set up by such a client company.
 RESIGNATION SECTION 365
• The auditor of a company may resign his
appointment by giving notice in writing and deposited
at the company’s registered office. The resignation
shall be effective from the date the notice is given or
any later date specified there in. The auditor’s
resignation shall not be effective unless it contains a)
A statement that there are no circumstances leading
to his resignation which should be brought to the
notice of the members, or creditors of the company,
or b) A statement of such circumstances.
 REMUNERATION – SECTION 361

• The auditor’s remuneration shall be fixed

by the company at the general meeting and
for auditors appointed by the director, the
remuneration shall be fixed by the
directors.
 LEGAL AND REGULATORY
FRAMEWORK
• The external auditor has a duty to ensure the client’s compliance with relevant standards
on one hand and also ensure compliance by the practicing firm with auditing standards
and guidelines. The external auditor has a duty to form an independent opinion has a
duty to ensure the client’s compliance with relevant standards on one hand and also
ensure compliance by the practicing firm with auditing standards and guidelines. The
external auditor has a duty to form an independence opinion as to the truth and fairness
view given by an enterprise financial statement. In discharging this duty the auditor
should be familiar with the following professional documents.
• 1. Statement of accounting standard (SAS)
• 2. International standard on Auditing (ISA)
• 3. International Accounting Standard (IAS)
• 4. Auditing standard and Guidelines
• 5. Accounting standard published in the UK
• 6. Exposure Draft (ED)
• 7. Statement of Recommended Practices (SORPS)
• 8. European Union Statements on Auditing and accounting
2.8 ACCOUNTING STANDARDS
• It is important to consider the authority and the relevant of the above documents with
particular emphasis on those published outside Nigeria especially the UK on the issue of
authority, an accounting standard, may either be authoritative or advisory. An accounting
standard becomes authoritative when it is formally issued as an international accounting
standard or statement of Accounting standard where a client’s company fails to comply and
the auditor is not convinced with the client reasons for non - compliance, there are usually
standard in form of qualified audit opinion where a document is advisory as an exposure
draft’s or statement of recommendation audit practices stage, there are usually no sanction for
non- compliance by client. However, it is a good practice to inform and persuade their client to
address the provision of this document as they represent current and good practice. On the
issue of relevant, it is usually misconstrued that accounting standard published outside Nigeria
especially in the UK are not relevant in Nigeria. International Accounting Standard on
auditing is published by subcommittee of international federation of accounting of which
ICAN is a member. All member of the federation ICAN inclusive must use their best
endeavors to promote the principle discussed by the federation. The standard of Auditing in
Nigeria regulated standard set by the big international audit firm to which the big Audit firms
in Nigeria are affiliated. Therefore, in as much as a document published outside Nigeria
codified current and good practices in the profession, it is relevant in Nigeria.
 AUDITING STANDARDS AND
GUIDELINES
• In practice, Auditing standard prescribe the basic
principle expected to be addressed by an auditor in the
course of an audit. On the other hand, auditing guideline
gives some guidelines on the procedures by which
Auditing standard may be applied. In addition, these
guidelines discuss the current technique in auditing and
specific audit problem in a particular industry. Auditing
standard can be categorized into three parts:
• 1. Operational standard
• 2. Reporting standard
• 3. Ethical standard
2.9 REGULATORY FRAMEWORK OF AUDITING
2.10 An Overview of Institutional Regulatory
Framework of Auditor Independence in Nigeria
• The Securities and Exchange Commission (SEC): Weak corporate governance has been responsible for some recent corporate failures in Nigeria. In order to
improve corporate governance, the Securities and Exchange Commission (SEC), in September 2008, inaugurated a National Committee for the Review of the 2003
Code of Corporate Governance for Public Companies in Nigeria to address its weaknesses and to improve the mechanism for its enforceability. In particular, the
Committee was given the mandate to identify weaknesses in, and constraints to, good corporate governance, and to examine and recommend ways of effecting
greater compliance and to advice on other issues that are relevant to promoting good corporate governance practices by public companies in Nigeria, and for
aligning it with international best practices. This was an attempt to regain the confidence of the public (Okpara, 2010).
• The Board of SEC therefore believes that this new code of corporate governance will ensure the highest standards of transparency, accountability and good
corporate governance, without unduly inhibiting enterprise and innovation. Despite the fact that the 2011 code applies only to public companies, the Securities
Exchange Commission has encouraged private companies to adopt its principles in the conduct of their affairs. Every public company is required under Section
359 (3) and (4) of the CAMA to establish an audit committee. It is the responsibility of the Board to ensure that the
• committee is constituted in the manner stipulated and is able to effectively discharge its statutory duties and responsibilities. At least one board member of the
committee should be financially literate. Members of the committee should have basic financial literacy and should be able to read financial statements. At least
one member should have knowledge of accounting or financial management. Whenever necessary, the committee may obtain external professional advice.
• In addition to its statutory functions, the audit committee should have the following additional responsibilities as stated in the SEC regulation: assist in the
oversight of the integrity of the company’s financial statements, compliance with legal and other regulatory requirements, assessment of qualifications and
independence of external auditor and performance of the company’s internal audit function as well as that of external auditors; establish an internal audit
function and ensure there are other means of obtaining sufficient assurance of regular review or appraisal of the system of internal controls in the company;
ensure the development of a comprehensive internal control framework for the company; obtain assurance and report annually in the financial report, on the
operating effectiveness of the company’s internal control framework; discuss the annual audited financial statements and half yearly unaudited statements with
management and external auditors; review and ensure that adequate whistle-blowing procedures are in place. A summary of issues reported are highlighted to the
chairman; review the independence of the external auditors and ensure that where non-audit services are provided by the External Auditors, there is no conflict of
interest; and preserve auditor independence, by setting clear hiring policies for employees or former employees of independent auditors.
• however, that such member of the audit committee shall not be entitled to remuneration and shall be subject to re-election annually.
• Section 361state that, the remuneration of the auditors of a company- in the case of an auditor appointed by the directors, may be fixed by the directors; or (b)
shall, subject to the foregoing paragraph, be fixed by the company in general meeting or in such manner as the company in general meeting may determine. For
the purposes of subsection (7) of this section, "remuneration" includes sums paid by the company in respect of the auditors' expenses. Although section 361 says
the company in general meeting should fix the remuneration of auditors, but in practice they usually delegate that power back to the directors and that falls back
to the Executive Management of the company who probably in the first place recommended the auditor to the Board and in turn to the general meeting. This may
impair auditor independence. It should be noted that the CAMA regrettably does not provide for joint audit or rotation of auditors. By virtue of S358 CAMA only
chartered accountants can be appointed as auditors of companies.
• The Financial Reporting Council of Nigeria: The Financial Reporting Council of Nigeria (FRC) is a unified independent regulatory body for Accounting,
Auditing, Actuarial, Valuation and Corporate Governance practices in public and private sectors of the Nigerian economy. The body is also to address current
institutional weaknesses in regulation, compliance and enforcement of Standards and the development of robust arrangements for monitoring and enforcing
compliance with financial reporting standards in Nigeria.
• The Financial Reporting Council (FRC) of Nigeria Act 2011 repealed the Nigerian Accounting Standards Board (NASB) Act of 2003,
and created the Financial Reporting Council whose task shall be to: Protect investors and other stakeholders interest; Give guidance on
issues relating to financial reporting and corporate governance; Ensure good corporate governance practices in the public and private
sectors of the Nigerian economy; Ensure accuracy and reliability of financial reports and corporate disclosures; and, Harmonize
activities of relevant professional and regulatory bodies as relating to Corporate Governance and Financial Reporting.
• The FRC is empowered to “enforce and approve enforcement of compliance with accounting, auditing, corporate governance and
financial reporting standards in Nigeria”. To this end , it is further empowered to; issue guidelines for the purpose of implementing
auditing and accounting standards; demand assessment of internal controls, including information system controls with independent
attestation; require code of ethics for financial officers and certification of financial statements by Chief Executive Officer and Chief
Financial Officer; and insist that entities provide real time disclosures on material changes in financial conditions or operations.
• S. 8 (1) The Council shall: Develop or adopt and keep up-to-date auditing standards issued by relevant professional bodies and ensure
consistency between the standards issued and the auditing standards and pronouncements of the International Auditing and Assurance
Standards Board. Where the directors disclose the extent of compliance with Code of Corporate Governance in the annual report,
require an auditor to report separately whether the disclosure is consistent with the requirements of the Code (Section 44(3)).
• The Institute of Chartered Accountants of Nigeria (ICAN) and Association of National Accountants of Nigeria (ANAN): In Nigeria,
there are two main professional accountancy bodies: The Institute of Chartered Accountants of Nigeria (ICAN) and the Association of
National Accountants of Nigeria (ANAN). The two bodies are responsible for the production of professional accountants in Nigeria. The
Federal Parliament Act No. 15 of 1965 gave ICAN charter status and a monopoly to regulate the accountancy profession in Nigeria and
to make regulations governing disciplinary actions against erring members (ICAN Act 1965) before ANAN was approved by the Federal
Government. They are also involved in ensuring that members maintain high professional conduct in the discharge of their professional
duties through continuing professional education programmes and ethical awareness.
• Under the provisions of the ICAN Act 1965 the accounting and auditing profession is required to provide the necessary assurance of
‘fairness in the conduct of banking businesses’. In addition, section 29(1) of the Banks and Other Financial Institutions
• Act 1991 (BOFIA 1991) provides that banks must annually appoint an ‘approved auditor’
• SEC stipulates that companies should have a whistle-blowing policy which should be known to employees, stakeholders such as contractors,
shareholders, job applicants, and the general public. The whistle-blowing mechanism should be accorded priority and the Board should also
reaffirm continually, its support for and commitment to the company’s whistle-blower protection mechanism. The whistle-blowing mechanism
should include a dedicated “hot-line” or e-mail system that could be used anonymously to report unethical practices. A designated senior level
officer should review the reported cases and initiate appropriate action, if necessary at the level of the Board or CEO/MD to redress situation.
• In order to safeguard the integrity of the external audit process and guarantee the independence of the external auditors, companies should
rotate both the audit firms and audit partners; Companies should require external audit firms to rotate audit partners assigned to undertake
external audit of the company from time to time to guarantee independence. Audit personnel should be regularly changed without
compromising continuity of the external audit process;
• External audit firms should be retained for no longer than ten (10) years continuously. External Audit firms disengaged after continuous service
to company of ten (10) years may be re-appointed after another seven (7) years since their disengagement.
• Companies and Allied Matter Act 1990 AS AMENDED (CAMA): The CAMA 1990 as amended provides numerous provisions for auditing
practices and auditor independence in Nigeria. CAMA provides for the appointment, qualification, remuneration, rights, functions, powers,
auditors’ report, and removal of auditors and the establishment of an audit committee. These are provided in sections 357 to 369 in part XI of
CAMA. However, the Registrar of Companies at the Corporate Affairs Commission (CAC) is to monitor compliance with these requirements
and specify obsolete penalties in case of non-compliance. According to Okike and Adegbite (2012), CAMA (1990) is the main legal framework
for corporate governance in Nigeria. Also, there is an overriding need to promote transparency in financial and non-financial reporting.
• Section 357 of CAMA states that: every company shall at each annual general meeting appoint an auditor or auditors to audit the financial
statements of the company, and to hold office from the conclusion of that, until the conclusion of the next, annual general meeting. Section 359
state that the auditors of a company shall make a report to its members on the accounts examined by them, and on every balance sheet and
profit and loss account, and on all group financial statements, copies of which are to be laid before the company in a general meeting during the
auditors' tenure of office. The auditors' report shall state the matters set out in the Sixth Schedule to the Act. In addition to the report made
under subsection (1) of this section, the auditor shall in the case of a public company also make a report to an audit committee which shall be
established by the public company.
• The audit committee referred to in subsection (3) of this section, shall consist of an equal number of directors and representatives of the
shareholders of the company (subject to a maximum number of six members) and shall examine the auditors' report and make
recommendations thereon to the annual general meeting as it may think fit: Provided,
 Theoretical Framework
Agency Theory
• Agency theory suggests that the firm can be viewed as a nexus of
contracts (loosely defined) between resource holders (Nwanji, 2007). An
agency relationship occurs wherever one or more persons, called
principals, hire one or more other persons called agents, to carry out some
specific service and then delegate decision- making process to agents. This
theory is interested in Agency Conflict (conflict of interest) that exist
between the principal and the agent, and also corporate governance and
business ethics. From the Ethicists point of view, “it is pointed out that the
classical version of agency theory assumes that agents (that is, managers)
should always act in principals (owners’) interests. However, if taken either
the principals interest are always morally acceptable ones or manages
should act unethically in order to fulfill their “contract” in the agency
relationship. Poor Understanding of agency theory and its application has
led to the bad practice of corporate governance in the recent failure of
banks.
 3.0 RESEARCH METHODOLOGY
• According to Cooper and Schindler (2003), research
methodology consist of a set of methods for acquiring,
defining, classifying and verifying knowledge. In this
paper, secondary sources of data were majorly used.
These secondary sources of data include textbooks,
academic journals, financial reports, articles and
internet sources. A critical review of various literature
were conducted and the results of the literature
analysis were reported throughout the presentation.
Also, several papers that relate to the topic were
reviewed.
 Practice in Nigeria
Critique of Auditor Independence Regulations in
Nigeria

• Appoinment of External Auditor

• Remuneration of External Auditor
• Rotation of External Auditor
• Independence of Internal Auditors
i. Appointment of External Auditor
• Following the specification of CAMA, the shareholders are
responsible for the appointment of the external auditors,
but in practice, this had been breached, posing threat to
the independence of auditors. The professional auditors
are guided by the Institute of Chartered Accountants of
Nigeria (ICAN) and Security and Exchange Commission.
The Institute should promote the dignity of its members by
making the appointment of external auditors less
dependent on the executive directors and more
dependent on the non-executive directors, audit
committees and shareholders.
 ii.Remuneration of External Auditor
• Companies and Allied Matters Act (1990) as amended; specified that auditor should
be
remunerated by persons who appointed him or her. However, in practice, there is
consistent breach of this code as the auditor is remunerated by management which
practically would impair auditor independence. Regulators should also consider
reviewing the basis for charging auditor fees in term of the characteristics and risks

peculiar to audit clients. According to Idigbe (2007), although section 361 says the
company in general meeting should fix the remuneration of auditors in fact they
usually
delegate that power back to the directors and that falls back to the Executive
Management of the company who probably in the first place recommended the
auditor
to the Board and in turn to the general meeting. The parlance is that he who pays
the
piper dictates the tune.
 iii. Rotation of External Auditor
• There exists only partial agreement between the codes of
Central Bank of Nigeria and
Security and Exchange Commission on rotation of auditor (10
years), but they disagreed on the period which an audit firm
could be re-appointed. The CBN code
specified reappointment after another 10 years while the SEC
code stated 7 years for re-appointment after disengagement.
There is the need for these regulators to align on this all
important issue. Prolonged service of audit firm has been
found as a contributor to decline in auditor independence in
Nigeria, leading to collaboration with the management of
companies in perpetrating falsifications (Bakre, 2007).
 iv. Independence of Internal auditors
• Section 8.1.1 of the Central Bank of Nigeria code provides
for internal auditors to be
largely independent while section 8.15 of the Security and
Exchange Commission code places a limitation on the
independence of the internal audit. Where the divergent
codes
exist on an important matter of this nature, the management
would take advantage of
the loopholes and frustrate the independence of the internal
auditor. There is need to review the legislations to clarify the
roles and powers of each regulatory body to ensure
uniformity of codes.
Ineffectiveness of Whistle blowing in Nigeria
• At the time of this report, the only form of protection for whistle-blowers
could be found in S.39 (1) of the Economic Financial Crimes Commission
(Establishment) Act 2004 and S.64 (1) Independent Corrupt Practices and
other Related Offences Act 2000. There is no specific legislation that directly
deals with whistle blowing.
• The fear of victimization and weak institutional power had kept many
potential whistle blowers from speaking up against corporate malpractices.
People tend to maintain the silent culture even when there is an obvious
malpractice being perpetrated by the board or other prominent stakeholders.
There should be structures put in place for protection of whistle blowers.
Nigerian National Assembly should not delay any further to pass the Whistle-
blowers Protection Bill and enforce its implementation to curtail corrupt
practices capable of inhibiting their well-being. This would serve as a
framework for promoting good corporate governance practice in Nigeria.
 vi. Auditor’s reporting Independence

• The same regulation that empowered the

whistle blowers is capable of strengthening the
auditor in exercising his / her reporting
independence. This would also encourage the
auditors to be both independent in fact and in
appearance. This way, auditor’s ability to reveal
to the public any information believed should be
disclosed would become more pronounced and
compromise of independence would be minimal.
 vii. Negligence on the Part of Audit Regulators and External
Auditors in Nigeria

• The collapse of major companies in Nigeria, especially Banks was largely due to
window dressing of their reports thereby concealing outrageous malpractices in the company. This practice
weakened the quality of earnings of companies listed on the
floor of the Nigerian stock Exchange. It was also partly blamed on auditors as revealed in the study of Bakre
(2007) and Oluwagbuyi & Olowolaju (2010). Auditors had been indicted of deliberate falsification and
overstating the profit of organisations. Audit
regulators relied on those reports without detecting their catastrophic effects, not only
on the companies but also on the Nigerian capital market in general. Laxity on the part
of the regulators to detect window dressed and fraudulent reports of companies further
aggravates this problem and negatively affects the earnings quality. Regulators in
Nigeria should create more stringent regulatory procedures to detect fraud, mete out
appropriate disciplinary measure and well as penalise companies and audit firms for
erring.
• In addition, there is no provision in CAMA restricting the involvement of the auditor
with the company. The only penal provisions are section 368 which imposes a duty to exercise such care
diligence and skill reasonably necessary in performance of auditor
and section 369 which imposes criminal sanctions on those who supply false statement to the auditor. The
result is that auditors become over involved with companies, doing
management consultancy and tax. They also offer human resources consultancy work for the very company
they audit. They therefore lose their independence and
professionalism in preparing their auditors report (Idigbe, 2007).
viii. Absence of Unified Code of Corporate Governance in Nigeria

• Idornigie (2010) disclosed that Nigeria has multiplicity of codes of corporate governance with distinctive
dissimilarities namely; one, Security and Exchanged Commission (SEC) code of corporate governance 2003 addressed
to public companies listed in the Nigeria Stock Exchange (NSE); two, Central Bank of Nigeria (CBN) Code 2006 for
banks established under the provision of the bank and other financial institution ACT (BOFIA); three, National
Insurance Commission (NAICOM) Code 2009, directed at all insurance, reinsurance, broking and loss adjusting
companies in Nigeria; four, Pension Commission (PENCOM) Code 2008, for all licensed pension operators.
• Since 2011, when the Financial Reporting Council of Nigeria was created, the Council
has been primarily saddled with the responsibility of issuing codes of Corporate Governance in Nigeria. Disparities in
the provisions of the key element of firm-level
governance arising from the proliferation of codes of corporate governance including Security and Exchange
Commission Code, Central Bank of Nigeria code, Pension
Commission and National Insurance Commission codes respectively impact negatively
of the activities on both the audit committee as well as external auditors. Demaki, (2011) found that disparities in
the provisions of the key element of firm-level
governance arising from the proliferation of codes of corporate governance in Nigeria,
namely, SEC code (2003), CBN code (2006), PENCOM code 2008, and NAICOM Code 2009 respectively impact
negatively on the economy.
• The FRCN should ensure continuous review of company codes of corporate
governance which encompasses audit committee and external auditor activities. This would go a long way in
sustaining investor’s confidence and also serve as benchmark for monitoring and implementing corporate policies
and practices at firm -level.
 Proliferation of Accounting Professional
Bodies and Decline in Ethics
• The more accountancy bodies in existence in Nigeria, the
more divergent codes on auditor independence. Such a
situation would be extremely unhealthy in achieving
auditor independence. Also, the profession had witnessed
a decline in ethics as found by Adeyemi and Fagbemi
(2011). Harmonisation of the multiplicity of corporate
governance codes and accounting professional bodies
in Nigeria by Financial Reporting Council of Nigeria, is a
pre-requisite for promoting auditor independence
among external auditors.
 x.Weak Code of Conduct in Nigeria

• The weakness of the codes of conduct for Nigerian companies had been partly responsible
for the huge financial crisis in Nigerian Stock Market as established by (Wilson 2006). CBN
(2006) reported that despite the significance of good corporate
governance to national economic development and growth, corporate governance was still
at a rudimentary stage as only 40% of publicly quoted companies, including banks
had recognized corporate governance in place. There is need to employ measures for
strengthening the company codes as well as the existing committees, especially, the audit
committee, in order to forestall good performance and hence better quality of earnings.
Campaign against insider dealing, share price manipulation and other similar practices
should continue. This will forestall the confidence of stakeholders and
enhance the independence of auditor.
• As observed by Aina and Adejugbe (2015), the informal nature of most businesses and the
high level of government ownership in Nigeria pose challenges to the practice of corporate
governance. As a result of the weak corporate culture in these institutions, Nigeria
witnesses a very high incidence of corporate failures (Komolafe, 2007). The Securities and
Exchange Commission Code (SEC CODE) and other codes are complimentary to Companies
and Allied Matters Act 2004 (CAMA).
Table1- Two Case Analysis of Occupational Fraud in Nigeria

CRIME CADBURY Nigeria Plc Nigerian Stock Exchange

Cooks MD and CFO and Executive The Director-general in concert
Directors in concert with some with some management Staff.
other Management staff. Non- Executive directors
shared in productivity bonuses
which they were not entitled to
Recipe. Stock buy backs, Cost Rights issue. False and
deferrals, trade loading, false questionable claims, expense
suppliers certificates, hiding of overstatements, expense
asset and inflation of Bank reclassifications, award of
balance questionable contracts to
companies owned by members
of staff, duplication of
payments, outright theft of
assets or questionable write off
of assets to the advantage of
members of staff, false returns
to regulatory authorities.
Incentives Profit management and desire Desire for personal comfort.
for extra pay for Non - Justification for productivity
executive directors, Leverage bonuses
and liquidity management
Monitoring. Passive board, ineffective audit Board riddled with conflicts of
committee, compromised interest, Overbearing Director-
management and internal General. Compromised non –
auditor, weak internal control executive directors. Very poor
system as a result of collusion internal control system.
and negligent external auditor Absence of Audit Committee
that also lacked skepticism and internal audit. Ineffective
external audit function.
End Result Sack of MD and CFO and both Sack of Director-General and
barred from holding positions nonexecutive directors. A new
in quoted companies in Nigeria Director General appointed
for life. Internal company with new executive directors.
reorganization that saw the exit Refund of productivity bonuses
of the previous management of paid to non- executive
the organization. Posting of directors. Recovery of some
losses by the company which assets of the company from the
saw its share price crash. erstwhile top management.
External auditor indicted and Over 35% of staff sacked by
fined.court cases. the new management. Stock
Exchange market
capitalization dropped as a
result of loss of confidence by
investors. Court cases.
HIGHLIGHTS OF THE NEW COMPANIES AND ALLIED MATTERS ACT 2020
CHANGES MADE BY THE CAMA 2020

• Following the repeal of CAMA 2004, by the CAMA 2020, salient changes were made
on both the administration of the Corporate Affairs Commission (“CAC”) and the
administration of companies in Nigeria. From the manner of incorporation to post
incorporation affairs of the companies. Notable changes as contained in the Act
include the following:
• ORGANISATIONS REGULATED BY CAC:
• Hitherto, all companies registered under CAMA and with the CAC must either be a
private company or a public company. The recent amendment has now introduced
Limited liability partnerships and Limited Partnerships. Although Limited
Partnerships is regulated by the Partnership Act of 1890, the provisions of the
Partnership Act shall apply subject to the provisions of CAMA 2020. Limited Liability
Partnership is also to be regulated by the CAC. In addition to this, CAMA 2020 also
introduced what may be known as one person company (OPC). This simply means
that such company may be owned by one person as against the old provision where
a company can only be incorporated by two persons with capacity to form a
company.
 Continuation
• MINIMUM SHARE CAPITAL: Significantly, CAMA 2020 made adjustments to what was obtainable under CAMA
2004 with respect to share capital. The old position was that companies must meet a minimum authorised
share capital before incorporation which shall be N10, 000 for private companies and N500, 000 for public
companies. This is no longer the position as CAMA 2020 now adopts what is known as minimum issued share
capital as against the authorized share capital and also made changes to minimum issued share capital for both
private companies and public companies. The new position of the law is that upon incorporation, private
companies must have an initial issued share capital of at least N100,000 in nominal value from its share capital
while for public companies, N2,000,000 in nominal value of its share capital must have been issued. That is,
what is relevant is no longer the share capital of a company but the number of shares allotted. Stamp duties are
only paid on shares which have been issued. In addition to this, 25% of the issued share capital of a company
must be paid up at all times.
• COMPANIES LIMITED BY GUARANTEE:
• A major challenge with the formation of companies limited by guarantee is that the Attorney General of the
Federation (“AGF”)’s consent must be obtained before incorporation. The bureaucratic challenges attached to
this has made persons adopt the incorporation of trustee in a bid to escape the rigorous process of
incorporating companies limited by guarantee(“GTE”). Thus, the new position is that the AGF’s consent is to be
sought and the AGF is expected to give his consent or raise objections or reasons for withholding approval
within thirty (30) days from when he receives the application for consent. Where the AGF does not respond
within 30 days, it is deemed that the AGF does not object to the application. The implication of this new
provision is that the challenge of AGF’s delay in giving consent for GTE has now been resolved. Additional
provisions include the advertisement of an application for Incorporation of a company limited by guarantee
inviting objections to such incorporations.
 Continuation
• ELECTRONIC MEANS OF APPLICATION AND FILING:
• The CAMA 2020 provides for the electronic submission/filing of incorporation and other
documents as well as the use of electronic signature. This provision is in line with the
Evidence Act and the realities of technological advancement. It also gives full effect to the
current online registration regime by the CAC.
• WITHDRAWAL AND CANCELLATION OF RESERVED NAME:
• CAMA 2020 makes express provisions for the CAC to withdraw and cancel a reserved name
when such reserved name is identical to or nearly resembles a registered Company’s name.
CAMA 2020 further grants power to the CAC withdraw or cancel a reserved name where
such name was improperly procured. CAC is also empowered to approve a name for use
when it becomes available as a result of a change of name by another company
• MEETINGS:
• In line with current realities, the new provision of CAMA, 2020 now recognizes the use of
electronic means in holding meetings although this concession is restricted to just private
companies as all public companies are still obligated to carry out their meetings physically.
 Continuation
• COMPANY SECRETARY: Prior to the repealing of CAMA, 2004, the appointment of company’s secretary
was mandatory for all companies. This position has now been amended to exclude small companies
from the statutory obligation to appoint a company secretary. Against this backdrop, the CAMA, 2020
only makes it optional for small companies and so it should be stated that the importance of company
secretary cannot be downplayed as it ensures the effective administrative running of the company.
• DIRECTORS:
• In compliance with the code of governance for companies, directors for public companies are now
mandated to not only disclose their age at appointment but also disclose other directorship
appointment in other public companies. Further to this, CAMA, 2020 now mandates companies to have
at least three (3) independent directors at all times. While the aforesaid is restricted to just public
companies, small companies are now allowed to have a minimum of one director as against the
compulsory two (2) directors as contained in CAMA, 2004.
• RESTRICTION ON MULTIPLE DIRECTORSHIP:
• The Act introduces a restriction on any person from being a director in more than 5 public companies at
a time.
• RESTRICTION ON THE ROLE OF CHAIRMAN/CEO OF A PRIVATE COMPANY:
• In order to enhance the protection of the minority shareholders of a company, the CAMA 2020 restricts
private companies from appointing a director to hold the office of the Chairman and Chief Executive
officer of the Company.
 Continuation
• ALLOTMENT OF SHARES AND SHARE CERTIFICATE:
• The allotment of shares for public companies is regulated by the Investment and Securities Act,
(“ISA”), provisions of CAMA and recently, the Federal Competition and Consumer Protection, Act
(“FCCP, Act”). This is to protect the interest of the company with respect to sinister acquisition of
company’s control. On the other hand, CAMA 2020 now makes express provisions on the delegation
of the power to allot shares for private companies. Power to allot shares is vested in the company in
general meeting. CAMA 2020 now makes room for directors in private companies to allot shares. This
power is however, limited to any restriction in the Articles of Association of the company and the
company in general meeting delegating such powers to the directors. The delegation of power to
allot shares must be done during the general meeting of such company and may be given subject to
conditions as prescribed by the company in a general meeting.
• Further to the above, where shares are improperly issued, the company is no longer required to
approach the Court to validate the shares upon satisfying all requirements. The process of validating
improperly issued shares can now be carried out by the company by way of a special resolution to
validate such shares. However, where the company has failed to do so, the affected shareholder can
rightly approach the Court to ensure the validation is done.
•  
• Also, following the optional requirement of common seal, shares certificates may now be issued by
way of a deed duly signed by the company in the absence of a common seal.
 Continuation
• AUDIT OBLIGATION:
• Generally, every company is mandated to appoint auditor or auditors to audit their financial records
and statement in respect of a financial year during the annual general meeting of such companies.
This is no longer the case as small companies or companies that have not carried on business since
incorporation (excluding insurance companies and banks) are now exempted from such obligation.
• Additionally, public companies are now obligated to upload their audited financial statement on the
company’s website.
• ORDINARY BUSINESS OF AGM:
• The ordinary business for annual general meeting (AGM) of a company has now been amended to
include the remuneration of managers of the company. By the new provision, the ordinary business
of a company include the following;
• consideration of financial statements
• declaration of dividends
• appointment and removal of directors
• appointment and remuneration of auditors(optional for small companies)
• elect member of audit committee (optional for small companies)
• disclosure of remuneration of managers of the company.
 Continuation
• REDISTRIBUTABLE PROFIT:
• One of the benefits of being a shareholder of a company is that where profit is declared, shareholders are paid in form of dividends
from profit realized in a financial year. Sometimes, profits declared are carried over into the following financial year. The CAMA 2020
further protects the dividends of shareholders by stating that, profit of a company shall be calculated on an accumulated basis. Thus,
any undistributed profit is carried into the following year and shareholders are entitled to their dividend on the accumulated profit.
However, where the undistributed profit is agreed to be used for recapitalization, such profit are no longer accumulated and are not
calculated as profit for the purpose of dividend sharing in the following year.
• REDUCTION OF FILING FEES ON CHARGES:
• Prior to the repeal of CAMA, 2004, the fee for filing and registration of charges as applicable to both private and public companies
were 10,000 on every 1,000,000 (1%) and 20,000 on every 1,000,000 (2%) respectively. This has now been amended to 0.35% of the
value of the charge. Note however that this amount may be varied by the Minister of Finance. The CAC is also mandated to state in the
register of charges any notice restricting or prohibiting the company from creating additional charge ranking with the charge already
created. This addition will ensure that corporate search and due diligence reveal any such restriction and act accordingly.
• SIGNIFICANT CONTROL AND SUBSTANTIAL INTEREST:
• To further ensure transparency in company administration, the CAMA 2020 has extend the obligation to disclose significant control or
divestment of shares by way of writing to the company. Prior to now, this obligation only applied to public companies. This is no longer
the case as shareholders with significant control in any type of company are now obligated to carry out such disclosure. Notably, CAMA
2020 does not define what significant control is. This is important because both private and public companies have the obligation to
disclose any significant control. The idea of substantial shareholder as defined in Section 120 (2) of CAMA, 2020 only applies to public
companies. Regardless, it may be reasonably inferred that same should apply to private companies. Nonetheless, such omissions
should be noted.
• Furthermore, CAMA 2020 redefines the percentage interest of a shareholder to qualify as being a substantial shareholder where the
shareholder holds shares amounting to 5% of total voting rights. This is against the 10% as contained in the repealed CAMA 2004.
 Continuation
• PRE-EMPTIVE RIGHT OF SHAREHOLDERS:
• With respect to the private companies, the transfer of shares is as restricted by the articles of association of such company. However, CAMA
2020 now places some restriction on the manner by which shares may be transferred with respect to existing shareholder’s right. The term
pre-emptive right of shareholders is not strange to Nigeria’s corporate space but has often been left to the decision of a company.
Progressively, CAMA 2020 now gives statutory protection to this right by amending the old position to reflect that a shareholder shall not sell
the shares of the company without first offering those shares to existing members and also, a member or group of members of a private
company shall not sell or agree to sell more than 50% of the total shares in a private company to a non- member unless such non-member has
offered to buy all existing shares of all shareholders on the same terms.
• The implication of the above is that, existing shareholders are protected from unnecessary dilution of their shares and are given preference
over non-members of the company. Also, this protects the shareholders from sinister acquisition of the company through third party
arrangement.
•  
• Further to the above, CAMA 2020 now mandates a private company to obtain the consent of all its members before proceeding with any sale
amounting to more than 50% of total value of the company’s asset. Note that this provision may be varied by the articles of association.
• SHARE BUY BACK:
• CAMA 2020 also provides the procedures by which a company may buy back its own shares. The right to buy back shares is ultimately left to
the provisions of the articles of a company and the intention to buy back shares must be passed by way of a special resolution. It should be
noted that a company is limited to 15% nominal value of total issued shares. That is, a company that intends to buy back its shares cannot
exceed 15% of total shares issued.
• CREDITORS VOLUNTARY WINDING UP IN A SCHEME OF ARRANGEMENT:
• The provisions of CAMA, 2020 now estops any petition for the voluntary winding up of a company by its creditors upon commencement of the
process of arrangement and compromise. This restriction is for a time span of six months. Notwithstanding this, a secured creditor may by way
of notice make an application to the Court in order to discharge the six month time span where the asset sought to be enforced against does
not fall in the pool of company’s asset considered under the arrangement and compromise or the asset is perishable or the commodity is
easily depreciative and may depreciate before the expiration of six months.
 Continuation
• INTRODUCTION OF AN EXTENSIVE INSOLVENCY REGIME:
• The CAMA 2020 introduces the concept of corporate voluntary arrangement. This procedure allows a company to settle its
debts by paying only a proportion of the amount which it owes to its creditors. The Act also allows a company to come to an
arrangement with its creditors on the payment of its debts. This rescue mechanism serves to allow an insolvent entity to
continue to carry on its business.
• NETTING:
• Significantly, the introduction of netting is one of the most remarkable additions made by CAMA 2020 with respect to financial
contracts. The use of netting to help assess and reduce financial obligations was unknown under the repealed CAMA 2004.
Thus, this new addition is a leap for Nigeria’s corporate governance as it is in line with international best practices. By the
provisions of the CAMA 2020, netting agreement can now be concluded and enforced against an insolvent party, guarantor or
any person providing security.
• COMMON SEAL:
• The use of common seal has now been made optional by the CAMA 2020. Thus, an authorized signature of a company is now
sufficient execution of any contract undertaken by a company.
• INTRODUCTION OF STATEMENT OF COMPLIANCE:
• The repealed CAMA 2004 provided to the effect that a legal practitioner shall depose to a statutory declaration stating that the
requirements for the registration of a company have been complied with. This provision has been replaced with the statement
of compliance which can be signed by an applicant or his/her agent confirming that the requirement of the law as to
registration have been complied with. The statement of compliance must not be signed by a legal practitioners.
• MERGER OF INCORPORATED TRUSTEES:
• Associations with similar aims and objects may now merge subject to terms and conditions as prescribed by CAC in regulation.
This grants associations with the opportunity to redefine themselves to carry out operations more effectively and to
collaborate more efficiently in achieving their objects.
 DISCUSSION, SUMMARY AND CONCLUSION

• The Statutory and Regulatory Framework for Audit described in this paper sets out the key attributes
that lead to audit quality, taking into account the different perspectives of stakeholders. The
Framework is relevant to audits of all entities and all audit firms regardless of size. Having said that,
the attributes can vary in importance and affect audit quality in subtly different ways.
• Audits need to be performed in accordance with auditing standards and are subject to the audit
firm’s quality control procedures. These provide the foundation for a disciplined approach to risk
assessment, planning, performing audit procedures and ultimately forming and expressing an
opinion.
• Auditors are responsible for the quality of individual audits, and should aim to ensure that quality
audits are consistently performed. A quality audit is likely to be achieved when the auditor’s opinion
can be relied upon as it was based on sufficient appropriate audit evidence obtained by an
engagement team that:
• • Exhibited appropriate values, ethics and attitudes;
• • Was sufficiently knowledgeable and experienced and had sufficient time allocated to perform
• the audit work;
• • Applied a rigorous audit process and quality control procedures;
• • Provided valuable and timely reports; and
• • Interacted appropriately with a variety of different stakeholders.
• Sometimes, audit firms’ methodologies and internal policies and procedures provide
more specific guidance on matters such as who undertakes specific activities, internal
consultation requirements, and documentation formats.
• While auditing standards and the audit firm’s methodology will shape the audit
process, the way that process is applied in practice will be tailored to a particular
audit. The audit firm’s policies and procedures will impact the audit process.
• The audit process starts with accepting an engagement. An auditor after getting
engagement, enquires into the internal control framework of the company and
devises a comprehensive plan for collection of sufficient and appropriate evidences to
form their conclusion on financial statement and draw the audit report.
• Based on the nature and scope of audit procedure, audit sample is decided and the
entire procedure of auditing is documented time to time which is retained for
subsequent audit engagement. The process of auditing as described is almost same in
different developed and developing countries under study. However, due to
differences in the governing standards, some minor dissimilarity is observed among
countries.
 CONCLUSION
• Auditing is a public interest activity which needs to be performed by suitably qualified individuals working in an appropriate environment. To achieve
this, there will commonly be national arrangements for licensing audit firms or individual auditors to perform audits. A register of approved
firms/persons will often be maintained by a competent authority. Authorities will often have the power to revoke the license in defined circumstances.
• The primary output of an audit is an auditor’s opinion that provides users with confidence as to the reliability of the audited financial statements. For
the majority of users, the absence of a modified auditor’s opinion is an important signal about the reliability of the financial information. The value of
this signal may be influenced by a number of factors, including the reputation of the audit firm that conducted the audit, and an assumption about the
effectiveness of the audit process employed.
• The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements. This is achieved by auditors gathering
sufficient appropriate audit evidence in order to express an opinion on whether the financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework. Often, that opinion is on whether the financial statements “present fairly, in all material
respects” or give “a true and fair view” of the entity’s financial position as at the period end and of its results and cash flows for the period, in
accordance with the applicable financial reporting framework.
• While national laws and accounting standards provide criteria for “fair presentation,” many aspects of the financial reporting process, and therefore
the audit of the financial statements, involve judgment. The auditor’s report provides an opportunity for the auditor to provide information to give
users some insights about the auditor’s work and findings and therefore into the quality of the audit performed. However, this opportunity is not
always taken by auditors and the auditor’s report has, over the years, been standardized. Other than in circumstances when the auditor’s opinion is
modified, information is not usually provided about the auditor’s work and findings.
• In addition to expanding the information contained in the auditor’s report, its usefulness may also be increased if it contains additional assurance on
specific matters as required by law or regulations. In some cases, such assurance can be provided without extending the scope of the audit (for
example, confirmation that management has provided to the auditor all the information and explanations required). In other cases, the scope of the
audit needs to be extended (for example, providing assurance on the effectiveness of internal controls over financial reporting).
• Auditing standards provide an important foundation supporting audit quality. In particular, the ISAs issued by the IAASB describe the auditor’s
objectives and establish minimum requirements. However, the majority of the requirements in the ISAs either provides a framework for the judgments
made in an audit or need judgment for them to be properly applied. Audit is therefore a discipline that relies on competent individuals using their
experience and applying integrity, objectivity, and professional skepticism to enable them to make appropriate judgments that are supported by the
facts and circumstances of the engagement. The qualities of perseverance and robustness are also important in ensuring that necessary changes are
made to the financial statements, or, where such changes are not made, to ensure that the auditor’s report is appropriately qualified.
•  
 Recommendations
• Based on the foregoing, the paper recommended that;
• Prior to accepting an audit engagement, and annually thereafter, it is important that audit firms consider whether they are competent to perform the engagement and
have the capabilities and resources to do so. This includes whether the firm can comply with relevant ethics requirements.
• While auditors need to apply professional skepticism, auditing also involves a degree of trust in management. Management lacking in integrity, by definition, cannot be
trusted. Good client acceptance and continuance systems therefore evaluate whether there is information to suggest that client management lack integrity to the
extent that it will not be possible to perform a quality audit. Having a rigorous client acceptance and continuance system is therefore important in helping an audit firm
avoid engagements where there is a high chance of fraud or illegal acts, and thereby maintain a reputation for providing quality audits.
• A culture of consultation is important for all audit firms, including sole practitioners. Auditing often requires difficult decisions and judgments to be made. Staff will
discuss these issues within the engagement team and with the audit engagement partner. Audit engagement partners discuss difficult decisions and judgments with
other partners or with technical specialists and give careful consideration to the advice given. For this process to function effectively it is important that there is a
culture of consultation and where those involved have sufficient time available to deal properly with issues as they arise.
• Management may have an interest in ensuring that the audit is completed as quickly as possible and the disruption to the entity’s ongoing operations is minimized. The
effectiveness and efficiency of the audit process can be enhanced through:
• Rigorous planning, including, where appropriate, agreeing with management the auditor’s information needs and timetable;
• Timely engagement with management to resolve issues identified during the audit;
• Striving to meet agreed timelines and reporting deadlines; and
• Avoiding, as far as possible, duplicate inquiries of management on the same matter from different engagement team members.
• Auditor’s reports have evolved over the years to a degree that they are now largely standardized. Research indicates that some users want the auditor’s report to
contain more information about the entity and about the audit itself than is currently being provided. They believe such information would assist them in assessing the
financial condition and performance of the entity, as well as help them evaluate the quality of the audit. Additionally, some users also believe that the communicative
value of the auditor’s report could be improved if changes were made to the current structure and wording of the auditor’s report.
• In addition to expanding the information contained in the auditor’s report, its value can also be increased if it contains additional assurance required by law or
regulations. In some cases, such assurance can be provided without extending the scope of the audit (for example, confirmation that management have provided to the
auditor all the information and explanations required). In other cases, the scope of the audit needs to be extended (for example, providing assurance on the
effectiveness of internal controls over financial reporting)
• Harmonization of the multiplicity of corporate governance codes and accounting professional bodies in Nigeria by Financial Reporting Council of Nigeria is a pre-
requisite for promoting auditor independence among external auditors.
• Regulators in Nigeria should create more stringent regulatory procedures to detect fraud, set appropriate disciplinary measure as well as penalize companies and audit
firms for erring. The accountancy professional bodies should promote the dignity of its members by making the appointment
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