A few months ago, Nigeria’s Federal Government unveiled a Corporate Governance Scorecard aimed at evaluating and improving the performance of State-Owned Enterprises (SOEs). The announcement, delivered by the Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, marked a potentially transformative shift in the management of government-owned entities. Spearheaded by the Ministry of Finance Incorporated (MOFI) in collaboration with the World Bank, the initiative seeks to embed accountability, transparency, and financial discipline in public-sector enterprises. However, beyond the public sector, this development raises broader questions about corporate governance culture across the private and public sectors in Nigeria.
This opinion piece offers insight into the strategic role of professional accountants, specifically internal auditors, external auditors, and audit committees, in promoting effective corporate governance. As guardians of financial integrity and organisational accountability, their roles have never been more crucial.
Understanding the roots of corporate governance failures
The early 2000s ushered in a wave of corporate failures that rocked global markets. High-profile collapses like Enron in the United States, where senior executives colluded with the then-revered accounting firm Arthur Andersen to conceal billions in debt, demonstrated the consequences of unchecked corporate malfeasance. Other global cases include MCI, BCCI, Tyco, Ahold, Freddie Mac, Cadbury Schweppes, and WorldCom. These events were not isolated. They revealed systemic weaknesses in governance structures, often due to lax oversight, conflicts of interest, and poor financial reporting.
Nigeria was not exempt. Governance breaches were widespread, with companies flouting accounting standards and corporate rules, leading to instability and eroded investor confidence. To fully appreciate the necessary reforms, it is important to define the key concepts.
Corporate failure and governance: Definitions and principles
Corporate failure refers to a situation where a business is no longer viable, financially or operationally, resulting in its collapse or cessation. This often stems from mismanagement, fraud, or poor decision-making. One of the most effective remedies is the adoption of sound corporate governance practices.
Corporate governance is the framework by which companies are directed and controlled. It serves the interest of all stakeholders: shareholders, regulators, lenders, employees, and the public. It is built on principles such as transparency, accountability, integrity, independence, and compliance. Where these principles are faithfully observed, organisations experience improved performance, reputational capital, and resilience.
The accountant’s role in strengthening governance
1. Internal auditors:
These professionals are the first line of defence. They help implement new standards, prevent and detect fraud, uncover irregularities, and support management in improving internal control systems. Internal auditors also serve as a liaison with external auditors during year-end reviews, ensuring readiness and reducing audit costs. Their proactive role in continuous monitoring ensures that governance lapses are addressed before they become crises.
2. External auditors:
External auditors provide an independent review of an organisation’s financial health and governance mechanisms. They assess the appointment and effectiveness of executive and non-executive directors, evaluate the establishment and functioning of audit committees, and review internal control systems. They are also responsible for verifying that directors report annually on the effectiveness of internal controls and that such reports are published in annual filings. Importantly, they ensure directors have access to independent professional advice when needed, reinforcing the credibility of board decisions.
3. Audit committees:
These committees serve as a vital check on both internal and external audit functions. They participate in appointing external auditors, determining their remuneration, and monitoring their performance. In organisations without an internal audit function, audit committees are expected to justify this absence in annual reports and make recommendations to the board regarding the potential need for such a function. Their role in overseeing the financial reporting process is critical to ensuring accurate disclosures and sound governance practices.
The strategic value of corporate governance
When a corporate entity adopts a well-structured governance framework, the benefits are multifaceted. It promotes ethical leadership, improves organisational image, and strengthens stakeholder confidence. A robust governance structure supports strategic decision-making, facilitates compliance with regulations, and enhances operational efficiency. It also helps attract investment by building trust with shareholders and the wider public.
Moreover, good corporate governance mitigates conflicts of interest, improves internal controls, retains competent leadership, and strengthens risk management processes. These outcomes are essential for long-term sustainability, especially in volatile or emerging markets like Nigeria.
Conclusion
Corporate governance is not merely a regulatory obligation; it is a strategic imperative. Accountants, by virtue of their training and professional ethics, are uniquely positioned to lead this charge. Whether as internal or external auditors or as members of audit committees, their role in upholding integrity, transparency, and accountability cannot be overstated.
As Nigeria seeks to reform its public institutions and corporate culture, leveraging the expertise of accountants is essential. The newly introduced Corporate Governance Scorecard is a step in the right direction, but its success hinges on a broader cultural shift, one that places professional standards, ethical conduct, and stakeholder value at the heart of all corporate operations.
Dr Kingsley Ndubueze Ayozie, FCTI, FCA, is a Public Affairs Analyst and Chartered Accountant. He writes from Lagos.
