Introduction
A critical review of global corporate crises reveals that many of these incidents are rooted in numerous infractions. These include, but are not limited to, a high debt profile, capital mismatches or negative working capital, manipulation of share prices, falsification and alteration of accounting information, unethical behaviour by board and management teams, poor risk management structures, weak or absent internal control procedures, consistent operational losses, and declining profitability.
Other recurring issues involve overly authoritative executives, massive theft by management, unauthorised loan approvals, fraudulent practices, abuse of office, corruption and embezzlement, bribery and kickbacks, inflation of the company’s revenue profile, and the reporting of fictitious assets in company records. Many organisations also suffer from weak board systems, top-level misconduct, audit failures by external auditors, and most notably, the absence of an audit committee. This absence is often not disclosed in governance reports, as documented in the globally reported case of Cadbury Schweppes Confectionery, which forms the foundation of this discussion.
Read also: Poor corporate governance crippling Nigeria power sector, Minister Adelabu warns
Audit committee examined
According to the provisions of Section 404 (2)–(3) of the Companies and Allied Matters Act (CAMA) 2020 as amended, an audit committee is a statutory body mandated to receive and review the report of the external auditors alongside the company’s audited financial statements. From this, it is clear that the audit committee is also responsible for post-mortem analyses and plays a critical role in ensuring financial accuracy and integrity.
Notably, Nigerian law mandates that all Public Limited Liability Companies (PLCs) constitute an audit committee comprising five members—three shareholders and two non-executive directors. This requirement underscores the importance of oversight in financial reporting and governance.
Principle of financial literacy
One of the most significant enhancements in the revised CAMA is the requirement that at least one member of the audit committee must be a professional accountant. This provision ensures that the committee has the technical competence to interpret financial data, promote financial independence, and enhance audit supervision and transparency. The overall result is a strengthened oversight function within corporate governance.
“Moreover, not having an audit committee may lead to diminished investor confidence, reduced stakeholder engagement, and the deterioration of public trust in the entity.”
Consequences of not having an audit committee
The absence of an audit committee can create serious loopholes in an organisation’s financial reporting and internal control mechanisms. Without this body, accountability may erode, leaving the organisation vulnerable to fraud, accounting errors, and a general lack of transparency. These shortcomings can ultimately result in corporate failure.
Moreover, not having an audit committee may lead to diminished investor confidence, reduced stakeholder engagement, and the deterioration of public trust in the entity. The consequences go beyond operational inefficiencies and can affect the company’s reputation and long-term viability.
Benefits of an audit committee
Establishing an audit committee brings several key benefits. It promotes credible financial reporting mechanisms and enhances public perception of the entity. The presence of such a committee significantly reduces the likelihood of errors, irregularities, and, in extreme cases, fraud. It also acts as a deterrent to individuals or groups with criminal intentions.
Audit committees are empowered to instruct internal auditors to conduct special investigations, particularly when fraud is suspected. Additionally, they monitor and review the effectiveness of the entity’s accounting systems and internal controls during the reporting period.
Read also: Lack of corporate governance is costing startups millions — Report
Importantly, the audit committee plays a vital role in the appointment and remuneration of external auditors, ensuring the process is both transparent and objective. Ultimately, its presence strengthens audit supervision and reinforces stakeholder confidence in the company’s governance and financial reporting systems.
Conclusion
In conclusion, the establishment and effective functioning of audit committees are not merely procedural formalities—they are strategic necessities. As evidenced by corporate failures like that of Cadbury Schweppes Confectionery, organisations that overlook the significance of proper audit supervision expose themselves to reputational, financial, and operational risks. Audit committees provide the oversight, competence, and accountability mechanisms that help corporations stay ethical, transparent, and sustainable in an increasingly complex business environment.
Dr Kingsley Ndubueze Ayozie, FCTI, FCA, is a public affairs analyst and chartered accountant. He writes from Lagos.
