By Peter Egwuatu
Shareholders have absolved their members of blame for financial misrepresentation often seen in companies annual reports, saying they should not be made to be accountable for accounts they have little or no control.
The shareholders who reacted over call by capital market operators that shareholders audit committee members should be liable and be prosecuted for any misrepresentation of audited results of companies, just in the same way that internal and external auditors are being compelled to be held liable dismissed such demand on the ground that shareholdersâ€™ audit committee members are not given opportunity to scrutinize the financial records.
Some operators who spoke with Vanguard said a law should be enshrined in the Companies and Allied Matters Act (CAMA) to make shareholders audit committee liable for false financial statement.
According to one stockbroker, â€œ Time has come for shareholders audit committee as well as the internal and external auditors of companies to be liable for any false audited financial statement. If this category of people are made liable for financial misrepresentation they will do their work thoroughly and expose any management found negating the rules of auditing. If there is a law that impose punishment for erring auditors the issue of misrepresentation will be reduced or eradicated.â€
Speaking with Vanguard, Mr. Timothy Adesiyan, President of Nigerian Shareholders Solidarity Association (NSSA), who has been a member of the audit committee of First Bank of Nigeria Plc, said the ability of shareholders to influence decisions at the committee level depends on the management style of the bank.
According to him, â€œMany companies and even the banksÂ have been reluctant to disclose some aspects of their operations to the committee. You cannot see more than they show you. CompaniesÂ are so clever. â€œIt is what they want you to see that you will see, unless you know what to ask for.â€
Continuing he said, â€œ There is need for competent people to represent shareholders on companiesâ€™ audit committees so that they can ask the relevant questions and raise objections where necessary. This is why the Central Bank of Nigeria (CBN) which regulates banksÂ requires that any nomination to the committee must be accompanied by their curriculum vitae.Â Most of the banks and not enforcing it.
Also the code of corporate governance requires that members of the audit committee must be able to interpret figures. But many companies do not follow this procedure.â€
In the same manner, Mr. Boniface Okezie, President of Progressive Shareholders Association of Nigeria (PSAN), said â€œThere are no specific roles assigned to shareholder members on the audit committee in the CAMA.Â Rather, the responsibility to detect any misdemeanour lies with the CBN. â€œDo shareholders run the banks? What were the CBN resident examiners doing when these banks were defying the single obligor limit and depleting their shareholders funds? he asked?
Okezie stressed that audit committees work is based on figures sent to them by the management, adding that ability to interpret figures is not enough criterion to qualify a person for membership of the committee. â€œEven accountants may not be bold enough to ask the right questions. Only if you are bold and can say your mind. I agree to some extent that people who can read figures should be selected but the integrity of the individual is more important.
In law, external auditors are appointed by and are required to submit their reports to shareholders during AGM. But in practice, management of companies engage the services of the auditors, which is ratified formally at the Annual General Meeting (AGM) by the Shareholders, who have little or no power at all to influence such appointment.
The CAMA 1990, stipulated that chartered accountants are to be engaged as external auditors, who are empowered to examine financial statements not only to determine whether they represent a true and fair view of the state of affairs of the entity and are free of any material misstatements, but also to ascertain whether they conform to the Generally Accepted Accounting Principles (GAAP); other relevant legislation and standards, and whether there are errors, misstatements or fraud in the accounts.
The Nigerian Companies Act (CAMA) provides that the audit committee shall consist of an equal number of directors and representatives of the shareholders of the company (subject to a maximum number of six members).
However, members of the audit committee are not entitled to remuneration and they are subject to re_election annually. They are also expected to be independent and able to understand basic financial statements.
The Committee ought to, on behalf of their colleagues (shareholders), make valuable contributions to the efficient running of the bank or company. But in practice, this is often not the case because the members are weak and compromisable.
The management of the bank or company takes good care of them and regards them with high esteem. The fringe benefits showered on the members by the director of the company make many shareholders, many of whom are retirees, to fiercely contest for membership of audit committee, which, according to Gaye, is synonymous with political elective office these days.