By Peter Egwuatu

EMBITTERED shareholders of quoted companies on the Nigerian Stock Exchange, NSE seem to be right in their case over membership qualification on the audit committee of their companies.

A careful look at the Companies and Allied Matters Act, CAMA 1990, from which public companies operate, as indicated from Section 359 (3 & 4), that relates to qualification and experience of audit committee members, including the chairman provides that: “The chairman of the audit committee should be a non-executive director, to be nominated by the members of the audit committee.

Basically, members of the committee should be able to read and understand basic financial statements, and should be capable of making valuable contributions to the committee.”

So given this rule, the shareholders are right in their fight against the   draft rule by the Financial Reporting Council,   FRC, which opposed membership of the audit committee without a professional qualification. In as much as the CAMA is yet to be amended, then shareholders who are not professionals still have the right to be members of the audit committee.

It will be recalled that the FRC in the draft rule had directed that audit committee members of companies must be members of certified professional accounting body in the country.

The Council had based its argument on the premise that professional accountants are more reliable, stating that their education and training allow for their judgment to be relied upon.

However, leaders of renowned shareholder groups had frowned at the guideline, which they described as unnecessary and called for immediate reversal.

According to them, the FRC rules is in contravention of section 359(3) and (6) of Companies and Allied Matters Act, Cap. C20. The draft rule contained in a circular titled “Transitional Concessions Agreed between the Nigerian Stock Exchange (NSE) and the Financial Reporting Council of Nigeria (FRC) regarding Rules 1& 2 of the FRC’s Rules” published by the NSE on March 29, 2016, with reference no:

NSE/LARD/LRD/CIR5/16/03/29, states thus: “Chairman of audit committee, to annual report, financial statements, accounts, financial report, returns and other documents of a financial nature, shall be a professional member of an accounting body established by Act of the National Assembly in Nigeria.”

It, however, states that current chairmen of the audit committee shall be permitted to attest to accounts of financial nature regardless of whether he is a professional member of an accounting body or not for the current financial year only. The FRC added in the circular that “The foregoing concessionary arrangement shall apply only to entities which, in the case of a holding company shall include its subsidiaries):

(i) Which are not currently in court with the FRC and/or having any of its director(s) currently holding FRCN numbers that have been suspended by the FRC. Every subsequent annual report, financial statements, accounts, financial report, returns and other documents of a financial nature of the audit committee shall be attested to by a chairman who is a professional member of an accounting body established by Act of National Assembly in Nigeria in compliance with FRC Rule 2.”

Now that the federal government has suspended the FRC’s corporate governance draft rule and appointed a new executive team, it will be proper if the controversial corporate governance code is holistically, meticulously and professional addressed.

However, the FRC’s insistence that members of the audit committee must possess a professional qualification from any accounting body came at the backdrop of the mediocrity being displayed by some shareholders who occupy audit committee positions. Most times they exhibit ignorance and do not understand basic accounting principles nor contribute in any way, especially by querying accounts of companies when faulty.

Many of them vie for the positions due to the monetary benefit attached.

However, if the current leadership of the FRC follows through with the position of the Council on qualifications for audit committee membership, it should first of all move for the amendment of CAMA. It is only when CAMA is amended and the section 359(3) and (6) of Act, Cap. C20 is expunged that the FRC’s proposed rule could be pursued to a logical conclusion.