Audit Committee Characteristics and Segment Disclosures of Deposit Money Banks in Nigeria

Abstract

As a result of recapitalization exercise and other banking reforms such as the approval of universal banking, Nigerian deposit money banks have become bigger and more complex. Leveraging on globalization, Nigerian DMBs now have branches across the country and even outside Nigeria. They have equally diversified their operations. The consequence is that Nigerian DMBs now operate in complex and different markets with each market having unique economic dynamics necessitating adoption of different business models and corporate strategies (Ebirien & Israel, 2019). Reporting aggregated data in the circumstance will not be helpful to present and potential users of financial statements in making informed decisions (Hope et al., 2009). Accounting standard setters seem to agree with this line of reasoning and have issued standards on segment reporting. Such standards include the first accounting standard concerning segment, SFAS 14 (Financial Reporting for Segments of a Business Enterprise) published by the Financial Accounting Standards Board(FASB) of United States in 1976, SAS 24 (On Segment Reporting) issued by the defunct Nigerian Accounting Standards Board, and IFRS 8, Operating Segments. However, a strong argument against segment reporting is that segment reporting would result in disclosing proprietary information which competitors could use. Prior studies show that managers have the proclivity of withholding information (Botosan & Stanford, 2005;Kothari et al., 2009) because of conflict of interest with their principals (Jensen & Meckling, 1976). Following accounting scandals, regulators require firms to establish audit committee (AC) to oversee financial reporting. There is doubt on the ability of AC to deliver on its mandate (Bédard & Gendron, 2010; Krishnan, 2005). However, prior studies show that the effectiveness of the AC depends on its characteristics. The objective of this study therefore is to investigate the relationship of audit committee characteristics and segment disclosures in the Nigerian banking industry. Abstract: The purpose of the study was to investigate the effect of audit committee characteristics on segment disclosures of banks in Nigeria. The study used secondary data obtained from the annual reports of deposit money banks listed on the Nigerian Stock Exchange for the period 2018 to 2020. Four null hypotheses were formulated and analyzed using multivariate analysis. The results showed that meeting frequency has a significant negative effect on segment disclosures while audit committee gender diversity has a positive but insignificant effect on segment disclosures. The results further revealed that audit committee independence (and audit committee financial expertise) have a positive (and negative) but insignificant effect on segment disclosures, respectively. The study recommends banks to monitor closely board meetings and conduct due diligence on non-executive independent directors to ascertain their independence. The study recommends that the banks should increase the number of female directors and number of financial experts on the audit committees. Future study should consider using different proxies for segment disclosures as well as longer study period.