CHAPTER ONE INTRODUCTION

1.1       Background to the Study

Financial performance of a firm remains one of the major route of assessing its

wellbeing and to know whether it will be able to meet financial obligation of all interested

parties it is also an indication forpossible payment of dividend. Firms owe commitment to their

principal, which is maximization of wealth, and to other stakeholders who are also concerned

with the financial health of firms (Farouk, 2014). The continuous survival, growth and

expansion of firm would hardly be met without sound financial performance. Firms strive to

achieve higher performance in the face of stiff competition, globalization and technological

advancement; competition is fuelled by entry of small and young firms into the market which

threatens the market share of large existing organizations (Maness & Zietlow, 2005). Despite

thesechallenges, firms areexpected to excel in theirfinancial performance. However, to ensure

the continuous performance of firms, corporate governance mechanisms such as audit

committee characteristics and ownership structure must meet up with expectation.

One of the mechanisms of corporate governance is the audit committee that play vital

roles in ensuring smooth and efficient management and administration of companies. The audit

committee is equally challenged by the recent failures in corporate governance in Nigeria and

should be compelled to ensure that sound corporate governance exist. According to CAMA

1990, the audit committee is a committee of shareholders and non-executive directors charged

with the responsibility of liaising between the external auditors and the board of directors on

one hand, and between management and the external auditors on the other hand. The inclusion

of this committee in the corporate governance mechanism raises the expectations of

shareholders and the general public for enhanced corporate governance and by extension

increase performance of companies. This raised confidence is predicated on perceived

checkmating role of the audit committees in ensuring that the board of directors lives up to

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their expectation in fulfilling the globally accepted pillars of corporate governance,

accountability, fairness, responsibility and transparency. But the rampant failure of corporate

governance in Nigeria as manifested in corporate failures throw strong doubt on the

effectiveness of audit committees in carrying out this role.