In order to better corporate administration, accounting organic structures, market regulators and committees has recommended the preparation of audit commissions. In 2001, after the creative activity of Douala stock exchange ( DSX ) , the Cameroon capital market authorization requested all listed companies to set up audit commissions. This survey focuses on the function of audit commissions and corporate administration in Cameroon listed companies.Particularly, how audit commissions operates in a developing economic system like Cameroon and how these patterns can be compared with those in the western economic systems every bit good as other emerging economic systems, the relationship of audit
This survey revealed that AC in Cameroon are challenged with unequal human resource capacity, the intervention of the authorities and kiping stockholders every bit good the fast changing legal and runing environment. However, there has been a singular betterment on the dependability of fiscal describing therefore vouching investor ‘s assurance.
Key words ; Audit commissions, corporate administration, Cameroon, listed companies, direction, internal hearer, external hearer, OHADA ( organisation for harmonisation of concern jurisprudence in Africa ) , CMA ( capital market authorization ) , Decision devising.
Table of Content
List of Figures
List of Abbreviations
List of Tables
Chapter 1 Introduction
1.4 The survey nonsubjective and Questions
1.5 The survey range
1.6 The restrictions
.7 The survey construction
Chapter 2 Conceptual model
Section A ; Corporate Administration
2.1- The Definitions of Corporate Governance
2.2- The Background of Corporate Governance
2.3- Corporate Governance Code
2.4 Corporate Administration mechanism
2.5 Corporate administration Environment
2.6 The Development of the construct of Corporate Governance
Section B ; Audit Committee
2.7 The Operationss of Audit Committees
2.7.1- The Charter
2.7.2 Composition of the commission
2.7.3 -Qualification and Experience
2.7.4- Meetings and Reports
2.8-The Relationship between Audit Committees, the direction, internal hearers and
2.9 The major Accomplishments and Challenges confronting Audit Committees.
Chapter 3 Theoretical Frameworks for Corporate administration and Audited account
3.2 The Agency theory
3.3 Evidence on struggle of involvement between stockholders and directors
3.3.1 Conflict over Compensation
3.3.2 Conflict on variegation and wealth reduction investing
3.3 the Stewardship theory
3.3.1 Summary of the theories
4.1 Corporate Governance issues in developing states. ( Cameroon )
4.2 The legal and Regulatory model for Corporate administration of listed companies in
4.2.1The Role of Douala stock exchange ( DSX )
4..2.2- The Board of Directors
4..2.3 The Audit Committee
4.2.4- The Stockholders
4. 2.5.The Role of the Governance
4.3- The Actors of Corporate Governance ; Stockholders and Directors
Chapter 5 Research Methodology
5.2 Questionnaire study
5.3 Administration of Questionnaires study
5.4 Responses of the questionnaire study
5.5 Interview Survey
5.5 Administration of interview study
6-Findings and Discussion
6.1- Operation of Audit Committees
6.2- Relationship of Audit commissions with direction, internal and
6.3- Accomplishments and Challenges
Chapter 7, Conclusion, Refrences and Appendix
Chapter 1 Introduction
In the past two decennaries, there has been turning attendings on corporate administration notably after the corporate prostration of high net income companies in the universe like the Enron and WorldCom. Corporate administration is now a first order issue largely in economic systems where companies are run by commanding stockholders ( Albuquerue and Wang, 2008 ) and a big figure of companies are seeking to follow better corporate administration patterns ( Garay and Gonzalez, 2008 ) .Traditionally, corporate administration is regarded as a mean by which companies safeguard the public assistance of its moneymans such as its investors, creditors and loaners.
Today, with the current recession and planetary fiscal hurt, issue of corporate administration patterns in companies and the functions of different commissions are been studied. Audit commission is going the most widely used mechanism to guarantee good corporate administration in companies ( Chen et al, 2008 ) .The audit commission is an operating commission of the company ‘s board of managers that have
A good figure corporate administration surveies has being carried out in developed states of Europe, United provinces of America and Japan ( Joshi and wakil,2004 ) .Very few surveies has being carried out and completed in less developed countries.Tsamenyi, Enninful-Adu and Onumah ( 2007 ) observes that corporate administration surveies in less develop states are limited and are available merely on single state footing.
This survey tries to bridge the spread in anterior survey by adding more in our apprehension of the operations of audit commission and the major accomplishments of audit commissions in Cameroon. Furthermore, old research in developing states did non addressed the issue on how audit commissions relate with the direction, internal hearers and external hearers.In this survey, we seek to make full in this spread by look intoing on how audit commissions in Cameroon listed companies relate with the direction, internal hearers and external hearers
Jensen and Meckling ( 1976 ) defined bureau relationship as a contract under which one or more individuals ( principals ) engages another ( agent ) to exert a service on their behalf. Directors or agents are being delegated the daily determination devising by stockholders. Directors are hence charged with the duties of utilizing and commanding the house ‘s economic resources.However the directors may non move ever to the stockholders best involvement due to inauspicious choice and moral jeopardy ( Anthony and Govindarajan,2007 ; 531 ) . Therefore, stockholders has to supervise directors activities in order to guarantee that they live up to the commissariats of their contracts ( Goddard and Masters,2000 )
To avoid direction failures, Moldddoveanu and Martin ( 2001 ) argued that stockholders must ordain confirmation, monitoring every bit good as countenance ( wages and penalty ) mechanisms. Moldoveanu and Martin ( 2001 ) defined confirmation mechanisms as the tools used in formalizing the determinations of the agent, in giving concluding veto for an enterprise, directive or the action program of the agent. Monitoring mechanisms ( both ongoing and separate monitoring ) are use to detect, record and to mensurate the end product of the agent ‘s attempts. Furthermore, approving mechanism give selective wagess / or penalties to agents for/ or for non alining their attempts with stockholders aims or stockholders involvement.
A good figure of corporate administration surveies has being carried out in developed states of Europe, United provinces of America and Japan ( Joshi and wakil,2004 ) .Very few surveies has being carried out and completed in less developed states.Tsamenyi, Enninful-Adu and Onumah ( 2007 ) observes that corporate administration surveies in less develop states are limited and are available merely on single state footing.
Proper corporate administration is a really imperative mechanism to reconstruct investor ‘s assurance, to enlarge the private sector, and to excite economic growing. It have been predicted that “ good administration of companies will shortly go as important to the universe economic system as proper administration of single states. ” Some people may see this as excessively early to hold, but this anticipation was suggested with grounds, if non evidently true today, so, is really likely to be true in the hereafter. The planetary recognition of the impact of events sing corporate societal irresponsibleness ‘s such as the fiscal crises in Asia, the corporate dirts in the universe high net income companies like Enron and WorldCom and the fiscal crisis in most African states in the last decennary.All these cases negatively affected the public assistance and the lives of many such as the employees, the pensionaries, house ‘s creditors and loaners. These raised the pressing demand for effectual and efficient ordinance of corporations and besides led to fear in market places, and a lessening in stock monetary values. In most underdeveloped states, like in Africa, the acknowledgment of lost chances to mobilise fiscal resources in domestic and international capital markets via good corporate administration took the involvement of most African Heads of State. This so inspired the African Heads of State to include good corporate administration as one of the four chief thematic countries subjected to reexamine under the African Peer Review Mechanism ( the APRM ) .The four selected countries include, political administration and democracy, economic administration and direction, socio-economic development, and good corporate administration.
The demand to closely supervise the operations of corporations can be justified by the undermentioned two grounds ;
-The increasing involvement of the investors in developing states to put in listed companies.
-The Potential additions or losingss that hinge on good direction of corporations can be financially profitable or economically annihilating
1.4 Research aim and Questions
The research aim is to add more in the apprehension of the operations of audit commissions in footings of their composing, rank, independency, meeting and coverage, charter guideline every bit good as the accomplishments and challenges. The research besides aims at analyzing the relationship between audit commissions with the direction, internal hearer and external hearers. Finally we will compare our findings with those in western and other emerging states. To accomplish these purposes, the research worker seek to beg the sentiments of four bunchs of respondents in the three listed companies in DSX ( SEMC, SOCAPALM, and SAFACAM ) . ( I ) the presidents of audit commissions, ( two ) the company secretaries, ( three ) the finance caputs ; and ( four ) the external hearers of all the companies listed in the Douala Stock Exchange ( DSX ) .
The undermentioned research inquiries will be address ;
a ) How the audit commission operates in less states like Cameroon and how these patterns are compared with those in developed states
B ) How audit commissions relate with direction, internal hearers and external hearers
degree Celsius ) What are the chief accomplishments and challenges confronting audit commissions
1.5 The survey range
The range of this survey is to analyze the function of audit commissions and corporate administration in developing states peculiarly in companies listed in the Douala stock exchange ( DSX ) Cameroon.The analyses will focus on on the operations of audit commissions in listed companies in DSX by looking at their manner of choice, composing, frequence of the commission meeting, coverage, making and experience, the accomplishments and challenges confronting audit commission.
The old research in developing states did non addressed the point on how audit commission relate with the direction, internal hearer and external auditor.In this survey, the research worker seek to make full in this spread by look intoing how audit commissions in listed companies in Cameroon relate with the direction, internal and external hearers
It is imperative for the research worker and the users of this research to be qui vive of the pertinent restrictions as they try to progress and understand the consequences of this survey ( Anderson and Poole, 2001 ) . We should acknowledge that the method of questionnaire study is entitled to built-in restrictions. Harmonizing to Matthews ( 2002 ) all studies are entitled to some built-in failings as some respondents give responses which they believe are expected of them, or which portray themselves and the organisation in the best visible radiation. This can be the instance of the responses of the participants in this survey which included AC presidents, company secretaries and finance caputs. They may hold overstated their appraisal of the AC patterns as this was seen to be more of import than the other group of the participants ( external hearers ) . Besides, it can be probably that the questionnaires were non clear, this causes respondents to construe some inquiries otherwise or on their ain manner. This survey was besides limited by the fact that the interview study sample size was excessively little ( merely 5respondents opted ) as carry oning more interviews would hold guaranteed a broader apprehension of the research issue, nevertheless the interview study was merely to complement the questionnaire study to acquire a deeper penetration of the findings
1.7 The survey construction
This paper will be made up of seven chapters, chapter one introduces the subject of corporate administration and audit commissions, it besides give the first apprehension of the thesis background, motive, research aims, research inquiries and the restrictions.
chapter two which is conceptual model is in two subdivisions. Section one will be based on corporate administration definitions, its background, corporate administration codifications, mechanism, corporate administration environment and in conclusion the development of the construct of corporate administration. Section two of this chapter will establish foremost on the operations of audit commissions ( maps ) , subsequently focuses on the charter, composing which has to make with the inquiry of independency ( Joshi and Wakil,2004 ) , the factor of fiscal accomplishments as a requirement for audit commissions member is besides examined every bit good as audit commission meetings and studies.Blue Ribbon commission ( 1999 ) ) gave recommendation that audit commissions members must be financially literate. Second, this subdivision will speak about the relationship of the audit commissions with direction, internal hearers and external hearers. Last, this subdivision will speak about some of the major accomplishments and challenges confronting audit commissions.
Chapter three will seek to analyse some theoretical models like the bureau theory and stewards theory. And so look at the some of the bureau jobs between directors and stockholders. This chapter will in conclusion give a belief sum-up of the two theories ( bureau and stewardship theory )
In chapter four, the research worker will speak about corporate administration issues in developing states ( Cameroon ) , the legal and regulative model of corporate administration in listed companies in the Douala stock Exchange ( Cameroon ) concentrating on the function of the Douala stock exchange, the authorities of Cameroon, the board of managers, stockholders and audit commission, This chapter will look in conclusion at the histrions of corporate administration which involves the stockholders and directors.
Chapter five which is research methodological analysis, the research worker will establish his research method on questionnaire and interview study turn toing the survey objectives.This questionnaires will be based on the operations of audit commissions, composing, independency, fiscal literacy, relationship, self-evaluation every bit good as the major accomplishments and challenges.they will largely be “ true or false ” type inquiries while others will ask the respondents to rate the commissions achievement with a mark of 4 ( to a greater extend ) to a mark of 1 ( non at all )
Chapter six will concentrate on the findings and treatments sing the research consequences. The findings and treatments will focus on on the operations of audit commissions, the relationship with direction, internal and external hearers every bit good as the accomplishments and challenges.
Figure 1.thesis lineation.
Chapter 2 Conceptual Frameworks
Scandals, Frauds, every bit good as corporate failures has increase the demand for reforms and better ordinances more particularly in the Fieldss of corporate administration. In the early 1990s, in united land, a good figure of issues like the prostration of Maxwell concern imperium, leaded to the stimulation of treatments and statements refering the constructions for commanding executive power ( power2002 ) .In December 1992, a codification of best patterns was published ( the Cadbury codification ) .this codification gave recommendations to companies to organize audit commissions consisting of independent non-executive managers ( power2002 )
In United provinces of America, the addition figure of net incomes restatements in public traded companies, together with the fiscal statement fraud allegations every bit good as deficiency of responsible corporate administration in extremely profitable companies like Enron, Global crossing, World com In USA, Leisurenet in south Africa have sharpened the increasing attending in corporate administration every bit good as audit commissions in peculiar. The diminution of these companies raised much concerns sing the deficiency of argus-eyed inadvertence by boards of managers and audit commissions in fiscal coverage procedure scrutinizing maps ( Rezace et al,2003 ) .George W Bush, USA president in the province of the brotherhood reference, mentioned the gravitation of this job by saying that “ Through stricter accounting standard and tougher revelation demands. Corporate America must be made accountable to employees and stockholders and held to the highest criterion of behavior ( Bush,29th January 2002 ) ” .In USA a good figure of committees, ordinances and audit commissions has been formed to turn to corporate administration issues in USA. some of these include Tread manner committee ( 1987 ) , the Blue Ribbon commission ( 1999 ) .Further more, the 2002 sarbanes-oxely act was signed in to jurisprudence and one of its chief proviso were that all listed companies set up audit commissions ( Joshi and wakil,2004 )
Rezace, Olibe and Minmier ( 2003 ) stated that good corporate administration promote relationships of answerability between primary corporate participants and this will travel a long manner to heighten corporate public presentation as direction holds answerability to the board and the board is held accountable to the stockholders. One of the board chief map is to guarantee quality accounting policies, internal controls every bit good as independency. This will cut down fraud and fiscal hazard are anticipated every bit good as advancing accurate, high quality and timely revelation of fiscal and other information to the stockholders.
CMA ( 2002 ) defined corporate administration as the procedure and the construction used to direct and pull off concern personal businesss of the company towards heightening prosperity and corporate answerability with ultimate aim of recognizing stockholders long-run value while taking in to account the involvement of other stakeholders.
In Cameroon, corporate administration issues has been taken really serious.the Cameroon capital market authorization ( DSX ) in concurrence with commonwealth association for corporate administration has produce a sample codification for best patterns in corporate administration in June 2001.One of the cardinal recommendations in the Douala stock exchange ( DSX ) ( 2001 ) is that all listed companies establishes audit commissions consisting of independent non-executive managers which has to maintain under reappraisal the range and consequences of audit, their effectivity, independency and hearers objectivenesss. The codification further stated that separate audit commissions enables the board in deputing to the sub-committee the duty for thorough and item reappraisal of the audit affairs, besides to enables non-executive managers in lending independent judgement and have a positive function to play in an country in which they are peculiarly fitted and offer the hearers a direct nexus with non-executive managers ( CMA,2002 )
In south Africa, mangema and chamisa ( 2008 ) found out that the likeliness of a house to be suspended from the stock exchange is higher in houses without audit commission. This therefore suggest the importance and the necessity of audit commissions in Africa.
This chapter will be divided in to two subdivisions. Section A will concentrate on conceptual model for corporate administration while subdivision B will concentrate on conceptual model for audit commissions.
Section A. Corporate Administration
2.1 The Definitions of Corporate Governance
States are different from one another in footings of engineering, civilization, political system, economic and historical development ( Roman,2001 ) .There differences make the definition of corporate administration to change from state to state therefore doing it really hard to came out with a universally acceptable definition of corporate administration.
Shleifer and Vishny ( 1997 ) defined corporate administration while looking at the ways in which the providers of fundss to the steadfast assures themselves of good return for their investing. However this definition merely laid more accent on the providers of fundss, it fails to acknowledge the relationship that exist between the house ‘s directors and stakeholders since every house has many stakeholders with different involvements that must be taken attention of by the house. It is in this respect that corporate administration is besides looked upon as a corporate group of people united as one individual who has the power or authorization to command an organisation ( Ruin,2001 )
Australian criterion ( 2003 ) defined corporate administration as a pattern in which companies are controlled, directed and held to account. Harmonizing to Australian criterion ( 2003 ) corporate administration therefore comprises of power, answerability, leading, stewardship way every bit good as control. This definition takes in to consideration the demand of cheques and balances in organisation direction procedure, therefore it can be regarded as more comprehensive ( Gregory,2000 ) .The Australian criterion definition is besides similar to other definitions like that given by audit committee ( 2009 ) which emphasis the importance of answerability and control in organisational administration.
The presence of many different definitions for corporate administration shows that every writer formulates a definition that suit his or her subject. ( Deunb and neubeuer,1992 ) .For case, harmonizing to Turnbull ( 1997 ) corporate administration influences all houses activities that produces good and or services, harmonizing to Colley et Al ( 2004 ) corporate administration is the act of regulating whereas Cadbury ( 2000 ) specify corporate administration harmonizing to the system by which the house is directed and controlled. However Wallace and Zinkin ( 2005 ) pointed out clearly that the term good corporate administration is really easy to give voice but hard to understand and appreciate.
2.2 – The Background of Corporate Governance
The construct of corporate administration is been used both in economic sciences and in jurisprudence, and it is understood to intend enforcement of contract, protection of belongings right every bit good as corporate action ( McNutt,2010 ) , once and for all, corporate administration is associated with people runing within the organisation, nevertheless the organisation has to be decently governed in order to accomplish their set aims.
This construct of corporate administration became more normally used and spoken in 1980s ( parker,1996 ) nevertheless it originated in 19th century when incorporation was advocated for as a agency of restricting liability ( fletcher,1996.vinten,2001 ) .The creative activity of registered companies is being perceived as the existent starting point for the treatment on corporate administration ( Adams,2002 ) .This enrollment of companies was supported by the joint stock companies act of 1844 ( Uk ) .The silver demand of modern corporation lead to the separation of control map from ownership ( Berles and means,1967 ) .With this separation, house ‘s proprietors no longer exert control over the house ‘s action because it was seen as a function of professional directors or agent ( kiel and Nicholson,2003 ) .This so propose the demand of corporate administration to protect house ‘s proprietors from the actions of directors.In respond to this demand, the limited liability act 1855 ( UK ) was created to protect stockholders from debts above their parts
Francis ( 2000 ) argued that the demand for corporate administration patterns became more pronounce in 1980s.This was because during this period, several parts of the universe were sing stock market clangs every bit good as corporate failures in some cooperation due to hapless administration. Harmonizing to united nation,1999 ) corporate prostration was the cardinal driver for alteration to corporate administration codifications. In 1980, as more and more corporate entities continue to fall in in assorted parts of the universe, there were alteration of attitude with greater public presentation outlooks on the house ‘s direction board.It was besides realized here that the house has to be run by the director whereas the board ensures that the house is being run efficaciously ( Adams,2002 ) .
The acceptance of the thought of corporate administration can besides be supported on a positive note. There was a turning recognitions that improve corporate administration is indispensable for growing and the development of the state ‘s economic system ( Carkr,2004, Department of Treasury,1997 ) .A survey that was carried out in United States of America by Gompers, Ishii and Metricck,2003 ) reveals that there is a strong correlativity ship between good corporate administration patterns and stockholders public presentation. This survey further reveals that over 60 % of investors were prepared to pay pore on portion of companies with good corporate administration patterns.
2.3 Corporate Administration Code ( CGC )
In most states, the best mechanism to heighten choice corporate administration reforms is through the execution of corporate administration codification to supplement the already bing concern Torahs. Corporate administration codification can be defined as paperss which stipulate the regulations and processs for regulating and pull offing organisations ( Dabor and Adeyemi, 2009 ; Ugoji and Isele, 2009: Scott, 2007 ; Classeens and Bruno, 2007 ) .While corporate administration involves the procedure by which organisations are governed and controlled with the purpose of adding stockholders values every bit good as meeting stakeholders outlook ( CBN, 2006 ; Iyang, 2009 ) , corporate administration codifications on its portion, flatly stipulates the regulations, rules and the best patterns for pull offing and regulating organisation ‘s efficaciously ( Okhealam and Akinboade, 2003 ; Amstrong, 2003 ; Gatamah, 2008, Andreason, 2009 ) . Most of these codifications are implemented by self-professional regulation bureaus but under the supervising of authorities regulative organic structures. However, the duty for companies to follow and implement these codifications depends on the company ‘s board of managers ( Elebute, 2000 ; Iyang, 2009 ; Sanusi, 2003 ; Soludo, 2004 ) .Therefore, the chief duties of the board of managers are to vouch choice administration public presentation, add stockholders values, preserve the involvement of stakeholders, protect the environment and warrant precise fiscal coverage ( Alo, 2003, WILSO? 2006.dabor and Adeyemi, 2009 ; Roe 2003 ; Ahmed 2007 ; Olusa, 2007 ; Elebute, 2000 ; Iyang 2009 ; Sanusi 2003 ; Soludo, 2004 )
2.4 Corporate Administration Mechanism
Corporate administration mechanism involves the procedures through which a state ‘s concern Torahs and corporate administration codifications are been imposed. ( Reed, 2002 ) .Corporate administration mechanism consist of agencies to supervise, nevertheless the effectivity of the corporate administration mechanism lies on the regulative models and public administration strategy in each state. ( Wilson, 2006 ; Dabor and Adeyemi,2009 ; Ro, 2003, Ahmed, 2007 ; Olusa,2007 ) .the best enact of corporate administration codification is achieve through modulating professional organic structures in confederation with the authorities modulating bureaus and with the stock market governments ( Vintem, 2002, Reed, 2002 ; Wilson,2006 ; oe, 2003 )
The premise or the thought that, the presence of many corporate administration mechanisms will frequently allow to good corporate administration has been proven incorrect by the high degree of corruptness, fraud and dirts in Cameroon and in other parts of the universe. The credence of corporate administration codification by most companies in the private sector is merely a conformity and non an indicant that the companies will oblige themselves to good ethical concern patterns ( Rossouw, 2005 ; Gatamah, 2008 ; Iyang,2009 ) .In Cameroon, over 70 % of the companies listed in the Douala stock exchange have a adopted the corporate administration codification but there are still incidences of frauds, embellzement, deficiency of answerability and unity.
2.5 Corporate Governance Environment
Harmonizing to Li and Nair, ( 2009 ) , corporate administration environment takes in to consideration the consequence of factors like the state ‘s political system, the economic stableness and socio-cultural factors that can heighten good administration or prevent unethical concern operations ( Li and Nair,2009 ) .Therefore corporate administration environment embodies the state ‘s political, economic, technological, societal and legal systems that affect ethical concern patterns in corporations ( Amaeshi and Amao, 2008 ; Wilson, 20006 ) .Corporate administration so serves as a barometer to mensurate the company ‘s overall public presentation, their strategic pick, determinations and actions. Though the political, economic and socio-cultural consequences of the freshly formed corporate administration codifications in Cameroon are still under probe, the codifications are created or formed to safeguard companies against sick duties like corruptness, environmental maltreatment, and companies misdirection ( Gatamah, 2008 ; Andreason, 2009 ) .
2.6- The Development of the Concept of Corporate Governance
Due to cultural, political, economic and technological differences between states, the thought of corporate administration was adopted but with major fluctuations, as a consequent, a assortment of corporate administration model was established. However two major attacks of corporate administration patterns is identified with fluctuation originating merely on the different legal systems at work in assorted states
Harmonizing to Solomon and Solomon, ( 2004 ) , Department of Treasury ( ,1997 ) ; states that patterns common jurisprudence like united provinces of America, united land, Canada, and Australia develop a type of corporate administration construction which focuses on stockholder ‘s involvement ( return ) .In this respect, corporate administration has to guarantee that the company achieves the aims set by the stockholders. This type of corporate is is known as foreigner theoretical account of control as it recognizes the spread between the troughs of a house and its proprietors ( Department of Treasury,1997 ) .
On the contrary, states with civil jurisprudence such as Germany, France, and Netherlands develop their corporate administration which focuses on stakeholders. In this respects, corporate administration has to equilibrate the involvement of cardinal groups like the employees, directors, creditors and clients ( Solomon and Solomon,2004 ) .This attack is called insider theoretical account of control since it recognizes that the greater control in the house is held by those closer to its existent working ( Department of Treasury,1997 )
However the two attacks have some similarities. For case, they both opted for the fact that the direction boards of the house were to be elected by the house ‘s stockholders to put policies and so depute to the direction the full authorization to pull off the house ( Hilmer,1998 ) .Anyway, it was realized that most states adopted a system of corporate administration with the mixture of the two extremes ( Solomon and Solomon,2004 )
Nowourdays, corporate administration is an international issue because of concern globalistion.3It is seen to play a major function in the direction of companies in both developed and less developed states. However, Davis and schlitzer ( 2008 ) pointed out that corporate administration patterns are non unvarying across states, that each state tend to follow corporate administration processs based on factors like the state legal system, the fiscal system of the state, the state cultural and economic state of affairs and the corporate ownership construction of the state ( the organisation for economic cooperation and development,1998 ) .
Section B: Audit Committee
2.7-The Operationss of audit commissions
The audit commissions has as it premier map to help the board in carry throughing its inadvertence duties. By so making, they review the fiscal information that has to be provided to the stockholders, other stakeholders and to the system of internal controls that has been established by the boards of managers and the direction ( Bean, 1999 )
Bean ( 1999 ) pointed out some of the general duties of audit commissions:
-The audit commission has to supply an unfastened ambiance for communicating between internal hearer, independency hearers and the board of managers.
-They have to describe actions to the BODs and do some recommendations
-The commission have the power to transport out or authorise probes in affairs within the commission ‘s range of responsility.The audit commission has to retain an independent advocate and comptroller if needed to help in an probe
2.7.1- The charter
In developing states, audit commission ‘s faces a batch of troubles in transporting out their maps because of deficit in accounting accomplishments ( waweru, Hoque and Uliana, 2004 ) .
A batch of writers have undertaken surveies on the inadvertence duties of audit commissions.Most of these surveies reveals that there is a broad fluctuations in sensed and declared duties.According to Kalblers and Fogarty ( 1993 ) survey, the duties of audit commission include inadvertence of fiscal coverage, internal controls and external hearer. Peter coopers and Lybrand ( 1995 ) and Dezoort, Hermanson, Archambeault and Reed ( 2002 ) in their survey found out that the duties of audit commissions revolved chiefly in countries of fiscal coverage, scrutinizing and overall corporate administration.
It has being argued by Guy and Burke ( 2001 ) that all companies with audit commissions must develop a seamster made charter that describes the commissions composing and specifies entree to allow resources. The charter has to be approved by the board which so serves as a usher to the commission in transporting out the assorted duties delegated to them by the full board of managers.According to Bean ( 1999 ) , comprehensive charter enhances effectual public presentation of the audit commission, serves as a roadmap for members of the commissions by doing a clear definition of the duties and supply a systematic treatment construction among the commission and the direction every bit good as public comptroller ( Bean,1994 ) . A charter helps scrutinize commissions members to concentrate on their specified duties and besides the charter enable or assist stockholders in measuring the function and duties of audit commissions ( KPMG,1999 ) . In Cameroon, audit commissions authorization is gotten from capital market act which requires that some authorization has to be delegated to the audit commission by the board.
2.7.2- The composing
Harmonizing to Joshi and Wakil ( 2004 ) , one of import variable of composing of the audit commission is the inquiry of independency ( joshi and wakil, 2004 ) . Br aiotta ( 1999 ) pointed out that the effectivity of an audit commission depends on the background of the commission ‘s members which have to dwell of both fiscal and non fiscal skilled people ( Braiotta,1999 ) .
The success or failure of the commission ‘s operation relies on the president, hence great attention has to be taken when taking the president ( Braiotta,1999 ) .According to Braiotta ( 1999 ) , the figure of audit commission member depends on the duties and authorization of the commission and besides on the size of the board and the company. The figure of the members vary from one state to another ( Braiotta,1999 )
There are turning statements on whether the commission members should be independent as advocated by Bean ( 1999 ) , the Blue Ribbon ( 1999 ) every bit good as it was adopted in Cameroon by the Capital Market Act in 2001 ( Hussein,2003 ) or should it depend on the environing fortunes of a peculiar company ( Attwood,1986 ) .According to Bean ( 1999 ) , an independent manager is one who is free from any relationship that can act upon his or her judgement as a member of the audit commissions ( Bean,1999 ) .However this is hard to find ( Pomeranz,1997 )
In Cameroon, the issue of independency of most managers is been affected by that fact they serves as managers in more than one listed company. This is as a consequence of deficit in skilled human resources capacity in Cameroon and besides due to the fact that most listed companies in Cameroon are little in size therefore doing it hard to pull people with qualified accomplishments.
2.7.3-The Qualification and Experience.
There are different point of views on the demand of fiscal literacy as a making for audit commission members. The Blue Ribbon commission ( 1999 ) recommended that all audit commission members has to be financially literate. Harmonizing to Rezaee et Al ( 2003 ) , fiscal literate is define as the ability to read and understand fiscal statement. However Herdman ( 2002 ) questioned the issue of whether the demand about fiscal literacy of audit commission members by the capital markets went far plenty. On the contrary, Jonathan and Carey ( 2001 ) argue on whether in a universe of of all time more complicated accounting criterion, where even to the full trained comptroller can fight to understand, if this is a realistic and a necessary demand as a member of the audit commission ( Jonathan and Carey,2001 ) .
In USA, surveies were carried out in countries of experience and expertness. The United states General Accounting Office ( GAO ) ( 1991 ) found out that over half of the 40surveyed audit commission chairs from big US Bankss reveals that their audit commissions were runing with no members with expertness in accounting, scrutinizing and jurisprudence inadvertence ( GAO,1991 ) .
2.7.4- Meeting and Reports
Harmonizing to Guy and Burke ( 2001 ) , audit commissions have to schedule meetings two to four times per twelvemonth depending on their range of activities and the company size. Graziana ( 2004 ) argued on the point that audit commission has to run into more often, both officially and informally.Formal meeting has to be held a least 4 times and sometimes up to 12 times per twelvemonth, this 4 meetings are in individual and last for about 4 hours. ( Graziana,2004 ) .These meetings must include the senior direction, external hearer and the internal hearer ( Graziana,2004 ) .Furthermore, the board has to depute the authorization ot the audit commission to keep particular meetings as needed ( Guy and Burke,2001 ) .
Some surveies have being carried out on the frequences of audit commission meetings.Menon and Williams ( 1994 ) made a research on 200 companies and found out that the figure of audit commission meeting was increasing as the figure of outside managers increased ( menon and Williams,1994 ) .Studies have shown that meeting frequence is positively related to the company ‘s size, monitoring and the demand of audit commission meeetings. Price WaterHouse Cooper ( 1999 ) saw that audit commissions in European companies meet averagely 3 to 4 times per twelvemonth.
The audit commission ‘s study has to be addressed to the BODs and must include their findings and recommendations sing the effectivity of the maps of internal and external hearers and other countries within the commission ‘s legal power as stated in the charter. Besides, the study has to establish on the engagement of the members in audit panning procedure and their monitoring activities ( Braiotta,1999 ) .
2.8-The Relationship with Management, Internal hearer and External hearer.
Harmonizing to Blue Ribbon commission ( 1999 ) , a company can merely accomplish quality fiscal coverage when there is an unfastened and blunt communicating every bit good as a co-working relationship between the board of managers, audit commissions, the direction, internal and external hearers. It has being argued Rezaee et Al ( 2003 ) that the most effectual attack is for the audit commission to work in coaction with the direction and the hearers to enable them place complex activities of the company, identify and asses the comparative hazards, find the accounting intervention and besides to acquire a complete apprehension of their impact on free and just presentation of fiscal public presentation in order to cut down deceitful activities ( Rezaee et al,2003 ) .Members of the audit commissions have to be sufficiently knowing to inquire tough inquiries to the direction every bit good as the internal and external hearers sing the study quality, transparence and the dependability of the studies. However, in developing states like Cameroon, most of the listed companies are institutionally owned and these establishments are owned by the authorities, as a consequent, some members serves in the board due to their virtue place in the authorities and non because of their making or experiences.
Braiotta ( 1999 ) stated that the audit commission has to be independent from CEO, nevertheless the CEO holds the best information beginning related to the concern and they guarantee speedy respond to the petition of the audit commission, therefore doing the relationship with the CEO the key. ( Braiotta,1999 ) .
The BODs has the duty of reexamining the overall effectivity of internal controls system but in world, the board can depute this duty to the audit commission ( Zaman,2001 ) .The board so has to make up one’s mind on the function of audit commission in the reviewing procedure, the function of audit commission in the reappraisal procedure besides depends on factors like the size, the board composing and the nature of the company ‘s chief hazards ( Zaman,2001 ) .
Harmonizing to Braiotta ( 1999 ) , it is necessary and of import for the audit commission and the hearers to set up a good working relationship that is non counterproductive ( Braiotta,1999 ) .There is a co-relationship between the plants of the audit commissions and independent hearers because they both have common fiscal aims. Following the Sarbabes-Oxley Act in the United States, it is legal for the hearers to describe to the direction. The audit commission has to O.K. all services both audit and non-audit, they get all new accounting and scrutinizing information from the hearers and they besides serve as an o official communicating line between the company and the hearers ( Tackett,2004 ) .The fact that the audit commissions are given the authorization in doing determinations about hiring and firing the hearers, has removes from the direction the ability of endangering the hearer with dismissal if the hearers fails to execute to the direction best involvement, moreover, the audit commission are required to do blessing to all payments made to hearers for their services like scrutinizing therefore doing it hard for direction ot bargain unneeded services from hearers with the hope that the hearers will give them some favourable interventions, in conclusion, the fact audit commissions are required to cover with any dissension between the direction and the hearers, makes it hard for direction to look in questionable accounting patterns. Knapp ( 1987 ) made a surveyed on 179 audit commissions members and found out that, when there is audit difference, the audit commission tend to back up the hearers and non the direction.
2.9- The Major Accomplishments and Challenges confronting audit commissions
Several sentiments has being raise sing the utility of audit commissions.According to Guy and Burke ( 2001 ) merely 22 % of the executive managers of FTSE 100companies have the construct that audit commission are helpful in accomplishing good corporate administration while 78 % remain unconvinced about the value of audit committees.However,89 % of the non-executive managers in FTSE 100companies have the believe that audit commissions are critical or helpful in accomplishing quality administration ( Guy and Burke,2001 ) .Menon and Williams ( 1994 ) carried out a survey on whether companies depends on the study of their audit commission, this survey reveals that companies do non trust on their audit study though they voluntarily formed the commissions, therefore these commissions were established for other intents. ( Menon and Williams,1994 ) .According to Joshi and Wakil ( 2004 ) , audit commissions are widely used in big companies and in companies with higher proportion of no executive managers ( Joshi and Wakil,2004 ) .
Due to the demand of corporate administration in companies, a batch of force per unit area is being mounted on audit commissions in supervising the unity of the house ‘s fiscal coverage activities. There are higher outlooks from the non-executive managers functioning as audit commissions members ( Jonathan and Carey,2001 ) .It is recognize that the duties of audit commission are increasing which has to make with affairs refering hazard direction, internal control, other regulative demand, the independency of external hearers and besides the move to international accounting criterion ( Jonathan and Carey,2001 ) .Furthermore, many stakeholders are interested in the house ‘s activities but with different dockets therefore doing it more complex and hazardous helping in audit commission or on boards. The Sarbane-Oxley for case provinces that failure to execute will ensue to legal actions.
Rezaee et Al ( 2002 ) pointed out that the inclusion of the study of audit commissions in proxy statements serves as challenges for the audit commissions. The commission members do non exert their full engagement in the readying of the fiscal statements therefore increasing their hazard ( Rezaee et al,2002 ) .
Surveies carried out in developed states shows that good corporate administration reduces deceitful gaining direction ( Rezaee et al,2003 ) . In fact, the corporate failures in some high net income companies are attributed to miss of argus-eyed inadvertence by the boards. It is instead unfortunate that there exist no empirical survey on the overall effectivity of corporate administration in Africa, Mangema and Chammisa ( 2008 ) observed that because of state differences in Africa, it will be much nicer and clear to analyze the assorted administration constructions individually in every state. This survey tries to bridge the spread in anterior survey by adding more in our apprehension of the operations and the major accomplishments of audit commissions in Cameroon.
A batch of empirical surveies have being carried out refering the operation and the functions of audit commissions in different states. For case, in Canada, Maingunt and Zeghal ( 2000 ) investigated the aims, composing, choice, frequence of the commission meeting, the relationship of audit commission with direction and hearers. ( maingunt and zeghal,2000 ) .
The old research in developing states did non turn to the point on how audit commissions relate with the direction, internal hearer and external hearers. In this survey, we want to make full in this spread by look intoing how audit commissions in Cameroon listed companies relate with the direction, internal hearers and external hearers.
Chapter 3 The Theoretical models for Corporate Governance and
The bureau theory have influenced recent believe about concern direction and policies. This tides that directors do non ever move to stockholders best involvement unless suited administration constructions are imposed to safeguard stockholders public assistance. ( Jensen and meckling, 1976 ) .The BODs have a great function to play here more particularly in the relationship among president and the CEO ( Tricker,1984 ) .the involvement of stockholders can merely be protected when the board chair is non detained by the CEO or when both the stockholders and the CEO have the same involvement ( Williamson, 1985 ) .
Harmonizing to Berles and agencies ( 1932 ) a individual stockholder can non exert control over a house whose capital is expeditiously and sufficiently dispersed. Therefore capital scattering allows directors to exert illicit power on behalf of stockholder. Directors determinations and actions are been monitored and evaluated by the audit commission formed by the board.The audit commission so serves as a nexus between the direction and the board and besides to protect stakeholders welfare.. The bureau theory and the stewardship theory are two finance theories that covers the construct of corporate administration and the function of audit commission to heighten good administration.
3.2 The Agency theory
Agency theory can be define as a contract in which one individual ( the principal ) engages another individual ( the agent ) to execute some services on his or her behalf ( Jensen and meckling,1976 ) . Harmonizing to Kiel and Nicholson ( 2003 ) , due to the separation of control and ownership maps, directors has to pull off the house on behalf of the house ‘s proprietors. However conflicts ever arises when the directors are non pull offing the house to the proprietors best involvement ( Eisenhardt,1989 ) .The bureau theory therefore is more concern in analysing and work outing jobs or struggles that occurs between houses proprietors and directors. By so making, the bureau theory assumes that the function of a company is to maximise stockholders wealth ( Blair,1995 )
The bureau theory relay on the fact that, most concerns are runing with uncomplete information and with a batch of uncertainness. These conditions so exposes the concern to two major bureau jobs ; inauspicious choice and moral jeopardy. The job of inauspicious choice occurs when the stockholder ( chief ) can non determine whether or non he director ( agent ) accurately stand for his or her ability to make the occupation for which he or she is being paid for ( Eisenhardt,19989 ) .Moral jeopardy on the other manus is when the stockholder ( chief ) is non certain that the director ( agent ) has put forth his or her maximal attempts ( Eisenhardt,1989 ) .According to this theory, directors have superior information that which let them to hold advantage over the house ‘s proprietors, directors may so be more motivated to fulfill their single public assistance instead than the public assistance of the stockholder ( Berles and means,1967 )
It has being argued by Donaldson and Davis ( 1991 ) that unless quality corporate administration constructions are implemented to safeguard stockholders involvement, directors will non ever move to maximise stockholders returns. In this respect, the bureau theory supported that the intent of corporate administration is to cut down the potency of directors moving reverse to stockholders involvement.
The bureau theory further argued on the point that, top direction of the house must hold important portion of the house so every bit to keep a positive relationship between corporate administration and the figure of stock owned by the top direction ( Mallin,2004 ) .According to Wheelen and Hunger ( 2002 ) , conflicts or jobs ever occurs in a company when the top direction is non willing to be held responsible for their determinations unless they have a sensible sum of stock on the company ( Wheelen and Hunger,2002 ) .The bureau theory besides advocated for the regulations and inducements that align directors behaviours with the involvement of stockholders ( Hawley and Williams,1996 ) , nevertheless it is practically impossible to compose down the regulations that governs all the scenarios that the employees brushs
3.3 Evidence on struggle of involvement between stockholders and directors.
following theoretical sentiments on the motivations for struggles of involvement among stockholders and directors, a good figure of research have reveals plenty proof proposing the happening and significance of bureau struggles between companies stockholders and directors related with hazard disagreement, privilege and fiddling problem.these research centres their findings on the struggle of involvement sing affairs of compensation, variegation, and investing
3. 3.1 Conflicts of involvement over compensation
A batch of surveies observe the association between directors, compensation and company public presentation and consequences shows regularity with conflicting involvements between stockholders and directors. A typical research is that conducted by Jensen and Murphy ( 1990 ) .this survey found a weak relation between directors compensation and public presentation. To intensify this, there is the cogent evidence that directors wealth are more sensitive to the size of plus than to the market value ( Jensen and potato, 1990 ) , this so opposes Rosen ‘s ( 1982 ) premiss that the size and wage relationship is because large companies employ more able executives. Agrawal and Knoeber ( 1998 ) perceive that coup d’etat menace have two beliing effects on managerial compensation. The first premiss is that of the consequence of market competition for directors, this leads to less ability for troughs to demand higher wages.the 2nd premiss is that of hazard consequence which in contrasts leads to higher compensation due to the fact that higher coup d’etat menace can increase the likelinesss of a house losing its specific human capital or compensation deferral. This so oblige manages to bespeak for higher rewards to counterpoise the high hazards. ( Agrawal and Knoeber ( 1998 ) .Following the study that was carried out by Agrawal and Knoebe ( 1998 ) on 450 companies which were divided in to two, ( one set where directors see both effects of hazard and competition and the other set where troughs faced merely the consequence of competition in the market ) .According Agrawal and knoeber ( 1998 ) , the both effects are of import. everything being equal, through the consequence of competition, lower coup d’etat menace consequence to higher rewards which is in harmoniousness with the point of view of misalignment of stockholders involvement and troughs involvement.
3.3.2 Conflict on variegation and wealth reduction investing
Another chief of struggle between stockholders and troughs is on the variegation schemes. There are theoretical claims that variegation have both costs and benefits to houses proprietors, nevertheless, bing cogent evidence suggest that the costs are more than the benefits. there is the averment that holds that, on an averages footing, variegation costs are far higher than the benefits, Morck, Shleifer and Vishny ( 1990a ; Bhagat, shleifer and Vishny ( 1990 ) servaes ( 1996 ) all found out that corporate variegation is associated with significant value loss.
Some cogent evidence of bureau jobs can be found in acquisitions and investings. Several surveies have reveals that purchaser return from the announcement of acquisition are negative ( Roll, 1986 ) .According to Jensen ( 1986 ) the nastiest bureau jobs arise in companies with hapless investing gaps and excess cash.it was argued by lang, stulz and walking ( 1991 ) that buyer returns are likely to be lower when companies have small Tobin Qs and greater hard currency flows. On the other manus, McConnell and Muscarella found cogent evidence of wealth cut downing investing in oil geographic expedition, this is particularly when troughs holds small ownership bets ( Lewellen, Loderer and Rosenfeld ( 1985 ) .
3.4 The stewardship theory
The stewardship theory holds a different attack from that of the bureau theory, it foremost premiss is that, the company serves a big scope of societal intents instead than merely seeking to maximise the wealth of stockholders. The stewardship theory besides called the stakeholders theory assumes that corporations are societal entities that affect stakeholders welfare and stakeholders are persons interacting with the houses straight, hence, they can impact or affected by the accomplishment of the house ‘s aims ( Donaldson and preston,1995, freeman,1984 )
Harmonizing to Starik and Rands ( 1995 ) , a company ‘s success can be judge by its ability to add stakeholders value ( starik and rands,1995, Dunphy et al,2003 ) .stakeholders will merely return to a house for more when they ever get what they wantFreeman,1984, freeman and Mc Vea,2001 ) .Hence stakeholders are regarded as instrumental to corporate success and they tend to possess some moral and legal rights ( Donaldson and Preston,1995, Ulrich,2008 ) .Companies direction have to take in to consideration the claims or concern of stakeholders in their determination devising procedure ( Blair, 1995 ) , stakeholders participation in the company ‘s determination devising procedure heighten better efficiency ( Turnbull,1994 ) and besides reduces struggles ( Rothman and Friedman, 2001 ) .
A company can utilize two attacks when sing or integrating stakeholders in their determination devising ( kaptein and van Tulder,2003 ) . These two attacks are reactive and proactive attack. Reactive attack on one manus is when the concern of stakeholders are non considered or integrated in doing corporate determination. This normally leads to misalignment of the company ‘s aims and the demands of stakeholders ( Mackenzie,2007 ) .The dirts of universe com was attributed to the fact that they ne’er integrated the stakeholder concern in their determination devising procedures ( Curral and Epstem,2003, Turnbull,2002, walkins,2003 and Zandstra,2002 ) .In respond to these dirts, some ordinances were set up by authoritiess with the purpose of alining stakeholders involvement with corporate aims. For case, the Sarbanes-Oxley Act. On the other manus, the proactive attack is when companies integrate the concern of stakeholders in their corporate determination doing procedure, therefore establishes a good corporate administration construction ( de humor et Al, 2006 ) .
3.5 Summary of the theories.
The cognition of bureau theory can be credited to Coase ( 1937 ) nevertheless the thoughts of this theory was practical merely to managers and boards since the 1980’s.Following. bureau theory, persons are self-interested and non selfless, therefore persons can ne’er be trusted to ever move in others best involvement. On the other manus, , persons will ever desire to maximise their public-service corporations maps, the bureau theory considered directors and stockholders relationship as a contract ( Adams, 2002 ) . This means that directors actions must be decently monitored to vouch that they ever act in stockholders ‘ best involvement.
The stewardship theory on its portion opted that company ‘s board of managers and their Chief executive officer, moving as stewards, are encouraged to move in the company ‘s best involvements and non seeking to fulfill their selfish involvements. This is partially because, antecedently senior executives regarded companies as an extension of themselves ( Clarke, 2004 ; Wheelen & A ; Hunger, 2002 ) .The stewardship theory hence suggested that, like stockholders, top direction of a company should care more on the future success of the company ( Mallin, 2004 ) .
4.1 Corporate Governance issues in Developing Countries ( Cameroon )
Harmonizing to Wallace ( 1990 ) , developing states are defined as those states found in mid-stream of development and are referred to anamorphous and heterogenous group of states found largely in Africa, Asia, Latin America, Middle East and Oceanea. There exist difference between developed and developing states in footings of civilization, political relations and market economic sciences ( Waweru and Uliana,2005 ) .Due to miss in skilled human resources, developing states hence find it hard to pull forces ‘s poetry with accounting and fiscal accomplishments in their commissions. The cultural fluctuation between extremely individualistic states ( like North America ) and extremely collectivized states ( like Africa ) necessitate different corporate administration agreements. Rabelo and Vasconcelos ( 2002 ) pointed out factors like economic tendencies towards globalisation, under developed capital market every bit good as authorities intercession has made the theoretical account of corporate administration to differ from those in European states and North America. Mensah ( 2002 ) argued that states in Africa are non good equipped in implementing the sort of corporate administration found in the western universe because of the economic and political governments qualifying these states ( illustration weak deceitful legal and judicial governments, province ownership of companies as good limited capacity in skilled human resources. ) .
Corporate administration constructions in less develop states are determined by the ardor to keep control by the bulk stockholders over houses, the dependant on debt finance, weak fiscal markets and uneffective legal system ( Rabelo and Vasconcelos,2002 ) .Developing states are ever confronted with jobs like less developed and illiquid capital markets, economic uncertainnesss, investors protection every bit good as weak legal and judicial control system ( Tsamenyi et al,2007 ) .
Harmonizing to Goddard and Masters ( 2000 ) , audit commissions has become more relevant and prevailing recently but nevertheless there is dearth in the empirical research about their value. Kalbers and fogarty ( 1993 ) further indicated that the issue of whether audit commissions are truly dispatching their relevancy duty remain insufficiently understood, proposing therefore the demand to analyze the ways audit commissions are runing in developing states like Cameroon
In Cameroon, most companies are owned by establishments and such establishments are owned by the province ( authorities ) , hence most board members are functioning the place as direction of stockholders non because of their making neither their experiences ( Mensah,2002 ) .Audit commissions operations in developing states are different compared with the patterns in developed states.In 2001, the Cameroon capital market authorization gave guidelines sing corporate administration activities for listed companies.one of this guideline was that which called all boards to organize audit commissions consisting at least three independent non-executive managers.
Figure 2, corporate administration ( CG ) fram work in Cameroon
4.2 The legal and Regulatory Framework of corporate administration for listed companies in Cameroon
Cameroon operates under two systems of Torahs viz. ; the common jurisprudence and the civil jurisprudence. The bilingu