Audit Quality and the Financial Performance of Quoted Companies in Nigeria: Empirical Discourse

Authors

  • Edirin Jeroh Delta State University, Abraka
  • Kenneth Kaunda Ozegbe Delta State University, Abraka

Keywords:

Auditors’ Independence, Return on Assets, Audit Tenure, Agency Theory, Profitability

Abstract

This report presents the outcome of a research that examines audit quality attributes as possible determinants of companies’ financial performance. Specifically, the study drew inference from quoted companies in Nigeria, with data covering 10 years (2011 to 2020). The proxy for audit quality were statutory audit services, audit tenure, auditor’s independence, and audit-firm size; whereas, firm performance was measured by Return On Assets (ROA). Firm year data which were collated from their respective annual reports were obtained from the database of MACHAMERATIOS. The study adopted the Panel Least Square technique, descriptive analysis and relevant diagnostic tests as part of the tools used in analyzing the data collated. From the results, while we notice that audit independence exerts significant negative influence on ROA; audit tenure and audit firm size had positive relationship with ROA, although, this relationship was not significant. Conversely, statutory audit service on its own significantly influenced firm performance (ROA). Overall, measures of audt quality exert joint significant influence on ROA. With the study’s results, we recommend among others that the country’s Financial Reporting Council and other regulators should develop policy guidelines to specifically checkmate auditors’ tenure vis-à-vis compliance to existing regulatory framework for financial reporting.

Author Biography

Kenneth Kaunda Ozegbe, Delta State University, Abraka

Accounting Department

References

Al-Attar, K. A. (2017). The impact of auditing on stock prices of Amman Stock Market’s listed companies. International Journal of Academic Research in Business and Social Sciences, 7(6), 210-220. DOI: 10.6007/IJARBSS/v7-i6/2958

Almomani, A.M. (2018). The impact of audit quality features on enhancing earnings quality: the evidence of listed manufacturing firms at Amman stock exchange. Asian Journal of Finance & Accounting 7(2), 255-280

Amahalu, N., & Beatrice, E. (2017).Effect of cash holding on financial performance of selected quoted insurance firms in Nigeria. Contemporary Issues in Business Management: A Multidisciplinary Approach (Book of Readings).

Ayora, O. E. & Ogeto, E. J. (2022). Audit quality, audit firm size and financial performance of listed commercial banks in Kenya. International Journal of Research and Innovation in Social Science, 6(2), 535-539.

Buntara, A. A. & Adhariani, D. (2019). Audit tenure and audit quality: the renewal sense of comfort. Australasian Accounting, Business and Finance Journal, 13(4), 46-62. DOI:10.14453/aabfj.v13i4.4.

Capkun, V., Collins, D., & Jeanjean, T. (2016). The effect of IAS/IFRS adoption on earnings management (smoothing): A closer look at competing explanations. Journal of Accounting and Public Policy, 35(4)352-394.

Chen, Y-S., Cheng, Y-S. & Liu, Y-P. (2021). Optimal strategy of performance creation: Evidence from audit firms in China. Global Journal of Business Management, 15(1), 1-11.

Donatella, P., Haraldsson, M., &Tagesson, T. (2019). Do audit firm and audit costs/fees influence earnings management in Swedish municipalities? .International Review of Administrative Sciences, 85(4), 673-691.

Du, X., & Lai, S. (2018). Financial distress, investment opportunity, and the contagion effect of low audit quality: Evidence from China. Journal of Business Ethics, 147(3), 565-593

Egbunike, F.C., & Abiahu, C.M. (2017). Audit Firm Report and Financial Performance of Money Deposit Banks in Nigeria. The Nigerian Account, 5(1): 25-39

Ezinando, E. E. E. & Jeroh, E. (2017). Budget deficit and fiscal administration in selected sub-saharan African countries. Trends Economics and Management, 11(29), 21-34

Geiger, M. A. & Kumas, A. (2018). Anticipation and reaction to going‐concern modified audiopinions by sophisticated investors. International Journal of Auditing, 22(3), 522-535.

Hua, C.S Hla, T.D & Isa, H.A (2016). Malaysia Financial Reporting Practices and Audit Quality Promote Financial Success: The Case of Malaysian Construction sector, UNIMAS Review of Accounting and Finance, 1(1): 36-50

Ideh, A. O., Jeroh, E. & Ebiaghan, O. F. (2021). Board structure of corporate organizations and earnings management: Does size and independence of corporate boards matter for Nigerian firms? International Journal of Financial Research, 12(1), 329-338.

Ivungu, J. A., Anande, K. G. & Ogirah, A. U. (2019). Effect of audit quality on firm performance.: A review of literature. International Journal of Advanced Academic Research in Social and Management Sciences, 5(6), 1-13.

Jeroh, E. (2020). An assessment of the internal determinants of the environmental disclosure practices of firms across Sub-Saharan Africa. Ekonomski Horizonti, 22(1), 47-59.

Jeroh, E. (2020a). Firms attributes, corporate social responsibility disclosure and the financial performance of listed companies in Nigeria. Asian Economic and Financial Review, 10(6), 727-743.

Jeroh, E. (2020b). Corporate financial attributes and the value of listed financial service firms: The Nigerian evidence. Academy of Accounting and Financial Studies Journal, 24(2), 1 – 13

Jeroh, E. (2016). Does book values and earnings affect equity values of corporate entities in Nigeria Trends Economics and Management, 10(27), 30 – 38.

Jeroh, E., Ekwueme, C. M. & Okoro, E. G. (2015). Corporate governance, financial performance and audit quality of listed firms in Nigeria. Journal of Academic Research in Economics, 7(2), 220-231.

Jeroh, E. & Okoye, E. (2015). Impact assessment of bank consolidation on the performance of commercial banks in Nigeria. Acta Universitatis Danubius Oeconomica, 11(5), 30 -44.

Jeroh, E. & Ekwueme, C. M. (2015). Interest rate regime and the performance of the Nigerian capital market. Studies and Scientific Researchees- Economics Edition, 22, 43-54.

Kyriakou, M. I. & Dimitras, A. I. (2018). Impact of auditor tenure on audit quality: European evidence. Investment Management and Financial Innovations, 15(1), 374-386.

Martani, D., Rahmah, N. A., Fitriany, F.& Anggraita, V. (2021). Impact of audit tenure and audit rotation on the audit quality: Big 4 vs non big 4. Cogent Economics & Finance, 9(1), 1-19. 1901395, DOI: 10.1080/23322039.2021.1901395

Matoke, V.N. & Omwenga, J. (2016). Audit Quality and Financial Performance of Companies listed in Nairobi Securities Exchange. International Journal of Scientific and Research Publications, 6(11), 372 – 381.

Monye-Emina, H. E. & Jeroh, E. (2014). Determinants of the credibility of audit reports in the Nigerian insurance sector. Illorin Journal of Management Sciences, 5(1), 1-12.

Monye-Emina, H. E. & Jeroh, E. (2022). Determinants of abnormal audit fees in International Reporting Standards- Based financial statements. Ekonomski Horizonti, 24(1), 75-93. DOI:10.5937/ekonhor2201075M.

Moses, T; Ofurum, C.O. & Egbe, S. (2016). Audit committee characteristics and quality of financial reporting in quoted Nigerian banks. International Journal of Advanced Academic Research, Social and Management Sciences, 2(5), 1 – 10.

Mustafa, M. O. A., & Muhammad, A. U. (2018).The nexus between audit quality and performance of listed oil and gas firms in Nigeria. International Journal of Innovative Research and Advanced Studies, 5(1), 222-231.

Odjaremu, G. O. & Jeroh, E. (2019). Audit committee attributes and the reporting timeliness of listed Nigerian firms. Trends Economics and Management, 13(34), 69-82.

Rafiu, O. S., Titilayo M. O. & Eghosa G. I. (2017), Going concern and Audit opinion of Nigerian Banking Industry: Accounting and Taxation 9(1), 63-72.

Salehi, M., Mansoury, A. & Pirayesh, R. (2009). Firm size and audit regulation and fraud detection: Empirical evidence from Iran. ABAC Journal, 29(1), 53-65.

Sawan, N. & Alsaqqa, I. (2013). Audit firm size and quality: Does audit firm size influence audit quality in the Libyan oil industry? African Journal of Business Management, 7(3), 213-226.

Slaheddine, T. (2016). Impact of audit quality on firm performance. Evidences from Malaysia companies. Arabian Journal of Business and Management Review, 5(2), 15-26

Tahinakis, P. &Samarinas, M. (2016). The incremental information content of audit opinion. Journal of Applied Accounting Research, 17(2), 139-169.

Tanko, U. M., & Polycarp, S. U. (2019). Audit Quality, Political Connection and Investors Protection and How They Affect Nigeria Firms Performance. Journal of Internet Banking and Commerce, 24(3), 1-20.

Ugwunta, O. D., Ugwuanyi, B. U., & Ngwa C. U. (2018). Effect of audit quality on market price of firms listed on the Nigerian stock market. Journal of Accounting and Taxation, 10(6): 61-70.

Downloads

Published

2022-10-31

Issue

Section

Business Administration and Business Economics