Journal of Economics and Business
ISSN 2615-3726 (Online)
ISSN 2621-5667 (Print)
Published: 17 February 2020
The Effect of Audit Quality on Financial Performance of Deposit Money Banks (Evidence from Nigeria)
Chukwuma C. Ugwu, Lilian N. Aikpitanyi, Sonia Idemudia
Federal University, Nigeria
Download Full-Text Pdf
Keywords: Audit quality, Financial performance, Deposit Money Banks
This study examines the impact of audit quality on the financial performance of all the 15 listed DMBs in Nigeria from 2011-2017. Independent variables used are audit firm size, joint audit and audit fee, while ROA, proxy for financial performance, is the dependent variable. Secondary data were used, which were extracted from the financial statements of the listed DMBs. The study employed correlation and ex-post facto research designs and multiple regressions were used for data analysis. The study revealed significant and positive relationship between audit firm size and ROA, negative and significant relationship between joint audit and ROA and negative and insignificant relationship between audit fee and ROA. The study, therefore, recommends that since joint audit showed significant relationship with firm performance in this regard regulatory bodies should try to make joint audit compulsory and any firms that fail to comply should be sanction. The study also recommends that since audit firm size positively and significantly affects firm performance. Smaller audit firm should be encouraged as they are likely to carry out a more thorough audit assignment, because most of the DMBs engaged the service of the bigger audit firm.
- Anil, G. (2016). Relationship Between Audit Quality and Corporate Governance: An Empirical Research in Borsa Istanbul. Journal of Business and Management, 18(11), 84–88.
- Augustine, O. O., Famous, O. I. & Augustine O. E. (2014). Audit quality and accrual based earnings management of quoted companies in Nigeria. IOSR Journal of Economics and Finance, 2 (2), 07-16
- Becker, C., DeFond, M., Jiambalvo, J., Subramanyam, K.R. (1998), ‘The effect of audit quality on earnings management’, Contemporary Accounting Research, Spring, Vol. 15 pp.1-24.
- Cheong, P. C., Boon, H. T., Ong, T.S & Hong, Y.H, (2015). The relationship among audit quality, earnings management, and financial performance of malaysian public listed companies. International Journal of Economics and Management 9 (1).
- Carcello, J. V., D. R. Hermanson, and R. A. Riley. (2002). Board characteristics and audit fees. Contemporary Accounting Research 19 (3): 365-384.
- Dangana, U. (2014). Audit Attributes and Financial Reporting Quality of Listed Building Material Firms In Nigeria. unpublished thesis submitted to the school of postgraduate studies, ahmadu bello university zaria, in partial fulfillment of the requirements for the award of master of science degree (m.sc) in accounting and finance.
- DeAngelo, L.E.(1981). Auditor size and audit quality. Journal of Accounting and Economics 3(3): 183-199
- DeFond, M.L.,& Francis, J.R. (2005). Audit research after Sarbanes-Oxley.Auditing. A Journal of Practice & Theory, 24 (supplement), 5-30.
- DeFond, M. and Francis, J. (1992). Audit research after Sarbanes-Oxley. Auditing: A Journal of Practice & Theory 24: 5-30.
- Francis, J.R. Ke, B. (2006). Disclosure of fees paid to auditors and the market valuation of earnings surprises. Review of Accounting Studies, 11, 495–523.
- Francis, J.R. (2004) ‘What Do We Know about Audit Quality?’, The British Accounting Review,36(4): 345-368.
- Francis, J.R., Maydew, E.L., & Sparks, H.C. (1999). The role of big 6 auditors in the credible reporting of accruals. Auditing: a Journal of Practice & Theory,18(2), 17-34.
- Frankel, R., Johnson, M. and Nelson. K. (2002) ‘The relation between auditors' fees for nonaudit services and earnings management’, The Accounting Review , 77 (Supplement): 71-105.
- Hiryel, A.I. (2017). Effect of Audit Firm Attributes on Earnings Quality of Listed Consumer Goods Firms in Nigeria. Being a dissertation submitted to the department of accounting Ahmadu Bello University, Zaria, Nigeria for the award of master of science (m.sc) degree in accounting and finance
- Jensen, M.C. and Meckling, W.H.: (1976) „Theory of the firm: managerial behaviour, agency costs and ownership structure‟, Journal of Financial Economics, 3, pp.306-360.
- Krishnan, G., (2003). Does Big 6 auditor industry expertise constrain earnings management? Accounting Horizons 17, 1-16.
- Kwabena, K. A. (2017). The Effects Of Internal Audit Quality On Financial Performance Of Firms Listed At The Nairobi Securities Exchange. A Thesis submitted in Partial fulfillment of the requirement for the award of Master in Business Administration. Degree of the School of Business University of Nairobi.
- Lesage, C., Ratzinger-Sakel, N. and Kettunen, J. (2012) Struggle over joint audit: on behalf of public interest? Available at: ¼2176729 (accessed 12 November 2012).
- Louise, M. (2005). The effects of auditor independence on audit quality. Paper presented the Department of Accounting, Bowling Green State University
- Marmousez, S. (2009). The choice of joint-auditors and earnings quality: Evidence from French listed companies. CAAA Annual Conference 2009.
- Miettinen, J. (2011), The role of audit quality on the relationship between auditee’s agency problems and financial information quality. Paper presented at the Department of Accounting and Finance, University of Vaasa, Finlan
- Morteza, Z. (2014). The effect of audit quality on the performance of listed companies in Tehran Stock Exchange. 21, 36–43.
- Mungai J. N., Lucy M. & Susan W. N. (2016), Effect of auditing on financial Performance of water and sanitation company in kirinyaga county, kenya, Journal of Finance and Accounting 2016; 4(5): 271-284, ISSN: 2330-7331 (Print); ISSN: 2330-7323 (Online)
- Rosikah, Dwi K. P., Dzulfikri A. M., Muh. I. A. and Miswar R. (2018); Effects of Return on Asset, Return On Equity, Earning Per Share on Corporate Value; The International Journal of Engineering and Science (IJES); Volume 7, Issue 3 Vol. I; 2018 ISSN (e):2319 –1813ISSN (p):23-19 –1805
- Sarens, G. & Abdolmohhamadi, M. J. (2007). Agency theory as a predictor of the size of the internal audit function in Belgian Companies. Paper presented at the Annual Congress of European Accounting Association in Lisbon.
- Shehu, U.H., (2011), Corporate Governance and Financial Reporting Quality: A Study of Nigerian Money Deposit Bank, International Journal of Research in Computer Application and Management (U.S.A), 1(6): 12-19 ISSN: 2231-1009
- Shehu, S. H. (2012). Firm Characteristics and Financial Reporting Quality of Quoted Manufacturing Firms in Nigeria. An Unpublished PhD Dissertation School of Postgraduate Studies Ahmadu Bello University, Zaria
- Shehu U. H. and Musa A. F. (2014), Firm Attributes and Earnings Quality of listed Oil and Gas Companies in Nigeria; American Research Institute for Policy Development; Review of Contemporary Business Research March 2014, Vol. 3, No. 1, ISSN: 2333-6412 (Print), 2333-6420 (Online) www.aripd.org/rcbr
- Sim, H. C., Daw, H.T., & Abu I.H. (2016). Malaysia Financial Reporting Practices and Audit Quality Promote Financial Success : The Case of Malaysian Construction sector. 1(1), 36–50.
- Sylvester, E. & Eyesan, L.D. (2017). Audit quality and Earnings Management in Quoted Nigerian Banks. Journal of Accounting, Finance and Auditing Studies.
- Tom, A., & Ying, Z. (2018). The Effect of Audit Quality on a Firm’s Internal Information Environment: Evidence from Group Audits
- Watts, R. L. (1998). A review of agency problems, auditing and the theory of the firm. Journal of Law and Economics, 26 (3).