IIARD International Institute of Academic Research and Development

Journal of Accounting and Financial Management (JAFM )

E-ISSN 2504-8856
P-ISSN 2695-2211
VOL. 10 NO. 10 2024
DOI: 10.56201/jafm.v10.no10.2024.pg47.71

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Audit Quality and Financial Performance of Quoted Insurance Companies in Nigeria

Sarah Ikeagwu

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Abstract

This study investigates the impact of audit quality on the financial performance of quoted insurance companies in Nigeria, focusing on auditor independence and auditor expertise as proxies for audit quality, and return on assets (ROA) as a measure of financial performance. Utilizing a quantitative research approach, the study analyzes data from several insurance firms to determine how auditor independence and expertise affect their ROA. The findings reveal a statistically significant positive relationship between both auditor independence and auditor expertise with ROA. Specifically, the coefficient for auditor independence (AUI) is 0.50 with a p- value less than 0.001, indicating that increased auditor independence is associated with a higher ROA. Similarly, the coefficient for auditor expertise (AUE) is 0.40, also with a p-value less than 0.001, suggesting that enhanced auditor expertise correlates with improved ROA. These results underscore the importance of high-quality audits in the insurance sector. The positive relationship between auditor independence and ROA supports the Agency Theory, which posits that greater auditor independence aligns managerial interests with those of shareholders, leading to improved financial performance. Additionally, the significant impact of auditor expertise aligns with previous research highlighting the necessity for specialized knowledge in handling complex insurance sector regulations and financial reporting requirements. This study extends existing literature by providing empirical evidence on the specific impact of audit quality components on financial performance within the Nigerian insurance industry. The findings have practical implications for insurance firms and regulators. It is recommended that insurance companies enhance auditor independence through measures like audit firm rotation and engage auditors with specialized expertise in the insurance sector. Regulatory bodies should

keywords:

Audit Quality, Auditor Independence, Auditor Expertise, Return on Assets, Nigerian

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