External Audit and Financial Performance of Listed Banking Industries in Nigeria
Joseph, Ikechi Joseph, Williamson, Ihuoma Eucharia, Anyanwu, Linus Okechi
Abstract
This study examines the effect of external audit on the financial performance of listed banking industries in Nigeria, focusing on Zenith Bank and UBA. The objectives of the study are; to examine the effect of external audit report on the fraud detection and prevention of banks in Nigeria, to determine the effect of external audit report on the investment decision of banks Nigeria and to examine the effect of external audit report on reliability of financial statement of banks in Nigeria. To achieve the objectives of the study, case study research design was adopted. The population of the study is made up of 70 staff of selected banks while the sample size is made up of 60 staff after adopting judgmental sampling. The data were collected through questionnaire administration and was analyzed using simple regression analysis. The findings revealed that external audit report has significant effect on fraud detection and prevention of banks in Nigeria. The findings also revealed that external audit report has significant effect on shareholders’ investment decision of banks in Nigeria. Finally, it was revealed that external audit report has a significant effect on reliability of financial statements of banks in Nigeria. Based on the findings, the study recommends that External auditors should ensure that their report is consistent with the financial transactions of banks. Also, banks should not influence their financial statements because a true representation of their transaction would help investors to take a position. The study also recommends for an efficient internal control system in banks to prevent fraud and also aid external auditors.
Keywords
Financial Performance
External Audit
Investment Decision
Fraud Dictation
References
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Garcia-Blandon, J., &Argiles, J. M. (2015). Audit firm size and its influence on financial
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legislature within the EU and members of the financial market. (Unpublished Masters
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(UmpublishedMasters Thesis). Department of Accounting, Auditing and Control,
Erasmus University, Rotterdam.
Ibrahim, M., & Musa, A. (2021). External audit and financial performance: Evidence from
Nigerian listed firms. Journal of African Business, 22(4), 412-431.
ICAN study pack (2006). Audit and Assurance Services for professional examination.
Institute of Chartered Accountants of India (ICAI). (2006). Statement on auditing and
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Jensen, M. C. &Meckling, W. H. (2012). Theory of the Firm: Managerial behavior, agency
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Jibrin, R. D. (2004). Advanced Auditing and Assurance. (6thEdition).London Pearson
Education Limited.
Jones, M. (2011). Creative accounting, fraud and international accounting scandals. John
Wiley & Sons.Khasharmeh, H. A., (2003) “The Effective Factors in Selecting External Auditor in the
Jordanian Public Firms”, Journal of Economic & Administrative Science Studies”,
Amman – Jordan, vol. 30, issue 1, p.1.
Knechel, W. R., &Willekens, M. (2018). The role of risk management and governance in
determining audit demand. Journal of Accounting Research, 56(2), 423-460.
Lennox, G. S. (2013). Audit quality and auditor size: An evaluation of reputation and deep
pockets hypotheses. Journal of Business Finance and Accounting, 26 (7).
Levourch, J. & Dean, P. M. (2011). Study on the effects of the implementation of the Acquis
on statutory audits of annual and consolidated accounts, including the consequence on
the audit market. Paris: ESCP Europe.
Lidang, L. (2014). Assessing audit quality. (Unpublished PhD Thesis). Drexel University.
Louise, M. (2015). The effects of auditor independence on audit quality. Paper presented the
Department of Accounting, Bowling Green State University.
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, Finland.
Muchugia, G. G. (2018). The effects of external audit quality on the
Theory 19(2) 47-66.
Abdulwahab, M. (2016). Effect of External Auditing on Performance of Banking Industries: A
Case Study of First Bank Nigeria PLC. Academia.edu.
Adeniyi, S. I., &Mieseigha, E. G. (2015). Audit firm reputation and performance of deposit
money banks in Nigeria. Journal of Business and Management, 3(6), 37-45.
Adenle, A. A., Anyanwu, J. C., Okafor, G. O., &Oyelere, P. (2022). The role of external audits
in enhancing financial performance of listed companies. International Journal of
Business and Management, 12(3), 123-135.
Afolabi, O. O., &Fawale, A. A. (2020). Impact of audit quality on financial performance of
banking industries in Nigeria. Journal of Accounting and Finance, 8(2), 45-58.
Aguolu.O (2002), Fundamental of auditing, 2nd edition meridian publishers, Enugu.
Ajani, S. A. (2012). Auditing as a tool for enhancing the principal agent relationship. Study
Guide: Masters in Business Administration, Ahmadu Bello University, Zaria.
Akinlo, O., &Asaolu, T. (2017). External audit quality and financial performance of Nigerian
deposit money banks. Asian Journal of Accounting Research, 2(1), 7-20.
Alleyne, P. & Howard, M. (2005): An exploratory study of auditors’ responsibility for fraud
detection in Barbados. Managerial Auditing Journal. 20(3):284-303.
Amir, E., Einhorn, E. & Kama, I. (2011). Extracting sustainable earnings from profit margins.
Journal of Accounting, Auditing and Finance, 6 (9).
Anichebe, T. A. (2010). An analysis of the role of an internal auditor in the detection and
prevention of Fraud. Ahmadu Bello University, Zaria.
Asika, N. (2006). Research methodology in the behavioural sciences. Zaria: Longman Nigeria
Plc.
Ayres, I., & Braithwaite, J. (1992). Responsive regulation: Transcending the deregulation
debate. Oxford University Press.
Azubuike C.C (2008): Introduction to Quantitative Method for Business 2nd editionOwerri,
Nation-wide printers ltd.
Badara, M. S. (2012). The role of internal auditors in enhancing effective financial control at
the local government level. Research Journal of Finance and Accounting, 3(4).
Banks And Other Financial Institution Act (1991) laws of federal republic of Nigeria
Bessire, D. (2005) Transparency: A Two-Way Mirror? International Journal of Social
Economics, 32, 424-438.
Bouaziz, Z. (2012). The impact of auditor size on financial performance of Tunisian
companies. Paper presented at the Faculty of Economics and Management. Sfax
University, Tunisia.
Boynton, W., Johnson, R. &Kell, W. (2005). Assurance and the integrity of financial reporting.
8th edition. New York: John Wiley & Son, Inc.
Byrne, D. (n.d.). History of corporate governance. Institute.com.
Chadegani, A. A. (2011). Review of studies on audit quality. International Journal of
Humanities, Society and Culture, 20 (4).
Cooke, T. E. &Hudaib, M. (2011). Qualified audit opinions and auditor switching. Paper
presented at the Department of Accounting and Finance, University of Exeter.
Dandago K.I &Abdullahi .S.R (2013); Role of Auditing in the Preparation of Financial
statement. Journal of finance and investment analysis VOL no2, 2013, 63-75 ISSN:
224-0998(PRINT VERSION) Screenpress ltd.
Dandago K.I. ( 2002), Auditing in Nigeria. A comprehensive Test, (2nd E), kano; AdamuJoji
publishers, Nigeria, pp23-27Davidson, R. (2013). A note on the association between audit firm size and audit quality.
Contemporary Accounting Research Journal, 5 (1).
DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics,
30, 183-199.
Defond, M. L. (2012). The association between changes in client firm agency costs and auditor
switching. Journal of Auditing Practice and Theory, 11 (1).
Dicksee, L. R. (1923). Auditing: Its principle and practice.
Dongen, P. (2010). What is an audit? Retrieved from www.pwc.com/../index.jhtml on the
16/07/2013.
Dye, R. (2013). Auditing standards, legal liability and auditor wealth. The Journal of Political
Economy, 10 (4).
Eboh, E. C. (2009). Social and economic research principles and methods. Lagos: Academic
Publications and Development Resources Ltd.
Ebrahim, A. (2011). Auditing quality, auditing tenure, client importance and earnings
management. Paper presented at Rutgers University.
Ejembi O.A (1999). Special Audit and Investigations. First Edition.Micon print production,
Onitsha
Elder E.C. Obi O.1. (2001) " Management basic theories and processes",1st edition, matric
education book publishers, Aba 2001.
Elder, R. J., Beasley, M.S. &Arens, A. A. (2010). Auditing and assurance services: An
integrated approach. Engle Wood Cliffs, NJ: Prentice Hall.
Fearnley, S. & Beattie, V. (2011). Auditor independence and non-audit services: A literature
review. A paper presented at the Portsmouth Business School.
Flayyih, A., Ali, M., & Mohammed, S. (2018). The impact of external audits on financial
reporting quality in Nigerian banks. Journal of Financial Studies, 10(1), 67-78.
Garcia-Blandon, J., &Argiles, J. M. (2015). Audit firm size and its influence on financial
performance: An empirical analysis. International Journal of Accounting &
Information Management, 23(3), 319-339.
Gear, J. (2013). Is the European Union (EU) going too far? Examining the divide between the
legislature within the EU and members of the financial market. (Unpublished Masters
Thesis). University of Iceland.
Heil, D. (2012). The influence of the auditor on the earnings quality of their clients.
(UmpublishedMasters Thesis). Department of Accounting, Auditing and Control,
Erasmus University, Rotterdam.
Ibrahim, M., & Musa, A. (2021). External audit and financial performance: Evidence from
Nigerian listed firms. Journal of African Business, 22(4), 412-431.
ICAN study pack (2006). Audit and Assurance Services for professional examination.
Institute of Chartered Accountants of India (ICAI). (2006). Statement on auditing and
assurance standard: Basic principles governing an audit (AAS 1 or SA 200).
International Auditing and Assurance Standards Board. (2011). Audit Quality: An IAASB
perspective. New York.
Investopedia. (2024). Corporate governance: Definition, principles, models, and examples.
Retrieved from Investopedia
Jensen, M. C. &Meckling, W. H. (2012). Theory of the Firm: Managerial behavior, agency
costs and ownership structure. Journal of Financial Economics, 3 (4).
Jibrin, R. D. (2004). Advanced Auditing and Assurance. (6thEdition).London Pearson
Education Limited.
Jones, M. (2011). Creative accounting, fraud and international accounting scandals. John
Wiley & Sons.Khasharmeh, H. A., (2003) “The Effective Factors in Selecting External Auditor in the
Jordanian Public Firms”, Journal of Economic & Administrative Science Studies”,
Amman – Jordan, vol. 30, issue 1, p.1.
Knechel, W. R., &Willekens, M. (2018). The role of risk management and governance in
determining audit demand. Journal of Accounting Research, 56(2), 423-460.
Lennox, G. S. (2013). Audit quality and auditor size: An evaluation of reputation and deep
pockets hypotheses. Journal of Business Finance and Accounting, 26 (7).
Levourch, J. & Dean, P. M. (2011). Study on the effects of the implementation of the Acquis
on statutory audits of annual and consolidated accounts, including the consequence on
the audit market. Paris: ESCP Europe.
Lidang, L. (2014). Assessing audit quality. (Unpublished PhD Thesis). Drexel University.
Louise, M. (2015). The effects of auditor independence on audit quality. Paper presented the
Department of Accounting, Bowling Green State University.
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, Finland.
Muchugia, G. G. (2018). The effects of external audit quality on the
