Submit your papersSubmit Now
For Enquiries: [email protected]
IIARD LogoIIARD

Audit Independence and Reliability of Financial Reports: Empirical Evidence from Nigerian Banks

OKEZIE STELLA O. (PhD), EGEOLU DANIEL UCHENNA

Abstract

The study examined the effect of audit independence on reliability of financial reports in the banking sector. Ex-post facto research design was employed and data elicited from four (4) banks listed on the he Nigerian Stock exchange and also operates within the African region. The data spanning across 5years from 2014-2018, were analysed using multivariate linear regression. Findings revealed that audit independence had a significant effect on the value relevance of the financial reports of the banks under study. This was reflected in how the amount spent on audit fee had no significant effect on the reported earnings per share( proxy for reliance on financial reports by investors). Further findings reveal that audit independence has an insignificant effect on the timeliness of the financial reports. It was recommended that banks and other firms alike should negotiate for reasonable audit fees that would ensure engagement of an independent audit firm; in order to enhance the degree of confidence in the reported financial statement and thus create a high level of reliability on the financial reports. Furthermore managers are also enjoined to corporate with auditors in an independent manner to ensure timely production of financial reports which could point to reliability.

References

Abdul-Rahman, O.A., Benjamin, O.A., & Olayinka, O. H. (2017). Effect of audit fees on audit quality: Evidence from cement manufacturing companies in Nigeria. European Journal of Accounting, Auditing and Finance Research, 5(1), 6–17. AbdulMalik, S., & Ahmad, A. C. (2016).Audit fees, corporate governance mechanisms and financial reporting quality in Nigeria.DLSU Business & Economics Review, 26(1), 1– 14. AICPA, Statement on Auditing Standards No. 122. “Statements on Auditing Standards: Clarification and Recodification.” October 2011 Arens, R., Alvin A., Shailer, G. & Fielder, B. (2011) Auditing, Assurance Service and Ethics in Australia. 8th Edition. Pearson Australia Asien, E. N. (2014). Exploring the state of the audit market in Nigeria.African Journal of Accounting, Auditing and Finance, 3(4), 287–307 Asthana, S., Khurana, I., & Raman, K. K. (2018).Fee competition among Big 4 auditors and audit quality. Review of Quantitative Finance and Accounting, 50, 1–36. Bahram, S. (2007) Auditing_ An International Approach -Trans-Atlantic Publications, Inc. Bartov, E., Givoly, D., & Hayn, C. (2002).The rewards to meeting or beating earnings expectations. Journal of Accounting and Economics, 33(2), 173–204. Carmona, P., Momparler, A., &Lassala, C. (2015). The relationship between non-audit fees and audit quality: dealing with the endogeneity issue. Journal of Service Theory and Practice, 25(6), 777–795. David N. (2006) Auditing, 8th edition, Thomson, South-Western, Printed in the United States of America Enofe, D., Nbgame, C., Okunega, E. &Ediae, O. (2013) Audit Quality and Auditors Independence in Nigeria: An Empirical Evaluation. Research Journal of Finance and Accounting, 4 (11) 23-35 Eko, S. (2012) Determinant Factors Affecting The Audit Quality : An Indonesian Perspective. Global Review of Accounting and Finance, 3(2) 42 – 57 Eriabie, S., &Dabor, E. L. (2017). Corporate governance and audit quality in Nigeria: Evidence from the banking industry. Journal of Accounting, Finance and Auditing Studies, 3(1), 1–16. Gujarati, D. N. (2004). Basic econometrics - Economic series McGraw-Hill international editions: Economic series. ... Herath, K. S., &Albarqi, N. (2017). Financial reporting quality : A literature review School. International Journal of Business Management and Commerce, 2(2), 1–14. International Auditing and Assurance Standards Board (IAASB) (2015) A Framework For Audit Quality. Jensen, M. &Meckling, W. (1976) Theory of the Firm: Managerial Behaviour, Agency Cost and Ownership Structure. Journal of Financial Economics, 3(1)305-360. Knechel, W. R., Krishnan, G. V., Pevzner, M., Shefchik, L. B., &Velury, U. K. (2012). Audit quality: Insights from the academic literature. Auditing: A Journal of Practice & Theory, 32(1), 385421 Linda, E. &DeAngelo, C. (1981) Auditor Size And Audit Quality. Journal of Accounting and Economics , 3 (1981) 183-199. Mautz, H. & Hussein, A. (1993) The Philosophy of Auditing. American Accounting Association Seventeenth Printing Messier, C. (2008) Auditing and Assurance Services_ A Systematic Approach, Edition 6 - McGraw-Hill Companies Mitra, S., Deis, D. R., &Hossain, M. (2009). The association between audit fees and reported earnings quality in pre- and post- Sarbanes-Oxley regimes.Review of Accounting and Finance, 8(3), 232–252. Ndubuisi, A. N., &Ezechukwu, B. O. (2017). Determinants of audit quality : Evidence from deposit money banks listed on Nigeria stock exchange. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(2), 117–130. Nelson, S. P., & Devi, S. (2013). Audit committee experts and earnings quality. Corporate Governance, 13(4), 335–351. Novie, S. (2013) An empirical analysis of auditor independence and audit fees on audit quality. International Journal of Management and Business, 3(3)13-27 Okolie, A. O. (2014). Auditor tenure, auditor independence and accrual – based earnings management of quoted companies in Nigeria. European Journal of Accounting Auditing and Finance Research, 2(2), 63–90. PCAOB Auditing Standard No. 12.“Identifying and Assessing Risks of Material Misstatement.”Release 2010-004. August 2010 Public Company Accounting Oversight Board (PCAOB) (2013) Standing Advisory Group Meeting Discussion – Audit Quality Indicators. Rick, H., Roger, D., Arnold, S. & Philip, W. (2004) Principles of Auditing_ An Introduction to International Standards on Auditing (2nd Edition) Scott, W. (2009) Financial Accounting Theory (5ed), New Jersey: Prentice-Hall International, Inc. Turpen, R. A. (1995). Audit fees - what research tells us. (Auditing).The CPA Journal Online. Retrieved from http://archives.cpajournal.com/old/16349305.htm Zhou, S. & Liu, X. (2006) The analysis of Chinese auditing market. Northern Economy Journal, 2(1)52.

More Articles from IIARD INTERNATIONAL JOURNAL OF ECONOMICS AND BUSINESS MANAGEMENT