Causality of Audit Expectation Gap and Corporate Performance in Nigeria

Abstract

This study examined the relationship between Audit Expectation Gap and firms’ performance in Nigeria which arises as a result of the several differences between the auditors’ role as defined by law and the perceived role of the Auditor by the users of audited financial statement of companies. Cross sectional field survey of the quasi-experimental research design was used in this study because the survey relied on a sample of elements from the population of interest. Secondary data was also used to corroborate the primary data. Diagnostic analysis, augmented Dickey-Fuller analysis, regression analysis and granger causality analysis were used to test the implications the independent variables have on the dependent variables. The results showed that the variation in earnings per share and return on capital employed was attributable to the variation in detection of error and fraud and opinion of auditors in the audited financial statement and that the independent variables granger cause the dependent variables. The study concludes that EPS is significantly influenced by prevention of error and fraud in audited financial statements. Therefore the study recommends, among others, that the Audit profession should accept additional or modified responsibilities demanded by the users of audited Accounts in order to further improve EPS and audit-cost-benefit value. Also necessary is the use of engagement letter as an appendix to Audited Accounts to explain and create awareness to the users of Annual Accounts of what the CAMA, 1990 requires the duties of auditors to be and what the auditors believes his legal duties entail.

Keywords: Audit, Expectation Gap, Corporate Performance, Causality, Nigeria