Determinant of Audit Quality of Quoted Industrial Goods Sector in Nigeria

Abstract

External auditing is a key component of a well-functioning capital markets. This is based on the assertion that companies with a reputation for credible financial reporting are likely to change auditors when their audit quality is questioned to avoid capital market consequences of unreliable financial reporting. This study empirically ascertained the relationship between audit quality attributes and financial reporting quality of listed consumer goods companies in Nigeria. The study adopted a correlational research design and adopted 12 out of the entire population of 17 quoted companies in the industrial goods sector using purposive sampling technique to determine sample size. The result of the panel regression with the aid of STATA indicated that audit firm size has a negative significant relationship, auditor tenure has a positive insignificant relationship while audit fees has a negative insignificant relationship with financial reporting quality of quoted industrial goods companies in Nigeria. The study recommended that consumer goods companies should not rely on audit fees paid to auditors as a guarantee of qualitative financial reporting since audit fees contributes negatively and insignificantly to financial reporting quality. Consumer goods companies should not emphasis on elongated tenure of auditors and should reasonably consider the size of audit firms before engaging them.

Keywords: Audit Fees, Audit Tenure, Financial reporting, Firm size, audit quality, Industrial goods sector.