Audit Quality Effects on Earnings Management of Manufacturing Firms in Nigeria: A Comparative Study of Pre- and Post-International Financial Reporting Standard (IFRS) Period

Abstract

This study examined the effect of audit quality proxied by Auditors’ Independence (ADI), Audit Firm Size (AFS), Auditor Tenure (ADT) and Audit Firm Specialization (ADS) on shareholders’ earnings (measured as Earnings per Share - EPS) and stock performance (measured as Market Price of Stock - MPS) of listed manufacturing companies in Nigeria, in the pre-and post-International Financial Reporting Standard (IFRS) periods. To achieve this, the study used eleven (11) listed manufacturing companies listed companies that had consistently published their audited annual financial reports from 2009 to 2018. Descriptive statistics, correlation analysis and Ordinary Least Square (OLS) univariate and multiple regression technique were adopted to analyse data obtained, with the ex-post facto research design employed in the methodology. The following results were obtained from the test of hypotheses. Auditors independence, audit firm size and auditors firm specialization have significant and positive impact on EPS and MPS. However, auditors’ tenure was found to significantly affect both EPS and MPS negatively. The IFRS moderated model results revealed that audit quality variables have higher and more positive impact on EPS and MPS in the post-IFRS period, relative to the pre-IFRS, with their effects being statistically significant using the wald restriction test. The findings have direct implication on earnings management and stock performance in the Nigerian Manufacturing Industry.

Keywords: Earnings Per Share, Market Price, Auditors’ Independence, Audit Firm Size, Audit Tenure, Audit Firm Specialization

DOI: 10.7176/RJFA/10-24-03

Publication date: December 31^st 2019