AUDITOR TENURE, AUDITOR INDEPENDENCE AND ACCRUAL – BASED EARNINGS MANAGEMENT OF QUOTED COMPANIES IN NIGERIA

Abstract

Auditor Tenure defines the length of the auditor-client relationship while auditor independence (measured by the quantum of audit fees received) defines an auditor’s quality of being free from influence, persuasion or bias, and hence the unbiased mental attitude in making decisions throughout the audit and financial reporting process. The absence of independence may greatly impair the value of the audit service and the audit report. On the other hand, an excessively long association between the auditor and his client may constitute a threat to independence. This study examines the relationship and effects of auditor tenure and auditor independence on the earnings management (measured by the amount of discretionary accruals) of companies in Nigeria. The study relies on secondary data derived from various companies’ financial statements and the Nigerian Stock Exchange fact book to determine and measure the level of earnings manipulations in corporate financial statements, applying an all-inclusive multivariate analysis. The empirical analysis using a total of 342 company year observations, shows that Audit tenure and auditor independence exert significant effects and exhibit significant relationship with the amount of discretionary accruals of quoted companies in Nigeria. The descriptive statistics result reveals a minimal presence of discretionary accrual management by the companies in the sample and on the average; about 94% of the companies engage their audit firms for over three years, with a considerable experience of a substantial number of audit firms in this distribution

Keywords: Auditor Independence, Auditor Tenure, Auditors Reports, Discretionary Accrual, Earnings Management

Article Review Status: Published

Pages: 63-90 (Download PDF)

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