Audit Committee Characteristics and Audit Quality: Exploratory and Empirical Analysis In Nigerian Oil Sector (Published)
This paper examined audit committee characteristics on audit quality in Nigeria, for 10 years spanning from 2009-2018. Specifically, this study assessed the effect of audit committee size on audit quality in the oil and gas sector and examined the effect of audit committee meetings on audit quality in the oil and gas sector. The study adopted an expo-facto research design and the population covered all the 12 listed Oil and Gas sectors; out of which, 10 firms were selected through a random sampling technique. The study used secondary data, sourced from the published financial reports of the sampled firms covering the period of 2009-2018. Through logistic regression, it was discovered that audit committee size exerted a positive significant effect on audit quality of firms in the oil and gas sector in Nigeria and that audit committee meeting exerts a positive but insignificant effect on audit quality of firms in the oil and gas sector in Nigeria. It was concluded that audit committee has a statistically significant effect on audit quality in Nigeria. Thus, it was recommended that emphasis and focus should be placed on the size of the audit committee to improve audit quality and that modalities surrounding the meetings of the committee members should be revisited. Also, adequate supervision and monitoring should be ensured in every meeting of the committee members.
Purpose: Information technology has been implemented by organizations in East Africa with most transactions and records being digital. At end of the financial year, these organizations require their financial statements to be audited. This study was to first take stock of the level of adoption of audit software by Small and Medium-sized Practices (SMPs) in East Africa. This comes at a time where the Covid-19 pandemic has led to even further computerization as organizations implemented health directives on face-to-face contact, paperless environment and work-from-home initiatives, among others. Methodology: A questionnaire comprising seven questions were sent out to sampled firms to respond electronically via the SurveyMonkey® tool. Out of about 1310 firms, the questionnaire was sent out to a random sample of 700. Results: A total of 251 responses were received (36% of the sample). 70% of the SMPs were 1-10 years old in practice. Only one-in-four firms (25%) had adopted audit software. The four most common audit software were CaseWare®, Myaudit, PCAS and DraftWorxTM. The three major benefits from using audit software were the improvement in audit quality, audit project efficiencies and IFRS-compliant accounts. The three main challenges faced in adoption of audit software were the high costs of the software licenses, the lack of timely vendor support and the unstable/high cost of internet connectivity. The three main suggestions to increase adoption of audit software by SMPs in East Africa were to compel all the firms to adopt, to lower the cost of the software and probably develop a home-grown solution. Significance of study: The study has helped highlight the extent of adoption of audit software. It has also revealed the most common audit software in use. With this information, the NBAAT, ICPAK, ICPAU, iCPAR and OPC can develop a 3-year roadmap to facilitate the SMPs to gradually acquire the audit software. At each Annual Practitioner’s Forum, adoption of audit software and how it enables the firm’s business to grow can become a permanent topic. This can supplement the advanced Microsoft Excel® training that is being undertaken by most of the SMPs. Future research: After a 2-year period, further research can include an in-depth interview with a sample of firms that responded to determine the influence of audit software or lack thereof on their competitiveness among fellow SMPs in their respective countries.
The Effect of Non Financial Measures, Independent Board of Commissioners, and Audit Quality against Firm Value, With Cost of Equity as a Moderating Variable (Published)
This study aims to analyze the effect of non-financial measures, independent board of commissioners, and audit quality on firm value, with the cost of equity as a moderating variable. The method used in this research is descriptive and verification methods. The data source is secondary data from the annual reports of manufacturing companies in the 2013-2016 period which are listed on the Indonesia Stock Exchange as many as 97 companies with 388 companies. The results showed that there are non-financial measures of customer perspective and internal process perspective, independent board of commissioner, and audit quality significantly influence firm value. Cost of equity as a moderating variable makes the influence of the independent board of commissioner weak against firm value. While the growth and learning perspective variables do not really affect the firm value. Cost of equity strengthens the influence of non-financial measures customer perspective on firm value, while in the internal process perspective, growth and learning of non-financial measures and audit quality are weak. The cost of equity will strengthen variables that can support the wishes of shareholders and will weaken variables that are independent of board of commissioner and audit quality. Other results require large costs to increase firm value. Firm value can be increased by increasing non-financial activities, the number of independent board of commissioner shares and conducting audit quality by reducing the amount of cost of equity that can weaken the value of firm value.
The Effect of Tax Audit on Productivity of Internal Revenue Service: Cross River State Experience (Published)
This paper focused on the effect of tax audit on productivity of Cross River State Board of Internal revenue service. The result of the study showed that tax audit strategies have direct insignificant relationship with productivity. However, tax audit is employed by the relevant tax authority (RTA) to achieve target revenue and also reduces the problem of tax evasion and avoidance. The study further revealed that tax payers do not usually cooperate with tax audit personnel during audit. That the relevant tax authority should put policies in place that would enable tax payers to cooperate with tax audit personnel during audit exercise.
Effects of Audit Committee Expertise and Meeting on Audit Quality of Listed Consumer-Goods Companies in Nigeria (Published)
The study examines the effects of audit committee expertise and meeting on audit quality of listed consumer-goods companies in Nigeria covering a period of eleven (11) years (2006 – 2016). Longitudinal panel research design was adopted for the study. The population of the study consists of the twenty-three (23) listed consumer-goods companies on the floor of Nigerian Stock Exchange as at 31st December, 2016. The census sample size consists of fifteen (15) companies. Eight (8) companies were filtered out of which five (5) companies were listed outside the period of study and three (3) companies were without complete data. Secondary data from published annual financial statements of the sampled companies in Nigeria were used. Descriptive statistics (mean, standard deviation, minimum and maximum) and inferential statistics (correlation and multiple regression) were used for the study. The results show that audit committee expertise and meeting have positive and non significant effects on audit quality of listed consumer goods companies in Nigeria. The study concludes that audit committee expertise and meeting have no significant effect on audit quality of listed consumer-goods companies in Nigeria.
The Association between Audit Quality and Earnings Management by Listed Firms in Nigeria (Published)
This study examines the association between audit quality and earnings management by listed firms in Nigeria. The study measures audit quality by audit firm size and earnings management by the absolute abnormal discretionary accruals using the modified Jones model. The study was carried out in two parts, the first part is the comparative study using independent sample t-test and the Wilcoxon signed ranked test. The second part is the multivariate analysis where the association between audit quality and earnings management was examined. Based on our analysis, we found that auditor size has restrained earnings management but the decrease is not statistically significant. The implication of this finding is that users should not blindly assume that high audit quality proxy by the big 4 auditor is a symbol of earnings quality.
The Competency and Independency Auditors to Audit Quality at Auditors of Public Accountant in Palembang (Published)
This study aims to test the competency and independency of the Auditor on the Quality Audit Office Public Accountant Auditor Palembang. The study sample as many as 39 registered Public Accountants in Palembang, used multiple regression analysis. The results of calculations using SPSS, showed that:1) R2 of 0.499, illustrates that the quality of the audit, can be explained by the dependent variables amounted to 49.9%, while the remaining 51,1%, can be explained by other factors, which are not included in this study. ;2) Obtained value of F(7.309) Sig(0,000), means that there is a significant influence of dependent variables together to quality audit; 3) there are no significant effect from experience, knowledge, and non audit services on the quality of audit; 4) and there are significant effect of long relationships with clients, pressure from clients, and review co-auditors on audit quality.
This study examined the relationship between corporate governance and the quality of auditor’s report with evidence from the Nigerian Banking Industry. The research design adopted for this study is the ex-post facto as the research relied on historic data. Eleven (11) deposit money banks quoted on the Nigerian Stocks Exchange were sampled. In testing our hypothesis, the correlation analysis was applied to a dataset covering seven (7) years from 2007 to 2014 that is the post-corporate governance period. Analysis suggests that while board composition has a negative and insignificant relationship with audit quality, separation of the roles of the CEO from that of the chairman of the board, board size, and composition of the audit committee has positive and significant relationship with audit quality. Furthermore, findings also show that ownership concentration has a positive but insignificant relationship with audit quality. Findings also show that the strength of the positive linear relationship between the separation of the roles of the CEO from that of the chairman of the board and the audit quality is as high as 0.702377 or 70.23% followed by the relationship between board size and audit quality which stood at 0.452896 or 45.28%. However, the study thus concludes that effective corporate governance arises out of responsible and simultaneous vigilant actions by the managers, the board of Directors, shareholders and auditors. Good financial Reporting from the external auditors is an important building block of corporate governance because the information provided to the shareholders has to be optimal in terms of cost and benefits. The study also recommends that the relationship between management and shareholders have to be characterized by transparency and fairness.
Effect of Audit Fees on Audit Quality: Evidence from Cement Manufacturing Companies in Nigeria. (Published)
This paper aims to examine the effect of audit fees on audit quality in Nigeria using a sample of listed cement companies on the floor of the Nigerian Stock Exchange. In specific terms, the study investigates the relationship between audit fee, audit tenure, client size, leverage ratio and audit quality. Ordinary Least Square Model estimation technique was employed to analyze the relationship between the explanatory variables and the dependent variable. Secondary data derived from the published annual reports of the selected companies for a six year period (2010-2015) was used for the study. Findings from the study show that audit fee, audit tenure, client size and leverage ratio exhibit a joint significant relationship with audit quality given coefficient of determination (R2) being 0.6006 and a combined p-value of 0.001 and Fcalc=7.14. This implies that the predictive power of the independent variables as used to explain changes in audit quality is about 60%. Audit fee in particular shows a significant positive impact on audit quality with a t and p-values of (4.04 and 0.001) respectively as well as a high positive correlation coefficient of 0.7513 with audit quality. The study recommends that Government through the various professional bodies should develop robust policies that will help improve audit quality in Nigeria.
The arguments on auditor tenure and rotation revolved around ensuring auditor independence and promoting audit quality. Two hypotheses tend to explain the effect of longer auditor tenure. The auditor independence hypothesis argues that longer tenure decreases audit quality and financial reporting because of the impairment of auditor’s independence while the expertise hypothesis posits that longer tenure improves audit quality through learning. Nevertheless, the auditor tenure be long enough for auditors to bring their competence and expertise into the auditing process and also familiarize with the audited firm and environment. Apart from the few countries where there have mandatory audit rotations, it is still under experimentation in many other countries Moreover, the results of the impact of audit firm/partner rotation on audit quality have been mixed and inconclusive. And specifically, one of the leading advocates for mandatory auditor rotation through the Sarbanes Oxley Act of 2002, the United States, has recently made a U-turn through appropriate amendment to the mandatory rotation of the audit firm in 2013.However, in April,2014 the European Union parliament voted in favour of 2011 proposal to force European companies to hire new auditors after six years with a four year cooling period. Therefore, we conclude that the mixed evidence and the recent regulatory changes on auditor rotation provide opportunities for future studies on auditor tenure, auditor rotation and audit quality.
This study follows prior studies on cash – based activities manipulations to investigate total levels of cash – based earnings management relative to the association between cash – based earnings management and audit firm size of companies in Nigeria. First, the study measures the normal level of real activities by focusing on three manipulation schemes namely, manipulation of sales, overproduction, and reduction in discretionary expenses. The normal levels of each type of real activities manipulation were measured as the residual from relevant estimation models. The abnormal CFO, abnormal production costs and abnormal discretionary expenses were computed as the difference between the actual values and the normal levels predicted from the respective models while the composite value of the three variables is the estimate for cash – based earnings management. Based on a sample of 342 companies – year observations from the NSE and applying audit firm size as a measure, comprehensive multivariate analyses were conducted on archival data covering 2006 – 2011. The result showed that audit firm size exerts significant negative relationship with cash – based earnings management of quoted companies in Nigeria. It is suggested that companies in Nigeria should improve their earnings quality only through sales growth and cost control strategies and present distinct reports on earnings quality; company auditors should issue Integrated Audit Quality Assurance Reports based on earnings quality assessments statutorily backed by earnings monitoring of companies in Nigeria; while regulatory agencies should issue authoritative codes of best practice in Nigeria
Effective Audit Committee, Audit Quality and Earnings Management Before and After Financial Security Law Adoption (Review Completed - Accepted)
This study examines the interaction between the effectiveness of audit committee and external audit functions to mitigate the earnings management in the Tunisian companies before and after financial security law adoption. Using 261 firm-year observations during the period 2001-2009, our results document a substitute effect between the presence of Big four auditor and effective audit committee to reducing the discretionary accruals in the Pre-law n° 2005-96 periods. We also find a link of complementary between the score of effectiveness of audit committee and industry specialist auditor to constrain earnings management. Finally, our findings show a complementary relation between the effectiveness of audit committee and audit tenure, after the passage of law n° 2005-96