Effect of audit quality on earnings management of listed deposit money banks in Nigeria
Suleiman Ahmed Hadiza and Yusuf Yahaya
This paper looks into how listed Deposit Money Banks in Nigeria manage their earnings in relation to the quality of their audits. The paper used for this publication was a panel study. The paper examines the influence of audit quality determined by the auditor's independence, audit rotation, and audit firm size on earnings management measured by discretionary loan loss provision (DLLP). The population of this article consists of the 14 listed DMBs in Nigeria, from which a sample of 12 banks was selected using the census sampling technique. Secondary data was sourced from the annual reports of the 12 sampled banks, spanning a period of ten years, from 2013 to 2023. Generalized Method of Moment (GMM) was used for the data analysis. Going by the results, audit rotation significantly and favorably affects the earnings management of listed DMBs in Nigeria. Audit independence and audit firm size have a considerable negative impact on earnings management of listed DMBs in Nigeria. The paper concludes that, audit independence and audit firm size curtail EM practices of listed DMBs in Nigeria. The paper therefore recommends among others that, the listed DMBs in Nigeria should not deviate from the statutory and professional audit independence and also listed DMBs in Nigeria should engage the service of Big4 to carry out their statutory audit as this will mitigate and curtail the chances of the listed DMBs to engage in any form of earnings management which may not be possibly seen by the other non Big4. To prevent the intimacy between the auditor and the client, the Nigerian Financial Reporting Council should make sure that long-term audit firm rotation is avoided. Since auditors tend to renew after the first five years of engagement, this lengthens the audit firm's duration and allows for greater familiarity, which raises the likelihood of earning management.
Suleiman Ahmed Hadiza, Yusuf Yahaya. Effect of audit quality on earnings management of listed deposit money banks in Nigeria. Int J Res Finance Manage 2024;7(2):355-360. DOI: 10.33545/26175754.2024.v7.i2d.385