Audit Quality and Earnings Quality of Listed Deposit Money Banks in Nigeria

Abstract

 This study examined the effect of audit quality on earnings quality of listed deposit money banks in Nigeria, focusing on audit firm size, audit fees, and auditor tenure as determinants of discretionary accruals (earnings quality proxy). It was motivated by concerns over earnings manipulation and weak financial reporting despite regulatory oversight. The population of the study consists of all 13 listed deposit money banks on the Nigerian Exchange (NGX) Group over the period 2015–2024. However, a purposive sampling technique was employed in selecting 10 banks based on the availability of complete and consistent financial statements for the study period, continuous listing status, and exclusion of banks with incomplete or missing data. This resulted in a balanced panel of 100 firm-year observations. An ex post facto research design was adopted using panel data. Data from audited annual reports were analysed using descriptive statistics, correlation analysis, Hausman tests, and panel regression (fixed and random effects). Findings show that audit firm size has a significant negative effect on discretionary accruals (β = -0.0162; p = 0.0000), indicating improved earnings quality. Audit fees have an insignificant positive effect (β = 0.0199; p = 0.2512). Auditor tenure has a significant positive effect (β = 0.0031; p = 0.0000), suggesting reduced earnings quality with longer tenure. The study concludes that audit quality significantly influences earnings quality, but effects differ across audit attributes. It recommends stronger auditor rotation policies by the Financial Reporting Council of Nigeria (FRCN), engagement of high-quality audit firms, and closer monitoring of auditor tenure by audit committees to enhance reporting credibility 

Keywords: audit fees, audit firm size, auditor tenure, discretionary accruals, earnings quality.