Audit independence and financial reporting quality: Nigerian evidence from deposit money bank.
CHAPTER ONE
Objective of the study
The objectives of the study are;
- To examine the effect of audit independence on the timeliness of listed commercial banks financial reports in Nigeria
- To ascertain the effect of audit independence on the value relevance of listed commercial banks’ financial report in Nigeria
- To examine the measures of audit quality of deposit money banks in Nigeria
- To determine the influence of each measures of audit quality on financial reports of deposit money banks in Nigeria
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Theoretical Framework
According to International Auditing and Assurance Standards Board (IAASB, 2011), there have been a number of attempts to conceptualize “audit quality” in the past. However, none has resulted in a definition that has achieved universal recognition and acceptance. Audit quality (AQ) is, in essence, a complex and multi-faceted concept. Audit Quality is subject to many direct and indirect influences. In tandem with the stakeholder theory (Khan, 2006), perceptions of AQ vary amongst stakeholders depending on their level of direct involvement in audits and on the perspective through which they assess AQ. Audit quality (AQ) may be perceived from any of three fundamental perspectives: inputs, outputs, and context factors. Inputs to AQ, apart from auditing standards, include the auditor’s personal attributes such as auditor skills and experience, ethical values and mindset. Another important input is the audit process including the soundness of the audit methodology, the effectiveness of the audit tools used, and the availability of adequate technical support geared toward supporting a high quality audit. Outputs of the audit are important influences on AQ that are considered by stakeholders in their assessments of AQ. Such influences include the auditor’s report (viewed as positively influencing AQ if it clearly conveys the outcome of the audit), auditor communications to those charged with governance (on matters such as qualitative aspects of the entity’s financial reporting practices and deficiencies in internal control that can positively influence AQ). The context factors that influence AQ include sound corporate governance (especially if it creates a climate of transparency and ethical behaviour within the entity); Law and regulation (if it creates a framework within which the audit can be effectively conducted); regulatory oversight (if it establishes an effective regime for monitoring the quality of auditors’ work and effective dialogue between auditors and regulators); the quality of the applicable financial reporting framework (use of a financial reporting framework that does not promote robust and transparent disclosures may adversely affect AQ as well as related external perceptions); inadequate application of the General Acceptable Auditing Standards (GAAS) by external auditors will influence financial reporting quality (Palmrose, 1998). Essentially, agency theory, signalling theory, and auditors’ theory of inspired confidence justify the key function of auditing as a mechanism for mitigating information asymmetries among related parties. The demand for audit of companies’ accounts is created by the agency problems which are related to the separation of corporate ownership from control (Eilifsen & Messier, 2000; Gerayli, Yanesari, & Ma’atoofi, 2011). The agency problem arises from the existence of asymmetric information in the principal – agent contracts (Odia, 2007). Some studies (Titman & Trueman, 1988; Schipper, 1989; Warfield, Wild & Wild, 1995) have shown that the existence of information asymmetry between corporate management and company shareholders is a necessary condition for and easy perpetration of financial statements manipulations (Odia, 2007). The audit of a company’s accounts is a monitoring or control mechanism that diminishes information asymmetry and protects the interests of the principal. The auditors’ theory of inspired confidence offers a linkage between the users’ requirement for credible and reliable financial reports and the capacity of the audit processes to meet those needs. It sees through the development of these needs of the public (stakeholders) and the audit processes over time.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to audit independence and financial reporting quality: Nigerian evidence from deposit money bank.
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on audit independence and financial reporting quality: Nigerian evidence from deposit money bank. 200 staff UBA Imo State were selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was on Audit independence and financial reporting quality: Nigerian evidence from deposit money bank. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of audit independence and financial reporting quality
Summary
This study was on audit independence and financial reporting quality: Nigerian evidence from deposit money bank. Four objectives were raised which included: To examine the effect of audit independence on the timeliness of listed commercial banks financial reports in Nigeria, to ascertain the effect of audit independence on the value relevance of listed commercial banks’ financial report in Nigeria, to examine the measures of audit quality of deposit money banks in Nigeria and to determine the influence of each measures of audit quality on financial reports of deposit money banks in Nigeria. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of UBA Imo State. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up auditors, administrative staffs, accountants and junior staffs was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
The study was conducted to determine the influence of audit quality on financial reports of banks in Nigeria. The determination of the relationship between the quality of financial reports among banks in Nigeria and the audit quality is necessitated by the continuous failure of banks after receiving a clean bill of health from the auditors
Recommendation
Firstly, in Nigeria, it appears that audit standards setting is dominated by Accountants (ICAN). Efforts should be made to raise awareness level and secure the interest of other stakeholders, other regulators, companies, auditors and analysts who belong primarily to other disciplines. It would be recommended that there should be a wider number of stakeholders in order to ensure that auditing standards and regulatory pronouncements are received with greater acceptance and sense of belongingness. There is the need to strengthen the capacity of the regulatory bodies and review adequacy of statutory enforcement provisions, this will enable the regulators to effectively deal with accounting and financial reporting practices of the regulated entities properly. Finally, it is recommended that the independence of the board of audit committee should be encouraged in companies. This would improve the decision making process of the companies.
References
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- AbdulMalik, S., & Ahmad, A. C. (2016).Audit fees, corporate governance mechanisms and financial reporting quality in Nigeria.DLSU Business & Economics Review, 26(1), 1– 14.
- AICPA, Statement on Auditing Standards No. 122. “Statements on Auditing Standards: Clarification and Recodification.” October 2011
- Arens, R., Alvin A., Shailer, G. & Fielder, B. (2011) Auditing, Assurance Service and Ethics in Australia. 8th Edition. Pearson Australia
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