Audit Market Concentration and Audit Quality of Listed Industrial Firms in Nigeria
Keywords:
Audit firm size, Audit fees, Audit quality, Audit market concentration, Auditor tenure
Abstract
This study examined the effect of audit market concentration on the audit quality of listed industrial firms in Nigeria. With the aim of investigating the level of influence audit fees, auditor tenure, and audit firm size would affect audit quality, the study made use of discretionary accruals for audit quality measures. The study adopted an ex-post facto research design. In addition, the corporate annual reports and websites of ten (10) sampled listed industrial firms for the period 2012-2021 were utilized as the main sources of secondary data. In testing the research hypotheses and ascertaining the significant effect of the independent variable i.e., audit market concentration (proxy by audit fees, auditor tenure, and audit firm size) and dependent variable (i.e., audit quality), the study utilized a multiple regression technique method of data analysis. The findings from the study revealed that audit fees and audit firm size have a positive relationship with audit quality. However, an auditor’s tenure has no significant impact on audit quality. The study concluded that audit market concentration and audit market size would positively influence the audit quality of listed industrial firms in Nigeria. The study, therefore, recommended that audit fees and audit firm size should be given more attention in the course of considering the attribute of audit firms and the quality of audits in Nigeria. Thus, the study, therefore, suggested that further validation should be expanded to longer periods and more samples.
References
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31. Egbunike, Egbunike & Okafor (2017). Enhancing audit committee effectiveness. Journal of Accountancy, 182(2), 79
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37. Hauwa, Ocheni & Muktar (2017). The effect of audit committee performance on earnings quality. Managerial Auditing Journal, 21(9), 921-933.
38. Hauwa, Ocheni & Muktar, (2017). Determinants of audit committee meeting frequency: evidence from a voluntary governance system. Accounting Horizons 23 (3), 245–263
39. Herdjiono, I., & I. M. Sari. (2017). The Effect of Corporate Governance on the Performance of a Company. Some Empirical Findings from Indonesia. Journal of Management and Business Administration, 25(1), 33-52
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41. Huggins, A., W. Green and R. Simnett. (2011). The competitive market for assurance engagements on greenhouse gas statements: Is there a role for assurers from the accounting profession? Current Issues in Auditing 5(2): A1-A12.
42. Kamolsakulchai,M. (2015). The Impact of the Audit Committee Effectiveness and Audit Quality on Financial Reporting of Listed Company in Stocks Exchange of Thailand. Rev.Integr.Bus.Econ.Res., 4(2): 328-330.
43. Karamanou, I., & Vafeas, N. (2015). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43(3), 453-486.
44. Kelton, A. S., & Yang, Y. (2018). The impact of corporate governance on Internet financial reporting. Journal of Accounting and Public Policy, 27(1), 62-87.
45. Kent, P., Routledge, J., & Stewart, J. (2010). Innate and discretionary accruals quality and corporate governance. Accounting and Finance, 50(1), 171-195.
46. Lennox (2019). The supply of corporate social responsibility disclosure among U. S. Firms Journal of Business Ethics (February): 497-527.
47. Li, J., Mangena, M., & Pike, R. (2012). The effect of audit committee characteristics on intellectual capital disclosure. The British Accounting Review, 44(2), 98-110.
48. Liu, J., Harris, K., & Omar, N. (2013). Board Committees and Earnings Management. Corporate Board: Role, Duties and Composition, 9(1), 6–17.
49. Loewen, K. (2017). Does Accounting Matter? A Social Constructivist Perspective. USURJ: University of Saskatchewan Undergraduate Research Journal, 4(1).
50. Malaysian Code on Corporate Governance. (2007). Securities Commission, KualaLumpur.
51. Mallin, (2010). Earnings management and corporate governance: the role of the board and the audit committee. Journal of Corporate Finance, 9(3), 295-316.
52. Mgbame, Eragbhe & Osazuwa, (2012). Board ownership, audit committees' effectiveness, and corporate voluntary disclosures. Asian Review of Accounting, 18(3), 245-259.
53. Moses, T. (2016). The Impact of Audit Committee Size on the Quality of Financial Reporting in Quoted Nigerian Banks. International Journal of Advanced Academic Research | Social & Management Sciences 2, 5.
54. Ogbeide, S., & Akanji, B. (2017). A study on the relationship between cash-flow and financial performance of insurance companies: Evidence from a developing economy. Revista de Management Comparat International, 18(2), 148.
55. Omoregie & Dibia, (2020). Developing an assurance standard for carbon emissions disclosures. Australian Accounting Review 17 (2): 37-47
56. Pflugrath, G., P. J. Roebuck and R. Simnett. (2011). Impact of assurance and assurer’s professional affiliation on financial analysts? Assessment of credibility of corporate social responsibility information. Auditing: A Journal of Practice and Theory 30 (3): 32-43.
57. Salameh, R., Al-Weshah, G., Al-Nsour, M., & Al-Hiyari, A. (2011). Alternative internal audit structures and perceived effectiveness of internal audit in fraud prevention: evidence from Jordanian banking industry. Canadian Social Science, 7(3), 40-50.
58. Stewart, J., & Munro, L. (2007). The impact of audit committee existence and audit committee meeting frequency on the external audit: Perceptions of Australian auditors. International Journal of Auditing, 11(1), 51-69.
59. Sultana, N., & Zahn, M. V. D. J. L. (2015). Earnings conservatism and audit committee financial expertise. Accounting & Finance, 55(1), 279-310.
60. Sun, J., Lan, G., & Liu, G. (2014). Independent audit committee characteristics and real earnings management. Managerial Auditing Journal, 29(2), 153–172.
61. Wakaba, R. (2014). effect of audit committee characteristics on financial performance of companies listed at the Nairobi securities exchange (doctoral dissertation, university of nairobi).
62. Walker, P. L., Shenkir, W. G., & Barton, T. L. (2013). ERM in practice: examples of auditing's role in enterprise risk management efforts at five leading companies shed light on how this new paradigm is impacting audit practitioners. Internal Auditor, 60(4), 51-55.
63. Zábojníková, G. (2016). The Audit Committee Characteristics and Firm Performance: Evidence from the UK
2. Abbott, L. J., Parker, S., & Peters, G. F. (2014). Audit committee characteristics and restatements. Auditing: A Journal of Practice & Theory, 23(1), 69-87.
3. Abbott, L., G. & Raghunandan K. (203). Audit committee characteristics and the relativemagnitude of non audit service purchases. Contemporary Accounting Research. 14, 31–47
4. Abulezz, M. E., Afify, H. A., & Zaher, A. M. (2019). The impact of managerial overconfidence on accounting conservatism
5. Adeyemi & Fagbemi (2018). Does the Market Value Financial Expertise on Audit Committees of Boards of Directors? Journal of Accounting Research. 43, (2) 153.
6. Ahinful, G., Essumang, A., & Oppong-Boakye, P. (2012). International Financial Reporting Standards Compliance: Evidence from Ghana. International Journal of Business and Management Tomorrow, 2(11).
7. Akhtaruddin, M., & Haron, H. (2010). Board ownership, audit committees' effectiveness, and corporate voluntary disclosures. Asian Review of Accounting, 18(3), 245-259.
8. Allegrini, M., & Greco, G. (2011). Corporate boards, audit committees and voluntary disclosure: evidence from Italian Listed Companies. Journal of Management and Governance, 15(3), 1-30
9. Al-Matari, Y. A. A. T. (2013). Board of Directors, Audit Committee Characteristics and The Performance of Public Listed Companies in Saudi Arabia, Universiti Utara Malaysia.
10. Angelo (2015). The association between audit committee characteristics and audit fees. A journal of practice & theory, 22(2), 17-32.
11. Anthony, R. N., Govindarajan, V., & Dearden, J. (2007). Management control systems (Vol. 12). Boston: McGraw-Hill.
12. Archambeault S, F Todd DeZoort, & Dana R H (2008). Audit Committee Incentive Compensation and Accounting Restatements. Contemporary. Accounting Research. 25, (1).
13. Aryono, SI (2009). The Effect of Right Issues on Financial Performance in Companies Listed on the Indonesia Stock Exchange. In Research Results of Lecturers and National Seminars
14. Atidhira, A. T., & Yustina, A. I. (2017). The influence of return on asset, debt to equity ratio, earnings per share, and company size on share return in property and real estate companies. JAAF (Journal of Applied Accounting and Finance), 1(2), 128-146.
15. Barako, D. G., Hancock, P., & Izan, H. (2006). Factors influencing voluntary corporate disclosure by Kenyan companies. Corporate Governance: An International Review, 14(2), 107-125
16. Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Neal, T. L. (2009). The audit committee oversight process. Contemporary Accounting Research, 26(1), 65-122.
17. Bedard, J., & Gendron, Y. (2010). Strengthening the financial reporting system: Can audit committees deliver? International Journal of Auditing, 14(2), 174-210.
18. Bhattacharyya, S., Jha, S., Tharakunnel, K., & Westland, J. C. (2011). Data mining for credit card fraud: A comparative study. Decision support systems, 50(3), 602-613.
19. Blaylock, B., Shevlin, T., & Wilson, R. J. (2012). Tax avoidance, large positive temporary book tax differences, and earnings persistence. The Accounting Review, 87(1), 91- 120.
20. Brigham, E. F., & Houston, J. F. (2011). Study Guide for Brigham/Houston's Fundamentals of Financial Management, Concise Edition, 7th. Cengage Learning.
21. Chan and Wong (2016). The role of audit committees in Barbados. Corporate Governance: The international journal of business in society, 6(5), 567-581.
22. Chang, Dasgupta and Hilary (2019). the effect of audit committee expertise, independence, and activity on aggressive earnings management. Auditing: A Journal of Practice & Theory (23), 13–35.
23. Cho, C., and D. Patten (2017). The role of environmental disclosures as tools for legitimacy: A research note. Accounting, Organizations and Society (32): 639-647.
24. Cremers, M., Masconale, S., & Sepe, S. M. (2016). Activist hedge funds and the corporation. Wash. UL Rev., 94, 261.
25. Damirah, D. (2018). Influence Of Financial Performance Against Economic Value Added And The Impact On Market Reactions On Listing Manufacturing Companies In Indonesia Stock Exchange. Quest Journals Journal of Research in Business and Management, 6(4), 13-20.
26. Dang (2014). Market Reaction to Voluntary Announcements of Audit Committee Appointments: The Effect of Financial Expertise. Journal of Accounting and Public Policy. 23, (4) 279.
27. De Villiers, C., & van Staden, C. (2011). Shareholder requirements for compulsory environmental information in annual reports and on websites.
28. De Villiers, C., Venter, E. R., & Hsiao, P. C. K. (2017). Integrated reporting: background, measurement issues, approaches and an agenda for future research. Accounting & Finance, 57(4), 937-959.
29. Dellaportas, S., P. Leung, B. J. Cooper, S. Rochmah Ika, & N. A. Mohd Ghazali. (2012). Audit committee effectiveness and timeliness of reporting: Indonesian evidence. Managerial Auditing Journal, 27(4), 403-424.
30. Dhaliwal, D., Naiker, V., & Navissi, F. (2010). The Association Between Accruals Quality and the Characteristics of Accounting Experts and Mix of Expertise on Audit Committees. Contemporary Accounting Research, 27(3), 787-827.
31. Egbunike, Egbunike & Okafor (2017). Enhancing audit committee effectiveness. Journal of Accountancy, 182(2), 79
32. Giroux, G. (2008). What went wrong? Accounting fraud and lessons from the recent scandals. Social research, 1205-1238.
33. Greco, G. (2011). Determinants of board and audit committee meeting frequency: Evidence from Italian companies. Managerial Auditing Journal, 26(3), 208-229.
34. Gul, Lynn and Tsui (2012). “Board characteristics, accounting report integrity and the cost of debt. Journal of accounting and economics, (37), 315-342.
35. Guthrie, J., & Turnbull, S. (2010). Audit committees: is there a role for corporate senates and/or stakeholders councils? Corporate Governance: An International Review, 3(2), 78-79.
36. Hancock, J., Bartlett, J., Whipple, W., Thornton, M., Adams, S., Adams, J., ... & Stone, T. (1776). In Congress, July 4, 1776. The Westminster magazine, 431-432
37. Hauwa, Ocheni & Muktar (2017). The effect of audit committee performance on earnings quality. Managerial Auditing Journal, 21(9), 921-933.
38. Hauwa, Ocheni & Muktar, (2017). Determinants of audit committee meeting frequency: evidence from a voluntary governance system. Accounting Horizons 23 (3), 245–263
39. Herdjiono, I., & I. M. Sari. (2017). The Effect of Corporate Governance on the Performance of a Company. Some Empirical Findings from Indonesia. Journal of Management and Business Administration, 25(1), 33-52
40. Honggowati, S., Rahmawati, R., Aryani, Y. A. & Probohudono, A. N. (2017). Corporate Governance and Strategic Management Accounting Disclosure. Indonesian Journal of Sustainability Accounting and Management, 1(1), 23–30.
41. Huggins, A., W. Green and R. Simnett. (2011). The competitive market for assurance engagements on greenhouse gas statements: Is there a role for assurers from the accounting profession? Current Issues in Auditing 5(2): A1-A12.
42. Kamolsakulchai,M. (2015). The Impact of the Audit Committee Effectiveness and Audit Quality on Financial Reporting of Listed Company in Stocks Exchange of Thailand. Rev.Integr.Bus.Econ.Res., 4(2): 328-330.
43. Karamanou, I., & Vafeas, N. (2015). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43(3), 453-486.
44. Kelton, A. S., & Yang, Y. (2018). The impact of corporate governance on Internet financial reporting. Journal of Accounting and Public Policy, 27(1), 62-87.
45. Kent, P., Routledge, J., & Stewart, J. (2010). Innate and discretionary accruals quality and corporate governance. Accounting and Finance, 50(1), 171-195.
46. Lennox (2019). The supply of corporate social responsibility disclosure among U. S. Firms Journal of Business Ethics (February): 497-527.
47. Li, J., Mangena, M., & Pike, R. (2012). The effect of audit committee characteristics on intellectual capital disclosure. The British Accounting Review, 44(2), 98-110.
48. Liu, J., Harris, K., & Omar, N. (2013). Board Committees and Earnings Management. Corporate Board: Role, Duties and Composition, 9(1), 6–17.
49. Loewen, K. (2017). Does Accounting Matter? A Social Constructivist Perspective. USURJ: University of Saskatchewan Undergraduate Research Journal, 4(1).
50. Malaysian Code on Corporate Governance. (2007). Securities Commission, KualaLumpur.
51. Mallin, (2010). Earnings management and corporate governance: the role of the board and the audit committee. Journal of Corporate Finance, 9(3), 295-316.
52. Mgbame, Eragbhe & Osazuwa, (2012). Board ownership, audit committees' effectiveness, and corporate voluntary disclosures. Asian Review of Accounting, 18(3), 245-259.
53. Moses, T. (2016). The Impact of Audit Committee Size on the Quality of Financial Reporting in Quoted Nigerian Banks. International Journal of Advanced Academic Research | Social & Management Sciences 2, 5.
54. Ogbeide, S., & Akanji, B. (2017). A study on the relationship between cash-flow and financial performance of insurance companies: Evidence from a developing economy. Revista de Management Comparat International, 18(2), 148.
55. Omoregie & Dibia, (2020). Developing an assurance standard for carbon emissions disclosures. Australian Accounting Review 17 (2): 37-47
56. Pflugrath, G., P. J. Roebuck and R. Simnett. (2011). Impact of assurance and assurer’s professional affiliation on financial analysts? Assessment of credibility of corporate social responsibility information. Auditing: A Journal of Practice and Theory 30 (3): 32-43.
57. Salameh, R., Al-Weshah, G., Al-Nsour, M., & Al-Hiyari, A. (2011). Alternative internal audit structures and perceived effectiveness of internal audit in fraud prevention: evidence from Jordanian banking industry. Canadian Social Science, 7(3), 40-50.
58. Stewart, J., & Munro, L. (2007). The impact of audit committee existence and audit committee meeting frequency on the external audit: Perceptions of Australian auditors. International Journal of Auditing, 11(1), 51-69.
59. Sultana, N., & Zahn, M. V. D. J. L. (2015). Earnings conservatism and audit committee financial expertise. Accounting & Finance, 55(1), 279-310.
60. Sun, J., Lan, G., & Liu, G. (2014). Independent audit committee characteristics and real earnings management. Managerial Auditing Journal, 29(2), 153–172.
61. Wakaba, R. (2014). effect of audit committee characteristics on financial performance of companies listed at the Nairobi securities exchange (doctoral dissertation, university of nairobi).
62. Walker, P. L., Shenkir, W. G., & Barton, T. L. (2013). ERM in practice: examples of auditing's role in enterprise risk management efforts at five leading companies shed light on how this new paradigm is impacting audit practitioners. Internal Auditor, 60(4), 51-55.
63. Zábojníková, G. (2016). The Audit Committee Characteristics and Firm Performance: Evidence from the UK
Published
2023-09-24
How to Cite
O. Oladutire, & S. O. Olabisi. (2023). Audit Market Concentration and Audit Quality of Listed Industrial Firms in Nigeria. International Journal on Economics, Finance and Sustainable Development, 5(9), 146-158. https://doi.org/10.31149/ijefsd.v5i9.4800
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