Effect of Audit Quality on Earnings Management in Nigeria Manufacturing Sector

Abstract

This study focused on the effects of audit quality on earnings management in the Nigeria manufacturing sector. Specifically, a number of audit quality variables that affect earnings management of firms such as audit firm size, auditors’ tenure, and auditors’ industry specialization, were examined in relation to earnings management in food manufacturing sub-sector. The research design adopted for this study is the time series Ex-post Facto design and analytical research design. The method through which data were gathered and sampled to facilitate this research was the secondary method of data collection in which information were sourced from the financial statement of the companies used. In analyzing the data, the researcher made use of descriptive statistics and the pooled OLS regression method was used to test the relationship between audit quality and earnings management. The results of the study showed that among other variables of audit quality capable of enhancing the earnings management of food manufacturing companies in Nigeria, auditors’ industry specialization is the most significant. It was also observed that audit tenure have a positive and significant effects on earnings management of food manufacturing companies in Nigeria. The researcher concluded that financial reports provide a basis in which investors and owners of firms usually appraise the performance of their companies and so can be greatly influenced by the audit quality of audit reports. The study recommends a reasonable period of auditor tenure.