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Impact of Auditor’s Independence on Earnings Management of Listed Deposit Money Banks in Nigeria

Author

Listed:
  • Adewumi Ayodeji Davidson

    (Department of Auditing and Taxation Durban, University of Technology, Durban, South Africa)

  • Fakunle Isaiah Omotayo

    (Department of Accounting, Kings University, Odeomu, Osun State, Nigeria)

  • Bamidele Matthew Mayor

    (Department of Accounting, Osun State College of Technology, Esa-Oke, Osun State, Nigeria)

  • Akomolehin Israel Akinwale

    (Department of Accounting, National Open University of Nigeria)

Abstract

This research investigates the impact of auditor’s independence on earnings management in listed deposit money banks in Nigeria. Utilizing a correlational research design, the study explores the relationships between auditors’ independence, measured by audit firm specialization, audit fee, and audit firm size, and earnings management, proxied by accrued earnings. Secondary data from the annual reports and accounts of twelve selected banks over ten years (2013-2022) were analyzed using fixed effect estimation. The findings reveal that audit fee, audit size, and audit tenure positively influence earnings management. The positive coefficients suggest that higher audit fees, larger audit sizes, and longer audit tenures are associated with increased discretionary accruals. However, non-significant p-values caution against accepting these associations at the 5% level. The coefficient of determination (R2) indicates that the chosen variables collectively explain 27.26% of earnings management, offering some explanatory power to the model. In conclusion, the study recommends listed deposit money banks to prioritize engagement with Big 4 Audit Firms and carefully consider audit fee structures. Regulatory bodies, particularly the Central Bank of Nigeria, are advised to enhance surveillance, particularly in the realm of auditor remunerations. The research underscores the need for caution in interpreting the identified associations and highlights avenues for future research, including incorporating control variables and addressing potential endogeneity concerns for a more nuanced understanding of the relationship.

Suggested Citation

  • Adewumi Ayodeji Davidson & Fakunle Isaiah Omotayo & Bamidele Matthew Mayor & Akomolehin Israel Akinwale, 2024. "Impact of Auditor’s Independence on Earnings Management of Listed Deposit Money Banks in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(1), pages 1658-1670, January.
    • Handle: RePEc:bcp:journl:v:8:y:2024:i:1:p:1658-1670
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    References listed on IDEAS

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    2. Abdul Rahman Al Natour & Naim Salameh Al-Qadi & Rasmi Meqbel & Hala Zaidan & Hamzah Al-Mawali & Manaf Al-Okaily, 2023. "The Role of Privatisation in Sustaining Auditor Independence: Evidence from the Developing Markets," Sustainability, MDPI, vol. 15(8), pages 1-17, April.
    3. Mouna Hamza & Damak-Ayadi, 2023. "The Perception of Audit Quality Among Financial Statements Users, Preparers and Auditors, In Tunisia," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 22(2), pages 202-224, June.
    4. Safia Abdo Ali Al-Begali & Lian Kee Phua, 2023. "Accruals, real earnings management, and CEO demographic attributes in emerging markets: Does concentration of family ownership count?," Cogent Business & Management, Taylor & Francis Journals, vol. 10(2), pages 2239979-223, December.
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    6. Jeff Zeyun Chen & Anastasios Elemes & Gerald J. Lobo, 2023. "David versus Goliath: The Relation between Auditor Size and Audit Quality for U.K. Private Firms," European Accounting Review, Taylor & Francis Journals, vol. 32(2), pages 447-480, March.
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