Audit Quality and Earnings Management by Listed Firms in Nigeria

Abstract

Purpose: We herein investigate the effect of quality of audit on management of earnings in Nigerian listed firms by (i) ascertaining the effect of audit quality on discretionary accruals, (ii) determining the effect of audit quality on earnings smoothing, as well as (iii) establishing the effect of audit quality on earnings per share. Methodology: The study follows an ex-post facto research design. It draws data from the annual reports of 10 firms. These consisted of five financial and five non-financial firms, purposively selected for a period of 10 years (2010-2019). Descriptive and inferential analyses were employed in data analyses. Findings: The findings indicate that audit quality significantly affected earnings smoothing. Moreover, audit quality did not significantly affect discretionary accruals and earnings per share. Furthermore, it is recommended that management of firms should put in place policies for predicting earnings (in profit) to help forecast future earnings, which can be achieved by audit quality Originality/Value: This study is meant to raise awareness on the need to improve the financial statement/reporting practices of publicly listed companies with respect to earnings management; discretionary accrual, earnings smoothing and earnings per share. It is hoped that the forwarded recommendations support the competent authorities in addressing the identified existing issues, thus enabling them to enhance the financial reporting practices and render them improved vehicles for development in publicly listed companies.