Audit quality and Earnings Management in Quoted Nigerian Banks
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Abstract
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The objective of the study is to find out the impact of audit
quality on earnings management. The study used a sample
of all eighteen banks quoted on the stock exchange as at
December, 2010. Data was gathered for the period 2005
to 2010. The cross-sectional year by year regression
analysis was performed. Audit quality is measured by
using audit fees and auditor change, and abnormal loan
loss provision is used to measure earnings management.
Though the result was mixed, however, based on the
frequency of results for the period of the study, both audit
fee and auditor change were positively related to
abnormal loan loss provision. This suggests that high audit
fee and change in auditor tenure will aggravate earnings
management. We recommend that auditor change should
not be ceremonial but based on fact of inefficiency and
audit fee from each auditor client should be monitored to
enforce the five per cent maximum from each client as
suggested by Institute of Chartered Accountants code of
ethics.
Keywords
H Social Sciences (General), HF5601 Accounting