Audit Independence and Financial Reporting Quality: Nigerian Evidence from Deposit Money Bank.
This study was on audit independence and financial reporting quality: Nigerian evidence from deposit money bank. The total population for the study is 200 staff of UBA Imo State. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up auditors, administrative staffs, accountants and junior staffs was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies.
1.1Background of the study
The audit reports of firm operations are intended to provide the users of such reports with relevant, reliable and comparable information to permit informed decision (Kamaruzaman, Mazlifa, & Maisarah, 2009). However, Johnson (2005) argued that an annual report can never be completely free from bias, since economic phenomena presented in annual reports are frequently measured under conditions of uncertainty using estimates and assumptions. Although complete lack of bias cannot be achieved, a certain level of accuracy is necessary for financial reporting information to be decision useful (IASB, 2008). This audit function according to the Agency theory is to provide a monitoring mechanism that can curtail the excesses of managers/stewards (Dang, 2004).
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondences between the information and the establish criteria (Arens, Alvin, Shailer and Fielder, 2011). Messier (2008) in his own view asserts that auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between assertion and established criteria and communicating the results to interested user. The audit of accounts in the corporate sector by an independent auditor is obligatory by statutes which define the duties, rights and powers. This is essential because of the separation of ownership from the management in the corporate sector. The owner needs someone who can keep a professional watch on the management and to whom they can trust for the reliability of the accounts since the prerogative of preparing the financial statement is that of the management. In order for users of the financial statement to gain assurance that the financial statement data are being reported and measured properly and also fairly presented, independent certified auditors audit the financial statement and express an opinion on the statements. Thus the reliability of the financial reports is premised on the assumption that the certified auditor is not influenced by their clients or other bodies. Where financial reports are not credible, investors and creditors would have little or no confidence in them. Auditors must therefore be independent both in fact and appearance. Auditor’s independence is seen as the backbone of the audit profession. It forms an integral part of the financial reporting process and a necessity for adding value to all audited financial reports. Audit independence is an important ingredient in audit practice. Izedonmi (2000) stated that independence is of the mind, characterised by Objectivity and Integrity on the part of the auditor, hence independence is fundamental to the reliability of auditors’ reports. The issue of auditor’s independence as an essential platform for quality audit is not disputable. The past decade has witnessed a growing interest in research bothering on auditor‘s independence. This is not unconnected to the very many corporate collapses and scandals that hit the world’s business environment and has kept corporate managers, business owners and investors of all type on the edge in ensuring adherence to standard accounting and management practices. Nigeria is not left out in the drive towards compliance to acceptable norms and practices hence the need to ascertain what drives reliability of financial reports. This has made firms in Nigeria to adopt standard accounting practices that have increased the preservation of auditor’s independence and enhance credibility of financial reports
Statement of the problem
To carry out an audit in a manner that meets the reasonable expectations of users of audited financial statements, it is essential that the work is performed with due regard for audit independence (Bahram, 2007). The audit firm and the auditor must not be compromised and they must not compromise quality to achieve financial or non-financial benefits. The decline in the confidence in financial reporting and auditing arising from corporate collapses and audit failures in a number of countries including Nigeria is the background of reforms in audit independence and quality control. The consequence of this has been greater regulation of the profession in an attempt to restore public and investor confidence in corporate financial reporting.
Objective of the study
The objectives of the study are;
- To examine the effect of audit independence on the timeliness of listed commercial banks financial reports in Nigeria
- To ascertain the effect of audit independence on the value relevance of listed commercial banks’ financial report in Nigeria
- To examine the measures of audit quality of deposit money banks in Nigeria
- To determine the influence of each measures of audit quality on financial reports of deposit money banks in Nigeria
H0: there is no effect of audit independence on the timeliness of listed commercial banks financial reports in Nigeria
H1: there is effect of audit independence on the timeliness of listed commercial banks financial reports in Nigeria
H0: there is no measures of audit quality of deposit money banks in Nigeria
H1: there is measures of audit quality of deposit money banks in Nigeria
Significance of the study
The study is expected to contribute towards equipping regulator and supervisory agencies with knowledge of the attributes which greatly influenced the financial reporting quality in the context of Nigeria economy and the banking sector in particular, such knowledge will guide them in future review of the regulatory framework towards addressing the problem of fraudulent reporting in Nigeria.
The findings of this study contributes to the banking public, in that the study examines how audit committee impact on the performance of the banks and the financial standards compliance in Nigeria. Management of the banks could also find this study useful as it investigates the outcome of their stewardship (performance) in relation of their audit committee functions, which shows them some possible areas of additional efforts. Also, regulators such as the corporate affairs commission (CAC) securities and exchange commission (SEC) and central bank of Nigeria (CBN) could also find this study useful as the study analyzes the consequences of their series of intervention in the bank through the mechanism of corporate governance.
Scope and limitation of the study
The scope of the study covers Audit independence and financial reporting quality: Nigerian evidence from deposit money bank. There is hardly, any activity in a dynamic environment that is not constraints by one factor or the other. Likewise, this study cannot be deemed completely from the following limiting factors.
- TIME CONSTRAINTS: The number of enterprises needed for the survey will be affected by time constraint. This will no doubt limit the extent of the research work. However the result of the surveyed public enterprises should be taken as a fair representation of what is obtainable.
- FINANCIAL CONSTRAINTS: Another glaring limitation would be the financial constraints in carrying out the study. Despite these limitations the study will achieve its objectives and would be benefice to anyone who seek the knowledge of expanding on this subject matter.
- METHOD OF ANALYSIS: The research study will be affected by the method of analysis finding on a simple percentage resources. It is hopeful that the result will not be different if another statistical analysis techniques are used. Therefore generation of finding would be accepted without reservation
Definition of terms
ACCOUNTING CONTROL: These are the procedures, techniques and practices that will protect the company’s resources and provide for reliable financial statement
Audit independence: Auditor independence refers to the independence of the internal auditor or of the external auditor from parties that may have a financial interest in the business being audited. Independence requires integrity and an objective approach to the audit process
Financial reporting quality: High-quality reporting provides decision-useful information, which is relevant and faithfully represents the economic reality of the company’s activities during the reporting period as well as the company’s financial condition at the end of the period