Auditing Quality and Earnings Persistence in Nigerian Quoted Manufacturing Companies

International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue VI, June 2019 | ISSN 2454–6186

Auditing Quality and Earnings Persistence in Nigerian Quoted Manufacturing Companies

Adegbie F.F, Salawu R.O, Usifoh O.O

Accounting Department, Babcock University, Ilisan Remo, Ogun State, Nigeria

Abstract:- Accounting process is set to achieve objectivity in order to ensure high financial reporting quality which is reflected through the quality of earnings. Earnings persistence is an essential feature of the accounting information which provide useful information to investors for assessing future cashflows and earnings. External audit play a strong role in supporting transparent financial reporting but the quality of an audit has been a disputed matter in recent times and indications show that absence of audit quality is one of the major reasons for corporate scandals. The study investigated the effect of audit quality on earnings persistence of Nigerian listed manufacturing firms between 2008 and 2017. The study employed secondary data. The population of the study was 53 manufacturing firms listed on the Nigerian Stock Exchange as at 31stDecember 2017. A sample of 30 firms was purposively selected. Data were sourced from the audited annual reports of the sampled firms and publications of the Nigerian Stock Exchange. Data were analyzed using mean, percentages, pooled OLS, random effect, fixed effect and generalized least square method. The results showed that audit firm size, audit tenure and audit committee expertise had an insignificant positive influence on earnings persistence, sector based specialization had a significant negative effect on earnings persistence, audit firm independence had insignificant negative effect on earnings persistence while age and size exerted a significant negative and positive influence on earnings persistence respectively. This study concluded that audit firm size, audit tenure, sector based specialization, audit firm engaged, audit firm independence, audit committee expertise after being controlled by size and age of the firms bring about earnings persistence. The study recommended that in order to achieve financial report of better quality, consideration should be given to the proxies of audit quality jointly since all the factors are important and need to be critically considered in taking decision by the shareholders and management towards the achievement of a qualitative financial report.

Keywords: Audit quality, Earnings persistence, Financial report, Information asymmetry, Decision making

I. INTRODUCTION

Financial reports play a vital role in providing information for decision making, the more credible and reliable they are, the better the accounting information they provide and as such reduce information asymmetry between managers and stakeholders, thereby bringing about more efficient investment (Biddle & Hilary, 2006). The financial reportought to reveala company’s income so as to show the value of a company’s shares that represent the value of its future earnings (Okolie, 2014).

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