Effects of Audit Firm Size on Earning Management of Listed Consumer Goods Companies in Nigeria

Abstract

Earnings management is a problem reported in many different backgrounds. many studies on audit quality highlighted that there is a connection between the audit quality and earnings management. The prior study’s findings revealed that discretionary accruals decrease when the auditor is independent or if the audit firm is among the big 4, and advocate that big audit firms have advantage of enormous resources that enhances higher audit quality than the non-big 4 audit firms. This study examined the effect of audit firm size on earnings management proxied by discretionary accruals of listed consumer goods companies in Nigeria for a period of thirteen years from 2006-2018. Exposit factor research design was adopted for the study. The result of the random effect regression analysis revealed that audit firm size has positive association and significant effect on earnings management. In view of the results, the study concluded and recommended that consumer goods companies who are interested should judge external audit firms on the basis of effectiveness, efficiency and output and not just the size of the audit firm as to whether they are among the big 4 or not. This is because audit firm size is not associated with less earnings management of consumer goods companies in Nigerian. Those who hire audit services in Nigeria should consider competence and experience of the audit firms rather than size that are likely to be associated with less earnings management of firms.