Abstract:
This study examined the effect of audit quality proxied by audit firm size, auditor industry specialization, auditor tenure, and audit committee financial expertise on earnings management represented by discretionary accruals of listed oil marketing companies in Nigeria. The study also examined the effect of the interaction between audit committee financial expertise and auditor industry specialization on earnings management of sampled firms. To achieve these objectives, the study used fourteen listed oil marketing companies that had consistently published their audited annual financial reports from 2011 to 2020, and analyzed the data using multiple regression technique. The dataset was first analyzed using pooled-OLS regression technique. However, in view of the panel nature of the dataset, it was further analyzed using fixed and random effects regression models The result of the fixed effect regression analysis revealed that audit firm size, auditor industry specialization, and audit committee financial expertise are positively associated with earnings management at less than 5% significance level respectively. In contrast, auditor tenure and the interaction between audit committee financial expertise and auditor industry specialization were negative and significantly associated with earnings management of firms at less than 5% significance level respectively. Overall, the study concluded that audit quality attributes of audit firm size, auditor industry specialization, auditor tenure, audit committee financial expertise and the interaction between audit committee financial expertise and auditor industry specialization had significant effect on earnings management of listed oil and gas marketing companies in Nigeria. In view of the results, the study recommended among others auditor tenure of three years and above in order to check earnings management of firms in Nigeria. Also, auditor industry specialization should be encouraged by regulators such as SEC as the interaction between audit committee financial expertise and auditor industry specialization mitigates earnings management of firms in Nigeria.
