Abstract:
Financial reporting is a means through which managers communicate companies’ economic performance to stakeholders. Over the years, the markets have witnessed several accounting scandals perpetuated through the manipulation of the accounting figures reported in financial statements. This has led to the questioning of the ability of auditors to effectively constrain such practices, especially in developing countries. Given the prominence of this problem and the expected role of the auditor, this study examined the connection between audit quality, as one of the important features of good corporate governance and earnings management among listed consumer goods companies in Nigeria. Specifically, the study focused on audit firm size, audit fees, auditor tenure, auditors’ industry specialization and audit engagement partner gender diversity as independent variables and earnings management as dependent variable proxied by discretionary accruals. Descriptive correlational research design is adopted. The population included all the 21 companies in the consumer goods sector, 17 out of which were purposively sampled for the purpose of data collection. The study covered the period 2011-2020 and utilised secondary data extracted from the annual accounts of the companies for the period of the study. The study employed the use of multiple regression analysis technique to analyse the data with the aid of STATA version16. From the regression results it was revealed that audit fees, audit firm size and auditor industry specialization have a statistically positive significant effect on earnings management while auditor tenure and audit engagement partner gender diversity was found to have no significant influence on earnings management of listed consumer goods companies in Nigeria. The study concluded that audit quality is an effective corporate governance mechanism for constraining the problem of earnings manipulation in financial report of companies. The study, therefore, recommended that there is need for companies, accounting regulators, Financial Reporting Council of Nigeria and indeed all stakeholders to consider an expanded approach in examining audit quality in Nigeria.
