IFRS Adoption and Audit Quality in Nigeria: The Conditional Effect of Auditor Industry Specialization
Keywords:
Audit Quality, Auditor industry specialization, IFRS adoption, conflict theory
Abstract
Incessant audit mistakes as unveiled by the Financial Reporting Council of Nigeria (FRCN’s) sanction on audit firms as well as the consequential ligation of the ‘prestigious’ audit firms suggest the need to examine the quality of audits. This aim of this study is to find out how the relationship between audit quality and International Financial Reporting Standards (IFRS) Adoption is moderated by auditor industry specialization of listed companies in Nigeria. The study drew data mainly from secondary sources. That is, extracted data from financial reports of 52 listed companies in Nigeria covering periods between 2005 and 2019 were used. The period covers both pre IFRS and IFRS period to ensure a balanced spread of data across both periods across all industries. The overall observation totaled 517 and the analysis of data was carried out with the use of longitudinal econometric models. The findings of the study are: (i) adoption of IFRS significantly affects audit quality suggesting an improvement in audit quality due to IFRS adoption. In the financial services industry, the results indicate that adoption of IFRS does not significantly affect audit quality (ii) IFRS adoption led to significant reduction in the audit quality of both financial and non-financial services industries due to auditor industry specialization. The study recommends, among others, the need for the regulatory authorities to include oversight on auditor industry specialization so as to ensure it achieves a desired outcome of improved audit quality and ensure students are trained to acquire accounting skills in their industries of interest to further improve audit quality.
References
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De Fuentes, C. and Sierra, E. (2015). Industry specialization and audit fees: a meta-analytic approach. Academia Revista Latinoamericana de Administración, 28(3), 419-435. https://doi.org/10.1108/ARLA-06-2014-0083
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Dimitropoulos, P. & Asteriou, D. (2013). The Effect of Board Composition on the Informativeness and Quality of Annual Earnings: Empirical Evidence from Greece, Research in International Business and Finance. 24, 190-205.
Etuka, C. E., Anichebe, A. S., & Etuka N. E. (2019). Effect of audit quality on capital investment of quoted consumer goods companies in Nigeria. Journal of accounting, business and social sciences. 2(1), 88-105.
Farouk, M. A., & Hassan, S. U. (2014). Impact of audit quality and financial performance of quoted cement firms in Nigeria. International Journal of Accounting and Taxation, 2(2), 1-22.
Fleming, D., Hee, K., & Romanus, R. N. (2014). Auditor industry specialization and audit fees surrounding Section 404 implementation. Review of Accounting and Finance. 13(4), 353-370.
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Fung, S. Y. K., Gul, F. A., & Krishnan, J. (2012). City-level auditor industry specialization, economies of scale, and audit pricing. The Accounting Review, 87(4), 1281-1307.
Garcia‐Blandon, J., & Argiles‐Bosch, J. M. (2018). Audit partner industry specialization and audit quality: Evidence from Spain. International Journal of Auditing, 22(1), 98-108.
Gebhardt, G., & Novotny-Farkas, Z. (2016, June). Comparability and predictive ability of loan loss provisions–The role of accounting regulation versus bank supervision. In Annual Accounting Conference 2018.
Ghafran, C., & O’Sullivan, N. (2017). The impact of audit committee expertise on audit quality: Evidence from UK audit fees. The British Accounting Review, 49(6), 578–593. https://doi.org/10.1016/j.bar.2017.09.008
Government Accountability Office (GAO) (2008). Audits of Public Companies. Continued Concentration in Audit Market for Large Public Companies Does Not Call for Immediate Action. Washington, DC: GAO.
Gramling, A.A., Stone, D.N., (2001). Audit firm industry expertise: A review and synthesis of the archival literature. Journal of Accounting Literature 20, 1–29.
Hammersley, J. S. (2006). Pattern identification and industry‐specialist auditors. The Accounting Review, 81(2), 309-336.
He, X., Pittman, J. A., Rui, O. M., & Wu, D. (2017). Do social ties between external auditors and audit committee members affect audit quality? The Accounting Review, 92(5), 61–87. https://doi.org/10.2308/accr-51696
Hines, R. D. (1989). The sociopolitical paradigm in financial accounting research. Accounting, Auditing & Accountability Journal, 2(1), 52-79. https://doi.org/10.1108/09513578910134671
Hoelscher, J. L. & E. Seavey, S. (2014), Auditor industry specialization and corporate risk-taking, Managerial Auditing Journal, 29(7), 596-620. https://doi.org/10.1108/MAJ-02-2014-1000
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Jaggi, B., Gul, F. A., & Lau, T. S. C. (2012). Auditor industry specialization, political economy and earnings quality: Some cross‐country evidence. Journal of International Financial Management & Accounting, 23(1), 23-61.
John, I. (2019). The Big Four made a kill auditing NSE 30 in 2017 grossing over N6.8 billion. Business Day. https://businessday.ng/market-intelligence/article/the-big-four-made-a-kill-auditing-nse-30-in-2017-grossing-over-n6-8-billion/
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Published
2021-10-11
How to Cite
Uthman, A. B., & Salami, A. A. (2021). IFRS Adoption and Audit Quality in Nigeria: The Conditional Effect of Auditor Industry Specialization. Global Journal of Accounting, 7(2), 80-98. Retrieved from http://gja.unilag.edu.ng/article/view/1321
Section
Articles
