Exploring the Link Between Professional Scepticism and Audit Quality: An Income Smoothing Approach
Keywords:
Professional Scepticism
Abstract
The vital role played by the assurance providers in moderating the agency relationship is as important as the total amount committed to the entity. However, the weakness of the adopted monitoring mechanism gives room to fraud and kills audit quality. To overcome this challenge, this academic study explored the influence of professional scepticism on the audit quality of companies listed in the financial services sector of the Nigerian Capital Market. This study examined the dimensions of experience, traits and motivation of assurance services, as it impacted fraud detection and audit quality. A random sampling of firms was conducted to select twenty-five companies in the financial sectors of the Nigerian Exchange Group (NXG). Thereafter, the audited annual report and the auditor’s website were navigated for the dataset. The static panel regression estimators were utilized for inferential statistics after considering post-estimation diagnostic tests. Findings reveal that auditor experience and trait significantly increase fraud detection, and consequently, audit quality will rise in the financial services sector. Based on these findings, it was concluded that both auditor’s experience and traits are the drivers of fraud detection and quality assurance provision in the listed financial services firms of the NXG. It was recommended that audit firms should give appropriate consideration to factors that impact the quality of professional services rendered. Experience and expertise, specialization and tenure, complexities and regulatory framework should be monitored to ensure the protection of stakeholders and the working of monitoring mechanisms
References
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Akeem, L. B. (2015). The impact of auditing in controlling fraud and other financial irregularities. International Journal of Empirical Finance, 4(3), 147-164.
Alrshah, A. M. (2015). An empirical analysis of audited financial statement’s reliability: Mediating role of auditor quality. International Journal of Finance and Accounting, 4(3), 172-179.
Alwan, S. K. (2021). Corporate governance mechanism as income smoothing suppressor. Accounting, 7977-986. doi:10.5267/j.ac.2021.1.010
Apandi, H., Maruti, D. R., & Sinaga, O. (2022). The effect of competence, integrity, and scepticism of audit professionals on audit quality; Case study at the regional inspectorate of west bandung regency. Central Asia & the Caucasus (14046091), 23(1).
Bala, H., Amran, N. A., & Shaari, H. (2018). Auditor brand name and financial reporting fraud of listed companies in Nigeria. Journal of Advanced Research in Business and Management Studies, 11(1), 84-94.
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Bryan, D. B., & Reynolds, J. K. (2016). Auditor size and the cost of equity capital over auditor tenure. International Journal of Auditing, 20(3), 278-294.
Chiang, C. (2016). Conceptualising the linkage between professional scepticism and auditor independence. Pacific Accounting Review, 28(2), 180-200.
Deis Jr, D. R., & Giroux, G. A. (1992). Determinants of audit quality in the public sector. Accounting review, 462-479.
Dong, N., Wang, F., Zhang, J., & Zhou, J. (2020). Ownership structure and real earnings management: Evidence from China. Journal of Accounting and Public Policy, 39(3). 106733.
Drogalas, G., Pazarskis, M., Anagnostopoulou, E., & Papachristou, A. (2017). The effect of internal audit effectiveness, auditor responsibility and training in fraud detection. Accounting and Management Information Systems, 16(4), 434-454.
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Jerry, M., & Saidu, S. (2018). The impact of audit firm size on financial reporting quality of listed insurance companies in Nigeria. Iranian Journal of Accounting, Auditing and Finance, 2(1).
Johari, R. J., Hati, T. M., & Sayed Hussin, S. A. H. (2022). Factors influencing auditors' professional scepticism: Malaysian evidence. Universal Journal of Accounting and Finance, 10(1), 243-253.
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Lamba, R. A., Yohanes, C. S., Lamba, A., & Pattiasina, V. (2020). The effect of auditor independence and ethics on auditor professional scepticism: Its implications for audit quality in Indonesia. International Journal of Innovation, Creativity and Change, 12(8), 383-396.
Lokanan, M. (2018). Informing the fraud triangle: Insights from differential association theory. Journal of Theoretical Accounting Research, 14(1).
Mat, S. A., Mohamed, N., Muhammad, K., Ghani, E. K., & Ali, M. M. (2021). The influence of auditors’ reputation, auditors’ fee and auditors’ scepticism audit quality in earnings management. Academy of Accounting and Financial Studies Journal, 25(6), 1-11.
Musa, W. A., Salman, R. T., Amoo, I. O., & Subair, M. L. (2020). Impact of firm’s specific factors on audit fee of quoted consumer goods firms. Corporate Governance and Sustainability Review, 4(1), 47-55.
Musa, W. A., Salman, R. T., & Amoo, I. O. (2021). Determinants of audit fees in quoted financial and non-financial firms. Corporate Law and Governance Review, 3(2), 30–40.
Nigrini, M. J. (2012). Benford's Law: Applications for forensic accounting, auditing, and fraud detection (Vol. 586). John Wiley & Sons.
Nwanyanwu, L. A. (2017). Audit quality practices and financial reporting in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(2), 145-155.
Ogungbade, O. I., Adekoya, A. C., & Olugbodi, D. I. (2021). Audit quality and financial reporting quality of deposit money banks listed on the Nigerian Stock Exchange.
Payne, G. T., & Petrenko, O. V. (2019). Agency theory in business and management research. In Oxford Research Encyclopedia of Business and Management.
Ratna, T. D., & Anisykurlillah, I. (2020). The effect of experience, independence, and gender on auditor professional scepticism with professional ethics as moderating. Accounting Analysis Journal, 9(2), 138-145.
Schuchter, A., & Levi, M. (2016). The fraud triangle revisited. Security Journal, 29, 107-121.
Singh, N., Lai, K. H., Vejvar, M., & Cheng, T. E. (2019). Data‐driven auditing: A predictive modeling approach to fraud detection and classification. Journal of Corporate Accounting & Finance, 30(3), 64-82.
Soyemi, K. A., & Olawale, L. S. (2019). Firm characteristics and financial reporting quality: evidence from non-financial firms in Nigeria. International Journal of Economics, Management and Accounting, 27(2), 445-472.
Sulaiman, E. A., Musa, W. A., & Kasum, A. S. (2023). IFRS and audit quality: A discretionary model approach. Malete Journal of Accounting and Finance, 4(1), 160-175.
Tjan, J. S., Muslim, M., Alimin, A., Noch, M. Y., & Sonjaya, Y. (2024). Independence, professional skepticism, and audit quality: The moderating role of audit fees. Jurnal Akuntansi, 28(1), 40-60.
Udeh, S. N., & Nwadialor, E. O. (2016). Evaluation of effectiveness of internal audit in the Nigerian public sector. European Journal of Business, Economics and Accountancy, 4(3).
Ugwu, C. C., Aikpitanyi, L. N., & Idemudia, S. (2020). The effect of audit quality on financial performance of deposit money banks (evidence from Nigeria). Journal of Economics and Business, 3(1).
Uthman, A. B. (2021). Impact of Accounting Regulatory Reforms on Audit Quality of Listed Companies in Nigeria (Doctoral dissertation, Kwara State University (Nigeria).
Uvaneswaran, S., & Shikur, M. (2022). Public accountants’ adherence to professional standards and accounting ethics. International Journal of Research in Management, 4(1), 15-22.
Yamane, T. (1967). Statistics: An introductory analysis (2nd ed.). Harper & Row.
Ado, A. B., Rashid, N., Mustapha, U. A., & Ademola, L. S. (2020). The impact of audit quality on the financial performance of listed companies Nigeria. Journal of Critical Reviews, 7(9), 37-42.Agrawal, P., Birt, J., Holub, M., & van Zyl, W. (2021). Professional scepticism and the accounting classroom. Accounting Education, 30(3), 213-233.
Aguilar Solano, M. (2020). Triangulation and trustworthiness: advancing research on public service interpreting through qualitative case study methodologies. FITIS Pos International Journal, 7(1), 31-52.
Aisha, A. (2021). The impact of board of director characteristics on earning management in the real estate companies listed United Arab Emirates. Academy of Accounting and Financial Studies Journal, 25(1), 50-59.
Akeem, L. B. (2015). The impact of auditing in controlling fraud and other financial irregularities. International Journal of Empirical Finance, 4(3), 147-164.
Alrshah, A. M. (2015). An empirical analysis of audited financial statement’s reliability: Mediating role of auditor quality. International Journal of Finance and Accounting, 4(3), 172-179.
Alwan, S. K. (2021). Corporate governance mechanism as income smoothing suppressor. Accounting, 7977-986. doi:10.5267/j.ac.2021.1.010
Apandi, H., Maruti, D. R., & Sinaga, O. (2022). The effect of competence, integrity, and scepticism of audit professionals on audit quality; Case study at the regional inspectorate of west bandung regency. Central Asia & the Caucasus (14046091), 23(1).
Bala, H., Amran, N. A., & Shaari, H. (2018). Auditor brand name and financial reporting fraud of listed companies in Nigeria. Journal of Advanced Research in Business and Management Studies, 11(1), 84-94.
Baltagi, B. H. (1995). Econometric analysis of panel data. New York, NY: John Willey & Sons.
Bills, K. L., Cunningham, L. M., & Myers, L. A. (2016). Small audit firm membership in associations, networks, and alliances: Implications for audit quality and audit fees. The Accounting Review, 91(3), 767-792.
Bryan, D. B., & Reynolds, J. K. (2016). Auditor size and the cost of equity capital over auditor tenure. International Journal of Auditing, 20(3), 278-294.
Chiang, C. (2016). Conceptualising the linkage between professional scepticism and auditor independence. Pacific Accounting Review, 28(2), 180-200.
Deis Jr, D. R., & Giroux, G. A. (1992). Determinants of audit quality in the public sector. Accounting review, 462-479.
Dong, N., Wang, F., Zhang, J., & Zhou, J. (2020). Ownership structure and real earnings management: Evidence from China. Journal of Accounting and Public Policy, 39(3). 106733.
Drogalas, G., Pazarskis, M., Anagnostopoulou, E., & Papachristou, A. (2017). The effect of internal audit effectiveness, auditor responsibility and training in fraud detection. Accounting and Management Information Systems, 16(4), 434-454.
Efiong, E. J., Bassey, B. E., Osadim, E. O., & Onyeogaziri, U. R. (2018). Audit Procedures in an Electronic Data Processing Environment: A Study of Selected Audit Firms in Nigeria. Journal of Accounting and Financial Management ISSN, 4(1), 2018.
Evbuomwan, I. (2021). Corporate governance and earnings management in listed Nigerian manufacturing companies. M.Sc. National College of Ireland.
Fullerton, R., & Durtschi, C. (2004). The effect of professional skepticism on the fraud detection skills of internal auditors. Available at SSRN 617062.Gujarati, D. N. (2009). Basic econometrics. New Delhi, India: Tata McGraw-Hill
Hai, P. T., Toanc, L. D., Quy, N. L. D., & Tung, N. T. (2020). Research factors affecting professional skepticism and audit quality: Evidence in Vietnam. International Journal of Innovation, Creativity and Change, 13(1), 830-847.
Hassan, A. O. & Musa, W. A. (2023). IFRS disclosure guideline and acceptability of financial reporting framework: Evidence from listed deposit money banks in Nigeria. Paper presented at the 8th ICAN International Academic Conference on Accounting and Finance, Enugu State, Nigeria.
Hausman, J. A. (1998). Specification tests in econometrics. Econometrica, 46(6), 1251–1271. https://doi.org /10.2307/1913827 35.
Huber, W. D. (2017). Forensic accounting, fraud theory, and the end of the fraud triangle. Journal of Theoretical Accounting Research, 12(2).
Jerry, M., & Saidu, S. (2018). The impact of audit firm size on financial reporting quality of listed insurance companies in Nigeria. Iranian Journal of Accounting, Auditing and Finance, 2(1).
Johari, R. J., Hati, T. M., & Sayed Hussin, S. A. H. (2022). Factors influencing auditors' professional scepticism: Malaysian evidence. Universal Journal of Accounting and Finance, 10(1), 243-253.
Kim, S., & Trotman, K. T. (2015). The comparative effect of process and outcome accountability in enhancing professional scepticism. Accounting & finance, 55(4), 1015-1040.
Lamba, R. A., Yohanes, C. S., Lamba, A., & Pattiasina, V. (2020). The effect of auditor independence and ethics on auditor professional scepticism: Its implications for audit quality in Indonesia. International Journal of Innovation, Creativity and Change, 12(8), 383-396.
Lokanan, M. (2018). Informing the fraud triangle: Insights from differential association theory. Journal of Theoretical Accounting Research, 14(1).
Mat, S. A., Mohamed, N., Muhammad, K., Ghani, E. K., & Ali, M. M. (2021). The influence of auditors’ reputation, auditors’ fee and auditors’ scepticism audit quality in earnings management. Academy of Accounting and Financial Studies Journal, 25(6), 1-11.
Musa, W. A., Salman, R. T., Amoo, I. O., & Subair, M. L. (2020). Impact of firm’s specific factors on audit fee of quoted consumer goods firms. Corporate Governance and Sustainability Review, 4(1), 47-55.
Musa, W. A., Salman, R. T., & Amoo, I. O. (2021). Determinants of audit fees in quoted financial and non-financial firms. Corporate Law and Governance Review, 3(2), 30–40.
Nigrini, M. J. (2012). Benford's Law: Applications for forensic accounting, auditing, and fraud detection (Vol. 586). John Wiley & Sons.
Nwanyanwu, L. A. (2017). Audit quality practices and financial reporting in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(2), 145-155.
Ogungbade, O. I., Adekoya, A. C., & Olugbodi, D. I. (2021). Audit quality and financial reporting quality of deposit money banks listed on the Nigerian Stock Exchange.
Payne, G. T., & Petrenko, O. V. (2019). Agency theory in business and management research. In Oxford Research Encyclopedia of Business and Management.
Ratna, T. D., & Anisykurlillah, I. (2020). The effect of experience, independence, and gender on auditor professional scepticism with professional ethics as moderating. Accounting Analysis Journal, 9(2), 138-145.
Schuchter, A., & Levi, M. (2016). The fraud triangle revisited. Security Journal, 29, 107-121.
Singh, N., Lai, K. H., Vejvar, M., & Cheng, T. E. (2019). Data‐driven auditing: A predictive modeling approach to fraud detection and classification. Journal of Corporate Accounting & Finance, 30(3), 64-82.
Soyemi, K. A., & Olawale, L. S. (2019). Firm characteristics and financial reporting quality: evidence from non-financial firms in Nigeria. International Journal of Economics, Management and Accounting, 27(2), 445-472.
Sulaiman, E. A., Musa, W. A., & Kasum, A. S. (2023). IFRS and audit quality: A discretionary model approach. Malete Journal of Accounting and Finance, 4(1), 160-175.
Tjan, J. S., Muslim, M., Alimin, A., Noch, M. Y., & Sonjaya, Y. (2024). Independence, professional skepticism, and audit quality: The moderating role of audit fees. Jurnal Akuntansi, 28(1), 40-60.
Udeh, S. N., & Nwadialor, E. O. (2016). Evaluation of effectiveness of internal audit in the Nigerian public sector. European Journal of Business, Economics and Accountancy, 4(3).
Ugwu, C. C., Aikpitanyi, L. N., & Idemudia, S. (2020). The effect of audit quality on financial performance of deposit money banks (evidence from Nigeria). Journal of Economics and Business, 3(1).
Uthman, A. B. (2021). Impact of Accounting Regulatory Reforms on Audit Quality of Listed Companies in Nigeria (Doctoral dissertation, Kwara State University (Nigeria).
Uvaneswaran, S., & Shikur, M. (2022). Public accountants’ adherence to professional standards and accounting ethics. International Journal of Research in Management, 4(1), 15-22.
Yamane, T. (1967). Statistics: An introductory analysis (2nd ed.). Harper & Row.
Published
2024-11-01
How to Cite
MUSA, W. A., RAIMI, O. M., & USMAN, K. A. (2024). Exploring the Link Between Professional Scepticism and Audit Quality: An Income Smoothing Approach. Global Journal of Accounting, 10(1), 24-39. Retrieved from http://gja.unilag.edu.ng/article/view/2272
Section
Articles
