EFFECT OF AUDIT QUALITY ON EARNINGS MANAGEMENT OF LISTED CONSUMER GOODS COMPANIES IN NIGERIA

Abstract

The study examines the effect of audit quality on earnings management of listed consumer goods
companies in Nigeria. Ex-post facto research design and correlational research design was used for the
study. Population of the study comprises of the 21 listed consumer goods firm on the Nigerian Exchange
Group (NGX), and a sample of 17 firms was selected based on purposive sampling technique. Secondary
data were extracted from the annual report and accounts of the 17 sampled firms. The study employed
descriptive and inferential statistics to analyse data. Findings reveal that audit fee and audit industrial
specialization have negative effect on earnings management. However, audit fee effect is significant while
audit industrial specialization effect is insignificant. On the other hand, audit firm size has a positive but
significant effect on earnings management. The implication of the findings is that firms should be more
mindful of their audit fee budgets; as higher fees may incentivize auditors to perform more rigorous audits.
Management teams should avoid seeing audit fees as a mere cost but as an investment in financial
transparency and integrity. The insignificant effect of audit firm size and industry specialization suggests
that firms should not rely solely on the size or specialization of audit firms when selecting auditors.
Instead, focus should be placed on the auditor's independence and the quality of the audit process. The
study recommended that financial managers and audit committees during the annual audit planning and
budget allocation should allocate sufficient budget for audit fees to engage high-quality auditors.