Audit Quality Attributes and Financial Reporting Credibility Nexus: Further Evidence From Nigeria
Audit Quality Attributes and Financial Reporting Credibility Nexus: Further Evidence From Nigeria

Summary/Abstract: Organization's financial statements are a vital tool for evaluating operational performance as well as for providing interested parties and the business community with the ability to evaluate an establishment's profitability and continued viability. The necessity of credible financial reports devoid of falsification has dominated much of the conversation in accounting and finance literature due to financial scandals and the failure of several massive global corporations in the past decades. Against this backdrop, this study investigated the effect of audit quality on financial reporting credibility of oil and gas firms listed on the Nigerian Exchange Group (NGX). The study anchored on the agency theory, adopted the ex post facto research design. The population of the study consisted of all nine oil and gas firms listed on the Nigeria Exchange Group as at 31 December 2022. Data were collected from the nine listed oil and gas firms over the period of 2013 to 2022. The study employed panel data analysis using fixed effects and random effects model. The findings found that audit fees and audit firm tenure have a significant positive effect on financial reporting credibility, suggesting that higher auditor remunerations and longer audit tenure favorably impacted financial reporting credibility. Findings further indicated that audit firm size has a positive but insignificant effect on credibility of financial reports while the relationship between audit firm rotation and financial reporting credibility was negative but not significant. Control variables of firm growth and leverage demonstrated a statistically insignificant positive association with credibility of financial reports, suggesting that bigger firms and higher debt levels may encourage accounts manipulations. The study therefore concluded that audit quality measures significantly impact the level of credibility of financial reporting of firms listed in the oil and gas sector. The study recommended amongst others, that audit fees should be based on the volume of audit assignment to maintain and promote the independence of the auditing firms.

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