Empirical Impact of Audit Quality on the Financial Performance of Deposit Money Banks in Nigeria

Abstract

The main objective of this study was to ascertain the impact of audit quality on the performance of deposit money banks in Nigeria. Three specific objectives were set based on the statement of research problem and three hypotheses were formulated. Consequently, the study examined the impact of Auditor Size (AUDSIZE), Auditor’s Independence (AUDIND) and Auditor’s Competence (AUDCOM) on the Return on Assets (ROA), Return on Equity (ROE) and Earnings Per Share (EPS) of the sampled banks respectively. The population of the study was 150 annual reports and accounts of fifteen deposit money banks (15 banks for 10 years) listed on the floor of the Nigerian Stock Exchange. The sample size was 100 annual reports and accounts of ten deposit money banks (10 banks for 10 years) based on purposive sampling technique. The ex post facto research design was adopted and the timeframe for the study was ten (10) years. This study employed the secondary sources of data collections. The independent variable was audit quality proxied by AUDSIZE, AUDIND and AUDCOM while the dependent variable was performance proxied by ROA, ROE and EPS. The multiple regression modelwas used to analyse the data via E-view 7 statistical software. The results showed that Auditor Size (AUDSIZE), Auditor’s Independence (AUDIND) and Auditor’s Competence (AUDCOM) had positive and significant impacts on the ROA (β = 512.6, t = 3.06, p = 0.02, f-s = 55.05, r2 = 63%), ROE (β = 9.01, t = 3.47, p = 0.02, f-s = 21.16, r2 = 53%) and EPS (β = 6.08, t = 3.97, p = 0.001, f-s = 25.83, r2 = 58%) of the sampled banks respectively. Based on the findings of this study, the following recommendations are made: audit engagement in the banking sector (appointment of auditors) should be given due priority by stakeholders to ensure that auditors with broad based capacity are hired. Secondly, auditor’s independence should be enhanced by graduating auditor’s remuneration and ensuring that audit fees are made commensurate with audit efforts. Furthermore, academic and professional training and re-training of the auditors should be re intensified to enhance the maintenance of the technical competence of the auditors.