Effect of Auditor Independence on Financial Reporting Quality of Listed Conglomerate Firms in Nigeria

Abstract

This study examined the effect of auditor independence, proxied by audit fee, audit tenure and audit firm age, on the financial reporting quality of listed conglomerate firms in Nigeria over the period 2015–2024. The study was motivated by persistent concerns over earnings management in Nigerian firms and the inconclusive empirical evidence regarding the influence of auditor independence on financial reporting quality, particularly the limited attention given to audit firm age and the paucity of evidence from the conglomerate sector. The study adopted a census research design covering all six conglomerate firms listed on the Nigerian Exchange Group (NGX) as at 31 December 2024. Secondary data were obtained from the audited annual reports of the sampled firms. Financial reporting quality was measured using discretionary accruals as an inverse proxy, while panel regression analysis was employed to estimate the relationships. The results reveal that audit fee exerts a positive and statistically significant effect on discretionary accruals (β = 13.093, p < 0.001), indicating that higher audit fees reduce financial reporting quality. Audit tenure also exhibits a positive and significant effect (β = 1.193, p = 0.048), suggesting that prolonged auditor–client relationships impair financial reporting quality. Conversely, audit firm age has a negative and statistically significant effect on discretionary accruals (β = −0.084, p < 0.001), implying that more established audit firms enhance financial reporting quality. The control variable, firm leverage, demonstrates a positive and statistically significant relationship with discretionary accruals (β = 88.109, p < 0.001), indicating that highly leveraged firms are more likely to engage in earnings management. The study concludes that auditor independence remains a critical determinant of financial reporting quality among listed conglomerate firms in Nigeria, with audit firm age enhancing reporting quality, whereas higher audit fees and prolonged audit tenure diminish it. The study contributes to the auditing literature by providing contemporary empirical evidence from the Nigerian conglomerate sector and by highlighting audit firm age as an important organisational dimension of auditor independence alongside audit fee and audit tenure. The study recommends strengthening oversight of audit fee arrangements, enforcing periodic audit firm rotation, and encouraging the engagement of reputable and experienced audit firms to enhance the credibility and quality of corporate financial reporting.