Assessment Of Application Of Management Accounting Techniques For Decision Making Process

External auditors conduct an independent examination of firm"s financial statements, records, supporting documents, and give opinion about the truth and fairness of the reports, and that the report may or may not be free from material misstatements or errors. This study examines the effects of audit size and audit characteristics on the financial reporting quality of organizations; A case of quoted deposit money banking in Nigeria. The study employed correlation research design. The population of the study consists of deposit money banks listed on the Nigerian stock exchange; purposive sampling was used to arrive at the sample size of 5 companies for the period of ten years (2015-2024). Panel regression technique was employed in the analysis of the panel data collected for the study. Secondary data was used by collecting data from financial statement of these companies. The study found that audit fee and board independence have significant positive impact on the financial reporting quality of quoted deposit money banking in Nigeria. The finding recommends that, giving importance on audit fee and board independence in the quoted deposit money banking in Nigeria. can improved the quality of their financial reporting during the period under review.

Introduction

1.1 Background to the Study

The quality of financial reporting has been an issue of interest among regulatory bodies, shareholders, researchers and the accounting profession itself (Abiola & Oyedokun, 2021). This is due to the fact that financial reporting has always been a principal means of communicating financial information to outside users who serve as the basis for assessing the economic performance and financial health of a firm in the quest to monitor management"s actions and in making informed judgments and decisions.

As a response to the need of quality financial reporting frameworks of International Accounting Standard Board (IASB) and Financial Accounting Standard Board (FASB), IASB issued in 2008 an exposure draft entitled "An improved conceptual framework for financial reporting". According to the IASB"s conceptual framework, a key prerequisite for quality in financial reporting is the adherence to the objective and the qualitative characteristics of financial reporting information which are comprised of relevance, faithful representation, understandability, comparability, verifiability, and timeliness (IASB 2008; Abiola & Oyedokun, 2021).

Financial reporting quality is among the key topics in the corporate integration and exchanges administration, especially in the banking field where stability and clarity of the reporting is crucial within its stakeholders. By registering the failure of listed deposits on money banks in Nigeria as they continuously raise questions about earnings manipulating, slow reporting and poor adherence to governance codes, the credibility of financial reports continues to face pressures (Abiola & Oyedokun, 2021). Financial reporting quality (FRQ) is an indicator of how the financial statements fairly depict the economic reality of the firm and are unbiased and able to make the stakeholders to make qualified decisions. Financial crisis and corporate failures, as well as, the destruction of investor confidence in the banking sector of Nigeria have been associated with weak FRQ (Adeyemi & Fagbemi, 2020).

One of the greatest drivers of FRQ is the capacity of audit functions. The quality of audit, independence of the auditor, their tenure, and the firm size have been considered highly determinant in limiting earnings management and keeping the financial statements under the regulation and professional standards (Ali & Lawal, 2024; Akintoye & Olaniran, 2022). Indicatively, Adeyemi and Fagbemi (2020) concluded that auditor rotation effectively improves the independence and decreases the chances of collusion between managers and auditors in banks in Nigeria. Likewise, Bello and Bada (2022) furnished evidence that the quality of auditors reduces the opportunistic earnings management, which enhances FRQ. This is further supported by the corporate governance code issued by the Central Bank of Nigeria (CBN, 2023) that acknowledged the importance of audit committees to impose transparency and integrity of bank reporting.

Not less significant is the role of board of directors, in particular, its independence. Independence of the Boards, which is expressed in the percentage of non-executive directors and independent directors, is likely to provide an objective scrutiny of the management and financial reporting accountability. Adio and Adebayo (2022) contended that institutional independence in the board enhances the workings of oversight, thus reducing manipulative accounting. In the same manner, Amah and Udu (2023) revealed that the board independence coupled with the separation of CEO duality positively affecting the earnings quality of the banks in Nigeria. On the other hand, there is also certain evidence that independence without knowledge or engagement might not contribute to the improvement of reporting quality greatly (Dalhat & Danrimi, 2021).

The nature of audits and independence of board therefore can be seen as mutually reinforcing processes of achieving credible reporting. According to Ahmed and Garba (2023), the expertise of audit committees and the number of meetings utilized is substantially effective in enhancing FRQ among the listed banks in Nigeria. Similarly, Andrew and Osuji (2022) revealed that effective audit committee in terms of independence, diligence, and financial acumen is correlated with increased reporting credibility. At the board level, Oluwatosin and Olayinka (2023) demonstrated that bigger, less-controlled boards enhance earnings persistence which is an indication of reporting quality.

In spite of these lessons, the cumulative impact of audit attribute and board independence on FRQ in the deposit money banks in Nigeria has been held with scanty evidence. Others only focus on factors related to audit (Ibedu & Okere, 2021; Emeh & Okafor, 2024), whereas others mention the attributes of a board (Anazonwu, Egbunike & Gunardi, 2021; Ijeoma & Nwufo, 2023). Nonetheless, with the experience of corporate scandals in the Nigerian banking sector and the increased regulation and the fact that the banking sector is one of the major sectors in the Nigerian economy, a multidimensional analysis encompassing both directions is required. Ayemojuba and Arowoshegbe (2024) reemphasize that the changing administrative platform within the regulation under IFRS and Nigerian Code of Corporate Governance necessitates a high degree of synergy between the board and audit practices in improving FRQ.

This study hence attempts to analyse the relationship that exists between the audit characteristics, audit size and financial reporting quality of listed deposit money banks in Nigeria. With such interconnected governance as its area of focus it is expected to present to us much solid empirical evidence on how the combination of specific mechanisms leads to strengthening or weakening the credibility of the financial statements. The research work is relevant showing that there are debates on independent auditor, corporate governance and the need to restore the trust of stakeholders in the Nigerian banking industry.

1.2 Statement of the Problem

Trust and transparency in the banking sector are built on financial reporting quality (FRQ). Listed deposit money banks in Nigeria are important elements in Nigeria financial system and the accuracy and credibility of their financial report is therefore mandatory. Nevertheless, the fact that earnings manipulation, late disclosures, and failure to comply with governance codes are considered a persistent problem indicates that FRQ as of today is not enough to address the issue entirely (Abiola & Oyedokun, 2021). These failures dent the confidence of the investors and challenge the soundness of the banking system and cast doubt on the reliability of both aspects of audit characteristics and board independence in the assessment of credible reporting.

Audit quality is one of the focus ones. Warner (2007) indicated that the auditors are supposed to be independent watchdogs, but in reality, factors like tenure or long auditor tenure, weak rotation provisions, and lack of independence, compromise the position of auditors (Adeyemi & Fagbemi, 2020; Eneh & Onyekwere, 2022). Earnings management and lower reporting quality are possible even at the firms where audit firms are large or specialized, which does not always mean independence, hence the occurrence of earnings management and the lower reputation of the reported issues (Akintoye & Olaniran, 2022; Iliyasu & Abdullahi, 2022). Despite the fact that there is partial evidence that better-quality auditing limits opportunistic behaviour, the cases of scandals reported in Nigerian banks persist to suggest that there is a discrepancy between theory and practice (Ali & Lawal, 2024; Bello & Bada, 2022).

On the same note, board independence has been largely stressed as a tool of enhancing oversight in controlling managerial opportunism. The contribution of independent directors is that they are not supposed to be biased in their monitoring, although the empirical evidence varies. Although some studies assert that more independence leads to the quality of reporting (Adio & Adebayo, 2022; Amah & Udu, 2023), other works indicate that as independence, without expertise or dedication, does not make much difference (Dalhat & Danrimi, 2021). In addition, the use of boards in Nigerian banks has been accused of timely adherence to codes of governance instead of actual accountability (Agboola & Salawu, 2021).

The other issue is whether audit committees are effective. Even though the audit committee independence, expertise, and the frequency of meetings are regulated, their effective use on FRQ matters vary considerably. Nigeria bank evidence points to the fact that although powerful committees increase the credibility of reporting, most committees are passive or involve insider dominance thus neutralizing their effectiveness (Ahmed & Garba, 2023; Andrew & Osuji, 2022; Nwakaego & Okoye, 2021).

Although the CBN (FRCN, 2020; CBN, 2023) has introduced a code of corporate governance in Nigeria and guidelines regarding various industries, the issue remains. This implies that the interaction of the audit attributes and board independence have not been exploited fully regarding the difference in FRQ. The literature gap is that the available works have failed to carry out in-depth studies to simultaneously evaluate these mechanisms in the Nigerian banking sector where systemic risks and regulatory issues are at their peak.

The main issue therefore is that even though there has been regulatory reforms and the establishment of governance frameworks, there is still doubt about the quality of financial reporting at the Nigerian deposit money banks. This poses the need of a more in-depth empirical study in the interaction between audit traits and board independence in their ability to affect credibility and reliability of financial reporting.

1.3 Research Questions

It is in view of the problems stated above that; the following research questions are raised:

How does audit fee affect the financial reporting quality of organizations?

What is the effect of board independence on the financial reporting quality of organizations ?

How does audit firm size affect on the financial reporting quality of organizations?

What is the effect of joint audit on the financial reporting quality of organizations ?

1.4 Objectives of the Study

The main objective of this study is to examine the effects of Audit size and Audit characteristics on the financial reporting quality of organizations; A case of listed deposit money banking in Nigeria. The specific objectives are to:

Evaluate the effect of audit fee on the financial reporting quality of organizations.

Assess the effect of board independence on the financial reporting quality of organizations.

Assess the impact of audit firm size on the financial reporting quality of organizations.

Examine the impact of joint audit on the financial reporting quality of organizations.

1.5 Statement of Hypotheses

In line with the objectives of this study, the following hypotheses are formulated in null form:

H01: Audit fee has no significant effect on the financial reporting quality of listed deposit money banking in Nigeria.

H02: Board independence has no significant effect on the financial reporting quality of listed deposit money banking in Nigeria.

H03: Audit firm size has no significant effect on the financial reporting quality of listed deposit money banking in Nigeria.

H04: Joint audit has no significant effect on the financial reporting quality of listed deposit money banking in Nigeria.

1.6 Significance of the Study

This study is significant in several ways. To begin with, it will add to the mounting literature on the corporate governance and quality of reporting in Nigerian banking sector. By jointly examining audit characteristics and board independence, the study provides fresh empirical evidence that addresses gaps identified in earlier research, which often focused on either audit or board attributes in isolation.

Second, policymakers and the regulators including the Central Bank of Nigeria (CBN) and the Financial Reporting Council of Nigeria (FRCN) will find the results helpful. The reinforcement of audit quality as well as the boosting of the independence of boards is one of the primary goals of the corporate governance reforms in Nigeria. This study provides evidence-based insights that can guide future refinements of governance codes and supervisory frameworks to improve financial reporting credibility.

Third, the study has practical relevance for bank managers, board members, and audit committees. In pointing out the audit and board mechanisms which have the most potent effect on the quality of the financial reporting, it provides a direction to improving their applications to the internal processes of governance. This would assist in gaining trust among the stakeholders of the deposit money banks, increase confidence in the market, and become more competitive.

Finally, the study benefits investors, creditors, and other stakeholders by providing assurance on the governance structures that promote reliable financial reporting. The endorsement of transparent and credible conversations promotes the promotion of decision-making, and decreases information asymmetry and the risk of financial loss due to a fraudulent or misstated financial statement.

1.7 Scope and Delimitation of the Study

The scope of this study is limited to listed deposit money banks in Nigeria. Specifically, the study will cover five selected Nigerian deposit money banks over a period of ten years, from 2015 to 2024. It is this period that encompasses the recent regulatory reforms such as the Nigerian Code of Corporate Governance (2018) and associated CBN guidelines.

One will look at the characteristics of audit and independence of the board as two determinants of the quality of financial reporting. Other corporate governance factors such as ownership structure or board diversity are outside the scope of this study, though they may indirectly influence reporting practices.

The study is also delimited to secondary data obtained from annual reports, financial statements, and publicly available disclosures of the selected banks. Primary data (auditors/directors interviews or surveys) are not included.

1.8 Definition of Terms

Audit Characteristics:

Attributes of the audit process and auditors, including auditor size, independence, tenure, and audit committee expertise, which influence the credibility of financial reporting.

Board Independence:

The extent to which a company"s board of directors consists of non-executive and independent members who are free from managerial influence and able to provide objective oversight.

Financial Reporting Quality (FRQ):

The degree to which financial statements accurately, faithfully, and transparently reflect the true economic condition of a firm, free from earnings manipulation or bias.

Deposit Money Banks (DMBs):

Commercial banks licensed by the Central Bank of Nigeria to accept deposits, provide credit, and offer financial services to the public.

Corporate Governance:

The system of rules, practices, and processes by which a company is directed and controlled, with the aim of ensuring accountability, fairness, and transparency in its relationship with stakeholders.

Summary, Conclusion and Recommendation

5.1 Summary

This study examines the effects of audit size and audit characteristics on the financial reporting quality of organizations; a case study of quoted deposit money banking in Nigeria. Specifically, the study assessed the impact of audit fee, big four audit firms, joint audit and board independence on the financial reporting quality of quoted deposit money banking in Nigeria. From the tests conducted on the data collected and the analyses of the results this study found that audit firm characteristics are strongly positively associated with high financial reporting quality in the listed deposit money banking in Nigeria. Specifically, from the regression results conducted the study found a significant relationship between the financial reporting quality (FRQ) and the audit firm characteristics. The regression results indicated that the variables of audit firm characteristics explained more than 80% of the total variation in the financial reporting quality of listed deposit money banking in Nigeria. at 99% confidence level during the period covered by the study suggesting that, the audit firm characteristics variables in the quoted deposit money banking in Nigeria. have impact on the quality of the financial reporting of the sampled firms.
On the other hand, the study found that the big four audit firm has no significant impact on the quality of financial reporting of listed deposit money banking in Nigeria. during the period of the study.

5.2 Conclusion

Based on the findings the study concludes that audit firm characteristics and board independence have significant impact on the financial reporting quality of quoted deposit money banking in Nigeria.. That is, audit firm characteristics variables examined in this study have improved the quality of financial reporting of building materials firms in Nigeria during the period covered by the study.

Specifically, the study concludes that audit fee has a significant positive impact on the quality of financial reporting of quoted deposit money banking in Nigeria.. Similarly, the study concludes a significant positive impact of board independence on the financial reporting quality of listed deposit money banking in Nigeria. The study also, concludes that Big4 audit firm has no significant effect on the financial reporting quality of quoted deposit money banking in Nigeria. Lastly, the study concludes that joint audit has no significant positive effect on the financial reporting quality of listed deposit money banking in Nigeria..

The study therefore infers that audit firm attributes have significant relationship with the financial reporting quality in the deposit money banking in Nigeria.. It is also infers that improving these attributes of the audit firms could enhance audit and financial reporting in general.

5.3 Recommendations

In line with the findings and the conclusions of this study, the study recommends that policy makers and regulators should intensify regulations and surveillances in the deposit money banking in Nigeria. due to the evidence of quality financial reporting that is associated with the characteristics of the audit firms. Specifically, the following recommendations are offered:

The audit firm should be adequately compensated in their conduct of statutory audit. That is, the firms should provide all the necessary resources both financial and otherwise to the audit firm to enable them conduct a thorough audit that would uncover material misstatements and errors including earnings management. However, audit compensation should reflect the quantum and actual audit activities involved.

The management and the regulatory agencies should emphasize on the audit independence in all aspect of the auditors activities, because the lack of audito independence could destroy the quality of financial reporting. Therefore, auditors should be monitored and there should be adequate regulatory provision to encourage the independence of the audit firms.

The study also recommends that regulators should not emphasize the employment of joint audit services and big 4 audit firm because they do not contribute in improving the quality of financial reporting.

The study recommends that the management of quoted deposit money banking in Nigeria. should subscribe to ethical code of good corporate governance and give more weight to those audit firm characteristics examined in this study when selecting audit firm.

5.4 Limitation of the Study

This study focuses on the impact of audit firm characteristics, board independence and financial reporting quality of the listed deposit money banking in Nigeria, using features of audit firm such as audit fee, board independence, big four audit firm and joint audit. The limitation to this research is the ability to access data from the various firms.

5.5 Suggestion for Further Research

In the process of this research, some certain areas that could be investigated have surfaced. For instance, the impact of audit firms‟ characteristics on financial reporting quality in other sectors of the Nigerian economy requires research effort, especially as they are not covered in this study. There is the need for similar studies that will assess the relationship between audit firms‟ characteristics and financial reporting quality in deposit money banking in Nigeria. using different tool of analysis like survey of stakeholders opinion about audit firm attributes, so as to see how audit firm characteristics can be used to achieve quality of financial report and maximize shareholders wealth in other sectors of the Nigerian economy. There is also the need to conduct similar research using a different source of data, employing different financial reporting quality and audit firms‟ characteristics proxies, and using different scales of measurement of variables and techniques for data analysis. Further research in these areas would not only complement this study, but would also help in bringing about improvement in financial reporting practices the Nigerian corporate landscape.

Chapter One

Introduction

1.1 Background to the Study

1.2 Statement of the Problem

1.3 Research Questions

1.4 Objectives of the Study

1.5 Statement of Hypotheses

1.6 Significance of the Study

1.7 Scope and Delimitation of the Study

1.8 Definition of Terms

Chapter Two

Literature Review

2.1 Introduction

2.2 Theoretical Review

2.3 Empirical Review

2.4 Research Gap

Chapter Three

Research Methodology

3.1 Research Design

3.2 Population, Sample, and Sampling Techniques

3.3 Sources of Data and Method of Data Collection

3.4 Techniques for Data Analysis and Model Specification

3.5 Justification of the Methods

Chapter Four

Data Presentation and Analysis

4.1 Data Presentation

4.2 Data Analysis and Results

4.3 Discussion of Findings

Chapter Five

Summary, Conclusion, and Recommendations

5.1 Summary

5.2 Conclusion

5.3 Recommendations

5.4 Limitations of the Study

5.5 Suggestions for Further Research

References

Appendices

Appendix 1: List of Sampled Firms

Appendix 2: Data Collection Tables

• Application Of The Conflict Resolution Mechanism Of Ecowas On The Management Of The Gambias Post Presidential Election Crisis
• Approach To Application Of Total Quality Management In Building Maintenance Operations
• Design And Implementation Of A Collaborative And File Management System For Mobile Applications
• Appraisal For The Application Of Management By Objectives In Financial Institution
• Perception Of Chief Executive Officers Of Select Organisations On The Application Of Public Relations In Management
• Comparative Study On The Application Of Cost Volume Profit Analysis In Management Decisions Of Manufacturing Organizations
• Application Of Production Skills In The Management Of Business Organization To Gain Competitive Advantage

• Accounting Project Topics and Materials