EXTERNAL AUDITORS’ ATTRIBUTES AND INCOME SMOOTHING AMONG LISTED NON-FINANCIAL FIRMS IN NIGERIA
Keywords:
External Auditors, Earnings Smoothing, Income Smoothing, Small Positive Income
Abstract
This study investigated the degree of influence of external auditors’ attributes on income smoothing among listed non-financial firms in Nigeria from 2011 to 2020. The research design adopted for the study was the ex-post facto research design because the data used for the study were already in existence and therefore the researcher had no control over the data set of the study. Hence, the sources of data were secondary sources taken from audited annual reports and accounts of the related non-financial firms as listed on the Nigerian Stock Exchange Fact Book. Using the filtering sampling technique, the study used a sample of seventy-five (75) non-listed firms drawn from ten (10) Nigerian non-financial sectors including agriculture, conglomerate, consumer goods, construction and real estate, healthcare, information and communication technology, oil and gas, industrial goods, natural resources and services. Data were extracted from the annual reports and accounts of these firms and were analyzed with the aid of binary logistic regression usingthe analytical software of Stata version 16 and Microsoft excel. From the marginal effect model, the variables of audit opinion (Coef. = 0.448; p-value = 0.000) and audit delay (Coef. = 0.000; p-value = 0.050) respectively have significant positive effects on Small Positive Income of listed non-financial firms in Nigeria. Audit fees (Coef. = -0.098; p-value = 0.002) has significant negative effect on Small Positive Income. Lastly, the variable of audit firm size (Coef. = -0.034; p-value = 0.351) has an insignificant effect on Small Positive Income of listed non-financial firms in Nigeria. Non-financial sectors are extremely crucial for the economic growth of a developing economy such as Nigeria. The study therefore concluded that the external auditors’ attributes of interest in this study significantly determine whether or not managers of non-listed financial firms in Nigeria will engage in income smoothing. In general, it was revealed that managers of listed non-financial firms in Nigeria do practice earnings smoothing. It seems clear that except for the variable of audit firm type, all other variables of interest do significantly (positively or negatively) determine the likelihood of income smoothing among listed non-financial firms in Nigeria. It is therefore recommended that policymakers and managers of listed non-financial firms in Nigeria should continue to develop stronger internal control policies to checkmate accounting and bookkeeping errors which in turn should reduce the extent of substantive tests by external auditors to avoid detrimental and costly external audit delays.
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References
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companies. Global Journal of Management and Business Research Finance, 13(4), 17-21.
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Journal of Accounting and Economics, 24(1997), 99-126.
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China. Journal of Financial Reporting and Accounting, 10(2), 120-139.
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enterprises: An empirical analysis of Italian firms. Journal of Business Research, 12(5). doi: 10.1016/j.jbusres.2014.10.003
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considering managerial incentives in tests of earnings management. Auditing: Journal of Practice & Theory, 33(1), 117-138.
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emerging markets? Evidence from East Asia. Journal of Accounting Research. doi: 10.2139/ssrn.290290
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Contemporary Accounting Research, 16(1), 135-165.
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84(5), 1521-1552. doi: 10.2308/acc.2009.84.5.1521
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345-368.
Francis, J. R. (1984). The effect of audit firm size on audit prices: A study of Australian market.
Journal of Accounting and Economics, 6(2), 133-151.
Francis, J. R., Maydew, E. L., & Sparks, H. C. (1999). The role of Big 6 auditors in the credible
reporting of accruals. Auditing: A Journal of Practice & theory, 18(2), 17-34.
Frankel, R. M., Johnson, M. F., & Nelson, K. K. (2002). The relation between auditors' fees for non-audit services and earnings management. The Accounting Review, 77(s-1), 71-105.
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10.1007/978-3-642-17254-0-16
Gandía, J. L., & Huguet, D. (2021). Audit fees and earnings management: Differences based on
the type of audit. Economic Research-EkonomskaIstraživanja, 34(1), 2628-2650.
Garcia-Blandon, J., Argiles, J. &Ravenda, D. (2020). Audit firm tenure and audit quality:
A cross-European study. Journal of International Financial Management & Accounting, 31(1), 35-64. doi: 10.1111/jifm.12098
Gaynor, L. M., Kelton, A., Mercer, M. & Yohn, T. L. (2016). Understanding the relation between
financial reporting quality and audit quality. Auditing: A Journal of Practice & Theory. 35(4). doi: 10.23081/ajpt-57453
Hair, J., Sarstedt, M., Hopkins, L. &Kuppelweiser, V. (2014). Partial least squares structural
equation modeling (PLS-SEM): An emerging tool for business research. European Business Review, 26(2), 106-121. doi: 10.1108/EBR-10-2013-0128
Hallak, R. T. P., & Silva, A. L. C. D. (2012). Determinants of audit and non-audit fees provided
by independent auditors in Brazil. RevistaContabilidade&Finanças, 23, 223-231.
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implications for standard setting. Accounting Horizons, 13(4), 365-383.
Houqe, M. N., Ahmed, K., & Van Zijl, T. (2017). Audit quality, earnings management, and cost
of equity capital: Evidence from India. International Journal of Auditing, 21(2), 177-189.
Hosam, A. A., Eko, G. S., Roekhudin, R. &Wuryan, A. The impact of board characteristics on
earnings management in the international oil and gas corporations. Academy of Accounting and Financial Studies Journal, 23(1), 1-28.
Imen, F. & Anis, J. (2021). The moderating role of audit quality on the relationship between
auditor reporting and earnings management: Empirical evidence from Tunisia. EuroMed Journal of Business,16(4), 416-430. doi: 10.1108/EMJB-03-2020-0024
Indonesian Institute of Accountants (IKATAN) (2001). Comments on IPSASs exposure drafts.
Jayeola, O., Agbatogun, T. O. & Akinrinlola, T. O. (2017). Audit quality and earnings
management among Nigerian listed deposit money banks. International Journal of Accounting Research, 5(2), 1-5. doi: 10.4172/2472-114x.1000159
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure.Journal of Financial Economics 3 (1), 305-360.
Keskin, H. (2006). Market orientation, learning orientation, and innovation in SMEs: An
extendedmodel. European Journal of Innovation Management, (9)4, 396-417.
Kinney, W. R., & Libby, R. (2002). The relation between auditors' fees for non-audit services and
earnings management: Discussion. The Accounting Review, 77, 107-114.
Krishnan, G. V. (2003). Does Big 6 auditor industry expertise constrain earnings management?
Accounting Horizons, 17, 1-16.
Kustono, A. (2021). Corporate governance mechanism as income smoothing
suppressor. Accounting, 7(4), 977-986.
Kustono, A., Roziq, A., Nanggala, A.Y.A. (2021). Earnings quality and income smoothing
motives: Evidence from Indonesia. Journal of Asian Finance, Economics and Business, 8(22), 0821-0832.
Leuz, C., Nanda, D. & Wysocki, P. (2003). Earnings management and investor protection: An
international comparison. Journal of Financial Economics, 69(3), 505-527.
Leventis, S., &Caramanis, C. (2005). Determinants of audit time as a proxy of audit
quality. Managerial Auditing Journal. 24(2), 217-226.
Lin, J. W., & Hwang, M. I. (2010). Audit quality, corporate governance, and earnings
management: A meta‐analysis. International Journal of Auditing, 14(1), 57-77.
Menard, S. (2011). Applied Logistics Regression Analysis. (2nd. Ed). Sage Publications.
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Published
2023-09-06
How to Cite
Eshiet, U., Chidiebere Ekwe, M., Adanma Nmesirionye, J., Ogechukwu Okezie, S., & Esuma Akpan, U. (2023). EXTERNAL AUDITORS’ ATTRIBUTES AND INCOME SMOOTHING AMONG LISTED NON-FINANCIAL FIRMS IN NIGERIA. GPH-International Journal of Business Management, 6(08), 159-183. https://doi.org/10.5281/zenodo.8321346
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Copyright (c) 2023 Udeme Enobong Eshiet; Michael Chidiebere Ekwe Department of Accounting, College of Management Sciences, Michael Okpara University of Agriculture, Umudike, Abia State, Nigeria ; Josephine Adanma Nmesirionye; Stella Ogechukwu Okezie; Uduak Esuma Akpan
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