Audit Quality and Earnings Management of Listed Financial Services Firms in Nigeria.

Abstract

The credibility of financial reporting is undermined when earnings management occurs, posing risks to stakeholders, investors, and the overall financial system. This study examined audit quality and earnings management of listed financial services firms in Nigeria, from 2012 to 2023. The population comprises all the 45 quoted financial service firms in Nigeria while filtering criteria was used to arrive at a sample size of thirty-two (32) financial firms. The hypotheses were tested using robust fixed effect regression model after conducting some diagnostics tests. The results showed that audit firm size has a significant negative effect on earnings management of listed financial services firms in Nigeria. However, audit fee has an insignificant negative effect on earnings management of listed financial services firms in Nigeria. The study recommends among others, that the quoted financial services firms should prioritize the engagement of larger audit firms with a proven track record of high-quality audits. These firms are better equipped to detect and mitigate earnings management practices due to their superior technical expertise and robust audit methodologies.