Audit Quality and Accounting Going Concern: An Altman Z score Approach

Abstract

This empirical study evaluated the effect of audit quality on accounting going concern of listed manufacturing firms in Nigeria between 2015 and 2020. The research design adopted for this study was the ex-post facto research design. Secondary data were collected from audited reports and accounts of the related manufacturing firms listed on the Nigerian Stock Exchange Fact Book. Using the Krejcie and Morgan formula to obtain a homogenous sample, 38 firms were selected from the healthcare, consumer goods and industrial sub sectors of the Nigerian economy. Data were analyzed with the aid of Ordinary Least Squares method of multiple regression. From the random effects model, the variable of audit firm size (Coef. = 0.604, z = 1.21 and p – value = 0.226) has a positive effect and statistically insignificant at 5%. Audit tenure (Coef. = 0.557, z = 2.05 and p – value = 0.040) has a positive effect and statistically significant at 5%. The variable auditor’s fees (Coef. = -5.160, z = -1.93 and p- value = 0.054) has a negative effect and statistically significant at 5%. Based on the findings of this study, it was concluded that the Going Concern assumption is vital for the valuation of business assets since these assets can be valued upon their business values in use rather than their termination values, which in general are a lot lower. If a firm is not expected to continue to stay in business in the foreseeable future, the auditor can give an adverse opinion in the form of a Going Concern Opinion. The manufacturing sector is extremely crucial for the economic growth and development of a developing economy such as Nigeria. It is therefore recommended that (i) Managers of listed manufacturing firms in Nigeria should become part owners of the firms so as to (a) have the same incentives as the owners (b) lower the level of conflict of interests since this have been proven to have significant negative correlation with the problem of Accounting Going Concern (ii) Managerial policies that tend to increase audit fee should be re-examined and possibly reviewed downwards especially if the aim is to improve the firm’s Accounting Going Concern.