Influence of Firm size on Audit Quality and Earnings Management Relationship: Evidence from Listed Manufacturing Firms in Nigeria

Abstract

The study investigated the influence of Firm size on the relationship between Audit quality and Earnings Management of listed Consumer Goods Manufacturing firms in Nigeria. This study tested a number of audit quality indicators (auditor’s tenure, Audit firm size and joint audit) and earnings management proxies that is (earnings restatement and discretionary accruals), using 26 listed consumer-goods manufacturing firms as the study population. Secondary data were extracted from the annual report of 13 listed consumer-goods manufacturing firms while judgmental sample from the population, covering the study period from 2012 to 2018 using historical data were adopted. The data were tested through the use of Univariate, Bivariate and Multivariate analysis. Univariate/descriptive, Bivariate, Pearson Product Moment Correlation (PPMC) techniques by use of E-view 10 Econometric software and Multivariate – regression model. The findings of the study showed that firm size variability does not influence every aspect of the Firm's attributes. Some aspects of Firms' characteristics are influenced by the size of the Firm whereas some other aspects do not respond to size variability. As was indicated by the Firm size analyses, earnings restatement of consumer-goods manufacturing firms does not respond to Firm size attribute while their discretionary accrual practices significantly depend on their size attributes. The study concludes that firm size is a significant moderator between the use of audit quality and earnings management, however it depends of the variable of earnings management used. In the light of these, it is the recommendation of this study that to ensure positive significant relationship with earnings management, the firms should voluntary engage two audit firms in all to other to allow for effective comparison, so that hidden information in financial statement could be dictated or revealed; the total assets as a dimension of firm size should be r