Overview

Original Research

EXPLORING THE EFFECT OF AUDITOR’S INDEPENDENCE ON EARNINGS MANAGEMENT OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

KOLAWOLE EBIRE, KELVIN IFEANYI OKONTA and PATRICK OLASEHINDE DANIELS

Vol 20, No 12 ( 2025 )   |  DOI: 10.5281/zenodo.17836262   |   Author Affiliation: Department of Banking and Finance, Nile University of Nigeria, Abuja 1, Department of Accounting, Nile University of Nigeria, Abuja 2, Asset Management Corporation of Nigeria, Abuja 3   |   Licensing: CC 4.0   |   Pg no: 41-58   |   Published on: 06-12-2025

Abstract

Auditor are expected to carry out audit functions to critically review a firms financial statements to ascertain if the financial statements are free from errors or manipulations. This study examined the effect of auditors’ independence on earnings management of listed commercial banks in Nigeria. Specifically, the study examined the effect of auditor’s tenure, audit fee and auditor’s status on earnings management of listed commercial banks in Nigeria from 2012 to 2023. The secondary data were analysed using descriptive statistics and correlation matrix. The hypotheses were tested using fixed panel regression. The result obtained shows that audit fee has significant negative effect on discretionary accruals of listed commercial banks in Nigeria. Auditor’s tenure and status have an insignificant effect on discretionary accruals of listed commercial banks in Nigeria. Based on the findings of this study concludes that higher auditor fees typically result in fewer discretionary accruals in banks due to improved audit quality, higher auditor vigilance, and regulatory compliance. The finding suggests that mandatory audit firm tenure policies may not be necessary if other mechanisms, such as robust regulatory environments, auditor specialization, and effective audit committees, are in place to ensure audit quality. The finding suggests that, in the context of banks, auditor status alone may not be a decisive factor in mitigating discretionary accruals. This could be due to the unique complexities and regulatory environments of the banking industry, which might limit the auditor's ability to detect or influence earnings management practices. The study, therefore, recommends that banks should avoid paying too low audit costs, which could lower the quality of the audit, and instead pay prices that reflect the complexity of their financial processes.

Keywords

Auditors Independence, Audit Fees, Audit Status, Audit Tenure, Earnings Management