Audit Firm Characteristics and Audit Quality in Nigeria

Abstract

This study examines the impact of audit firms' characteristics on audit quality. We proxy the dependent variable (audit quality) using the usual dichotomous variable of 1 if big 4 audit firm and 0 if otherwise. Data for the study were sourced from the financial statements of 18 food and beverage companies listed on the Nigerian Stock Exchange market within the period studied (2007-2012). The multivariate regression technique with emphasis on Logit and Probit method was used to estimate our model for the study. The choice of this approach was basically influenced by the dichotomous nature of our dependent variable and the fact that our data is both time series and cross-sectional. The findings indicate that there is a positive relationship between firm size, board independence and audit quality whereas there is a negative relationship between auditor's independence, audit firm size, audit tenure and audit quality. The study suggests the need for the Nigerian Financial Reporting Council and other regulatory bodies in line with best practices to look critically into the three years professional requirements for auditors.