EXTERNAL AUDITOR ATTRIBUTE AND INCOME SMOOTHING: EVIDENCE FROM LISTED NON-FINANCE FIRMS IN NIGERIA

Abstract

The broad objective of this study was to empirically investigate external auditor attribute effect on income smoothing of listed firms in Nigeria. The time frame of this study is a ten (10) year period beginning from year 2013 to year 2022. To achieve the specific objectives, slated out in this study, we employed external auditors’ proxies to include external auditor firm type, external auditors’ fee, external auditors’ opinion, and external auditors’ delay to account for the independent variables while income smoothing was employed as the dependent variable. Several related theories to include but not limited to the Economic Bonding and the Economic Consequences theories upon which this study is anchored were reviewed. Further, ex-post facto and analytical research design together with a set of panel data sourced from annual financial reports of selected listed non-finance companies in Nigeria were employed. Binary Logistics regression analysis technique was employed to test the formulated hypotheses after fulfilling the necessary conditions for obtaining non-spurious regression estimates. Specifically, the result reveals differences in the outcomes of the tested hypotheses. Particularly, the result showed that external auditor firm size has no significant effect on income smoothing while external auditors’ opinion, external auditors’ fee and external auditors delay proved to significantly affect income smoothing of listed non-finance firms in Nigeria during the period under consideration. Based on these empirical outcomes, and specifically on the bases that external auditors’ fee has a negative statistically significant effect on income smoothing, one key recommendation offered in this study is that regulators of the audit environment in Nigeria will have to strengthen enforcement mechanisms and develop rules and regulations that constrain income smoothing behaviour of listed non-financial firms in Nigeria through incentives such higher fees for auditors to enable them deliver higher quality information. Further, policymakers in Nigeria need to strengthen regulatory oversight and enforcement mechanisms to ensure timely and efficient audits. Such measures should include reviewing and enhancing auditing standards to emphasize the importance of timely audits and the consequences of audit delays. Much more, auditors should prioritize timely reporting to reduce the risk of income smoothing.