Earnings Management and Audit Fees of Industrial Goods Companies

Abstract

This study looked into the relationship between audit fees and earnings management in Nigerian industrial goods companies. Using secondary data from the audited annual reports of the 12 listed industrial products businesses for the years 2020–2024, an ex post facto research design was used. The firm size was calculated using the natural logarithm of total assets, audit fees were represented by reported audit expenses, and accrual quality was used to evaluate earnings management. The study data was summarised using descriptive statistics, but substantial cross-sectional effects were found using the Lagrange Multiplier test, which made the use of a random effects model for analysis necessary. Poor accrual quality is associated with higher audit charges, according to the correlation data, which revealed a strong negative relationship between accrual quality and audit fees (r = -0.534, p = 0.015). Furthermore, it was discovered that firm size moderated the association between accrual quality and audit fees and showed a strong positive relationship with audit fees (r = 0.890, p < 0.001), suggesting that larger firms pay higher audit fees regardless of accrual quality. Overall, the study finds that firm size and earnings management strategies have a big impact on how much audit fees are charged in the industrial goods sector.