EFFECT OF EXTERNAL AUDITORS’ QUALITY ON CREDIBILITY OF FINANCIAL REPORTING IN NIGERIAN DEPOSIT MONEY BANKS

Abstract

This study investigates the effect of external auditors' quality on the credibility of financial reporting of listed deposit money banks in Nigeria. The study uses the agency theory as a theoretical framework to underpin the research and examines the effect of external auditors' quality on the credibility of financial reporting of listed money deposit banks in Nigeria. Data were limited to 16 Deposit Money Banks in Nigeria for ten (10) years during the period of 2012 to 2021. The study adopts an ex-post facto research design. Findings of the study indicate that auditor firm size, tenure, and specialization have a significant effect on the credibility of financial reporting of listed deposit money banks in Nigeria, except for audit independence, which proves not to have a significant effect on the credibility of financial reporting of banks. Amongst the statistically significant variables, only audit firm size and audit independence have a negative effect on the credibility of financial reporting quality, while auditor tenure and auditor specialization had a positive influence on the credibility of financial reporting quality of banks. Therefore, the banks should engage both big four auditors and non-big four auditors for joint audit rather than rely heavily on the big four alone, as they prove to negatively affect the credibility of financial reporting due to possible complacency. Audit fees should be increased to guarantee the independence of the auditors because when their fee is below the sector average, they are forced to engage in non-audit services, thereby compromising standards. The study also suggests that auditor tenure should be elongated as longstanding auditors become more familiar and tend to understand the banks better, which will eventually lead to increased financial reporting quality