Audit committee effectiveness, audit quality and earnings management of listed consumer goods firms in Nigeria

Abstract

This study investigates the influence of audit committee effectiveness and audit quality on earnings management in listed consumer goods firms in Nigeria. The research problem centers on the need to understand how audit committees and audit quality impact earnings management in Nigerian listed consumer goods firms. The aim is to analyze specific variables such as audit committee expertise, gender diversity, independence, meetings, and audit committee effectiveness, Big4 audit firms, and auditor tenure variables proxy for audit quality on earnings management. The study utilizes an ex-post facto and correlational research design, focusing on listed consumer goods firms in the Nigerian Exchange Group (NGX) as of December 31, 2022, using secondary data from annual financial statements spanning from 2012 to 2022. The analysis includes twenty-one listed consumer goods firms, with sixteen firms qualifying as the final sample. Multiple regression and panel models are employed to analyze the data, with discretionary accruals used as a proxy for earnings management. The findings indicate that audit committee financial expertise, audit committee meetings, audit committee effectiveness, and auditor tenure reduce opportunistic behavior related to earnings manipulation. However, audit committee independence, gender diversity, and engagement by Big4 audit firms do not significantly impact earnings management. The study recommends revising audit committee requirements for financial expertise to more members with professional qualifications, strengthening enforcement of corporate governance principles, promoting audit committee independence, and encouraging engagement of both Big4 and non-Big4 audit firms. Future research should consider additional variables and sectors for more comprehensive results.