EFFECT OF AUDIT PRICING ON QUALITY OF AUDIT IN LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

Auditor quality is a central tool that adds credibility to annual reports and accounts prepared by managers to users of the information contained therein. The fee paid to external auditors for their services, their independence and the specialty of the auditor are believed to substantially affect the outcome of their audit services. Due the call for enhanced financial reporting and audit quality and the dearth in literature examining this, the study therefore examines the extent to which audit pricing, independence and specialization affect the auditor quality. The study focused on listed Deposit Money Banks and used secondary data collected for 140 firm-year observations. Robust Ordinary Least Square Technique was adopted and analysis carried out using STATA 13 version. The results revealed a significant positive effect of audit pricing on quality of auditor, while audit independence significantly but negatively affect auditor quality, the audit specialization has negative and insignificant effect on audit quality. Furthermore, firm size used as a control variable was found to have a positive and significant effect on audit quality. The study recommends that regulators and management of banks should encourage and pay higher audit fee as it can motivate auditors to expand their efforts that will directly influence audit quality. Banks' management and shareholders should continue to engage the services of specialist's auditors in order to guarantee quality audit services. Furthermore, the study also recommended that since audit fees can affect audit quality, regulators need to make policies so that audit fees paid to the external auditors should not be more than or less than the normal fees or within a certain threshold in order to maintain a balance.