Table of Contents
Abstract. 2
CHAPTER ONE. 5
INTRODUCTION.. 5
1.1 Background to the Study. 5
1.2 Statement of the Problem.. 6
1.3 Objectives of the Study. 7
1.4 Research Questions. 8
1.5 Research Hypothesis. 8
1.6 Significance of the Study. 8
1.7 Scope of the Study. 9
1.8 Limitations of the Study. 9
1.9 Organization of the Study. 10
CHAPTER TWO.. 12
REVIEW OF RELATED LITERATURE. 12
2.1 Introduction. 12
2.2 Theoretical Review.. 12
2.2.1 Agency Theory. 12
2.2.2 Cultural Theory. 13
2.2.3 Institutional Theory. 13
2.2.4 Stakeholder Theory. 13
2.3 Conceptual Review.. 14
2.3.1 Overview.. 14
2.3.2 Regulatory Environment. 15
2.3.3 Firm Characteristics. 15
2.3.4 Client Importance. 15
2.3.5 Cultural Influences. 16
2.3.6 Professional Skepticism.. 16
2.3.7 Ethical Climate. 16
2.3.8 Financial Incentives. 16
2.3.9 Technological Advancements. 17
2.4 Empirical Review.. 17
2.5 Summary of chapter. 19
Chapter Three. 20
Research Methodology. 20
3.1 Introduction. 20
3.2 Research Design. 20
3.3 Population and Sample. 20
3.3.1 Sampling Technique. 21
3.4 Data Collection Methods. 21
3.4.1 Questionnaire Design. 21
3.4.2 Pilot Testing. 21
3.5 Data Analysis Techniques. 22
3.5.1 Descriptive Analysis. 22
3.5.2 Correlation Analysis. 22
3.6 Reliability and Validity. 22
3.6.1 Reliability. 23
3.6.2 Validity. 23
3.7 Ethical Considerations. 23
3.8 Limitations of the Study. 24
3.9 Summary. 24
CHAPTER FOUR. 25
DATA ANALYSIS AND INTERPRETATION.. 25
4.1 INTRODUCTION.. 25
4.2 DATA ANALYSIS. 25
4.3 Testing Hypothesis. 37
4.4 Discussion of Findings. 39
CHAPTER FIVE. 43
SUMMARY CONCLUSION AND RECOMMENDATIONS. 43
5.1 Summary. 43
5.2 Conclusion. 44
5.3 Recommendations. 45
REFERENCES. 47
Research Questionnaire. 50
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
In Nigeria, as in many countries, ensuring the independence of auditors is crucial for maintaining the integrity and credibility of financial reporting. The effectiveness of audit firms in Nigeria hinges significantly on the independence of their auditors, which in turn affects investor confidence, financial stability, and market efficiency. This study aims to delve into the multifaceted determinants that influence auditor independence within the context of Nigerian audit firms.
Firstly, understanding the regulatory framework surrounding auditing practices in Nigeria is essential. Regulations set by bodies such as the Financial Reporting Council of Nigeria (FRCN) and the Institute of Chartered Accountants of Nigeria (ICAN) play a pivotal role in shaping auditor independence standards. Moreover, factors such as auditor tenure, fee dependency, and the presence of non-audit services within audit firms have been identified as critical determinants affecting auditor independence (Arens et al., 2019).
Secondly, the organizational culture and governance structures within Nigerian audit firms merit investigation. Research suggests that the tone at the top, ethical climate, and corporate governance mechanisms significantly influence auditor independence (Abbott et al., 2020). Exploring the interplay between these factors and their impact on auditor behavior can provide valuable insights into enhancing independence within Nigerian audit firms.
Thirdly, societal and cultural factors unique to Nigeria may also affect auditor independence. Nigeria's socio-political environment, including issues such as corruption perceptions and societal pressures, could influence auditor behavior and independence (Adelopo et al., 2018). Investigating how these external pressures interact with internal audit firm dynamics is essential for a comprehensive understanding of auditor independence in the Nigerian context.Top of FormBottom of Form
1.2 Statement of the Problem
Auditor independence stands as a cornerstone of the accounting profession, ensuring the impartiality and objectivity of financial reporting. However, in the Nigerian context, maintaining auditor independence within audit firms faces significant challenges. Despite regulatory efforts by bodies such as the Financial Reporting Council of Nigeria (FRCN) and the Institute of Chartered Accountants of Nigeria (ICAN), concerns persist regarding the determinants that influence auditor independence in Nigerian audit firms. This study aims to address these concerns by investigating the multifaceted factors that impact auditor independence, thereby contributing to the enhancement of financial reporting integrity in Nigeria.
One critical aspect to consider is the influence of regulatory frameworks on auditor independence. While regulations are in place to uphold independence standards, the effectiveness of these regulations in practice remains uncertain. Research suggests that the absence of stringent enforcement mechanisms may undermine the efficacy of regulatory efforts (Abbott et al., 2020). Furthermore, the evolving nature of audit practice and the emergence of new service lines within audit firms may present challenges to maintaining independence, necessitating a thorough examination of the regulatory landscape in Nigeria.
1.3 Objectives of the Study
The main objective of the study is to examine Exploring the Determinants of Auditor Independence in Nigerian Audit Firms. Specific objectives of the study are:
- To analyze the influence of economic dependence on auditor independence.
- To investigate the effect of non-audit services on auditor independence.
- To evaluate the role of corporate governance mechanisms in promoting auditor independence.
1.4 Research Questions
To guide the study and achieve the objectives of the study, the following research questions were formulated:
- Does the proportion of audit fees relative to a Nigerian audit firm's total revenue negatively impact the auditor's independence in expressing opinions on client financial statements?
- To what extent does the provision of non-audit services by a Nigerian audit firm to a client influence the auditor's ability to maintain an independent and objective perspective during the audit process?
- How do corporate governance mechanisms in Nigerian listed companies, such as board audit committee structure and internal audit function, influence the likelihood of auditors maintaining their independence during the financial audit?
1.5 Research Hypothesis
The following research hypothesis was developed and tested for the study:
Ho: There is no significant relationship between the determinants explored and auditor independence in Nigerian audit firms.
1.6 Significance of the Study
The study is important for many reasons. The following are the major stakeholders this paper through its practical and theoretical implications and findings will be of great significance:
Firstly, the paper will benefit major stakeholders and policy makers in the Accounting sector. The various analysis, findings and discussions outlined in this paper will serve as a guide in enabling major positive changes in the industry and sub-sectors.
Secondly, the paper is also beneficial to the organizations used for the research. Since first hand data was gotten and analysed from the organization, they stand a chance to benefit directly from the findings of the study in respect to their various organizations. These findings will fast track growth and enable productivity in the organisations used as a case study.
Finally, the paper will serve as a guide to other researchers willing to research further into the subject matter. Through the conclusions, limitations and gaps identified in the subject matter, other student and independent researchers can have a well laid foundation to conduct further studies.
1.7 Scope of the Study
The study is delimited to KPMG. Findings and recommendations from the study reflects the views and opinions of respondents sampled in the area. It may not reflect the entire picture in the population.
1.8 Limitations of the Study
The major limitations of the research study are time, financial constraints and delays from respondents. The researcher had difficulties combining lectures with field work. Financial constraints in form of getting adequate funds and sponsors to print questionnaires, hold Focus group discussions and logistics was recorded. Finally, respondents were a bit reluctant in filling questionnaires and submitting them on time. This delayed the project work a bit.
1.9 Organization of the Study
The study is made up of five (5) Chapters. Chapter one of the study gives a general introduction to the subject matter, background to the problem as well as a detailed problem statement of the research. This chapter also sets the objectives of the paper in motion detailing out the significance and scope of the paper.
Chapter Two of the paper entails the review of related literature with regards to corporate governance and integrated reporting. This chapter outlines the conceptual reviews, theoretical reviews and empirical reviews of the study.
Chapter Three centers on the methodologies applied in the study. A more detailed explanation of the research design, population of the study, sample size and technique, data collection method and analysis is discussed in this chapter.
Chapter Four highlights data analysis and interpretation giving the readers a thorough room for the discussion of the practical and theoretical implications of data analyzed in the study.
Chapter Five outlines the findings, conclusions and recommendations of the study. Based on objectives set out, the researcher concludes the paper by answering all research questions set out in the study.
