Moderating Effect Of Audit Committee Independence On The Relationship Between Audit Quality And Earnings Management Of Listed Non-Financial Firms In Nigeria

Abstract

The study addresses the persistent challenge of earnings management in Nigerian non-financial firms, emphasizing the need for robust governance to ensure reliable financial reporting. It investigates how audit quality, measured by audit firm size, audit fees, auditor industry specialization, and auditor tenure, affects earnings management, and examines the moderating role of audit committee independence (ACIND). The study adopts a longitudinal research design using secondary panel data from 50 listed nonfinancial firms in Nigeria over ten years (2015–2024), producing 500 firm-year observations. Earnings management was assessed via standardized abnormal cash flows from operations, abnormal production costs, and abnormal discretionary expenses per Roychowdhury (2006). Data were analyzed with a Random-Effects panel regression model. Results show that audit committee independence significantly and negatively moderates the effects of audit firm size, auditor tenure, and auditor industry specialization on earnings management, enhancing audit quality’s ability to restrain manipulative reporting, whereas its moderation of audit fees was not significant. The study recommends that firms reinforce audit committee independence, regulators enforce stronger governance standards, and auditors collaborate closely with independent committees to mitigate earnings management and improve financial reporting reliability. Keywords: Earnings Management, Audit Quality, Audit Firm Size, Audit Fees, Auditor Industry Specialization, Auditor Tenure, Audit Committee Independence, Nigeria