THE IMPACT OF BIG 4 AUDIT FIRMS ON THE PERFORMANCE OF LISTED FIRMS IN NIGERIA (A CASE STUDY OF LAGOS STATE) CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Financial report is one of the most useful information
sources for investors, lenders and other creditors in making decisions (IASB
2010). Especially, the financial reports audited by the Big-4 audit firms
(Deloitte, KPMG, EY and PWC), that are guaranteed by the perennial reputation
and commitment to the quality of audit services (Frankel et al. 2011, Hope et
al., 2013). The information from the financial report can reflect the financial
health and the nature of a business. Using this information the investors can
estimate, analyze and decide to invest effectively. In order to ensure the
stock-market to operate in a fair, transparent, and effective way the financial
report of each firm must be open, explicit, full, true and timely. In which,
timeliness is one of the qualitative characteristics that enhance the
usefulness of information that is relevant and faithfully represented (IASB,
FASB 2010, QC21). Within this study, authors focus on the timeliness aspect in
the financial report publishing after the audit, in the other word, the
timeliness of audit report. The timeliness of financial report is also
considered as one of the efficient competitive factors in business that a firm
should pay attention to. It’s clearly that a timely financial report of a firm
can attract attention of investors and more or less it creates goodwill of
financial report users. There are many researches showing the importance of
timeliness in qualifying the financial report. Timeliness in an important tool
in financial information as it received attentions from the accounting
regulators and listing authorities worldwide (Abdelsalam & Street, 2007).
The timeliness of financial report can reduce the risk of insider trading,
information leaks, and rumours on the stock market (Owusu-Ansah, 2011). Al-Ajmi
(2008) suggests that the information on financial report should be published in
short periods of time; otherwise some values may be lost. Especially, for the
developing economies (for example, Vietnam) the timely financial report supply
of listed companies is very important, because of the fact that sources of
information such as newspapers, conferences, specialists in analyzing,
forecasting are under the appropriate development level (Karim & Ahmed, 2015).
Because of the above reasons, in recent years, factors
affecting the timeliness of financial report have attracted the attention of
local and international researchers. These factors have been considered under
various conditions, regular factors such as the audit firm for the listed
companies (Big 4 audit firms), the size of audit firm, and factors related to
firm characteristics management are also widely used. In this paper, the
authors study the effect of audit firms (Big 4 audit firms) and the firm performance
(measured by accounting values with ROE and ROA indexes) on the timeliness of
financial report of firms listed on the stock market (SM) in Nigeria. Our study
contributes to the financial reporting and corporate governance literature by
providing empirical evidence of the impact of audit firm and firm performance.
Our results suggest that the audit firm’s reputation and firm performance
measured by ROE index positively affect the performance of listed firms.
1.2 STATEMENT OF PROBLEM
Audit quality plays an important role in maintaining an
efficient market environment; an independent quality audit underpins confidence
in the credibility and integrity of financial statements which is essential for
well functioning markets and enhanced financial performance. External audits
performed in accordance with high quality auditing standards can promote the
implementation of accounting standards by reporting entities and help ensure
that their financial statements are reliable, transparent and useful. Sound audits
can help reinforce strong corporate governance, risk management and internal
control at firms, thus contributing to (Internal Audits Board, 2011). The
statutory audit can reinforce confidence because auditors are expected to
provide an external, objective opinion on the preparation and presentation of
financial statements. Auditors need to be independent in the opinions they
express, while the work they have to do to form their opinions is highly
dependent on and rooted in the real world and may become challenging in some
business environments in Nigeria. It is against this background that this
research work is carried out. The purpose of this study therefore is to
determine the impact of big 4 audit firms on the performance of listed firms in
Nigeria. There have been concerns about audit quality in the present
environment, where severe failures have come to light, for example; Enron
scandal of 2001; Parmalat in 2003; Cadbury Nigeria Plc in 2006 and Afribank
Nigeria Plc in 2009 (Ajani, 2012; Miettinen, 2011). It has been found that the
perceived reliability of audited financial information has declined. In
contrast, the perceived relevance of audited financial information has
increased. The effect of audit quality on performance has recently received
attention from researchers in the western world. Studies have shown that big 4
audit firms have an impact on the performance of an organization (Beasley,
1996; Heil, 2012; Miettinen, 2011). While these studies provide evidence from
vibrant capital markets, very little research on the relationship between audit
quality and the performance of organizations has been conducted in countries
where capital markets are less developed. Thus, it is evident that there is a
need for research on big 4 audit firm and the performance of listed
organizations in Nigeria.
1.3 AIMS OF THE STUDY
The major purpose of this study is to examine the impact of
big 4 audit firms on the performance of listed firms in Nigeria. Other general
objectives of the study are:
To examine how Big 4 status influences the audit fees paid
by the listed companies.
To examine the financial literacy of audit committee members
and its influence on audit quality.
To examine the impact of big 4 audit firms on the
performance of listed firms in Nigeria.
To examine the factors affecting big 4 audit firms and audit
quality.
To examine the relationship between big 4 audit firms and
performance of listed companies in Nigeria.
To examine the measures recommended to enhance audit quality
in listed firms by big 4 audit firms.
1.4 RESEARCH QUESTIONS
How does Big 4 status influence the audit fees paid by the
listed companies?
How is the financial literacy of audit committee members and
its influence on audit quality?
What are the impacts of big 4 audit firms on the performance
of listed firms in Nigeria?
What are the factors affecting big 4 audit firms and audit
quality?
What is the relationship between big 4 audit firms and
performance of listed companies in Nigeria?
What are the measures recommended to enhance audit quality
in listed firms by big 4 audit firms?
1.5 RESEARCH HYPOTHESES
H0: Big 4 Auditing firms has no significant impact on the
performance of listed companies in Nigeria.
H1: Big 4 Auditing firms has a significant impact on the
performance of listed companies in Nigeria
1.6 SIGNIFICANCE OF THE STUDY
The need for studies on the impact of big 4 audit firms and
performance of listed firms is important in a country like Nigeria where
organizations are striving to gain credibility among local and global
investors. While previous researches have focused on the relationship between
audit quality and financial performance in developed countries, there has been
relatively little empirical work on this relationship in developing countries.
This topic is significant for business management, shareholder and the overall
financial community because of the best use of assets comes from internal
auditing from its responsibilities especially after financial crisis all over
the world that makes internal auditing significant in monitoring and evaluation
of management performance. This study keeps track of developments and trends in
the field of auditing Whether in the field of professional standards or
practices and modern methods and try to apply this Development in Nigeria
1.7 SCOPE OF THE
STUDY
The study is based on the impact of big 4 audit firms on the
performance of listed firms in Nigeria, a case study of Lagos state.
1.8 LIMITATION OF STUDY
Financial constraint– Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
and interview).
Time constraint– The researcher will simultaneously engage
in this study with other academic work. This consequently will cut down on the
time devoted for the research work.
1.8 DEFINITION OF TERMS
Audit: An audit is a systematic process of objectively
obtaining and evaluating the accounts or financial records of a governmental,
business, or other entity. Whereas some businesses rely on audits conducted by
employees—these are called internal audits— others utilize external or
independent auditors to handle this task (some businesses rely on both types of
audits in some combination).
A Research proposal for the impact of big 4 audit firms on the performance of listed firms in nigeria (a case study of lagos state):
Reviews: A Review on the impact of big 4 audit firms on the performance of listed firms in nigeria (a case study of lagos state), firms, impact, audit project topics, researchcub.info, project topic, list of project topics, research project topics, journals, books, Academic writer.
Financial report is one of the most useful information sources for investors, lenders and other creditors in making decisions (IASB 2010). Especially, the financial reports audited by the Big-4 audit firms (Deloitte, KPMG, EY and PWC), that are guaranteed by the perennial reputation and commitment to the quality of audit services (Frankel et al. 2011, Hope et al., 2013). The information from the financial report can reflect the financial health and the nature of a business. Using this information the investors can estimate, analyze and decide to invest effectively. In order to ensure the stock-market to operate in a fair, transparent, and effective way the financial report of each firm must be open, explicit, full, true and timely. In which, timeliness is one of the qualitative characteristics that enhance the usefulness of information that is relevant and faithfully represented (IASB, FASB 2010, QC21). Within this study, authors focus on the timeliness aspect in the financial report publishing after the audit, in the other word, the timeliness of audit report. The timeliness of financial report is also considered as one of the efficient competitive factors in business that a firm should pay attention to. It’s clearly that a timely financial report of a firm can attract attention of investors and more or less it creates goodwill of financial report users. There are many researches showing the importance of timeliness in qualifying the financial report. Timeliness in an import.. accounting project topics
THE IMPACT OF BIG 4 AUDIT FIRMS ON THE PERFORMANCE OF LISTED FIRMS IN NIGERIA (A CASE STUDY OF LAGOS STATE)