EFFECT OF AUDITOR INDEPENDENCE ON EARNINGS MANAGEMENT OF LISTED CONSUMER GOODS COMPANIES IN NIGERIA

Abstract
This study analysed the effect of auditor independence on earnings management of listed consumer goods companies in Nigeria. The extent to which audit independence as measured in Client Importance (CI), Audit Fee (AF), and Audit Tenure (AT), affects Earnings Management (EM) of Consumer Goods (CG) companies in Nigeria triggered this study. An ex-post facto research design was employed for the study. Data relating to the study were collected from 13 sampled CG companies for a period of eight (8) years (2012 to 2019). EM was measured using discretionary accrual from the Modified Jones Model. Descriptive statistics and panel regression techniques were used for data analysis. Findings revealed that CI and AT restrain EM, although only CI is significant. Findings further revealed that AF although insignificant increases the EM of listed CG companies in Nigeria. The study concluded that auditor independence significantly constrains EM based on client importance and recommended that managers of companies should enhance strategies for improving their performance in terms of sales to remain important to their auditors for better service delivery.
Keywords: Audit, Auditor independence, Client importance, Audit fee, Audit tenure, Earnings management
JEL Classification: M42, M41
Introduction
Earnings management is usually connected with the deliberate act of altering a company’s financial statements, to either mislead the shareholders about the true economic picture of the company or to realise benefits that are linked to reported earnings. Earnings management, although carried out within the confines of accounting standards, may have adverse effects on companies when not properly curtailed as it tends to plunge companies into financial problems. A Series of corporate scandals that have stunned the globe in the past had traces of earnings management. Notable victims include Enron, HealthSouth, Parmalat, Tyco, WorldCom, Xerox, Lehman Brother, Toshiba, Cadbury, African Petroleum, and Unilever (Ghosh, Marra & Moon, 2010).