Audit Firm Characteristics and Financial Reporting Quality of Deposit Money Banks in Nigeria: The Moderating Role of Audit Committee

Abstract

This paper investigates whether selected characteristics of external audi t firms are associated with financial reporting quality in Nigerian deposit money banks and, more importantly, whether audit committee oversight changes those associations. The study responds to continuing questions about the reliability of bank financial statements and the inconsistent evidence reported for auditor tenure, audit remuneration and audit-firm size. An ex-post facto design was used, with secondary information obtained from the published annual reports of the sampled banks for 2014–2024. The final balanced panel contains 110 bank-year observations. Descriptive statistics, Pearson correlation and panel regression procedures were applied, while the Hausman test guided the choice of estimator for the principal model. The results indicate that audit firm tenure is positively related to financial reporting quality, but the relationship is not statistically significant (β = 0.108398; p = 0.0984). Audit fees also have a positive but insignificant direct coefficient (β = 0.166818; p = 0.1911), whereas audit firm size has a significant negative coefficient (β = −0.716003; p = 0.0038). Once audit committee interactions are introduced, the tenure interaction remains insignificant (β = −0.116468; p = 0.2418). By contrast, the audit-fee interaction is positive and significant (β = 5.105045; p = 0.0132), while the audit-firm-size interaction is negative and significant (β = −0.482384; p = 0.0136). The moderated specification explains 89.28% of the observed variation in reporting quality. The evidence therefore suggests that audit inputs do not operate independently of governance arrangements; audit committee oversight can alter the reporting consequences of audit fees and audit-firm size.