Audi characteristics and financial reporting quality of listed pharmaceutical firms in Nigeria

Abstract

The Audited Financial Reports place value and credibility on financial statements before the interested users. This paper, therefore, investigates the effect of audit characteristics on the financial reporting quality of listed pharmaceutical firms in Nigeria.  Samples were obtained for a period of 10 years (2012-2021) from listed pharmaceutical firms in Nigeria. The study employed, auditor’s independence, audit fees, audit firm size, and auditor’s tenure to measure the audit characteristics as an independent variable while financial reporting quality was measured in line with IFRS disclosure checklist. The purposive sampling technique was used to select 7 listed pharmaceutical companies on the Nigerian Exchange Group (NEG) market. Data for the study was extracted from the annual reports and accounts of the sampled companies from 2012 to 2021 and analyzed using descriptive and regression analysis. Specifically, to examine the cause-effect relationships between the dependent variables and independent variables as well as to test the formulated hypotheses, the study used a panel hierarchical regression analysis. The study concludes that an increase in the engagement of an auditor on only audit services by the listed pharmaceutical firms will insignificantly decrease financial reporting quality during the period under study. It also concludes that an increase in the amount paid to the auditor for audit engagement will significantly decrease financial reporting quality during the period under study. At the same time, engaging the services of big4 auditors will significantly decrease financial reporting quality during the period under study. Finally, it was concluded that engaging the services of auditors for over 5 years will significantly decrease financial reporting quality during the period under study. Based on the findings of this study, it was carefully recommended that considering the competition among Nigerian audit firms, managers and partners of audit firms can form specialized teams to increase the quality of financial reporting. Investors concerned about the quality of financial reporting are advised to consider the audit characteristics when making a decision.