Audit committee independence and audit quality of listed deposit money banks in Nigeria

Abstract

Due to the failures of several corporations world-wide, interest in audit quality along with other corporate governance measures has become matter of interest among corporation’s stakeholders. Furthermore, findings from several empirical literature are mixed and inconsistent. Also, there is the added advantage of simplicity of the sector, model and method used in this article. Most of the past studies were carried out in developed countries; this present study looks at the evidence from emerging country. Consequent upon these, we interrogated the place of audit committee independence in audit quality. The study used Principal Component Analysis to select the audit committee characteristic to investigate. In addition, we examined data from 13 publicly traded deposit money banks from 2011 to 2020. We developed a Probit regression model that incorporates auditor independence as audit quality determinant. The paper used Panel Corrected Standard Error in the regression method and established that independence loads negatively and significantly with quality of audit. Model specification error test (linktest and ovtest) rejects the initial inclusion of control variables such as gender, size and meetings. The residual indicated that there was need for transformation (cubic root) and absence of heteroskedasticity. The paper provided practical and policy implications for investors, managers, regulators, policymakers, users of financial reports and accounts, researchers and governments. Banks should appoint credible and knowledgeable people to audit committee.