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Effects of Company Attributes on Audit Quality

Type Project Topics (pdf)
Faculty Administration
Course Accountancy / Accounting
Price ₦3,000
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Key Features:
Chapters: 5 Chapters
No of Pages: 72 Pages
Methodology: Ordinary Least Square
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Abstract:
The study investigates the effects of company attributes on audit quality. A regression model was used to analyse the existence of significant relationship or otherwise between the dependent and independent variables. The ordinary least regression methodology was utilized in analyzing the specified model.
Audit quality has a significant and positive relationship with board independence, while firm size was also found to be significantly, but inversely related to audit quality. Both ownership structure and audit committee independence were found to exhibit a positive, albeit non-significant relationship with audit quality. The study concluded that the results of the study have significant implications for company regulators and researchers in Nigeria. The results signify the importance of board independence in enhancing the overall quality of the audit.
Table of Content:
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study- - -
1.2 Statement of the Research Problem- - -
1.3 Objectives of the Study- - -
1.4 Research Hypothesis - - - -
1.5 Scope of the Study - - - -
1.6 Significance of the Study - - -
1.7 Limitations of the Study - -
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction - - - - -
2.2 Conceptual Framework Audit Quality -
2.3 Theoretical Framework - - - -
CHAPTER THREE: METHODOLOGY
3.1 Introduction- - - - - -
3.2 Research Design - - -
3.3 Population and Sampling - - -
3.4 Source of Data - - - -
3.5 Measurement of Variables- - - -
3.6 Model Specification and Data Analysis Method - -
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction - - - - - - - -
4.2 Descriptive analysis - - - -
4.3 Correlation analysis - - - -
4.4 regression analysis - - - -
4.5 Test of Hypotheses - - - -
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction - - - - -
5.2 Summary of Findings -
5.3 Conclusion - - - -
5.4 Recommendations - -
Bibliography- -
Introduction:
1.1 Background to the Study
It has been argued by a large number of researchers in the field of study that the fundamental reason of an audit assignment is to create a quality report. The point here is on 'quality report", thus, it is assumed that the most important part of this research is the creation of a quality report; accomplished through strict adherence to the standards of high audit quality (Enofe, Mgbame, Aderin & Ehi-Oshio, 2013). DeAngelo (1981) defines “audit quality as the market-assessed joint probability that a given auditor will both detect material misstatements in the client’s financial statements and report the material misstatements”. DeAngelo (1981) theorized a two-dimensional definition of audit quality that has set the standard for addressing the issue. First, a material misstatement must be noticed, and second, the material misstatement must be reported. Audit quality as such is the increasing function of the ability of an auditor to detect accounting misstatements and is related to the degree of auditor independence. This measure looks upon the broad concept of an auditor’s professional conduct which factors objectivity, due professionalism and conflict of interest (Mgbame, Eragbhe & Osazuwa. 2012).

Alleyne & Howard (2005) propose that a good auditor provides precise information involving the firm’s value. Because the purpose of an audit is to provide assurance as regards the financial statements. Audit quality is defined by Weber; Willenborg & Zhang (2008) as the probability that financial statements contain no material misstatements. Onwuchukwu; Erah; & Izedonmi. (2012) define “audit quality as the ability of the auditor to detect and eliminate material misstatements and manipulations in the earnings reported”. Chang; Dasgupta & Hilary (2009) noted that a good-quality auditor will always detect any misreporting, so its clients announced earnings are the same as its true earnings. Similarly, Gui, Lynn & Tsui (2002) define audit quality as the auditor’s ability to detect and eliminate errors and manipulations in reported earnings. Chan & Wong (2002) noted that audit quality, though unobservable, affects the probability of the successful detection of discrepancies between the firms’ favourable report and the true quality of the project. The implicit common link in all these statement is the auditor’s ability to satisfy their professional obligation is to find material misstatements through the execution of the audit process. The characteristics of audit quality are unquantifiable and have lead to the use of different proxies by researchers to measure it like: audit size, audit hours, audit fees, corporate reputation, board independence and discretionary accruals. Auditors generally perceive audit quality in terms of strict adherence to GAAS/ISA requirements.

Auditors of a company would endeavor to avoid audit failure through the reduction of their business risk by minimizing audited dissatisfaction, limiting the damage to their reputation and avoiding litigation (Nagy, 2005). The demise of Arthur Andersen in 2002 is an example of the ultimate result of audit failure. Corporate scandals like Enron's fiasco and Andersen collapse confirmed a requirement for high audit-quality and drew considerable attention to various factors that may have effect on audit quality. High audit quality refers to the production of financial information without misstatements, omissions or biases. From an agency theory perspective, Dang (2004) argues that audited financial statements are a monitoring mechanism to provide assurance for users of financial information. In essence, auditing is used to give investors the needed assurance in an audited financial statements. More precisely, the function of auditing is to reduce information asymmetry on accounting numbers and to lessen the residual loss resulting from managers’ opportunism in financial reporting (Adeyemi & Fagbemi, 2010). Effective and perceived qualities (usually designated as apparent quality) are essential for auditing to produce advantageous effects as a monitoring device. Although so many different proxies have been used, Lennox (1999) believed that most researchers generally agree that auditor independence and size are appropriate indicators of audit quality.
It is therefore, based on these tenets, that this study aims to analyze the relationship between company attributes and audit quality. Having established that the contribution of the auditor to the business environment is basically through the production of a quality report, the study investigates the factors that could influence the achievement of high audit quality and determine the existence of relationships and correlation among these factors.
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