IMPACT OF BOARD ATTRIBUTES AND AUDIT QUALITY ON FINANCIAL REPORTING QUALITY OF LISTED CONSUMABLE PRODUCT COMPANIES IN NIGERIA
The study examined the impact of Board Attributes and Audit Quality on Financial Reporting Quality of listed Consumable Product Companies in Nigeria. Board attributes was proxy by board size, board independence and board equity. While audit quality was proxy by audit size and audit tenure. The study covers the period of five years 2012 to 2016. Data for the study were extracted from the firm’s annual reports and accounts. Frances et al. (2005) model was used in extracting the discretionary accruals of the eight sampled firms out of the nine companies that served as the population of the study. A multiple regression was employed to test the model of the study using OLS regression technique. After running the OLS regression, a robustness test was conducted for validity of statistical inferences, the data was empirically tested. The results from the analysis revealed a positive but insignificant relationship between board size, board equity, audit size and audit tenure and financial reporting quality of listed Consumable products companies in Nigeria. While board independence is positively and significantly related to financial reporting quality of Consumable product companies in Nigeria. The study concluded that board independence might not guarantee that managers would not manipulate earnings. The study therefore recommended that these companies should reduce the number of non-executive directors because the study revealed that their large number pose a threat to the quality of financial reports of Consumable products companies listed on the Nigerian Stock Exchange.
Keywords: Board Attributes, Audit Quality, Financial Reporting Quality, Consumable Products
Financial reports are of great concern to corporate stakeholders especially in investment decisions (Lin & Hwang, 2010). Several studies (Kibiya, Che-ahmad, & Amran, 2016; Umaru, 2014; Yusuf, 2013) have investigated the effects of various board attributes and audit quality variables on Financial Reporting Quality, empirical evidence of their effects is relatively fluctuating. Financial reporting is seen as communicating information on the activities of companies to the users of accounting information; and the quality of financial reporting is a function of the quality of accounting standards and the compatible regulatory enforcement of the standards (Kantudu & Samaila, 2015). The standards can be effectively imposed through the action of devoted board of directors and a qualitative audit structure (Rainsbury, Bradbury, & Cahan, 2008).
1.2. Statement of problems
In Nigeria, the subject of board attributes as a subsection of corporate governance has been given superior attention by all sectors of the economy in line with evidence of financial scandals that led to corporate failure such as in Flour Mills of Nigeria, Northern Nigeria Flour Mills Plc, Honeywell Flour Mills Plc among others in the last decade (s) and have been generating a lot of concern among scholars. Such cases led to the new development of holding management and boards more accountable to their apportioned responsibilities by the shareholders (Isa & Muhammad, 2015). This concern by shareholders is then advocated by the activities of auditors. It has been promoted by auditing scholars that the main aim of an audit assignment is to produce a quality report. The emphasis here is on ‘quality report’, hence, it is presumed that the major role of the auditor is the production of a quality report; achieved through strict adherence to the principles of high audit quality. Hence, auditing is used to provide the needed assurance for investors when relying on audited financial statements. More precisely, the role of auditing is to reduce information asymmetry on accounting numbers, and to minimize the residual loss resulting from managers’ opportunism in financial reporting (Enofe, Mgbame, Aderin, & Ehi-Oshio, 2013). The relationship of the two variables, that is, board attributes and audit quality are practically inseparable because audit quality is often recognized by the composition of the audit committee and the committee is usually formed from the board of directors as at that period of the year(Abbott & Park, 2000).
1.3. Objectives of the Study
The specific objectives of the study is to determine the impact of board attributes and audit quality on financial reporting quality of listed Consumable product companies in Nigeria.
1.4. Significance of the study
The study will be significant to all Consumable product companies listed on the Nigeria Stock Exchange as well as other consumer goods. The companies can implement the recommendations of this paper in taking appropriate decisions on issues related to their corporate governance and presentation of quality annual reports. Papers reviewed have made very little contribution to the body of knowledge with regard to combining board attributes and audit quality to determine their influence on financial reporting quality. Therefore, this study tends to bridge those lapses through a careful and reliable examination of the effect of board attributes and audit quality on the financial reporting quality of listed Consumable products in Nigeria.
1.6. Organization of the study
The paper is divided into five sections, covering introduction, literature review, methodology, results and discussions, conclusion and recommendation.
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