Audit Quality and Earnings Management in Nigerian Insurance Companies: Evidence from the Post-IFRS Adoption Era

Earnings management practices within the Nigerian insurance industry have attracted regulatory scrutiny in recent years, raising questions about the effectiveness of external audit quality as a deterrent to financial misreporting. This study investigated the relationship between audit quality and earnings management among insurance companies in Nigeria within the post-IFRS adoption era, covering the period from 2020 to 2024. The study was grounded in the agency theory, which posits that high-quality audits reduce information asymmetry between management and shareholders. An ex-post facto research design was adopted, with a population of 26 licensed insurance companies. A purposive sample of 18 firms was selected based on the availability of complete audited financial statements. Secondary data were sourced from annual reports and the Nigerian Upstream Petroleum Regulatory Commission databases, and analyzed using panel ordinary least squares regression with robust standard errors. Results showed that auditor size (Big Four affiliation) and audit tenure were significantly negatively associated with discretionary accruals, a commonly used proxy for earnings management. The study concluded that high-quality audit services constrain managerial discretion in financial reporting within the insurance sector. It was recommended that the National Insurance Commission should mandate periodic rotation of external auditors and prioritize firms audited by internationally affiliated accounting firms to strengthen reporting quality.

Keywords: Audit quality, earnings management, IFRS adoption, insurance companies, discretionary accruals