Audit Quality and Earnings Management in Listed Consumer Goods Companies on the Nigerian Exchange Group

This study examines the relationship between audit quality and earnings management practices in listed consumer goods companies on the Nigerian Exchange Group. Earnings management, which involves the manipulation of financial figures within the bounds of accounting standards, remains a concern for investors and regulators in Nigerian capital markets. The quality of external audits is widely recognized as a critical mechanism for constraining opportunistic financial reporting. This study adopts an ex-post facto research design, using secondary data from audited annual reports of 15 consumer goods firms listed on the Nigerian Exchange Group for the period 2019 to 2023. Audit quality is proxied by auditor size, audit tenure, and audit fees, while earnings management is measured using the modified Jones model to compute discretionary accruals. Panel data regression techniques, including fixed and random effects models, are applied. Results show that Big Four audit firm affiliation and shorter audit tenure are significantly associated with lower levels of discretionary accruals, suggesting that higher audit quality constrains earnings manipulation. Audit fees did not show a statistically significant relationship with earnings management. The study concludes that engaging high-quality external auditors reduces the scope for earnings manipulation in Nigerian consumer goods firms. It recommends that the Financial Reporting Council of Nigeria enforce stricter auditor rotation policies and enhance oversight of audit engagements in the listed consumer sector.

Keywords: audit quality, earnings management, consumer goods, Nigerian Exchange Group, discretionary accruals.