The Role of External Auditors in Corporate Failure Prevention in Nigerian Manufacturing Companies

This study evaluates the role of external auditors in preventing corporate failure among manufacturing companies in Nigeria. The collapse of once-prominent manufacturing firms in Nigeria has reignited debates about the effectiveness of the external audit process as a corporate failure early warning mechanism. Critics argue that auditors often issue clean opinions on companies that subsequently fail, raising questions about audit quality and the audit expectations gap. This study adopts a survey design, collecting data from 110 external auditors, internal audit managers, and company directors in manufacturing firms across Lagos, Ogun, and Kano States. The questionnaire assessed auditor independence, going concern assessment practices, fraud detection capability, and communication of financial distress signals. Chi-square and regression analysis are used. Findings reveal that going concern assessment practices and timely communication of financial risk indicators are significantly associated with lower incidence of unexpected corporate failure. Auditor independence, measured through fee dependence and non-audit service provision, showed a significant moderating effect. The study concludes that external auditors have an important but currently under-realized role in preventing corporate failure in Nigerian manufacturing. It recommends that the Financial Reporting Council of Nigeria strengthen going concern assessment guidelines and mandate auditors to explicitly communicate financial distress indicators in audit reports, rather than relying solely on modified opinions.

Keywords: external audit, corporate failure, manufacturing, going concern, auditor independence.