Audit Quality, Tax Accruals, and Earnings Management in Nigerian Listed Companies

This study examines the relationship between external audit quality, the management of tax accruals, and earnings management practices among companies listed on the Nigerian Exchange Group. Tax expense is one of the most manageable items in corporate financial statements, and managers may use deferred tax accruals strategically to smooth reported earnings, meet market expectations, or obscure underlying performance. High-quality external audits are theorised to constrain opportunistic tax accrual management by improving financial statement scrutiny. Using a panel dataset of 50 listed companies over six years, the study employs the Jones model adapted for tax accruals to decompose total tax expense into discretionary and non-discretionary components. Audit quality is proxied by auditor size, auditor industry specialisation, and audit fees. Earnings management is assessed using absolute discretionary tax accruals and earnings-smoothing indicators. Fixed-effects panel regression and quantile regression are employed to test the audit quality-accrual relationship across earnings distribution quartiles. The study expects to find that Big Four and other large auditors are associated with significantly lower discretionary tax accruals, consistent with higher audit quality constraining earnings management through the tax line. It also anticipates stronger audit effects in the post-FIRS transfer pricing regulation era when tax accrual scrutiny has intensified. Contributions include a transfer-pricing-era update to the audit-accrual literature for Nigeria. Keywords: audit quality, tax accruals, earnings management, Nigerian Exchange Group, deferred tax.