AUDIT FAILURE AND CREATIVE ACCOUNTING IN NIGERIA

ABSTRACT

This study examined Audit Failure and Creative Accounting in Nigeria. To address its objectives, the research formulated three research questions, three objectives and three hypotheses. This study investigates the impact of audit failure and creative accounting on listed firms in Nigeria, focusing on financial services, industrial goods, and ICT companies quoted on the Nigerian Exchange Group (NGX) from 2018 to 2022. Employing a longitudinal research design, data were collected from published annual financial statements over the five-year period. The study encompasses a population of 68 firms within the specified sectors, with a sample size of 42 companies selected through random sampling. The analysis reveals that audit fees have a negative and statistically significant relationship with creative accounting, proxied by discretionary accrual (DACC), suggesting that higher audit fees deter earnings manipulation. Conversely, audit firm type did not show a significant influence on creative accounting, indicating that the quality of the audit firm type might not be a determinant in this context. Audit Firm independence also showed a significant positive impact on creative accounting, with larger firms more likely to engage in such practices. Based on these findings, the study recommends measures to enhance auditor independence and accountability, promote mergers among audit firms to bridge the gap between Big Four and non-Big-Four firms, and sustain higher audit fees to improve audit quality and reduce creative accounting.