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This study examines auditor independence, non-audit services and audit quality. The main objective is to find out if there is any relationship between independence of audit committee and quality of audit in Nigeria. The secondary source i.e. audited annual reports and accounts of the sampled companies listed on the Nigeria Stock Exchange was used for data collection while the findings were analyzed using OLS statistical technique. The study revealed that audit Independence has a positive and statistical significant relationship with audit quality. The study concludes that rendering of non audit services to client give the audit firm in-depth knowledge of the clients accounting system. The study however recommends that government should promulgate laws that will enhance auditor independence and that firm should be encouraged to engage the same auditor/audit firm to perform both audit and non audit services, this will enhance high audit quality.




1.1   Background to the Study

The impact of auditor independence on audit quality has been a recurring issue for the accounting profession and securities regulators for the past several decades.

The premise behind the SEC concerns of impaired independence is that the economic bond created between the client and the auditor due to NAS has reduced the auditor’s independence or the willingness to resist client induced biases in the reporting process and that lack of auditor independence would result in less reliable financial statement. Moreover even the appearance or perception of lack of independence could affect the credibility of the financial reporting process.

The only way auditors can add value to financial statements by reducing the likelihood of deliberate misreporting of accounting information is by remaining independent both intact and in appearance. if audit quality is the joint probability of detecting and reporting financial statement errors, then auditor independence is a vital component of perceived and actual audit quality, there have constituted regulatory and professionals bodies world over, that are mandated at restricting the supply to audit clients of other non audit services.

An observation of statutory pronouncement like section 357 of the Nigeria Companies and Allied Matters Act (CAMA, 1990), as amended, required companies to have their financial statements audited by an independent auditor for any financial year. It can be perceived that managers are responsible for the preparation of annual accounts, designing and implementing internal controls and above all ensuring the smooth running of the business. CAMA (1990) section 358 (2a) disqualifies a person or firms who or which offers to the company professional device in a consultancy capacity in respect of secretarial, tax action or financial management from acting as auditor of that same company. This ensures that an auditor is independent (in appearance) of the organization on whose accounts he reports.

The international federation of accountants (IFAC), recognizing the responsibilities of the accountancy and considering its own role to be that of providing guidance, encouraging continuity of efforts and promoting harmonization has deemed it necessary to establish an international “code of ethics for professional accountants” to be the basis on which the ethical requirements (code of ethics, detailed rules, guidelines, standards of conduct etc) for professional accountants in each country should be based.

In Nigeria, the auditor is expected to comply with the roles of professional conduct for members, issued by the Institute of Chartered Accountants of Nigeria. The Auditors’ Code 011 titled “fundamental principles of independent auditing” published by the Auditing Practices Board (APB) sets out the fundamental principles expected to guide the conduct of auditors in rendering services to their varied clients. The code when taken with the ethical standards issued by the professional bodies to which the auditor belongs (for example, the code of conduct issued by the Institute of Chartered Accountant of Nigeria) and if regularly followed, ensure that the professional accountants maintains the highest quality of performance and public confidence.

According to Taylor (2003), such initiatives are motivated by claims that NAS provision results in reduced independence at least in appearance if not “in fact” two potential reasons have been offered in support or its concern.

First auditors may be resistant to criticize the work of their own consulting section, secondly, the reliance or NAS fees will move them to be unwilling to qualify their audit opinion or otherwise constrain aggressive accounting for the fear of losing these NAS fees.

However, investor confidence in financial statements and audit process is contingent on auditor independence consequently, audit regulation prohibition and requirements that are intended to promise independence. One of the most debated threats to auditors’ independence arises from economic bonds between auditors and clients stemming from the joint provision of audit and non-audit services (NAS).

According to Simunic (1994), higher revenues for NAS make it likely that auditors will object to biased accountings, thus inducing less financial reporting credibility. In contract Antle (2006) is of the view that knowledge spill over from auditor provided NAS have the potential to improve auditors’ abilities to detect misstatement in gain insight into client risk, internal controls and tax provision that may enable them to make better professional judgment in the auditing process.

Goldman and Bolev (2004) also suggest that the provision of NAS increases the auditors independence because these services enhance the auditors ‘uniqueness” to the client.


According to Abdullah (2003), the impact of lack of auditor independent can be extremely great in the audit process, this has affected quality. Frankel, Johnson and Nelson (2002) opined that auditor independence is compromised when client pay high non audit fees relative to total fees, this in return dilutes the audit quality. Audit report adds value to financial statement provided by manager to shareholder through the independent verification if provides (Johnstone, Sutton & Kiarfield, 2001). The audit is not just a benefit to investors. It is also reduces the cost of information exchange for both sides (Dopuch & Simumic,  2008) and benefit management by providing a signaling mechanism to the market that the information which management is providing is reliable.

If the auditor is not seen to act independently of management then the auditor losses it value to all parties. A significant and persistent criticism of auditors which has been raised many time over many years is that the joint provision by auditors of other services to management alongside the audit, undermines their independence.

1.2   Statement of Problem

The auditor is expected to be independence of the management staff of the company being audited.
However, a number of factors likely familiarity, threat of replacement advisory services appear to impair auditors independence concerns have been expressed about the conflict of interest between the statutory role of the auditors and other services it may undertake for a client (UK House of common treasury committee, 2008).

1.3   Research Questions

In order to achieve the objective of this study, the following questions need to be addressed;

  1. Is there any relationship between independence of audit committee and quality of audit in Nigeria?
  2. To what extent has auditors engagement in non-audit services influence the audit quality in Nigeria?

iii.    Does the length of auditors tenure enhance audit quality in Nigeria?

1.4   Objective of the Study

The main objective of this study is to examine audit independence, non audit service and auditing quality. However, the specific objectives are;

  1. Find out if there is any relationship between independence of audit committee and quality of audit in Nigeria.
  2. Investigate the extent to which engagement in non-audit services by auditors will affect the quality of audit in Nigeria

iii.    Ascertain if the length of auditors tenure will enhance audit quality

1.5   Statement of Hypothesis

The following hypotheses are formulated to achieve the objective of the study.

Hypothesis One

HO:   There is no significant relationship between
independence of audit committee and quality of audit in Nigeria.

HI:    There is significant relationship between independence of audit committee and quality of audit in Nigeria.

Hypothesis Two

HO:   There is no significant relationship between
engagement in non-audit services by auditor and audit quality

HI:    There is significant relationship between engagement in non-audit services by auditor and audit quality.

Hypothesis Three

HO:   There is no significant relationship between length of auditors tenure and audit quality

HI:    There is significant relationship between length of audits tenure and audit quality.

1.6   Significance of the Study

This study is relevance in all human endeavors as listed below;

  1. Researchers: This study will continue to extant literature. And it will serve as aspiring board to future researchers.
  2. Practicing auditors in Nigeria: This study will enable practicing auditors in Nigeria to become more informed of the intricacies surrounding auditors independence.

iii.    Academic community: The outcome of this research as it’s findings are expected to contribute to existing body of knowledge.



1.7   Scope of the Study        

There are many factors that determine the quality of audit but we shall restrict our study to non audit service and auditor independence using Benin City Edo state as the geographical area used in this study. The study is also restricted to the Nigerian banking sector and a review of 6 years (2008 – 2014) using a sample size of 15 banks.

1.8   Limitations of the Study

Some factors limit the extent and depth of this research work. These limitations include non-availability of adequate literature and the refusal of management to furnish some important documents/data for more detailed analysis on grounds of confidentiality.

Again, the availability of textbooks that deals on relevant areas of the study is another constraint. There were only few, textbooks to consult in the school library and most of them are obsolete. The researcher had to look outside the polytechnic library for relevant
materials such as journals write-up etc.

Since the research work was done during the normal course of study, it was not possible to undertake an elaborate study.

Finally, the must point out that the main instrument of data collection was through personal interview and no matter how it is constructed it is subjected to individual bias and subjected to judgment.

1.9   Definition of Terms

Quality Audit: This is the process of systematic examination of a quality system carried out by an internal or external quality auditor or an audit team.

Auditor’s Independence: This refers to the independence of the internal auditor or of the external auditor from parties that may have a financial interest in the business being audited.

Non-Audit Service: This maybe any services other than audit provided by an auditor to an audit client.

Audit Client: An audit client is any person or organization that requests an audit.

Financial Statement: This is a formal record of the financial activities of a business, person or other entity.

Auditing Profession: This is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operation.

Shareholders: This is an individual or institution (including a corporation) that legally owns a share of stock in a public or private corporation. Shareholders are the owners of a limited company.

Auditor’s Report: This a formal opinion or disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result an internal or external audit or evaluation performed on a legal entity or subdivision thereof.

Management: This is the function that coordinates the efforts of people to accomplish goals and objectives using available resources efficiently and effectively.

Transaction: This symbolizes a unit of work performed within a database management system (or similar system) against a database, and treated in a coherent and reliable way independent of other.

Audit Tenure: This is the mandatory rotation of audit firms for a particular audit client. This is suggested as a means of improving audit quality.

Information System: This is a system composed of people and computers that process or interprets information.

Audit Fee: This is the use of a company pay an external auditor in exchange for performing an audit.


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