Impact of Audit Quality

and Financial
Performance of Quoted
Cements in Nigeria
 Introduction
▪ Audit quality plays an important role in
maintaining an efficient market environment.
▪ This study wants to determine the impact of
audit quality on the financial performance of
quoted firms in Nigeria.

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 Research Problem
▪ This studies provide evidence from vibrant
capital markets
▪ Thus, it is evident that there is a need for
research on audit quality and the financial
performance of organizations in Nigeria

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 Research Objectives
▪ To assess the effect of audit quality on financial
performance quoted by cement companies in
Nigeria
▪ To determine the impact of auditor independence on
the financial performance of the cement companies
quoted in Nigeria.
▪ To ascertain the effect of auditor size on financial
performance quoted by cement companies in
Nigeria.
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 Research Objectives
▪ To assess the effect of audit quality on financial
performance quoted by cement companies in
Nigeria
▪ To determine the impact of auditor independence on
the financial performance of the cement companies
quoted in Nigeria.
▪ To ascertain the effect of auditor size on financial
performance quoted by cement companies in
Nigeria.
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 THEORETICAL FRAMEWORK
Cause and effect

Agency Information Auditor

Theory Assymetry Accountability

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 RESEARCH
METHODOLOGY
▪ Kind of Research
▪ Nature of Research
▪ Quantitative or Qualitative?
▪ Research Design

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 Kind of Research
▪ Basic Research?
▫ Additional knowledge / further insight
▫ Fulfill the curiousity of the researcher

“While these studies provide evidence from vibrant capital markets, very little
research on the relationship between audit quality and the financial
performance of organizations has been conducted in countries where capital
markets are less developed. Thus, it is evident that there is a need for research
on audit quality and the financial performance of organizations in Nigeria”

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 Nature of Research
▪ Explanatory Research?
▫ Existing theory, extend , and test it to a new area ( Nigeria )
▫ Using multiple strategies , novel explanation and empirical
evidence

The study using explanation of theory , hypothesis, and evidence

From the existing theory about financial performance , auditor independence,

and auditor size relation.

2 hypothesis and financial statement of Nigeria

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Quantitative Research
Definition
A systematic investigation of phenomena by gathering quantifiable
data and performing statistical , mathematical, or computational
techniques.
Gathers information from existing and potential customers using
sampling method.
Sampling
Secondary data sources 🡪 firm’s annual reports and accounts
Multiple Regression Equation

🡪 relationship between dependent and independent

variables

FP = β0 + β1 (AI) + β2 (AS) + β3 (LE) + Є

FP = Financial Performance (Dependent Variable)

AI = Auditor’s Independence (Independent Variable)
AS = Auditor’s Size (Independent Variable)
LE = Leverage (Control Variable)
Є = Error Term
Descriptive Statistics
Using SPSS

🡪 Relationship between dependent and independent variables

Marginal Effect of Audit Quality Measures
Using SPSS

🡪 Marginal Change in the dependent variables ( financial performance)

 Research Design
Sample
▪ Financial Performance from 2007 – 2011
▪ Secondary data of the sampled firm’s annual report and
account

Method
▪ Multiple Regression technique
▪ Descriptive statics
▪ Correlation Matrix
▪ Marginal Effect
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 RESULT
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 Descriptive Statistics
Variables N Minimum Maximum Mean Std.
Deviation

NPM 20 .02 1.53 .3155 34766

AUDSIZE 20 .00 1.00 .6000 .50262

AUDIND 20 .00 1.00 .6000 .50262

LEVR 20 .00 35.80 7.9775 10.67594

It implies that the level of auditor size and auditor independence in the
cement industry is high, while net profit margin for the industry can
still be improved upon.

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 Correlation Result
Variables NPM AUDSIZE AUDIND LEVR

NPM 1

AUDSIZE -.23 1

AUDIND .519 -.458 1

LEVR -.323 .356 -.014 1

The correlation between auditor independence and leverage is

negative but not too significant as should be expected since the debt
composition or debt size of a firm should not affect the independence
of their auditors.

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 Auditor Size on Financial
Performance
 Auditor Size has
significant influence on the
financial performance of
quoted cement firms in
Nigeria.
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Auditor Independence of
Financial Performance
Auditor independence has
significant impact on the
financial performance of
quoted cement firms in
Nigeria.
 Conclusion
▪ The most important construct by regression
analysis co-efficients is auditor independence
followed by auditor size.
▪ The impact of audit quality on financial
performance is positive and significant and the
greater the degree of an auditors independence,
the greater the propensity of a firm making
substantial net profit margins.
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 ▪ Audit fees do not compromise auditor
independence, auditors’ fees give auditors a
sense of responsibility and the desire to ensure
that the organization gets value for money by
giving the firm the best audit service possible.
▪ The impact of auditor size cannot be ignored
because it is an important factor for
determining audit quality.

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 THANKS!
Any questions?

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