AUDIT COMMITTEE MECHANISM AND AUDIT QUALITY OF QUOTED INSURANCE FIRMS IN NIGERIA

Abstract

Audit quality is a critical concern in the insurance sector, impacting financial transparency and stakeholder trust. The persistent issue of audit committee effectiveness in ensuring reliable financial reporting has raised questions about their mechanisms. This study examined the relationship between audit committee mechanisms and audit quality of the sampled insurance firms in Nigeria for the period of 2014 to 2022. The study employed the Panel data analysis (Fixed Effect and Random Effect methods). Based on the Hausman test and decision rules, the random effect regression result was adopted. Generally, the regression result revealed that two out of the four audit committee mechanism variables (ACGR and ACIND) met the a-priori sign and as such it was found to be positively related to AQ, while the other two, ACD and ACSZ did not meet the expected signs. It rather showed an inverse relationship between them and AQ. It was however not statistically significant, a situation that could be attributed to gender imbalance, possibility of some level of audit dependence as seen from the dataset, emphasis on audit size and not expertise, diverse efficiency and effective decision making. This thereby shows that insurance firms’ internal factors tend to promote audit quality than the audit committee attribute. The lag dependent variable which is AQ (-1) was found to be positive and statistically significant in promoting audit quality. The study thereby recommended among others that insurance companies should emphasize and increase their drive for gender balance or diversity, embrace more of or higher level of independence as this will reduce undue interference from the board and further help to boost the decisions, depth and quality of the audit committees.