AUDIT QUALITY AND FINANCIAL REPORTING CREDIBILITY OF LISTED AGRICULTURAL FIRMS IN NIGERIA

Abstract

Financial reporting credibility matters because investors, lenders, regulators and other users make decisions from figures they cannot verify on their own. Concerns arise when reported earnings contain large discretionary adjustments or when published accounts do not appear to reflect the economic position of the firm. This study examined whether selected audit quality attributes were associated with the financial reporting credibility of listed agricultural firms in Nigeria. The study adopted an ex post facto design and used secondary data from the audited annual reports of Ellah Lakes Plc, FTN Cocoa Processors Plc, Livestock Feeds Plc, Okomu Oil Palm Company Plc and Presco Plc for 2016–2025. Financial reporting credibility was measured as the negative absolute value of discretionary accruals estimated with the Modified Jones model. Audit firm size, audit tenure, relative audit fee intensity and audit committee effectiveness were the explanatory variables. After the lagged information required for the accrual model was taken into account, 48 firm-year observations were available for the regression. Descriptive statistics, correlation, variance inflation factors and panel diagnostics were examined before the final estimation. The panel-effect test supported pooled ordinary least squares. The model was significant overall, F(4, 43) = 3.662, p = 0.012, with R² = 0.254 and adjusted R² = 0.185. Audit firm size and audit committee effectiveness had negative but insignificant effects, while audit tenure had a positive but insignificant effect. Relative audit fee intensity was negative and significant (β = -122.4947, p = 0.011). The study concludes that the audit-related attributes considered did not influence reporting credibility in the same way. Particular attention should be given to the economic weight of the auditor-client fee relationship, while audit quality assessments should also consider how the engagement is actually carried out than relying only on visible structural attributes.