The Moderating Effect of Audit Committee Financial Expertise on the Relationship Between Audit Quality and Real Earnings Management of Listed Consumer Goods Companies in Nigeria

Abstract

This study examines the moderating effect of audit committee financial expertise on the relationship between audit quality and real earnings management of listed consumer goods companies in Nigeria. Real earnings management as the dependent variable was proxied by discretionary accruals while audit quality as independent variable is explained using audit fees and auditor industry specialization. The study adopted descriptive correlational research design. The population was the 21 consumer goods companies listed on the Nigerian stock exchange out of which 17 were sampled through filtering process for the purpose of data collection. This study covered a period of 2010 to 2019. Secondary data were extracted from the annual reports of the consumer goods companies for the period of the study. The study employed panel regression techniques to analyze the data. The result of the study shows that both audit fees and auditor industry specialization have positive and significant relationship with real earnings management when moderated by audit committee financial expertise. The study concludes that both audit quality and auditor industry specialization can be used as determinants of real earnings management when there is a finance expert in the audit committee. Thus, the study recommends that consumer goods companies should have more members in the audit committee with financial accounting expertise while charging audit fees commensurate with the task expected by the incumbent auditor and in comparison, with similar organizations within the same industry.