Strengthening Audit Quality: How Audit Committee Independence Shapes the Effect of Auditor Independence

Abstract

This study investigated how audit committee independence shapes the relationship between auditor independence and audit quality in Nigerian non-financial firms. Motivated by persistent concerns over financial reporting credibility and inconclusive evidence in prior research, the study adopts a longitudinal research design covering 110 listed non-financial firms on the Nigerian Exchange Group (2012 2022). Secondary data were obtained from annual reports and analysed using panel regression models with robust fixed-effects estimation, following diagnostic tests for normality, heteroskedasticity, multicollinearity, autocorrelation, unit roots, and cross-sectional dependence. The descriptive statistics reveal considerable variation in audit attributes across firms, while correlation analysis indicates a moderate negative relationship between accrual quality and auditor independence. Regression results show that auditor independence, measured by the ratio of audit fees to client revenue, has no significant direct effect on audit quality. Similarly, audit committee independence, measured by the proportion of non-executive directors on audit committees, does not exert a significant standalone effect. However, the interaction between auditor independence and audit committee independence is positive and statistically significant, indicating that audit committee independence moderates and strengthens the effect of auditor independence on audit quality. These findings suggest that independence on its own, whether of auditors or audit committees, may be insufficient in enhancing audit quality in Nigeria’s institutional context. Instead, the interaction of both mechanisms creates a governance structure strong enough to safeguard audit quality. The study provides novel evidence from an emerging economy and highlights practical implications for regulators.