AN EMPIRICAL ANALYSIS OF AUDIT QUALITY IN THE NIGERIAN BANKING SECTOR 
ABSTRACT
This study is motivated by a desire to empirically analyze audit quality in the Nigerian banking sector. In light of the empirical review and other discussions, a number of questions arose as to whether there is a significant relationship between audit committee, audit committee independence and audit quality in the banking sector. Using the Ordinary Least Square (OLS) regression technique with the aid of a computer software E-view 7.0, the empirical findings revealed among other things that, there is a positive relationship between audit committee, audit committee independence and audit quality in the Banking Sector. We recommend however that, the auditor must also be independent of government agencies or other groups who have contact with the business.
TABLE OF CONTENTS
CHAPTER ONE
1.1    Introduction                                
1.2    Statement of Research Problem                     
1.3     Objective of Research Work                         
1.4    Research Hypothesis                            
1.5    Scope of the Study                            
1.6    Significance of Study                         
1.7    Research Methodology                     
References                                
CHAPTER TWO: LITERATURE REVIEW
2.1    Introduction                             
2.2    Meaning and Measurement of Audit Quality         
2.3    Non Earnings Measures                        
2.4    Audit Quality and Audit Independence in Nigeria             
2.5    Audit Quality and Firm Characteristics in Nigeria            
2.6    The Role of Auditors in the Banking Crisis            
2.7    Auditors and the Nigeria Banking Crisis                    
2.8    The Socio-Political and Economic Contexts of Auditing in Nigeria        
2.9    Role and Involvement of Accountants and Auditors in Banking Failure in
Nigeria (Some Evidence)                            
2.10    Professionalism and the Pursuit of Profit                    
References                                
CHAPTER THREE: METHODOLOGY
3.1    Introduction                                 
3.2    Research Design                                 
3.3    The Population and Sample Size                         
3.4    Sources of Data                                
3.5    Model Specification                             
3.6    Data Analysis                                    
References                                     
CHAPTER FOUR:    DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1    Introduction                                
4.2    Data Presentation and Interpretation                    
4.3    Test of Hypotheses                            
4.4    Implication of Results                         
CHAPTER FIVE:    SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1    Introduction                                 
5.2    Summary of Findings                             
5.2    Conclusion                                
5.3    Recommendations                        
Bibliography                                
Appendix                                
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND OF THE STUDY
The usefulness and reliability of the audited financial statements depend on the quality of audit and the integrity of the auditor. One of the measures of audit quality is the auditor's report which contains important information for stakeholders about the quality of the financial statements as well as some indication towards the company's performance. While the audit quality is difficult to measure, the extent to the auditor is willing to issue qualified opinion often provides some indication of audit quality (Chen, Lin & Zhou, 2005).
The qualified opinion of the auditor is one type of auditor report that conveys some bad news related to the company. This type of report is considered a warning to users and may affect the company's reputation because it is the only decision made by auditor that is objectively observable by the public. Usually, when the independent auditor issues this type of report to shareholders and other users, it indicates that the managers' accounts may be, in some respect, not true and fair view which in turn may reflect that some aspects of stewardship is being brought into question.
Several prior studies have investigated different variables in different models that have been advocated as explanatory factors of audit qualifications including company's characteristics (i.e. performance), market variables, auditor characteristics and corporate governance.
In societies marked by divisions of expert labour, external auditing is promoted as a trust engendering technology with the capacity to promote a certain kind of social order (Power, 1999). Accountants, as auditors, have cemented their status and privileges on the basis of claims that their expertise enables them to mediate uncertainty and construct independent, objective, true and fair accounts of corporate affairs (Sikka, 2009). It has been argued, however, that such claims are not good indicators of corporate performance, because capitalist economies are inherently prone to crises (O’Connor, 1987; Sikka, 2009). Furthermore, the claims of expertise are frequently affected by unexpected corporate collapses, fraud, financial crime and the general crisis of capitalism (Baker, 2007; Sikka, 2009).
Since 2007, major western economies have been experiencing a deepening banking and financial crisis arising from subprime lending practices by banks, which in turn has restricted the availability of credit and has led to what has been described as the ‘credit crunch’ (Sikka et al, 2009). Some commentators have attributed this economic crisis to the unethical practices of corporate bank managers and to the inability of auditors to expose such anti-social practices from previous audits (Broad Street Journal, 21 October 2009; Sikka, 2009). Some auditors may have failed to comply with expected standards. If a company fails shortly after being audited, the auditors may be blamed for conducting an inferior audit (Dopuch, 1988). Thus, whenever there is a financial scandal, it must be questioned whether the auditors carried out their duties and obligations with due care and diligence.
In Nigeria the spate of corporate failures witnessed in the financial sector in the early 1990s brought auditors into sharp focus and caused the Nigerian public to question the role of accountants and auditors (Okike, 2004; Bakre, 2007; Ajibolade, 2008). Furthermore, the investigations launched by the regulators and other stakeholders into the cases of distress and disclosure revealed that accountants and auditors were implicated (NDIC, 1995). With the recent banking crisis in Nigeria members of the auditing profession in Nigeria are once again in the limelight, as the banking crisis and the revelation of unethical practices by bank executives and board members has raised many questions about the ethical standards of the accounting profession and about the integrity of financial reports issued by professional accountants (ThisDay, 9 December 2009). The question has been raised as a result of the failure on the part of accountants and auditors to alert regulators when they have discovered fraud and other irregularities in company records (Bakre, 2007).
In respect of the banking crisis, attention has focused on the role of accountants and auditors who have been involved. Accountants and auditors may be expected to report financial irregularities in company accounts by enhancing transparency and accountability and by developing techniques for fraud detection. However, an emerging body of literature argues that accounting professionals have increasingly used their expertise to conceal and promote anti-social practices (Sikka, 2008a; US Senate Permanent Sub-Committee on Investigations, 2005; Bakre 2007). For example, Akintola Williams and Deloitte (AWD) was indicted for facilitating the falsification of the accounts of Afribank Plc and for deliberately overstating the profits of Cadbury Nigeria Plc. It has been reported that between 1990 and 1994 the Nigerian economy lost more than N6 billion ($42.9 million) to fraud within the banking sector alone (Bakre, 2007).
The social cost of the banking crisis is difficult to estimate, but huge amounts of public money are being used to bail out distressed banks (Sikka, 2009). In 2008, almost every Reserve Bank across the globe, in collaboration with finance ministries, was forced to adopt extraordinary measures to stave off the collapse of the financial institutions and to restore confidence in the banking system (The Guardian, 30 August 2009).
Although the global financial and banking crises have attracted the attention of policy-makers (TI, 2009) and scholars (Sikka, 2009), comparatively little scholarly attention has focused on the role of auditing firms in facilitating the mismanagement of bank assets, liabilities and depositors’ funds in developing countries.
Against this backdrop, this study will examine empirically, the audit quality in the banking industry.
1.2 STATEMENT OF RESEARCH PROBLEM
The credibility of reported financial statements by corporate entities has become a cause of concern for regulators, investors, analysts and other stakeholders. The Nigerian Stock Market Annual (2004:200) points that corporate managers indulge in several despicable acts such as understating losses, overstating profits, covering bad debts and other wrongful acts. These have become a regular feature in the Nigerian corporate register and have tainted the corporate image of the nation.
Weak auditor reports and other reasons have been identified as reasons for the demise of corporations (i.e. banking sector). This has led to the following research questions.  
1.    What is the significant relationship between audit committee size and audit quality.
2.    Is there significant relationship between audit committee independence has significant relationship with audit quality.
1.3    OBJECTIVE OF RESEARCH WORK
This research is made to satisfy the following objectives:-
1.    To determine the relationship between audit committee size and audit quality.
2.    To ascertain the relationship between audit committee independence and audit quality.
      1.4    RESEARCH HYPOTHESIS
The following hypotheses have been formulated to serve as a base for this research;
Hypothesis I
Ho:    There is no significant relationship between audit committee size and audit quality.
H1:     There is no significant relationship between audit committee size and audit quality.
Hypothesis II
Ho:    There is no significant relationship between audit committee independence and audit quality.
H1:     There is no significant relationship between audit committee independence and audit quality.
1.5    SCOPE OF THE STUDY
This research work is an empirical study of the audit quality in the Nigerian banking sector. The scope of this research is limited to all commercial banks operating in Nigeria, with specific emphasis on the United Bank for Nigeria Plc, as case study.
 1.6    SIGNIFICANCE OF STUDY
The credibility of an auditor’s report on the financial statements of an organization or company is to enable existing and potential investors to make decisions on whether or not to buy or sell securities, the government in obtaining revenue based on income tax returns, the banker can decide on whether to approve a loan, the credit professionals on granting a trade credit and a host of others. They will be able to appreciate better the true nature of a credible audit.
The report will also create awareness to the general public that there is a certain degree and level of confidence they can place on the auditors report.
Finally, in view of the aforementioned significance and the issue of public perception of auditors, the research work will guide future researchers and students undertaking auditing as a course, on the knowledge gap yet to be filled.
1.7    LIMITATIONS OF THE STUDY
The main constraints of this research work are:
i.    Time: The study was done within a short period of time and this affected the scope of the study.
ii.    Availability of Data: The study will be feasible within the context of available information that could reach the researcher.
iii.    Finance: This is an essential tool of research study. Money was another strong constraint since most materials were gotten from the Internet. It was so much expensive to browse the net through the night and print materials so found.
iv.    Simple Size: This is limited to the available respondents who are knowledgeable on the subject matter.
REFERENCES
Dopuch, N. (1988) ‘Implication of the Tort Rules of the Accountant’s Liability for the Accounting Model’, Journal of Accounting, Auditing and Finance, 3 (3): 245-249.
Chen, K. Y., Lin, K-L. & Zhou, J. (2005), ‘Audit quality and earnings management for Taiwan IPO firms’, Managerial Auditing Journal, Vol. 20, No. 1, pp. 86–104.
O’Connor, J. (1987) The Meaning of Crisis: A Theoretical Introduction, Oxford: Basil Blackwell.
Okike, E. (2004) ‘Management of Crisis: The Response of the Auditing Profession in Nigeria to the Challenge to its Legitimacy’, Accounting, Auditing and Accountability Journal, 17 (5): 705-730.
Power, M. (1999) The Audit Society: Rituals of Verification, Oxford University Press, Oxford.
Sikka P.  (2009) ‘The Audit Crunch: Reforming Auditing’, Managerial Auditing Journal, 24 (2): 135-155.
The Guardian newspaper, several editions.