THE INFLUENCE OF CORPORATE GOVERNANCE MECHANISM ON AUDITOR SELECTION IN NIGERIA: AN EMPIRICAL ANALYSIS
ABSTRACT
This research explores the nature and incidence of creative accounting practices in corporate financial reporting within the context of ethical considerations and the challenges faced by the Regulatory Authorities in Nigeria, given corporate failures and frauds among Nigeria firms. The research explores conceptual issues in creative accounting and the reasons that drive company directors to engage in creative accounting. Furthermore, the research considers the various ways in which creative accounting can be undertaken and summarizes some empirical research on the nature and incidence of creative accounting. The ethical dimension of creative accounting is discussed, drawing evidence from several empirical studies.
TABLE OF CONTENTS
    CHAPTER ONE: INTRODUCTION
BACKGROUND TO THE STUDY
STATEMENT OF THE RESEARCH PROBLEM
OBJECTIVES OF THE STUDY
RESEARCH HYPOTHESIS
SCOPE OF THE STUDY
SIGNIFICANCE OF THE STUDY
LIMITATIONS OF THE STUDY
CHAPTER TWO: LITERATURE REVIEW
INTRODUCTION
CORPORATE GOVERNANCE IN NIGERIA
THE ROLE OF CHIEF EXECUTIVE OFFICER
BOARD SIZE
BOARD COMPOSITION
THE IMPACT OF CORPORATE GOVERNANCE ON AUDITOR SELECTION
THEORETICAL FRAMEWORK
EMPIRICAL EVIDENCE ON AUDIT FIRM SELECTION
CHAPTER THREE: RESEARCH METHODOLOGY
3.1    INTRODUCTION
3.2    RESEARCH DESIGN
3.3    POPULATION AND SAMPLING
3.4    SOURCES OF DATA
3.5    MODEL SPECIFICATION
3.6    DATA ANALYSIS
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
INTRODUCTION
DATA DESCRIPTION
BINARY REGRESSION RESULTS
DISCUSSION OF REGRESSION RESULT        
TEST OF HYPOTHESES
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
INTRODUCTION
SUMMARY OF FINDINGS
RECOMMENDATIONS
CONCLUSION
BIBLIOGRAPHY
APPENDIX     
APPENDIX II
APPENDIX III
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
One of the most important decisions a financial manager make is selecting an accounting firm for an annual audit, tax work, or other services (McLean, 1991). It is very important for a company to analyze the cost and benefits of selecting a particular audit firm. Today’s high professional fees have caused many companies to approach the audit with a view to maximize the value of the accounting firm’s services (Jerry, 1987).
Jerry asserted that “the accountant should be someone the client can trust, someone who understands how the business operates, and someone who will listen and who is able to respond with ideas.”
Whittington, et. al. (1984) reported that the process of selecting an auditing firm has become more complex than in the past. Many times, the selection of an outside accounting firm is based on a prior personal relationship with management or a recommendation from the company’s banker or lawyer (Jaffar, 2009). While good rapport is necessary between management and the accountant, it should not be a substitute for proficiency. Realizing the crucial task of selecting audit firm.
Corporate auditors are assigned to review financial statements and evaluate the accuracy of the information provided, which is crucial for investors and other stakeholders of a firm. It seems obvious that auditors evaluating financial statements should be independent from the firms’ management who is providing exactly this information. However, the lack of auditor independence is one of the major issues in the recent history of corporate governance. After the huge accounting scandals (in the U.S. such as the Enron, Tyco, Worldcom, Parmalat, etc.), which culminated in the collapse of Arthur Andersen, there has been a growing call for tougher corporate governance provisions in general and specifically for improved auditor independence. In the United States these developments resulted in the ‘Public Company Accounting Reform and Investor Protection Act of 2002’ better known as the ‘Sarbanes-Oxley Act’ (Schelker, 2010).
Audit is a systematic process of examination and verification of firms’ accounting records by a professional to make an opinion on reliability and validity of information reported by that firm (Fan and Wong 2005). The aim of audit services is to provide reasonable certainty about the accuracy and fairness of financial statements and assure that there is no important misstatement in financial reporting. In other words, auditors’ responsibility is to verify the consistency of financial statements with the GAAP and the accuracy of reflected financial condition and operating results in these statements (Lin and Hwang 2010). It is not only related to collect information about the financial records in a firm but also includes non-financial sections such as security and information system performance. It should be noted that auditors could be successful only if their audit opinions represent the true findings of the audit engagement. Generally accepted standards established by governing body provide all stakeholders with the confidence to rely on auditor’s report about the fairness and accuracy of financial statements.
In the light of this, the researcher intends to investigate influence of corporate governance on auditor selection in Nigeria.
STATEMENT OF THE RESEARCH PROBLEM
Recent financial reporting and auditing scandals and the demise of Arthur Andersen alongside Enron in the United States (the U.S.) have led to a global realization of the importance of a truly independent attestation of corporate financial statements and internal control systems in a sound corporate governance and hence in efficient allocation of capital. Transparency and disclosure (T&D) practices followed by firms are an important component and a leading indicator of corporate governance quality and are directly affected by audit quality. Transparent and full-disclosure of information is especially vital for Nigeria where external capital is necessary to sustain the high growth rate and the biggest agency problem centers on asymmetric information and expropriation by majority shareholders. High quality audits mitigate such agency problems since auditing increases the credibility of the accounting information used to verify compliance with debt covenants and other contracts between the firm and its stakeholders.
Alongside this demand for credibility by the users of financial statements, the increased competition in the audit market itself has led to a desire to understand the factors that influence auditor selection decision. Beattie and Fernley (1995) posit that auditor choice is motivated by three possible sources – audit environment, audit firm characteristics, and finally client characteristics.
Against this backdrop, the following research questions are raised:
Is there relationship between board Size and audit selection?
Is there relationship between board composition and audit selection?
Is there relationship between Audit Committee Independence and audit selection?
OBJECTIVES OF THE STUDY
The broad objective of this study is to empirically investigate the influence of corporate governance and auditor selection in Nigeria.   The specific objectives of this study are:
To ascertain the relationship between board size and auditor selection.
To investigate the relationship between board composition and auditor selection.
To examine the relationship between Audit Committee Independence and auditor selection.
RESEARCH HYPOTHESIS
The following hypotheses have been formulated to serve as a base for this research: in the null (H0) form.
Ho:    There is no significant relationship between board size and auditor selection.
Ho:    There is no significant relationship between board composition and auditor selection.
Ho:    There is no significant relationship between Audit Committee Independence and auditor selection.
SCOPE OF THE STUDY
The research study focuses on corporate governance and auditor selection in Nigeria.
The population of the study is the entire quoted companies in Nigeria Stock Exchange.
The sample size will be restricted to some selected banks quoted in the Nigeria Stock Exchange for the periods 2006 to 2010
Geographically, the study will be conducted in Benin City, Edo State.
SIGNIFICANCE OF THE STUDY
This research work on its conclusion, together with whatever solution or findings that may arise, will prove useful to the regulatory authority, the shareholders and the would be investors. The researchers and the academic block would find it a useful hand book of information.
Management of Bank: This study will be important and beneficial to management of banks. This will enable them ascertain that the management staff have important roles to play in ensuring that there exists a sound internal control system in their banks and that laid down procedures are reviewed regularly.
The Regulatory Authority: It will acquaint the regulatory authority (Central Bank of Nigeria (CBN), Nigeria Accounting Standard Board (NASB) and Nigeria Deposit Insurance Corporation (NDIC)) of the importance of corporate governance and how it should be managed. It also will assist (CBN, NASB and NDIC) in enforcing the need for all banks to have approved policies in all their operation areas and strong inspection division to enforce these policies.
The public: This study will help to restore the lost confidence of the public as regard corporate governance and audit selection.
Academic/future researcher: Both academic and other future researchers in this similar subject matter will find it a useful source of learning and research.   
LIMITATIONS OF THE STUDY
In the course of conducting this research work, the researcher encountered some constraints. These constraints are:
Inadequate Study Materials: Research materials were of limited supply due to the practicality of the study. Where they were available; the cost involved in sourcing for them was very expensive.    
Lack of Access to Current Data: Most managements and staff of the establishment would not want to disclose important or relevant information about their organizations on this subject matter, except were such is permitted by law to be disclosed.  
Finance Cost: The cost involved in sourcing for the available materials and other necessary information was very high within the reach of the student researcher.