Accounting Project Topics

Effect of Auditor’s Independence on the Reliability of Financial Reporting in Osun State

Effect of Auditor’s Independence on the Reliability of Financial Reporting in Osun State

Effect of Auditor’s Independence on the Reliability of Financial Reporting in Osun State


Objectives of the Study

The main objective of the study is to determine the effect of auditors’ independence on reliability of financial reporting in Osun State.

There are specific objectives of the study which were to:

  1. Examine the effect of audit independence on the understandability of financial statement of banks in Osun State.
  2. Examine the effects of audit independence on relevance of financial statement of banks in Osun State.
  3. Examine the effects of audit independence on the faithful representation of financial statement of banks in Osun State.



Conceptual review

Here, the focus is to study the concepts on which this topic is based. Such would be done by defining, listing and explaining roles, features, characteristics and functions of the concepts to be reviewed. As such the following concepts are reviewed:


To audit is to fine-tune, to examine, to make clearer. The Merriam Webster Dictionary defines auditing variedly as a “complete and careful examination of the financial records of a business or a person; a careful check or review of something; a formal examination of an organization’s or individuals accounts or financial situation; a methodical examination and review” (Merriam Webster Dictionary). The choice of words such as “examination, methodical, careful” in the above definitions connotes that auditing is process, it is usually carried out on a financial records, it is usually carried out to determine a financial situation, capacity or proceeds.

The international audit and assurance Standard Board (IAASB) understands this factors and process when it defines auditing as “independent process of examining financial statements, and expressing opinion on the same financial statements relating to a company/firm; usually carried out by an independently appointed auditor in accordance with certain terms of appointment and in compliance with relevant statutory and performance requirement”.

Zayol, Kukeng and Iortule (2017) quote Mautz (1964) who viewed auditing as “concerned with the process of verifying accounting data, determining the level of accuracy and level of reliability of accounting statements and reports.”

Particularly, auditing of financial any statements is about conducting an objective and accurate evaluation of financial statements of a firm by an independently appointed auditor (s). For example, Limited Liability Companies (LLC) are required by law to audit their annual accounts much as to ensure that the financial statements to be published presents a holistic, true and unbiased, balance and accurate financial situation of the firm to the shareholders, prospective investors and general public (European Commission, 2010).

If shareholders and investors must rely on the auditor’s opinion about the finances of the company, it is crucial that the auditor maintains a level of independence of the company, executive directors, management and all other influencers. Bahram (200) posits that carrying out an audit that fulfils reasonable expectations of stakeholders demands that such work is performed with due regard for audit integrity and reliability. The auditor must not in any way compromise job quality for some self-financial gratifications.

Audit Quality and Reliability

Researchers such as Myers, Myers and Omer (2003) made efforts to explain factors and variables for the state of audit quality with focus on the relationship between company specific and audit firm specific factors that could mediate audit quality. Today, efforts have not seized from all concerned areas on what makes audit quality and what does not make an audit to be quality. Auditing in the language of a layman is a complete and careful examination of the financial records of a business. Merriam Webster Dictionary defines

“quality” as a high level of value or excellence. In essence, audit quality can be ordinarily described as the excellent and valued way of examining financial records of a business.  Basically, audit quality explains the procedures in ensuring that a financial report is relevant and reliable to members of a firm and the public.

There are variations in definitions as to what audit quality means. Judging from the long time established knowledge, De Angelo (1981) sees audit quality as the probability that an auditor will discover a breach in the client’s accounting system and as well report the breach. Similar to the view of De Angelo, Davidson and Neu (1993) describe audit quality as detection and elimination of material misstatements and manipulations in recorded net income. Palmrose (1988) cited in Zayol, et al, (2017) reason that audit quality is the assurance that financial reports contain no material misstatements.

Nwanyanwu (2017) defines audit quality as established procedures which ensure that financial report is relevant, reliable and communicative to organization members and the general public. There are various documents as there are scholars presenting various benchmarks regarding what audit quality should mean/be. Saleh and Azary (2008) assess audit quality as determining how effectively auditing was able to detect and material misstatements,  and effectively reduce information asymmetry between the management and shareholders, with the goal of protecting the interest of the shareholders.

One thing is common to all the definitions, they all point to:

  1. Detection of financial inconsistencies
  2. Reporting of the inconsistencies
  • Reducing information imbalance between management and shareholders
  1. Protecting the interest of the shareholders

Al -Khaddash, et al. (2013) note that all the definitions despite their divergence, emphasize that audit should be compliant with relevant audit procedures and standards. This is because stakeholders are in expectation of accurate, reliable and informative report that is instrumental for decision making.




Research Design

Research design is a road map through which a study is planned to be achieved. A well articulated design is desirable to achieve the objectives of the study. The expos facto research design is used for the study. This kind of design is a systematic research design in which the researcher cannot control the independent variables because their manifestation have already occurred or because they cannot be manipulated, This means that the researcher reports the way the data are without manipulation. The choice of the research method is hinged on the nature of this study, which is social science.

Population of the Study

A study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description (Prince, 2020). In this study the study population constitute of First Bank, Polaris Bank, Guaranty Trust bank, Zenith Bank Plc, and Diamond bank ( accessed on 10/10/2020).



Demographic Information and Table




Summary of the Findings

From the results of the analysis of data in presented chapter four, the following findings were obtained.

  1. Auditor’s independence has significance effect on understandability of financial statement in the banking sectors in Nigeria.
  2. The study also reveals that auditor’s independence has positive and significant effects on the relevance of financial statement of banks in Osun State.
  3. The correlation analysis reveals that auditor’s independence is positively related with faithful representation of financial statement.


From the discussion presented in the preceding section of this study, the following conclusions were made:

  1. It is clear that auditors’ independence is fundamental to the reliability of the financial statement. The opinion of the auditor is what the users of financial statement use in making their decisions.
  2. For appropriate decision to be made the auditor’s report has to be one that is void of bias or manipulation. In order to be able to do this efficiently and effectively, the auditor should be discouraged from providing non audit services.
  3. Auditors fee are influenced by various economic determinants including the size and complexity of the audit work. For example, Kinney and Libby (2002) argue that unexpected fees are a better measure of the auditor’s economic bond because they reflect the excess profit derived from an audit client
  4. According to the standard (IAS 24), an auditor does not have primary responsibility for the prevention of fraud, but provides an approach that an auditor should follow when conducting an audit. It state that when planning and performing an audit procedures, reporting and evaluating the procedure thereon, the auditor must consider the risk of material misstatement in the financial statement resulting from error and fraud.

Implication of Findings

The main aim of the study is to determine the effect of auditors’ independence on reliability of financial reporting in Osun State. The result of the study has managerial implication. The provide enough evidence that auditors independents indices such as audit tenure, independence of audit committee and audit fee has positive and significant effects on reliability of financial statement and suggest that the management of the banks should ensure regular rotation of auditors as this will help to improve auditors independence. Furthermore, for appropriate decision to be made the auditor’s report has to be one that is void of bias or manipulation. In order to be able to do this efficiently and effectively, the management should discouraged auditors from providing non audit services to their organization

Contribution to knowledge

The study contributes to knowledge by providing a framework for the discussion on the concept of auditor’s independence and reliability of financial statement in the banking sectors of Nigeria. Auditor’s independence is seen as been free from undue censorship, control, and manipulation of executive directors. This study makes efforts to established auditors independence in terms of audit tenure, audit fees and independence of audit committee where the effect of these sub-variables was investigated.

The study also contributes to knowledge by discussing reliability of financial statement. The literature reviewed reveals that reliability of financial report is rooted from the quality of audit process. This study makes efforts to explain and discussed the reliability of financial reports in terms of    its faithful representation, relevance and understandability.


This study has investigated many issues, both empirically and in literature and based on the findings, certain conclusion have been drawn. This section further extends frontiers of the study by putting up some recommendations generally intended towards improving the independence of an auditor that will enhance the reliability of the financial statement. The following specific recommendations are deemed appropriate at this juncture.

  1. For auditors to remain strictly independent, they should not be allowed to provide audit clients with any other advisory services.
  2. There should be rotation of auditors to improve the auditors’ independence.
  3. There should be an implementation of peer assessment in order to ensure that audits are carried out with utmost professionalism and mutual respect.
  4. An audit committee should be set up by every limited liability company to evaluate the audit work done.
  5. The aspect of auditors providing consulting services to the client company should be properly examined.

It is anticipated that when all these are done it help the auditor to be independent and also be able to present a true and fair view of the financial statements. 

Suggestion for Further Studies   

The study determines the effect of auditors’ independence on reliability of financial reporting in in Osun State. The significant sample of the study was drawn from commercial banks in Nigeria located in Osun Stated Nigeria. This therefore, limits its applicability to other industries in Nigeria. The researcher therefore suggests that further research in this field should be conducted in other industries such as consumer goods companies. Such study will help to improve the reliability of the findings as well as applicability to other institution.


  • Adeniyi, A. A. (2004). Auditing and Investigations, (3.Ed). Osun: EL-TODA Ventures Limited.
  • Babtolu, A. T., Osasrere, A. O., & Emmanuel, U. (2016). Auditor’s Independence and Audit Quality: A Study of Selected Deposit Money Banks in Nigeria. International Journal of Finance and Accounting, 5(1), 13-21.
  • DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2), 275-326.
  • Eko, S. (2015). Determinant Factors Affecting The Audit Quality : An Indonesian Perspective. Global Review of Accounting and Finance, 3(2), 42 – 57.
  • Enofe, A. O., Okunega, C. N., & Ediae, O. O. (2013). Audit Quality and Auditors Independence in Nigeria: An Empirical Evaluation. Research Journal of Finance and Accounting, 4(11), 22-28.
  • Gow, I., Larcler, D., & Reiss, P. (2015). Causal Inference in Accounting Research. London: Stanford University.
  • Ilaboya, O. J., & Ohiokha, F. I. (2014). Audit firm characteristics and audit quality in Nigeria. International Journal of Business and Economics Research, 3(5), 187-195.
  • Loveday, N. A. (2017). Audit Quality Practices and Financial Reporting in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(2), 145-155.
  • Novie, S. S. (2013). An empirical analysis of auditor independence and audit fees on audit quality. International Journal of Management and Business Studies, 3(3), 67-78.
  • Nwanyanwu, L. (2013). Financial Reporting and organisational liquidity in Nigeria: the accounting bases perspective. Research Journal of finance and Accounting, 4 (16), 79 – 81.
WeCreativez WhatsApp Support
Our customer support team is here to answer your questions. Ask us anything!