Accounting Project Topics

Examining the Effect of Audit Quality and Audit Fees on the Financial Performance of Ghanaian Banks

Examining the Effect of Audit Quality and Audit Fees on the Financial Performance of Ghanaian Banks

Examining the Effect of Audit Quality and Audit Fees on the Financial Performance of Ghanaian Banks


Objectives of the Study

This research seeks to achieve the following specific objectives:

  1. To assess the relationship between audit quality and the financial performance of Ghanaian banks.
  2. To examine the impact of audit fees on the financial performance of Ghanaian banks.
  3. To determine whether audit quality mediates the relationship between audit fees and the financial performance of Ghanaian banks.



Conceptual Framework

Audit Quality

In the context of the Ghanaian banking sector, the concept of audit quality is of paramount significance (Ado et al., 2020). Audit quality refers to the degree to which an audit provides accurate and reliable information regarding the financial statements of an entity. Within the banking sector, the dimensions of audit quality encompass several critical elements (Iliemena & Okolocha, 2019).

Audit quality can be broken down into dimensions such as the competence of the audit firm and its personnel (Ezejiofor & Erhirhie, 2018). The expertise, experience, and proficiency of the auditors themselves are vital factors influencing the quality of an audit. Additionally, the objectivity, independence, and ethical standards adhered to by the audit firm are crucial dimensions that underpin audit quality (Phan et al., 2020).

Factors influencing audit quality within the Ghanaian banking sector are diverse and multifaceted (Soyemi, 2022). These factors include the regulatory environment, the quality of financial reporting, and the client-auditor relationship. Regulatory bodies play a pivotal role in setting the standards and guidelines that shape audit quality. Moreover, the quality of financial reporting by banking institutions directly affects the effectiveness of audits (Esplin et al., 2018).

The importance of audit quality in the banking sector cannot be overstated (Kyere & Ausloos, 2021). It serves as a fundamental mechanism to ensure transparency and reliability in financial reporting. High-quality audits offer assurance to stakeholders, such as investors, regulatory authorities, and the public, that the financial statements of banks are accurate and free from material misstatements (Khan et al., 2021).

In a sector as crucial as banking, where trust and financial stability are paramount, audit quality plays a pivotal role in instilling confidence and ensuring the integrity of the financial system. As banks are central to economic development and financial inclusion (Monametsi & Agasha, 2020), the quality of audits becomes a linchpin in upholding the country’s economic prosperity and maintaining public trust.

Audit Fee

In the context of the Ghanaian banking sector, audit fees represent the financial compensation paid by banks to audit firms for their services (Soyemi, 2022). These fees are a critical component of the audit process, as they underpin the financial arrangements between the auditors and their clients. Understanding the concept of audit fees is essential for exploring their relationship with audit quality and, ultimately, financial performance.

Audit fees are composed of several distinct components (Ezejiofor & Erhirhie, 2018). The primary component is the base fee, which is the standard payment for conducting the audit. However, audit fees may also encompass additional fees for services beyond the basic audit, such as special investigations, tax services, or advisory services (Monametsi & Agasha, 2020). This multi-component structure of audit fees highlights the complexity of the fee arrangement.

Determining the audit fees that banks pay to audit firms is a multifaceted process influenced by several factors (Baldavoo & Nomlala, 2019). These determinants include the size and complexity of the bank, the risk associated with the audit engagement, and the scope of the audit. Additionally, the reputation and expertise of the audit firm itself, as well as market competition, can have a significant impact on the negotiation of audit fees (Ogbodo & Akabuogu, 2018).

The relationship between audit fees and audit quality is an intricate one (Soyemi, 2022). While audit fees represent the financial incentive for audit firms to perform their duties, they can also exert pressure on auditors to balance profitability with the rigour of the audit process. Lower fees may lead to resource constraints and potentially compromise the quality of the audit (Knechel, 2016). Conversely, higher fees may raise questions about auditor independence and objectivity.

Understanding the dynamics between audit fees, audit quality, and their potential impact on the financial performance of Ghanaian banks is central to this research. By delving into the definitions and components of audit fees, exploring their determinants, and assessing their relationship with audit quality, this study aims to shed light on the intricacies of these crucial elements within the Ghanaian banking sector.



Research Methodology


This chapter outlines the research methodology employed in the study, which aims to examine the effect of audit quality and audit fees on the financial performance of Ghanaian banks. The methodology is designed to ensure the rigorous collection and analysis of data, aligning with the study’s objectives and adhering to ethical considerations.

Research Design

The research design for this study will be a cross-sectional approach, coupled with a quantitative survey research design. The cross-sectional approach allows data collection from a diverse group of respondents at a specific moment in time, which is particularly suited for assessing the simultaneous impact of audit quality and audit fees on the financial performance of Ghanaian banks (Saunders et al., 2019). This design provides a snapshot of the intricate relationships and variables, fulfilling the study’s objectives and offering valuable insights into the dynamic financial environment of Ghanaian banks (Bell et al., 2019).



The empirical analysis of the effect of audit quality and audit fees on the financial performance of Ghanaian banks within a period of six years [2016-2022] was presented in this section. Data obtained from secondary sources were analyzed in relation to the objective of the study. This part of the study is divided into two; the first part gives the descriptive analysis while the second part gives the inferential statistical analysis of the data followed by discussion of findings.




The study empirically examined the effect of audit quality and audit fees on the financial performance of Ghanaian banks as well as other related factors including audit tenure, client size and Leverage ratio. Using data from the four (4) quoted deposited banks in Ghana between 2016 and 2022, the results revealed that such a relationship does exist. Audit quality was found to be significantly related to audit fee with a positive relationship. The positive relationship implies that the quality of audit is dependent on the audit fee; the higher the audit fee, the more qualitative and reliable the audit work will be. To this end, this study concludes that audit quality and audit fee is positively and significantly related. This corroborates findings from Husam, et al (2013), Novie (2013) and Babatolu et al (2016). Moreover, while audit tenure was found to exhibit positive but insignificant relationship with audit quality, client size and leverage ratio were found to show negative insignificant relationship with audit quality. These findings are consistent with the works of Yuniarti (2011) and Listya et al (2014). In other to improve audit quality of financial institution in Ghana,


The study recommends that the Government through the various professional bodies should develop robust policies that will help improve audit quality in Ghana. Moreover, a well-defined standard sanctioned by law should be put in place to regulate audit fee and auditors’ tenure in Ghana. Auditors should as well ensure that the quality of audited financial statement is improved upon in other to boost the confidence of users of financial statement and the general public. Moreover, banks should ensure that the debt- to-equity ratio of the business is kept as low as possible so as not to impair on the quality of audit carried out.

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