AUDIT FEE, AUDIT TENURE AND AUDIT INDEPENDENCE
ABSTRACT
This study was conducted to examine the relationship between audit fee, auditors tenure and audit independence. This study made use of secondary date of quoted on the Nigeria Stock Exchange.
Co- integration regression technique was used to test the hypothesis of the study. The study found a positive and significant relationship amongst audit fees, audit committee meeting, auditor tenure with auditor independence.
The study recommends that auditors should charge fees based on laid down agreement and also firm should imbibe the culture of auditor rotation in order to eliminate any familiarity threat that may jeopardize auditor’s independence.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1    Background to the Study        
1.2    Statement of Research Problem        
1.3    Research Objectives                
1.4    Research Hypotheses            
1.5    Scope of the Study                    
1.6    Significance of the Study            
1.7    Limitation of Study            
CHAPTER TWO: LITERATURE REVIEW
2.1    Introduction                
2.2    Theoretical Review        
2.3    Empirical Review                
CHAPTER THREE: METHODOLOGY
3.1    Introduction                 
3.2    Research Design                    
3.3    Data Source                    
3.4    The Population        
3.5    The Sample and Sampling Technique    
3.6    Data Analysis                
3.7    Regression Analysis            
3.8    Multiple Regression Technique            
3.9    Model Specification                
CHAPTER FOUR: DATA PRESENTATION AND ANALYST  
4.1    Introduction                
4.2    Descriptive Statistics                    
4.3    Panel Data Analysis                    
4.4    Analysis of Diagnostic Tests             
4.5    Test of Hypotheses            
 CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1     Introduction                    
5.2     Summary Findings                
5.3     Recommendations            
5.3    Conclusion                  
    Bibliography                  
    Appendices                    
CHAPTER ONE
INTRODUCTION
1.1    Background to The Study
    Do audit fees impair auditor’s independence? This question has attracted attention from regulators, researchers and financial press. In response to the concerns related audit fees, the US Congress passed the Sarbanes – Oxley Act (SOX) in 2002, which prohibits auditors from providing to their clients certain types of non-audit services. To comply with Sox, the Securities and Exchange Commission (SEC) has revised the rule on auditor independence, which now limits the circumstances and remuneration for providing certain types of non-audit service (SEC, 2001). In addition, the revised rules require that client firm shall disclose all fees paid to an audit firm by separate categories including services related to auditing, financial information system design and implementation, and others so that investors are fully informed about the types and magnitude of these fees.
    Another stream of research in the auditing literature focuses on the association between auditor independence and audit tenure. The importance of auditor tenure is also reflected in section 203 of the Sox, which requires a five-year rotation cycle for the external lead or reviewing audit partner. However, empirical evidence to date shows that longer auditor tenure rather than shorter auditor tenure is associated with higher quality earnings.
    Several studies have tried to study the effects of audit tenure and audit fees on auditors independence. The results have been conflicting. In this study we integrate the research on auditor tenure with the research on non-audit fees and auditor tenure is likely to provide an incomplete picture we therefore, include auditor tenure in the analysis of the association between non-audit fees and auditor independence and evaluate whether auditor tenure affects this association.
    Audit fees are defined as all those fees paid to an auditor carrying out an audit assignment. Such services may be management advisory services. (MAS) and compliance related services (tax and accounting services). These services can be provided by the incumbent audit firm or another audit firm. Non-audit services constitute the source of non-audit income. It may be described as any other services rendered to an audit client different from the examination of financial statements and expression of a professional opinion thereof. Ye Carson and Simmett, (2006) opine that the economic dependence of auditors on non-audit services, lengthy audit tenure and personal relationships built through alumni employees have contributed to the erosion of auditor independence. The work of Hayes, et al (2005) suggests that there exists a potential for the impairment of auditor independence in appearance in relation to the fees they charge.
1.2    Statement of Research Problem
    Auditor independence has been the subject of considerable debate for some time, and has been examined from the perspective of both non-audit fees and auditor tenure. The existing studies on the association between audit fees and auditor independence have evaluated whether higher non-audit fees create an economic bond between the auditor and the client, which enable the client firm to exert influence over the auditor decision and make auditor less independence
    The impact of auditor tenure and audit committee independence on auditor independence has attracted attention from regulatory agencies. Auditor rotation has been supported on the ground that longer auditor tenure leads to economic bonding between the auditor and client firms. Hence, auditors are likely to compromise their independence as auditor tenure increases.
    In the light of all these, the following research question will be ask.
What is the relationship between audit fees and auditor independence?
Does audit committee independence have a significant effect on auditor independence?
What is the significant effect of auditor tenure on auditor independence?
1.3    Research Objectives
    The main aim of this study is to examine the effects of auditor tenure and non-audit fees on auditor independence. The objective includes:
To examine the relationship between audit fees and auditor independence.
To ascertain the effect of audit committee on auditor independence.
To find out the significant effect of auditor tenure on auditor independence.
1.4    Research Hypotheses
    The following hypotheses are tested in this study,
There is a relationship between audit fees and auditor independence.
Audit committee independence has a significant effect on auditor independence.
Auditor tenure has a significant effect on auditor independence.
1.5    Scope of The Study
    This study examines the effect of auditor tenure and audit fees on auditor independence.
    The time frame for this study is 2007-2012. Geographically, this study will be limited to Nigeria. This study will focus on manufacturing companies quoted on the Nigerian Stock Exchange.
1.6    Significance of The Study
    This study will its conclusion and recommendation will prove very useful. It will prove useful in the sense that it will contribute positively to the dearth of literature as regards this area of study. It will expose to us factors that can impair auditor independence. It will also be very useful to firms especially the boards in taking certain decisions as regards auditor remuneration and job specification.
1.7    Limitation of Study
    These are the methodological imperfection associated with the study. The limitations are;
Smallness of sample size
Data may be hardly reliable and up to date.