AUDITOR TENURE AND AUDITOR INDEPENDENCE IN NIGERIA
ABSTRACT
This study is motivated by the desire to examine the auditor tenure and auditor independence in Nigeria. In light of the empirical review and other discussions, a number of questions arose as to whether there is positive relationship between audit fee, audit committee and auditor independence. Using the Ordinary Least Square (OLS) regression technique with the aid of a computer software, the empirical findings revealed among other things that, audit fee and audit committee were found to be positively related and statistically significant to auditor independence. We therefore recommend that, for auditors to remain strictly independent, they should not be allowed to provide audit clients with any other advisory services, so as to improve firm performance.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study                 
Statement of the Research Problem             
Objective of the Study                         
Research Hypotheses                         
Scope of the Study                         
Significance of the Study                         
Limitation                                 
CHAPTER TWO: LITERATURE REVIEW
Introduction                                 
Review of Literature on Variables                 
Review of Previous Studies                     
Theoretical Framework                          
CHAPTER THREE: RESEARCH METHODOLOGY
Introduction                             
Research Design                             
Population of the Study                      
The Sample Size                            
Sampling Technique                        
Sources of Data                                 
Method of Data Analysis                        
Model Specification                         
CHAPTER FOUR
4.0    Data Analysis and Presentation                 
4.1    Descriptive Statistics                        
CHAPTER FIVE:    SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION
Introduction                                 
Summary of Findings                             
Discussion of Findings                         
Recommendations                        
Conclusion                                 
Recommendation for Further Studies            
Bibliography                             
Appendix                             
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
Abu Bakar & Ahmad (2009), asserted that, media comments in the wake of Enron and other corporate scandals including WorldCom and Parmalat to name a few have ended to focus heavily on the issue of auditor independence. These financial scandals and corporate failures, thus, are proven to have had a detrimental effect on the public’s perception of auditors. More worryingly, as been raised by the issues related to independence are threatening the survival of accounting firms of all sizes and indeed it has the power to destroy the accounting profession as a whole. It is therefore, vital that auditors maintain their independence and ensure that they provide a high quality of auditing to ensure the credibility of financial information not only for the purpose of reducing the number of corporate scandals but most importantly the survival of their profession and the development of healthy financial and capital market.
In a similar study, Shafie, Hussin, Yusof & Hussain (2009) opine that, in the past few years, auditors had been blamed due to their role in the mega corporate scandals such as Enron, WorldCom, Global Crossing, ImClone Systems and Tyco International. The criticism had raised lots of questions regarding auditors’ independence. Besides, such criticism was leveled against auditors because they audit their clients for a long time and subsequently concentrated more on non-audit services rather than audit. For example in the case of Enron, Andersen was the auditor since Enron was set up until collapsed. Therefore, there has been a call for sweeping changes in the auditing profession to ensure independence and therefore improve their audit quality.
Shafie, Hussin, Yusof & Hussain (2009) buttress that, the issue of an audit firm compromise their independence if they audit their client for a long time has been a subject of debate in the United States, which can be traced back at least 50 years ago. Later, the issue seems to be pertinent international recurring debate among regulators, auditors and academicians. Such long-term relationships could, in reality or be perceived to, make the audit firms too committed or beholden to the companies, thereby undermining its independence, compromising its objectivity, and reducing its effectiveness.
This study intends to examine auditor tenure and auditor independence in Nigeria.
STATEMENT OF THE RESEARCH PROBLEM
Auditor reporting quality is a basic ingredient to enhance the credibility of financial statements to those interested parties. However, this could not been seen if the auditor is not independence. Without independence, the process of auditing can be argued to the extend that the auditor would give bias opinion to their clients. One of the factors that would adversely influence auditor independence in giving their opinion is a close relationship between auditor and clients, namely long audit tenure. For example, Shafie, Hussin, Yusof & Hussain (2009) found that the longer the auditors audit their clients the larger that lead to such close relationship between the audit firms and clients and consequently decrease audit quality.
Against this backdrop, the following research questions are raised:
Is there significant relationship between auditor fee and auditor independence?
Is there significant relationship between audit firm size and auditor independence?
Is there significant relationship between audit committee and auditor independence?
OBJECTIVE OF THE STUDY
The broad objective of this study is to examine auditor tenure and auditor independence in Nigeria.
The specific objectives are to:
determine the relationship between auditor fee and auditor independence.
to investigate the relationship between audit firm size and auditor independence.
to verify the relationship between audit committee and auditor independence.
RESEARCH HYPOTHESES
The following hypotheses will be tested in the course of this study.
Hypothesis I
Ho:    There is no relationship between auditor fee and auditor independence.
H1:    There is a relationship between auditor fee and auditor independence.
Hypothesis II
Ho:    There is no relationship between audit firm size and auditor independence.
Ho:    There is a relationship between audit firm size and auditor independence.
Hypothesis III
Ho:    There is no relationship between audit committee and auditor independence.
H1:    There is a relationship between audit committee and auditor independence.
SCOPE OF THE STUDY
This research work is an empirical study on auditor tenure and auditor independence in Nigeria.
The population of the study is entire quoted companies in the Nigeria Stock Exchange, while the sample size is selected 100 companies operating in Nigeria.
The length of period covered by the study was one year (2011).
Geographically, the study will be conducted in Benin City, Edo State.
SIGNIFICANCE OF THE STUDY
It is expected that this study would consolidate existing literature on the issues surrounding the relationship between earnings per share and market value. The study would also facilitate the examination of the earnings per share and market value in Nigeria and thus boosting the empirical evidence from Nigeria.
Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies and policy simulation with respect to the selected variables examined in the study.
The result of the study would be of benefits to education analysts, and institutions in examining the effectiveness of earnings per share and market value.
It will also be useful in stimulating public discourse given the dearth of empirical researchers in this area from emerging economies like Nigeria.
Finally, it would also add to the available literature on the areas of study while also providing a platform for other researchers who may want to further this study.
LIMITATION
Smallness of sample size: It is interesting to emphasize that the findings of this empirical research are not to be generalize for all industry, since our limited to a number of companies.
The inability to obtain a completely random sample.
Imprecise measurement of variables.
Inappropriate test statistic.