AUDITORS INDEPENDENCE AND FIRM PERFORMANCE
ABSTRACT
This study is motivated by a desire to examine the auditor independence and firm performance. In light of the empirical review and other discussions, a number of questions arose as to whether there is a significant relationship between auditor independence and firm performance. Using the Ordinary Least Square (OLS) regression technique with the aid of a computer software E-view 7.0, the empirical findings revealed among other things that, there is no positive relationship between auditor independence and firm performance. We recommend among other things 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 Problem                    
Objectives of the Study                
Research Hypotheses                        
Scope of Study                             
Significance of the Study                     
References                             
CHAPTER TWO: LITERATURE REVIEW
Introduction                             
The Meaning and Types of Auditors Independence         
Auditor Independence                        
Auditor Independence: A Review of Empirical Studies     
Determinants of Auditor Independence            
Measures of Firm Performance                
References                            
CHAPTER THREE: RESEARCH METHODOLOGY
Introduction                             
Research Design                         
Population of the Study                     
The Sample Size                        
Sampling Techniques                         
Sources of Data                             
Method of Data Analysis                    
Model Specification                         
References                             
CHAPTER FOUR:    DATA PRESENTATION, ANALYSIS AND INTERPRETATION
Introduction                             
Data Analysis and Interpretation              
Test of Hypotheses                        
CHAPTER FIVE:    SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Introduction                             
Summary of the Finding                 
Recommendations                        
Conclusion                             
Bibliography                             
Appendix                                 
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
Abbott, Parker, Peter, and Raghunandan (2003), suggested that demand for auditing stems from a desire to reduce managements shirking, resulting from information asymmetries, which arises from the separation of ownership and control.
Ojo (2009) expressed that the involvement of external auditors could contribute to corporate governance and address the expressed agency problem, because the auditor can facilitate a situation where by managers are encouraged or compelled to be held accountable. Beattie and Fearnley (2002) pointed out that financial audit remains an integral part of corporate governance.
Despite the prominence ascribed to external audit function, the sovereignty of the external auditor is an issue currently attracting scholarly scrutiny. Mautz and Sharaf (1961) in Arnold, Bernardi and Neidermeyer (1999) noted that, auditors must be constantly aware of factors that affect the audit environment which can influence or harm their independence in other to ensure confidence of investors. Supporting this statement, Xu and Wang (2008) reiterated that independence has long been recognized as the most important defining characteristic of the public accounting profession.
However, the spate of corporate failure in developed and developing economies all over the world, have stirred the quest to ascertain if the failures are associated with the independence required of statutory auditors. Byrne (2001), as well as Ayvaz and Pehlivanli (2010) expressed that objectivity or “independence of mind” is essential for the exercise of professional judgment, which has continued to be an important topic.
In the same vein, Callaghan, Parkash, and Singhal (2009) identified auditor independence as a necessary condition for effective auditing. In the light of these statements, this research sought to empirically examine auditor independence and firm performance in Nigeria.
STATEMENT OF THE PROBLEM
Adelaja (2009) expressed that credible financial information is vital to the growth of any economy; also auditors are expected to be independent and objective in the discharge of their responsibilities. Gallegos (2004) was of the view that the report of external auditors in corporate financial statements is seen as providing key assurance to the interest of shareholders.
O’Connor (2006) stated that one of the most vexing problems in the financial world today, is the emphasis placed on ensuring the independence of external auditors as a result of recent economic scandals. Beattie & Fearnley (2002) expressed that after the collapse of Enron, it was generally believed that rendering of non-audit services compromised the independence of external auditors. An extract from the website of Institute of Chartered Accountants England and Wales, reiterated that the independence of statutory auditors is a rather complex issue.
In the real world, when business entities go out of business, the consequences are usually enormous. The oversight function of the auditor is placed under scrutiny when a business whose financial statement once showed no indication of going out of business suddenly becomes bankrupt. As a follow up to the oversight function, the independence of the auditor also appears to be in doubt.
On this premise, this research focuses on external auditor’s independence of and firm performance in Nigeria; hence the following research questions are raised:
Is there significant relationship between auditor independence and firm performance?
Is there significant relationship between firm size and firm performance?
Is there significant relationship between audit tenure and auditor independence?
OBJECTIVES OF THE STUDY
The primary objective of this research is to elucidate on auditor independence and firm performance in Nigeria.
The specific objectives are:
To find out if there is significant relationship between auditor independence and firm performance.
To examine if there is relationship between firm size and firm performance.
To determine the significant relationship audit tenure and auditor independence.
RESEARCH HYPOTHESES
The following research hypotheses flow from the research questions that were raised;
Hypothesis I
Ho:    There is no significant relationship between auditor independence and firm performance.
H1:    There is a significant relationship between auditor independence and firm performance.
Hypothesis II
Ho:    There is no significant relationship firm size and firm performance.
H1:    There is a significant relationship firm size and firm performance.
Hypothesis III
Ho:    There is no significant relationship audit tenure and firm performance.
H1:    There is a significant relationship audit tenure and firm performance.
SCOPE OF STUDY
This research work is an empirical study on auditor independence and firm performance. The population of the study is entire quoted companies in the Nigeria Stock Exchange, while the sample size is five selected banks operating in Nigeria.
The length of period covered by the study was six years (2006 – 2010).
Geographically, the study will be conducted in Benin City, Edo State.
 SIGNIFICANCE OF THE STUDY
This study will be important and beneficial to stakeholders of corporate firms (banking sector) on the important of auditor independence and firm performance.
1.    The study will assist the government and regulatory agencies on the proper conduct of auditor independence and firm performance.
2.    The study will help to restore the lost confidence of the public as regard the auditor independence and firm performance.
3.    The study will assist both academic and other future researchers in this similar subject matter will find it a useful source of learning and research.  
 REFERENCES
Abbott, J. L., Parker, S., Peter, F. G., & Raghunandan (2003). An Empirical Investigation of Audit fees, Non-audit fees, and Audit Committees. Contemporary Accounting Research, 20(2) (summer):215- 234.
Adelaja, C.O. (2009). An Evaluation of the Perception of Auditor Independence in Nigeria. Nigerian Journal of Management Studies, 10(1):45-60.
Arnold, F. D., Bernardi, A. R., & Neidermeyer, E. P., (1999). The Effect of Independence on Decisions Concerning Additional Audit Work: A European Perspective; Auditing. A Journal of Practice and Theory, 18 (Supplementary): 79-83.
Ayvaz, E., & Pehlivanli, D. (2010), Enterprise risk management based internal auditing and Turkey practice. Serbian Journal of Management, 5 (1):1 - 20.
Beattie, V., Fearnley, S., (2002). Auditor Independence and Non-Audit