Impact of Auditor Industry Specialization on the Audit Quality of Listed Non-financial Firms in Nigeria

Abstract

Audit quality improvement depends on several factors documented in the literature. Auditors are able to attract patronage if clients perceive their services to produce quality outcomes. Auditors therefore garner experience and acumen in the activities of specific clients’ industries in order to attract the largest market share and improve their portfolio of clients in certain industries as a result, they attain the status of ‘specialization’ in the audit of such industries.. In spite of this ‘specialization’, indices of dwindling audit quality continues to surface in the corporate entities occasioned by untimely takeovers and abrupt mergers. Therefore, this study examines the nexus between audit industry specialization and audit quality in the listed non-financial firms in Nigeria Data were drawn from financial reports of 40 listed firms in Nigeria covering periods between 2005 and 2019 and the total observation stood at 517. Data analysis was carried out with the use of longitudinal econometric models. Evidence from the study support the rejection of the null hypothesis (t=-1.72, p<0.10 & t=-1.74, p<0.10) for the two models thereby supporting the proposition that audit quality improved significantly improved as a result of audit industry specialization. It specifically isolates the oil and gas as well as service industries for significant improvement in audit quality as a result of industry specialization of auditors while pointing to the possibility of improving the agricultural and consumer service industries due to their negative but insignificant coefficients. The study recommends that regulatory authorities should disaggregate regulatory functions among industries to be able to better understand the interplay of audit industry specialization and thus make policies that inform better audit quality.