Effect of Corporate Governance Audit on the Quality of Financial Reporting of Deposit Money Banks in Nigeria

This study examines the impact of audit-related corporate governance on financial reporting quality (FRQ) in Nigerian deposit money banks (DMBs). It analyzes data from 10 DMBs over a decade (2013-2023), focusing on key governance variables: Audit Committee Independence (ACI), Audit Committee Expertise (ACE), Audit Rotation (AOR), and Key Audit Matters (KAM), with Firm Size (FZ) as a control variable. The study employs a Prais–Winsten regression. The findings reveal a positive and statistically significant effect of audit committee expertise on financial reporting quality, with a coefficient of 2.564 (p-value < 0.01). This suggests that higher levels of expertise within audit committees are associated with better financial reporting quality in Nigerian Deposit money banks. However, the analysis did not find a significant effect of audit committee independence, with a coefficient of 0.339 (p-value = 0.433). Interestingly, the study uncovers a significant negative effect of audit rotation on financial reporting quality, with a coefficient of -0.341 (p-value < 0.01). This implies that more frequent audit rotation is associated with lower financial reporting quality in the Nigerian banking sector. Furthermore, the analysis did not reveal a significant effect of key audit matter disclosures on financial reporting quality, with a coefficient of -0.22 (p-value = 0.325). The control variable, firm size, exhibited mixed effects on financial reporting quality. Firm size had a positive and significant impact, with a coefficient of 0.369 (p-value < 0.05). The findings contradict some existing theories and literature, particularly regarding ACI's lack of significant impact and AOR's negative effect. This raises concerns about the effectiveness of audit committee independence and frequent auditor rotations in Nigerian banking. Based on these results, the study recommends that the Central Bank of Nigeria (CBN) and Nigerian Stock Exchange (NSE) strengthen regulatory frameworks for DMBs. Suggestions include enhancing audit committee independence, ensuring member expertise, defining independence criteria, conducting regular assessments, and imposing penalties for non compliance. The study also advises a balanced approach to audit rotation policies and promoting effective communication of key audit matters.