CHAPTER ONE
INTRODUCTION
1.1Â Â Â Â Background of the study
There is a large body of literature that examines the relationship between auditor size (e.g., the number of clients, and total audit fees) and audit quality. The prior theoretical literature generally argues that larger auditors (in terms of client portfolio size and personal wealth) exhibit higher audit quality.
The Audit quality can be defined in two dimensions: first, detecting misstatements and errors in financial statement and second, reporting these material misstatements and errors (Matoke & Omwenga, 2016). Due to the fact that these characteristics are largely unobservable, different proxies have been used by researchers like; Bogale (2016); Hassan (2015); Yi-Fang, Lee-Wen, and Min-Ning (2015) to measure audit quality like: audit size, audit hours, audit fees, reputation, litigation rate and discretionary accruals (Krishnan & Schauer, 2000).
Audit quality is subject to many direct and indirect influences. In tandem with the stakeholder theory (Khan, 2006), perceptions of audit quality vary amongst stakeholders depending on their level of direct involvement in audits and on the perspective through which they assess audit quality. In recent times, a series of well-publicized cases of accounting improprieties in Nigeria has captured the attention of investors and regulators alike. The search for mechanisms to ensure reliable, high quality financial reporting has largely focused on the structure of audit quality (Adeyemi & Fagbemi, 2010).
The spate of audit failures in the world has brought a great deal of disappointment to investors and other corporate financial reporting stakeholders. Longevity of audit firm tenure has also been linked with fraudulent financial reporting (Adeyemi, Okpala & Dabor, 2012). If empirical studies are not carried out with respect to specific environmental factors the problem of poor audit quality may be exacerbated with likely grave consequences for the selected banks.
