1.1   Background to the Study

Financial Statements’ auditors are important gatekeepers in any corporate governance system. They attest to the financial statements prepared by the management of a company and thus lend credibility to the statements (Adeyemi & Olowokere, 2012). Auditors are appointed by the shareholders although the Board of Directors has a say on the choice of the firm. The main objective of mandating the appointment of auditors, according to section 357 of Company and Allied Matters Act (CAMA), 1990 as amended, is to enable the auditors’ report to the shareholders the position of the financial statements and activities of the firm, on whose behalf, and for whose benefit, the directors carry on the business. Each time an auditor used the term “True and Fair view” in his report, he is saying among others that as to his examination, his independence is unquestionable; no limitation has reduced the scope of his audit below the level considered minimal, all records required by him were made available to and utilized by him, and he had exercised every professional care and skill throughout his examination of his client’s records. Shoddy work by an auditor as a result of lack of independence can lead to audit failure. Nigeria is not spared from incidences of audit failure. Perhaps, the greatest audit failure in Nigeria in recent times is that associated with the Cadbury (Nig.) Plc. accounting scandal which came to the fore in 2006 (SEC, 2006). This scandal which has since been euphemistically dubbed Nigeria’s Enron equivalent (in terms of its magnitude) drew the ire of the Nigerian Security and Exchange Commission (SEC) on the auditors of the company.

The auditors were accused, among other things, of failure to exercise due diligence and lack of professional skepticism in carrying out the audit of the company. Audit failures are costly to investors, the auditors themselves and even the wider society as a whole. Enormous sums of money are lost every year by investors to fraud and corporate collapse. There is a raging debate as to whether provision of non-auditing services(henceforth NAS) colour the independence of the auditor and thus contribute to audit failure with its dire consequences. Audit failure occurs when management grossly misrepresents their financial statements and auditors through negligence or incompetence fail to discover and report these misrepresentations to the public (Tackett, Wolf & Claypool, 2006). Attempts to solve the problem of audit failures have taken the front burner and cuts across jurisdictions. The genesis of current global attempts to fix audit failures, arguably, can be traced to Enron debacle in the United States of America. Studies on the issue of corporate governance factors in audit quality in Nigeria are still evolving, and conflicts exist in findings on provision of non-auditing services (NAS) to audit clients.