IFRS AND AUDIT QUALITY: A DISCRETIONARY MODEL APPROACH

Abstract

This study examined the relationship between International Financial Reporting Standards (IFRS) and audit quality in Nigeria. With the growing adoption of IFRS, interest has risen about the efficiency of audits regarding accurate financial reporting. To actualize this, we investigated the impact of IFRS adoption on audit quality and identified challenges and opportunities for improvement. This study focused on companies quoted in the financial services sector of the Nigerian Exchange Group market between 2006 and 2022. A sample of twenty (20) financial institutions comprising of ten (10) banks and ten (10) insurance companies were selected, and data from audited annual reports was subjected to a static panel regression technique. Findings from the estimated regression revealed the existence of a positive connection between IFRS adoption and discretionary accruals based on the Modified Jones Model. Conversely, the regression coefficient revealed a significant negative relationship between the variables of this study when the discretionary expenses were considered. Based on the findings, audit quality has not improved after the adoption of IFRS. Equally, the adoption of IFRS has reduced discretionary expenses significantly. This study recommended among others that regulatory authorities should enforce appropriate application of accounting standard in order to reduce discretionary accruals and avoid manipulation of discretionary expense.

Keywords

• International Financial Reporting Standards
• Audit Quality
• Discretionary Accruals
• Discretionary Expenses
• The discretionary model
• The financial services sector