AUDIT TENURE IN NIGERIA
ABSTRACT
The purpose of this study was to examine the determinants of audit tenure in Nigeria. The objective of the study was to examine the relationship between audit fees, audit firm size, client firm size and firm growth and audit tenure in Nigeria. The study employed secondary data collected from some selected quoted firms in the Nigerian Stock Exchange for the periods 2007 to 2014 for the empirical analyses. Binary regression technique was adopted for the empirical analysis.
The empirical findings from the Binary regression showed that audit fees had a negative coefficient sign and insignificant impact on audit tenure even at 10% level of significance. Audit firm size had a positive coefficient sign and a significant impact on audit tenure at 5% level of significance. Client firm size had a positive coefficient sign and a significant impact on audit tenure at 5% level of significance. Firm growth measured by operating cash flow had a negative coefficient sign and a significant impact on audit tenure at 5% level of significance.
The study recommended that management of companies should note that the amount of     money paid to the auditor is not a factor that determines audit tenure. The study also recommended that audit firm size, client firm size and firm growth were main determinants of audit tenure in Nigeria.
CHAPTER ONE
INTRODUCTION
Background to the Study
    Auditing is a performing procedure to obtain evidence about amounts and disclosures in the financial statements in order to evaluate the appropriateness of accounting estimates made by management (KPMG, 2008). Audit report quality is a basic ingredient in enhancing the credibility of financial statements to users of accounting information. Fairchild (2008) that audits add credibility to the financial information by providing an independent verification of management-provided financial reports. Audit-firm tenure is the length of the audit-firm-client relationship as of the fiscal year-end covered by the audited financial statements (Adeyemi, Okpala & Dabor, 2012).  Audit tenure is long when the same auditor has audited the financial statements of a company for nine or more years and medium tenure is when the same auditor has audited the financial statements for four to eight years. According to Shockley (1982) auditor’s tenure is not to exceed five years as it reduces the independence of the auditor. Client-specific knowledge of items such as operations, accounting system, and internal control structure is crucial for auditors to detect material errors and misstatements.
    Myers, Myers and Omer (2003) posit that auditor’s tenure lengthens’ the discretionary accruals and current accruals are less dispersed, suggesting higher earnings quality. Jenkins and Velury (2008) added that conservatism in reported earnings increases between short and medium tenure but does not change between medium and long tenure. Knechel and Vanstraelen (2007) concluded from their study that longer auditor tenure revealed a mixed result of the likelihood of auditor’s issuance of going concern report for a company that would lead to bankrupt. However, Geiger and Raghunandan, (2002) study on going-concern report in the US revealed that audit reporting failures are significantly higher in the first few years of auditor-client relationship.
Statement of Research Problem
    Longevity of audit firm tenure has been linked with fraudulent financial reporting.  The length of the audit tenure has become a cause for concern in relation to impairment of the auditor’s independence. As a lengthy audit tenure could result in a close relationship between the auditor and the client, causing the auditor to act in favour of management thus reducing objectivity and audit quality. Auditors, who are indirect stakeholders, are blamed by the public for the failure of most organizations on the ground that financial statements of a company with a going concern issues had unqualified report (Geiger, & Raghunandan, 2002). The issue of auditor’s involvement has raised the following questions: First, do auditors play a key role in the preparation of the reports? An attempt to resolve the above question generated two alternative situations when the functions of auditors and the requirements of good corporate governance by client management are matched against one another. The former is restricted to economic actions and events, while the latter is the product of a wide range of managerial functions. The second question is whether the auditors should cross their operational limits in order to bring about the desired level of improvement in the quality of governance or should they restrict themselves to their term of reference in accordance with the law (Brennan, 2006).
    In Nigerian, the challenge of auditor tenure is still budding and it has not attracted much analytical attention and empirical studies beyond mere anecdotal opinions. Consequently, there has been a dearth of research in this area and inadequate empirical evidence from Nigeria. Hence the study attempts to analyze the determinants of audit tenure in Nigeria. Therefore, seeks to find answer to the following research questions:
(i)        what is the relationship between audit fee and audit tenure in Nigeria?
(ii)       what is the relationship between audit firm size and audit tenure in Nigeria?
(iii)      what is the relationship between client firm size and audit tenure in Nigeria?
(iv)      what is the relationship between firm growth and audit tenure in Nigeria?
Objectives of the Study
The broad objectives of the study is to examine the determinants of audit tenure in Nigeria, therefore the specific objective is:
(i)        to examine the relationship between audit fee and audit tenure in Nigeria.
(ii)       to ascertain the relationship between audit firm size and audit tenure in Nigeria.
(iii)      to verify the relationship between client firm size and audit tenure in Nigeria.
(iv)      to examine the relationship between firm growth and audit tenure in Nigeria.
Scope of the Study
    This study will focus on some selected quoted firms in Nigeria within the period of 2008 to 2014. The choice of this period is due to the availability of annual financial accounts for some quoted companies for the year 2015. This study will use ten (10) quoted companies that are relevant and consistently maintain annual financial reports for the periods that will form the sample size of our study. The choice of this period is due to the series. These 10 firms will be selected through the use of simple random techniques.
Statement of Hypotheses    
    The following null hypotheses will be formulated and be tested:
HI 1: There is a no significant relationship between audit fee and audit tenure in Nigeria.
HI 2: There is a no significant relationship between audit firm size and audit tenure in Nigeria.
HI 3:  There is a no significant relationship between client firm size and audit tenure in Nigeria
HI 4:  There is a no significant relationship between firm growth and audit tenure in Nigeria
Significance of the Study
    This study is expected to provide useful insight into improving audit quality. This study contributes to the audit literature as it provides additional empirical evidence on the impact of auditors’ independence on the level of audit quality.
    This study will be useful to stakeholders in the Nigerian Stock Exchange (NSE) as it provides evidence on the relationship between audit quality and the reforms instituted by the Sarbanes Oxley Act of 2002 demanding mandatory audit rotation every five years. More also, this study will help to draw more awareness to an issue that has received relatively little attention in auditing.
    It is with optimism that the important recommendations that would accompany this project would be of valuable assistance as well as a source of information for the management of firms, researchers, policy makers and the government.
References
Adeyemi, S.B, Okpala, O & Dabor, E.L (2012). Factors affecting audit quality in Nigeria.     International Journal of Business and Social Science, 3,20.
Brennan, N. (2006). Board of Directors and firm performance: Is there an expectations gap?Corporate Governance: An International Review, 14(6), 577-993.
Fairchild, R. (2008). Does audit tenure lead to more fraud? A game theoretic approach. Retrieved     from http//papers.ssrn.com on 2nd January 2011.
Geiger, M. A., & Raghunandan.K. (2002). Auditor tenure and audit reporting failure. Auditing: A     Journal of Practice and Theory, 21(1), 67-78.
Jenkins, D. S. & Velury, U. (2008). Does auditor tenure influence the reporting of conservative     earnings? Journal of Accounting and Public Policy, 27, 115-132.
Knechel, W. R. & Vanstraelen, A. (2007). The relationship between auditor tenure and audit     quality implied by going concern opinions. Auditing: A Journal of Practice and Theory,     26 (1), 113-131.
KPMG (2008). Audit quality, retrieved from www.kpmg.com/NA/en/issues on 2nd January     2011.
Myers, J. N, Myers, L.A. & Omer, T.C. (2003). Exploring the term of the auditor-client     relationship and the quality of earnings: A case for mandatory auditor rotation? The     Accounting Review, 78 (3), 779-799.

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