Audit Firm Size and Earnings Management in Listed Manufacturing Firms in Nigeria: An Empirical Analysis

The study investigated the relationship between Audit Firm Size and Earnings Management of listed Consumer Goods Manufacturing firms in Nigeria. This study tested Audit firm size and earnings management proxies that is (earnings restatement and discretionary accruals), using 26 listed consumer-goods manufacturing firms as the study population. Secondary data were extracted from the annual report of 13 listed consumer-goods manufacturing firms while judgmental sample from the population, covering the study period from 2012 to 2018 using historical data were adopted. The data were tested through the use of Univariate, Bivariate and Multivariate analysis. Univariate/descriptive, Bivariate, Pearson Product Moment Correlation (PPMC) techniques by use of E-view 10 Econometric software and Multivariate – regression model. The findings of the study showed that Audit firm size significantly influences earnings restatement practices and discretionary accruals of listed consumer-goods manufacturing firms in Nigeria. The study concludes that audit firm size is a significant indicator of audit quality in terms of earnings restatement constraining capacity, provided auditees' sizes variability do not matter. On the other hand, if auditees' size variability is controlled, firms audited by a Big 4 firm are associated with a greater magnitude of discretionary accruals and, as such, are more prone to manipulation of results. In the light of these, it is the recommendation of this study that Financial Reporting Council of Nigeria (FRCN), should explore the principles of the deep pocket hypothesis whereby stiffer disciplinary measures (e.g. litigations and claims) for damage to be meted out. To ensure positive significant relationship with earnings management, the firms should voluntary engage two audit firms in all to other to allow for effective comparison, so that hidden information in financial statement could be dictated or revealed