Evaluating Determinants of Audit Fees of Quoted Non-Financial Firms in Nigeria

Abstract

Determination of audit pricing has become very critical after the corporate and audit failure experienced by many organisations in United States of America and Nigeria. It is paramount to emphasis that majority of these prior studies were done in the developed country without recourse to less developed nations like Nigeria. This could be as a result of differences in socio-economic contexts, infrastructure, cultural norms, and policy environments. Nevertheless, related studies have been conducted using Nigerian data, but remarkably these studies have been focused on health care, consumer goods, and banking industries without considering non-financial firms holistically. Therefore, this study provides a more comprehensive understanding of audit pricing dynamics, offering generalizable insights that transcend sector-specific peculiarities. We exploited the Nigerian institutional setting, audit pricing of 50 selected non-financial firms in Nigeria for the period of 10-years spanning from 2015 to 2024. The study adopts ex-post facto and cross-sectional research design to examine the relationship between audit fee and its determinants such as firm operating risk, firm complexity, board independence and ownership structure. Data were obtained from 50 non-financial firms out of a population of 103 firms that were listed on the Nigeria Exchange Group from 2015-2024 spanning a period of 10 years. Secondary data collection method was employed in this study to obtain data from annual report within the study period. The data were subjected to some preliminary data tests such as descriptive analysis, correlation and variance inflation factor and was analyzed using linear regression after taking cognizance of hausman effect tests. Findings of the study indicated that ownership structure has a positive and significant effect on audit pricing of selected non-financial firms in Nigeria which was statistically significant at 1% level of significance while board independence showed a negative and significant effect on audit pricing which was also statistically significant at 10% level of significance. Conversely, firm operating risk and firm complexity showed a non-statistically significant effect on audit pricing of non-financial firms in Nigeria. Following the findings of this study, we therefore recommend that institutional ownership should be encouraged to assist in regulating audit pricing while operating risks should be cushioned to improve audit fees of non-financial firms in Nigeria. Finally, regulatory agencies should consider mandating more frequent audits or disclosures for highly complex firms to ensure that stakeholders are fully informed about the financial health of these entities.