Audit Quality Indicators and Profitability of Listed Deposit Money Banks in Nigeria

Abstract

This study investigates the effect of audit-quality indicators - audit fees, audit tenure, and audit report lag - on the profitability of listed deposit money banks in Nigeria, measured using return on assets (ROA). An ex-post facto research design was employed, utilizing secondary data obtained from the annual reports and NGX fact books of eleven purposively selected banks from 2009 to 2023. Purposive sampling was applied to ensure inclusion of banks with complete financial disclosures and consistent earnings trends over the study period. Given the panel nature of the data, an Autoregressive Distributed Lag (ARDL) model was used to assess both short-run and long-run effects of the audit variables on ROA. Prior to model estimation, diagnostic tests— including descriptive statistics, correlation analysis, unit root testing, multicollinearity assessment using VIF, and Breusch-Pagan heteroskedasticity testing—were conducted to confirm the suitability and reliability of the dataset. Findings indicate that audit fees and audit report lag have no significant effect on ROA in any time horizon, while audit tenure exerts a positive short-run but negative long-run influence. The study concludes that audit quality attributes vary in their relevance to bank profitability and recommends optimal auditor rotation, value-driven audit spending, and continuous process efficiency to sustain performance outcomes.