EFFECT OF AUDITOR INDUSTRY SPECIALIZATION AND AUDIT TENURE ON CASH-BASED EARNINGS MANAGEMENT OF QUOTED MANUFACTURING COMPANIES IN NIGERIA

ABSTRACT This study empirically asserted the effect of auditor industry specialization and audit tenure on cash-based earnings management of quoted manufacturing companies in Nigeria. The fact that the study relied on pasted events, the ex-post facto research design was adopted for this research. The population of the study comprised 72 quoted manufacturing companies in Nigeria between 2009 and 2018. Deploying the filtering sampling techniques a sample size of 43 quoted manufacturing companies was drawn from the study population. Multiple linear regression model was employed using the ordinary least squares method (OLS). Data were analyzed using the statistical package Stata 14.2 model. Audit quality was measured by Auditor Industry Specialization (AUIS) and Audit Tenure (AUDT) while Cash-Based Earnings Management was measured by Abnormal level of Cash Flow from Operation (ABCFO), Abnormal level of Discretionary Accruals (ABDEX) and Abnormal level of Production Cost (ABPRO).The result indicated that auditor industry specialization has a positive and insignificant effect on ABCFO and ABPR; a negative and insignificant effect on ABDISEX. Implying that auditor industry specialization was unable to reduce earnings manipulation in ABCFO and ABPRO under the period covered. This study also concludes that there is a negative and insignificant relationship between audit tenure, ABCFO, ABPRO and ABDISEX. From this optic, the findings from this study leads to a conclusion that audit quality constrains cash-based earnings management of quoted manufacturing companies in Nigeria. Therefore, the study recommends that regulatory authorities should make a policy that encourages audit firms in Nigeria to create departments within their firms that specialize along industry lines. As this will adequately equip the audit firms with the necessary competence, expertise and experience to easily detect, prevent and mitigate cash-based earnings management in Nigeria.