ABSTRACT

This study examines the effect of audit tenure on earnings management of listed firms in Nigeria. Audit tenure defines the length of the auditor-client relationship while earnings management is defined as a manner of influencing the income of firm by using the discretionary accruals.  An excessively long association between the auditor and his client may constitute a threat to independence which may affect the report on earnings management. This paper provides a literature review of audit tenure on earnings management based on four theories that explain the use of earnings management: the agency theory, the stakeholder’s theory, the stewardship theory and opportunistic earnings management theory. The study relies on secondary data derived from various companies’ financial statements and the Nigerian Stock Exchange fact book to determine and measure the level of earnings manipulations in corporate financial statements. The descriptive statistics result reveals a minimal presence of discretionary accrual management by the companies in the sample and on the average. I recommend that mandatory rules, regulations, and guidelines to be set and applied to control the auditor rotation frequency and transition period to ensure auditor independence. The study also recommends that there is need for the Central Bank of Nigeria and other regulatory bodies to look into the issue of audit firm tenure and its effect on audit quality in Nigeria, and review the policies on audit firm tenure.