ABSTRACT

This study uses correlation regression analysis. The results of this study are
expected to show that:

- Audit fee has a significantly positive effect on audit quality

- Audit ethics has a significant effect on audit quality
- Auditor’s qualification has a significant positive effect on audit quality.

This research aims to find out and analyze the effect of audit fees, audit ethics,
and auditor’s qualification on audit quality. The population in this study is
manufacturing companies which are listed on the Nigeria Stock Exchange Market.
The sampling technique in this study uses Survey sampling. Based on
predetermined criteria, a sample of 4 quoted companies were obtained

Keywords: audit quality, audit fee, audit ethics and auditor’s qualification
 INTRODUCTION

Background Information

The quality of financial statements has always been a matter of concern among
investors, stock- holders, accounting standard-setting bodies and regulatory
agencies. The financial statements of quoted companies need to be audited by an
independent third party known as the external auditor, for several reasons,
namely: (1) differences in interests between the company's management and
outside parties cause the need for a trusted third party. (2) Financial statements
may also contain errors, both intentional and unintentional. (3) audited financial
statements that have received unqualified opinions, it is imperative that users of
financial statements can be sure that the financial statements are free from
material misstatements and are presented in accordance with generally accepted
accounting principles (Fridati, 2005).Financial statements are very important for
companies in providing corporate financial information to external parties.
Therefore, the company's financial statements need to be audited by a
competent auditor to assess the reasonableness of the financial statements
reported by management (Sumarwoto, 2006).

STATEMENT OF PROBLEM

Audit fee has become an issue in auditing due to the possible contradicting effects
on audit quality. The auditing market and its audit fees is a subject studied mainly
in developed economies in which large percentage of income are put on for
auditing services, while the audit services market in emerging economies has
been given limited cost attention (Kimeli 2016) this however can be as a result of
the rise in global financial crisis which has put many companies under financial
stress to cut down on their expenses, in which audit fee is inclusive.

The quality of an audit report is impaired if an auditor fails to detect or report

material misstatements. Apparently the auditor’s ability to carry out a credible
level of financial statements and to provide an elevated level of audit quality is
dependent on the auditor’s attributes such as audit cost, audit qualification and
audit ethics.

OBJECTIVES OF THE STUDY

1. To determine the relationship between audit cost and quality of audit report of
a manufacturing industries in Nigeria

2. To determine the impact of auditor’s qualification and other cost on the quality
of audit report

3. To examine the effects of audit Ethics and other cost on the quality of audit
report
 RESEARCH HYPOTHESIS

H0 – There is no significant relationship between audit cost and quality of audit

report of manufacturing industries in Nigeria

H1 – There is significant relationship between audit cost and quality of audit

report of manufacturing industries in Nigeria

HYPOTHESIS 2

H0 – There is no significant relationship between auditor’s qualification and other

cost on the quality of audit report

HI- There is significant relationship between auditor’s qualification and other cost
on the quality of audit report

HYPOTHESIS 3

HO – There is no significant relationship between audit ethics and other cost on

the quality of audit report

H1 - There is significant relationship between audit ethics and other cost on the
quality of audit report
 SIGNIFICANCE OF THE STUDY

The study is of great importance to manufacturing industries in Nigeria. It will

help the management to determine the appropriate amount and other cost that
will influence the quality of audit report. This will greatly improve the overall
performance of the organization.

The study is also of great importance to Nigeria Auditing Standard Regulatory

Board to develop policies on Auditor’s remuneration and other cost that will
affect the quality of audit report

The study is of importance to future and present researchers who will find this
study useful in their area of study especially manufacturing sector of the economy
in Nigeria
LITERATURE REVIEW

AUDIT QUALITY

Although audit quality does not have a universally accepted definition, different
scholars in their studies explain the term audit quality. Among are Salehi and
Azary (2008) who defined audit quality as the capability of an auditor in the
protection of the interest of users of financial statement through the detection
and reporting of material misstatements and diminution of information
asymmetry between the users of financial statement and management. Arens et.
al (2011) also defines the quality of the audit to mean how well an audit detects
and report material misstatements in financial statements, the detection aspects
are a reflection of auditor competence, while reporting is a reflection of ethics or
auditor integrity, particularly independence”. Audit quality can be said refers to
matters that contribute to the like hood that the auditor will achieve the
fundamental objectives of obtaining reasonable assurance that the financial
report as a whole is free of material misstatement. Audit quality can also be
inferred from earnings quality, as high quality of audit alleviates the degree of
earnings management and enhances the in formativeness of financial reports.

AUDIT FEE
Audit fees refer to the amount of fees received by auditors for their professional
services based on such factors as the complexity of the services provided, the
level of expertise required to carry out the services at proficiency level, the cost
structure of the firm concerned and other professional considerations. Audit fee
is the remuneration received from a client on the discharge of audit service. It is
the amount charged by the auditor for the audit assignment of a client. Kinney &
Libby (2002) stated that audit fees are the amount of costs received by
considering various things such as the complexity of the services provided, the
level of expertise, and others. Hoitash et al. (2005) opined that the aggregate of
audit fees are the amount of all costs covered by the auditor. Lyon and Maher,
(2005) pointed that there is variation in the amount of the fee, depending on
audit size and how complex the auditing process is.

AUDIT ETHICS

Each profession puts great attention on professional ethics of the service catered
and the auditing profession is no exception. Auditors who have high norms and
ethics are able to produce good audit quality. Campbell (2005) suggested that
auditor ethics is the moral principle to guide auditing to generate high-quality
audits and ensure the auditor profession can fulfill the obligation to the client and
public interest. Auditor professional ethics is a moral principle to guide auditors in
performing their audits to achieve and maintain quality audits (Pflugrath et al.,
2007). In performing audits, highly competent auditors will always follow audit
principles and comply with code of ethics to produce high quality audits. Auditor
can promote their audit quality by adopting and applying the ethical
requirements embodied in objectivity, prudence, confidentiality, independence,
competence, and integrity (Kamil & Fathonah, 2020; Kertarajasa et al.,
2019; Syamsuddin et al., 2014).
Conceptual Research Framework

H1
FeeAudit

H2
Audit Quality
Audit Ethics

H3
Audit
qualificati
on

THEORETICAL FRAMEWORK

This present study will be anchored on audit quality theory as propounded by

Watkins, Hillison and Morecroft (2004). They are -

AGENCY THEORY

The principal-agent relationship as captured in agency theory is crucial in

understanding the need for an auditor. Principals (shareholders) appoint agents
(managers) and bestow decision making authority in them. By so doing, the
principals place their trust in their agents to act in their best interests. However,
information asymmetries that exist between principals and agents give room for
conflict of interest which betrays the trust the principals have on their agents. To
re-enforce this trust, mechanisms such as audit quality, need to be put in place.
Agency theory therefore, is a useful economic theory of accountability, which
helps to explain audit quality.
STAKEHOLDER THEORY

The proponents of stakeholder theory suggest that managers in organizations

have a network of relationships to serve which include suppliers, employees,
lenders and other business partners. Therefore, the auditor is obliged to be
accountable to these varying stakeholders since they (stakeholders) rely on his
opinion on financial statements for their decisions. Stakeholder theory has been
praised for overcoming the narrow view that the company’s sole purpose is to
maximize economic value for shareholders (Eshitemi and Omwenga 2016).

AUDITOR’S THEORY OF INSPIRED CONFIDENCE

The main importance of this theory is that, the duties and responsibilities of the
auditors are derived from the confidence and trust that the public bestowed on
the success of the audit and the assurance given by the auditor. According to
Carmichael (2004), the confidence that the society has in audited financial
statements is misplaced when the audit process fails to address the societal
expectations giving rise to a loss in the value relevance of even the audit.

EMPHERICAL REVIEW

According to Ghosh and Pawlewicz (2008), positive relationship between audit

fees and audit quality is caused by several things among which are auditing time
and the skill of the staff. They stated that the more the auditing time, the higher
the audit fee. Moreover, audit fees will be high if the auditing procedures involve
highly skilled and experienced audit staff. This implies that high quality audit is
associated with higher audit fees.

According to Yuniarti (2011), the complexity of services provided, expertise, risk

of assignment, and other professional considerations determine audit fee charged
by auditor. The study further reveals that higher audit fee enhances a higher
quality audit. However, a contrary opinion is observed in Supriyono (1988 in Wati
and Subroto, 2003); which shows that a high amount of audit fee can impair the
independence of public accountants, this he attributed to the fact that the big fee
can inhibit reluctance of audit firms to controvert the will of the client, while small
fee has the tendency to limit the cost and time to carry out complete audit
procedures.
 RESEARCH METHOD

This study uses a causal research method that aims to test the effect, between a
variable (Independent / Xn) with other variables (Dependent Variable / Yn). In this
case consists of: X1 = Audit Fee, X2 = Audit Ethics and X3 = Auditors Qualificatio

n as Independent variable and Y = Audit Quality as Dependent variable. This

research requires testing hypotheses with statistical tests.

Variable Definition and Operations

Variable is everything that will be the object of observation in the form of a

research concept that has a variety of values. In this research, the independent
variables and dependent variables will be revealed, the independent variables
are:

a) Audit Fee (X1) as an Independent variable

b) Audit Ethics (X2) as an Independent variable
c) Auditors Qualification(X3) as an Independent variable
d) Audit Quality (Y) as Dependent variable

Definition variable operation is a definition given to a variable by means of giving

meaning, as well as providing an operation needed to measure the variable. The
Operational Definition of the variables used by the author in conducting the
preparation of research are:

1. Audit cost : is the remuneration received from a client on the discharge of

audit service
2. Audit ethics: Is set rules guiding the discharge of an audit service
3. Audit Report: A report prepared by a qualified accountant expressing the
opinion that the accounts show a true and fair view and compliance with
statutory requirements.
4. Audit Expenses : Audit expenses means all costs and expense associated
with preparing the company and storefront entities’ financial statement to
be audited as well as all costs and expenses related to auditing those
financial statement
5. Financial Auditing: It is sometimes referred to as external auditing or simply
as auditing. Auditing is an independent examination and expression of
opinion on the financial statement of an enterprise by an appointed auditor
in pursuance of that appointment and in compliance with any relevant
statutory regulations.
6. Auditor’s qualification: are competent skills (formal education in auditing,
accounting and also the practice of sufficient experience in the audit
profession) that are quite explicit that can be used to conduct an audit.
Population and Research Samples

The population and sample in this study are manufacturing companies which
were listed on the Nigeria Stock Exchange (NSE) in the 2019-2021 period. The
manufacturing sector was chosen because this industry has the greatest
possibility to develop. This is indicated by the contribution of the manufacturing
sector to the GDP by 9.06% in 2019, 8.99% in 2020 and 8.98% in 2021 leads the
biggest gain.

Determination of the sample use positive sampling method, namely the

determination of samples from existing populations based on criteria, the
samples obtained in this study were 4 quoted companies in Nigeria
manufacturing sector

Data Analysis Method

The purpose of data analysis is to obtain relevant information contained in the

data and use the results to solve problems (Ghozali, 2013). Hypothesis testing also
uses logistic regression analysis (Iogistic Regression). According to Ghozali (2013)
logistic regression is actually similar to discriminant analysis, namely testing
whether the probability of the dependent variable can be predicted with the
independent variable in logistic regression analysis.
(Logistic Regression) does not require the assumption of multivariate normal
distribution because the independent variable is a mixture of continuous (metric)
and categorical (non-metric) variables (Ghozali, 2013).

The stages of logistic regression analysis (Logistic Regression) include testing the
feasibility of the regression model, assessing the feasibility of the regression
model (Goodness of Fit Test), assessing the fit model (Overall Model Fit), and the
regression test. Data analysis method used to test the hypothesis in this study is
descriptive statistics used to provide an overview of the variables in this study.
The following is an explanation of the method of analysis in this study:

Descriptive Statistics Data Analysis

Descriptive statistics provide a description or description of data that is seen from

the average value (mean), standard deviation, variance, maximum, minimum,
sum, range, kurtosis and skewness (skewed distribution) (Ghozali, 2013). Data
that has a high value standard is a picture that is increasingly spreading. Standard
deviations, maximum values and minimum values describe the distribution of
variables that are metric in nature, whereas non-metric variables are represented
by variable frequency distributions.
 HYPOTHESIS TESTING

The hypothesis in this study was tested using the Logistic Regression analysis
method. Logistic regression is used because the dependent variable in this study
is the dichotomous variable, the variable whose measurement consists of two
categories.

The dependent variable used in this study is audit quality which is proxies by the
earnings surprise benchmark approach. The independent variables used in this
study are audit fees, audit ethics, and auditor qualification. The independent
variable is a mixture of metric and non-metric variables so that Logistic Regression
is used. The Logistic Regression Model in this study is as follows:

Audit Quality = a + ß1 Fee + ße ethics+ ß3 Qualification + e

Test the Feasibility of the Regression Model

Testing the feasibility of logistic regression models was assessed using Hosmer
and Lemeshow's Goodness of Fit Test of Goodness measured by Chi-square
[Link] and Lemeshow's Goodness of Fit TestGoodnesstesting the null
hypothesis that empirical data fits or fits the model (there is no difference
between the model and the data so the model can be said to be fit). The results
(Ghozali, 2013):
 1. If the value of Hosmer and Lemeshow's Goodness of Fit test statistic is
equal to or less than 0.05, then the null hypothesis is rejected, which means
there is a significant difference between the model and its observation value
so that the Goodness Fit model is not good because the model cannot predict
the value of the observation.

2. If the value of Hosmer and Lemeshow's Goodness of Fit test statistic

greater than 0.05, then the null hypothesis is accepted and means the model is
able to predict the value of its observations or the model can be said to be
acceptable because it matches the observational data.

Assessing the Overall Model (Overall Model Fit)

Test this used to assess models that have been hypothesized to be fit or not with
data. The hypothesis for assessing model fit is:

H0: The hypothesized model is fit with the data

HA: The hypothesized model does not fit the data

From this hypothesis, for the model to fit the data H0 must be accepted. The
statistics used are based on Likelihood. The likelihood of a model is the probability
that the hypothesized model represents input data. The reduction in value
between the initial value of -2LogL and the value of -2LogL in the next step shows
the input data. The next step shows that the model hypothesized is fit with the
data. The discovery of likelihood (-2LogL) shows a better regression model or in
other words the model is hypothesized fit with data (Ghozali, 2013).

Coefficient of Determination (Nagelkerke R Square)

Nagelkerke R Square is a test conducted to find out how much the

independent variable is able to explain and influence the variable dependent.
Nagelkerke R Square is a modification of coefficientCox and Snell to ensure that
their values vary from 0 (zero) to 1 (one). This is done by dividing the value of Cox
and Snell's R2 with the maximum value then interpreted as the value of R2 in
multiple regression (Ghozali, 2013).

Test the Regression Coefficient

Regression coefficient testing is done to test how far all the independent variables
entered in the model have an influence on the results of audit quality. The logistic
regression coefficient can be determined using p-value (probability value). The
level of significance (a) used was 10% (0.1). The criteria for accepting and
rejecting alternative hypotheses are based on the significance of the p-value. If p-
value> a, then the alternative hypothesis is rejected. Conversely, if the p-value <a,
then the alternative hypothesis is accepted.
 ANALYSIS OF RESULTS AND DISCUSSION

Based on logistic regression testing (logistic regression) that has been done, the
following explanation of the research hypothesis

Table - Logistic Regression Test Results

Variables in the Equation

B SE Wald df Sig. Exp (B)

Audit Fee , 547 , 303 4,725 1 , 040 1,717

Audit Ethics 1,503

, 288 , 353 , 631 1 , 473
Step 1a Audit 94,371
qualificatn 5,624 1,535 13,759 1 , 000 , 000
Constant
-10,328 4,973 4,545 1 , 037

[Link] (s) entered on step 1: LN_Fee, Audit

Ethics, Auditor qualification. Source: Processed
Data (SPSS)

Based on the results SPSS processing in table 4.6 that:

- Audit fee variable shows a regression coefficient of 0.547 with a
significance level of 0.040 smaller than α = 0.1. Because the significance
level is smaller than α = 0.1, it can be concluded that audit fees affect audit
quality.
- The audit ethics variable shows a regression coefficient of 0.288 with a
significance level of 0.473 greater than α = 0.1. Because the level of
significance is greater than α = 0.1, it can be concluded that audit tenure
has no effect on audit quality.
- Auditor qualification variable shows a regression coefficient of 5,624 with a
significance level of 0,000 smaller than α = 0.1. Because the significance
level is smaller than α = 0.1, it can be concluded that the size of the audit
firm (KAP) influences audit quality.
 HYPOTHESIS TESTING AND DISCUSSION

Based on the logistic regression test (logistic regression) that has been done, the
following explanation of the research hypothesis:

1. Effect of audit fees on audit quality (H1)

The results of this study provide empirical evidence that audit fees proxied by
professional fees can be used as factors that can affect audit quality proxied by
the earnings surprise benchmark approach. The results of the study show that
audit fees affect audit quality in a positive direction, which means hypothesis one
(H1 ) acceptable. Thus, this study is in line with those conducted by Yuniarti
(2011), Bambang Hartadi (2012), and Margi Kurniasih, Abdul Rohman (2014) who
found evidence that audit fees have a significant effect on audit quality. The
results of this study provide evidence that costshigher will improve audit quality,
because audit costs obtained in one year and estimated operational costs needed
to carry out the audit process can improve audit quality. Large companies prefer
to pay large audit fees with the reason that they are more looking for auditors in
public accounting firms that can produce quality audit reports and can increase
the credibility of annual financial reports that can compete around the world.
 2. The effect of audit ethics on audit quality (H2)

The results of the study provide empirical evidence that audit ethics can be used
as a factor that affect audit quality which is proxied by the earnings surprise
benchmark approach. The results of the study indicate that audit significant effect
on audit quality, which means hypothesis two (H2) cannot be supported or
rejected. Thus, this research is in line with those conducted by Arie Wibowo, Hilda
Rossieta (2009), Permana (2012), andDaud MTSinaga, Imam Ghozali (2012) which
found evidence that audit tenure had no significant effect on audit quality. The
results of this study provide empirical evidence that at this time, whether or not
the relationship between the auditor and the client does not affect audit quality
so that there isthe tendency that arises is that the longer the engagement period,
the less variation arises from the audit services performed, in other words the
opinions given tend to be the same from year to year.

3. Influence KAP size on audit quality (H3)

The results of the study provide empirical evidence that the size of the KAP
proxied by Bigfour and NonBig four can be a factor that can affect the quality of
the audit proxied by the earnings surprise benchmark approach. The results show
that the KAP size influences audit quality in a positive direction, which means that
the hypothesis three (H3) can be accepted. Thus, this study is in line with that
conducted by Arie Wibowo, Hilda Rossieta (2009), Choi et al. (2010), and Daud
MTSinaga, Imam Ghozali (2012) which found evidence that the size of the KAP
had a significant effect on audit quality. The results of this study support the view
that larger audit offices such as Bigfour provide higher quality audits compared to
smaller audit offices such as Non Bigfour. Large audit offices have more re
lationships and meetings with different clients that make them have a collective
experience. In addition, large audit offices have large assets or assets, thereby
reducing economic dependence on clients. Therefore, a large audit office is one
factor that is able to provide higher quality audits.
 RECOMMENDATION
Based on this study's findings, it is recommended that: 1. Managers should look for
auditors in public accounting firms that can produce quality audit reports and can
increase the credibility of annual financial reports that can compete around the
world.
2. Accounting professionals and financial advisors can educate companies that they
should ensure the spend more on auditing for the benefit of the growth of their
companies
3. The board of directors and shareholders should direct management's choice of
Auditing companies so that the best auditing work can be achieved
4. Highly leveraged enterprises should ensure they employ Auditors who meet the
standard of their professions

LIMITATIONS & SUGGESTIONS FOR FURTHER STUDIES

- This study examined the effect of audit cost, audit ethics, auditor
qualification on the quality of audit report. Although the study is complete
within its scope, further research can be done on Auditor’s independence
- Further studies may focus on companies in other industries, such as the
financial services, oil and gas, or agricultural sectors.
- Also,future studies may examine and compare various sectors.
In addition future research may increase the database's time frame. Variable
measures could be studied further

CONCLUSION
From the findings of the study, we conclude both audit fee and auditor’s
qualification affects the quality of audit done, while audit ethics as little effect on
audit quality.