Impact of Non-Audit Fees on Auditor Independence in Nigeria

The impact of non-audit fees on auditor independence is a critical issue in the auditing profession, particularly in Nigeria. This study investigates how the provision of Non-Audit Services (NAS) by external auditors affects their independence and the audit expectation gap. The research employs an interpretivist approach, utilizing thirty semi-structured interviews with audit partners and pension fund managers. The findings reveal that while auditors view NAS as economically necessary, it simultaneously compromises their independence. This duality raises concerns about the integrity of the audit process and the expectations of the public. The study emphasizes the need for regulatory frameworks to ensure that auditors maintain independence while providing necessary services. As stated, "the provision of NAS by audit firms to their audit clients is regarded by auditors as a matter of economic necessity." This highlights the tension between economic pressures and ethical obligations in the auditing field.

The literature surrounding auditor independence is extensive, with various studies highlighting the perceived threats to independence in Nigeria. Previous research has identified significant factors contributing to the audit expectation gap, including the influence of non-audit fees. The Institute of Chartered Accountants of Nigeria (ICAN) emphasizes that independence is essential for maintaining audit quality. The concept of independence encompasses both 'Independence of Mind' and 'Independence in Appearance.' The former refers to the auditor's ability to make unbiased judgments, while the latter pertains to the perception of integrity by third parties. As noted, "Independence was said by Flint (1988) to be 'probably the most important of the audit postulates.'" This underscores the critical nature of independence in fostering public confidence in the auditing profession. The literature suggests that further regulation may be necessary to mitigate the risks associated with non-audit services.

The methodology employed in this study is qualitative, focusing on thematic analysis of interview responses. This approach allows for a nuanced understanding of the perceptions of auditors and stakeholders regarding non-audit fees and their implications for independence. The semi-structured interviews facilitate in-depth discussions, enabling participants to express their views freely. The analysis reveals that economic pressures significantly influence auditors' decisions to accept non-audit work, often at the expense of their independence. The study's design aligns with the call for a 'multi-culturalism' of methods in audit research, as advocated by Power and Gendron (2015). By prioritizing qualitative insights, the research contributes valuable evidence to the ongoing debate about the regulation of non-audit services. The findings suggest that a more robust regulatory framework could enhance transparency and protect auditor independence.

The findings of this study indicate a complex relationship between non-audit services and auditor independence. While auditors acknowledge the economic necessity of providing NAS, they also recognize the potential for these services to compromise their objectivity. The thematic analysis of interview responses highlights a prevalent concern among auditors regarding the increasing expectation gap between their roles and public perceptions. As one participant noted, "the provision of NAS is perceived as impeding auditors’ independence and increasing the gap between the auditor and public expectations." This sentiment reflects a broader concern about the integrity of the audit process in Nigeria. The study advocates for regulatory measures to restrict non-audit work, thereby supporting a sustainable fee structure for independent audits. Such measures could enhance public confidence in the auditing profession and ensure that auditors can fulfill their ethical obligations.

In conclusion, the impact of non-audit fees on auditor independence is a pressing issue that requires careful consideration. The study's findings underscore the need for a balanced approach that allows auditors to provide necessary services while safeguarding their independence. The research contributes to the ongoing discourse on auditing standards and the regulation of non-audit services in Nigeria. As the economy continues to evolve, the implications of this study extend beyond academic inquiry, offering practical insights for policymakers and regulatory bodies. The call for an independent body to oversee auditing standards is particularly relevant in light of the findings. By addressing the challenges posed by non-audit fees, stakeholders can work towards enhancing the integrity and transparency of the auditing profession in Nigeria.