ABSTRACT
This study examines the relationship between audit quality and earnings management in the Nigerian chemical and paints sector over a period of seven years (2006-2012).The management of earnings was measured using Discretionary Accruals (a modified Jones model). Generalized Least squares technique was used to estimate the regression coefficients of the data obtained from the eight (8) listed chemical and paints firms using STATA 10. The results show that, audit firm size has a significant negative impact on the earnings management of the firms. The study also found that chemical and paints firms that engage the services of big-4 auditors engage less in earnings management, which implies that the bigger
the audit firms, the lower these chemical and paints firms engage in earnings management.
The results also suggested that audit firm sizehelps in constraining earnings management in chemical and paints firms, in the sense that it has significant effect on earnings management.
The study recommends among others that, Nigerian chemical and paints sector in conjunction with audit firms, professional accounting bodies and standard setters should continue to improve on the quality of their audits, by setting effective quality control, standards and policies that will help enhance audit quality; reduce the audit firm tenure and engage only the audit firms that have the appropriate expertise in an industry, as these may have significant impact on reducing earnings management in the Nigerian chemical and paints sector.
