DETERMINANTS OF AUDIT QUALITY IN SELECTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study examines the determinants of audit quality in selected Deposit Money Banks in Nigeria using Principal Component Analysis (PCA) to identify the most significant underlying factors. The PCA results reveal that five components collectively explain 100% of the total variance, with the first two principal components accounting for approximately 59% of the variation in audit quality indicators. Specifically, the first component (PC1) has an eigenvalue of 1.91, explaining 38.2% of the variance, while the second component (PC2) has an eigenvalue of 1.04, explaining an additional 20.7%. The loadings indicate that audit firm size (AUF), audit tenure (AUT), and audit committee (AMC) contribute strongly to the first principal component, suggesting that institutional characteristics and auditor experience are critical determinants of audit quality. The second component is highly influenced by institutional ownership (INS), implying that governance structure also plays a vital role. The results highlight that audit quality in Nigerian banks is multi-dimensional, shaped by a combination of organizational, auditor-specific, and governance-related factors. The study concludes that enhancing audit firm capacity, enforcing auditor rotation policies, and strengthening institutional governance can significantly improve audit quality across the banking sector. It is therefore recommended that banks should ensure that audit committees are composed of technically competent and independent members who can challenge management decisions and enhance audit effectiveness.