Audit Quality and Corporate Failure Prediction of Commercial Banks in Ghana

Abstract

The recent occurrences of corporate failure in the banking industry have made the activities and role of auditors gained the attention of much debate. The asset quality review exercise undertaken by the Bank of Ghana in 2016 showed that some local banks were beyond financial rehabilitation, this has heightened the need for auditors to enhance transparency and accountability by reporting financial irregularities. Thus, this study examined the effect of audit quality and corporate failure prediction of commercial banks in Ghana using the linear regression estimation technique. Moreover, the study specifically sought to achieve these objectives thus, the effect of audit size; the effect of audit fee and the effect of audit tenure on corporate failure prediction of commercial banks in Ghana (measured by Altman (2000) Z-score model). Criterion sampling technique was adopted to sample 22 commercial banks in Ghana. Secondary data was collected from the commercial banks' annual report from 2010-2019 for the study. The study revealed that audit fee has a positive effect on corporate failure prediction. Also, the findings of the study showed that audit tenure has a positive effect on corporate failure prediction. The study, however, found audit size has a negative effect on corporate failure prediction of commercial banks in Ghana. The study will help accounting firms when conducting corporate failure audit to understand and appreciate the effect of their size, the numbers of years engaged by their clients and the audit fees charged on the outcome of audit assignment.