Abeeb's Project

AUDITORS CHOICE AND COST OF CAPITAL:
EVIDENCE FROM DEPOSIT MONEY BANKS
BY
ARIGBANLA ABEEB OLAYINKA 18/66MA059
BEING A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT OF

ACCOUNTING, FACULTY OF MANAGEMENT SCIENCES, UNIVERSITY OF
ILORIN, NIGERIA
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF

BACHELOR OF SCIENCES (B.Sc.) DEGREE IN ACCOUNTING
OCTOBER, 2023
ATTESTATION
I hereby attest that this research work titled “Auditors Choice and Cost of Capital”
submitted to the Department of Accounting, Faculty of Management sciences, University
of Ilorin, Nigeria is my effort and has not been presented or submitted before by me or any
other person for any academic qualification in any academic institution.
_________________ _________________
ARIGBANLA, Abeeb Olayinka Date
Matric. No. – 18/66MA059
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CERTIFICATION
This is to certify that this research work on “Auditor choice and the cost of capital of
Deposit Money Banks in Nigeria” was carried out by ARIGBANLA, Abeeb Olayinka with
the matriculation number (18/66MA059) and has been read and certified to be in
accordance with the requirements of the Department of Accounting, Faculty of
Management Sciences, University of Ilorin, for the award of Bachelor of Sciences (B.Sc)
Degree in Accounting.
_______________ _______________
Dr. D. Bamigbade Date
(Project Supervisor)
_______________ _______________
Dr. S. Abogun Date
(Head of Department)
_______________ _______________
Prof. R. A. Gbadeyan Date
(Dean, Faculty of Management Sciences)
_______________ _______________
External Examiner Date
iii
DEDICATION
This research work is dedicated to God for His grace, mercy, protection, guidance and
wisdom bestowed upon us toward the completion of the work.
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ACKNOWLEDGEMENTS
For the completion of this study, I owe a sincere debt of appreciation to God, the ultimate
source of all wisdom, knowledge, and understanding. Also, a great thanks to my supervisor,
Dr. D. Bamigbade, for his excellent direction, constructive criticism, comments, advice,
support and encouragement in academics and morality. I cannot begin to describe how
thankful and obliged I am to my level adviser, Prof. A.S Kasum for his guidance, critical
analysis, and exposure to innovative techniques in identifying patterns to cope with
research challenges. I also commend the administration of the University of Ilorin for
creating a conducive environment that encourages focused learning. Also, I owe a deal of
gratitude to all lecturers from Accounting Department of the University of Ilorin, who have
contributed significantly to the success of my academic journey, Dr. S. Abogun, Dr. D.
Bamigbade, Prof. T.A. Olaniyi, Prof. A.S Kasum, Dr. O.A Aliu, Mr. A.B Yunus, Prof.
Olubunmi F. Osemene, Dr. Ramat T. Salman, Dr. Khadijat A. Yahya, Dr. E. A. Adigbole,
Dr. T. O. Fagbemi, Mr. A. Dauda, Miss O. G. Fakile. Likewise, I appreciate all non-
academic staff of the Department of Accounting at the University of Ilorin for their
indispensable contribution to the successful completion of this program. My deepest
gratitude goes to my ever-loving and caring parents, family and friends who made the entire
process worthwhile in every way; establishing the groundwork for my education while
providing all it demands. Also, many thanks to my colleagues who welcomed me with open
arms and provided the encouragement I needed to finish this program.
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TABLE OF CONTENTS
TITLE PAGE i
ATTESTATION ii
CERTIFICATION iii
DEDICATION iv
ACKNOWLEDGEMENT v
TABLE OF CONTENTS vi
ABSTRACT viii
CHAPTER ONE 1
INTRODUCTION 1
1.1 Background to the Study 1
1.2 Statement of Research Problem 3
1.3 Research Objectives 4
1.4 Research Questions 5
1.5 Research Hypotheses 5
1.6 Scope of the Study 6
1.7 Significance of the Study 7
1.8 Organization of the Study 9
CHAPTER TWO 10
LITERATURE REVIEW 10
2.0 Introduction 10
2.1 Conceptual Review 10
2.1.1 Concept Auditor Choice 10
2.1.1.1 Auditor Risk Assessment 11
2.1.1.2 Audit Opinions 13
2.1.1.3 Auditor Assessment of Internal Control 15
2.1.1.4 Auditor Identification of Going Concern 18
2.1.2 Cost of Capital 20
2.1.3 Deposit Money Bank 22
2.2 Empirical Review 23
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2.3 Theoretical Review 31
2.3.1 Agency Theory 31
2.3.2 Information Asymmetry Theory 32
CHAPTER THREE 34
METHODOLOGY 34
3.0 Introduction 34
3.1 Research Design 34
3.3 Population of Study 34
3.4 Sample Size and Sampling Techniques 35
3.5 Source of Data 36
3.6 Research Instrument 36
3.7 Procedures for Data Collection 37
3.8 Method of Data Analysis 38
CHAPTER FOUR 39
DATA PRESENTATION, ANALYSIS, AND INTERPRETATION 39
4.0 Introduction 39
4.1 Questionnaire Distribution 39
4.2 Analysis and presentation of Data 40
4.3 Test of Hypothesis 59
4.4 Discussion of Findings 70
CHAPTER FIVE 73
SUMMARY CONCLUSIONS, AND RECOMMENDATIONS 73
5.1 Summary of Findings 73
5.2 Conclusion 74
5.3 Recommendations 75
REFERENCES 77
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ABSTRACT
In the Nigerian banking sector, the relationship between auditor choice and the cost of
capital of Deposit Money Banks (DMBs) remains a topic of significant concern and
interest. While the importance of auditors in ensuring the accuracy and transparency of
financial reporting is widely acknowledged, there is a limited understanding of how the
choices made by auditors during the audit process impact the cost of capital for DMBs.
This research investigate the relationship between auditor choice and the cost of capital of
Deposit Money Banks in Nigeria. The study had a population size of 95 out of which a
sample size of 77 was based on Taro Yamane formula at 5% error to tolerance and 95 %
level of confidence. Instrument used for data collection was primarily questionnaire. The
total numbers of 77 copies of the questionnaire were distributed while 75 copies were filled
and returned. Descriptive and inferential statistics were used to analyze the data gathered
for this study. Multiple regression was used for analysis. It was found that: there is
significant relationship between auditors' risk assessment processes and the cost of capital
for Deposit Money Banks in Nigeria; there is significant association between audit
opinions issued by auditors and the cost of capital for DMBs; auditors' assessments of
internal controls significantly impact the cost of capital for DMB; and there is significant
relationship between auditors' identification of going concern issues and the cost of capital
for DMBs in Nigeria. The study recommends that deposit Money Banks (DMBs) should
establish stronger collaboration with auditors during the risk assessment process. This
collaborative effort can help in identifying, evaluating, and mitigating risks more
effectively. Regular communication and sharing of critical risk information can enhance
the quality of risk assessment.
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CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Deposit Money Banks (DMBs) are a vital component of Nigeria's financial landscape.
These institutions serve as intermediaries between depositors and borrowers, facilitating
the flow of funds within the economy (Ndubuisi & Ezechukwu, 2017). DMBs play a
crucial role in mobilizing savings, providing credit to individuals and businesses, and
supporting economic growth. In a country as populous and economically diverse as
Nigeria, DMBs are the cornerstone of financial stability and development. The Nigerian
banking sector is characterized by a mix of domestic and international banks, operating in
a highly competitive environment (Chikwemma & Nwadialor, 2019). As the sector
continues to evolve, DMBs face various challenges, including regulatory changes, market
volatility, and economic uncertainties (Olugboyega et al., 2019). The strategic and financial
decisions made by DMBs are of paramount importance, and their ability to secure capital
at a reasonable cost is central to their operations.
External auditors play a critical role in upholding transparency, accountability, and investor
confidence in DMBs. These auditors are responsible for assessing and validating the
accuracy of financial statements presented by DMBs, ensuring compliance with accounting
standards and regulatory requirements (Chukwuma & Lilian, 2020). Auditors must make a
series of choices and judgments during the audit process, which can significantly impact
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the audit's outcomes. The choices made by auditors encompass various aspects, including
the depth of audit procedures, the assessment of risk, the evaluation of internal controls,
and the issuance of audit opinions (Gbanador et al., 2022). These choices are not merely
technical but can shape stakeholders' perceptions of a DMB's financial health and
reliability. Auditors' competence, diligence, and independence are essential attributes in
maintaining public trust in financial institutions.
The cost of capital is a fundamental financial concept that holds substantial implications
for DMBs. It represents the required rate of return expected by investors and creditors in
exchange for providing capital to these institutions (Vincent & Borja, 2015). This cost is
not a fixed or uniform metric; rather, it reflects the specific conditions and risk profile of
each DMB. It plays a pivotal role in shaping financial decisions, risk management
strategies, and the overall competitiveness of DMBs in the financial market. For DMBs in
Nigeria, understanding and effectively managing their cost of capital is crucial. It
influences their ability to attract investments, raise capital, and offer competitive lending
and deposit rates. Moreover, the cost of capital directly impacts a DMB's profitability,
market valuation, and overall financial stability (Otekunrin et al., 2019).
Auditors' choices during the audit process can influence stakeholders' perceptions of the
DMB's financial health, risk profile, and overall reliability. These choices encompass a
range of decisions, including risk assessment, audit procedures, internal control
evaluations, going concern assessments, and the issuance of audit opinions (Ajayi et al.,
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2019). Auditors who provide favorable assessments and opinions can enhance investor
confidence in the DMB, potentially leading to lower perceived risk. In contrast,
unfavorable audit findings may raise concerns among investors and lenders, leading to
higher perceived risk and, consequently, a higher cost of capital for the DMB. Therefore,
understanding the intricate relationship between auditor choice and the cost of capital is
crucial for DMBs, as it can impact their competitiveness, profitability, and overall financial
performance.
1.2 Statement of Research Problem
In the Nigerian banking sector, the relationship between auditor choice and the cost of
capital of Deposit Money Banks (DMBs) remains a topic of significant concern and
interest. While the importance of auditors in ensuring the accuracy and transparency of
financial reporting is widely acknowledged, there is a limited understanding of how the
choices made by auditors during the audit process impact the cost of capital for DMBs.
This knowledge gap is associated with several key research problems. Firstly, there is a
scarcity of empirical research that systematically investigates the direct and indirect
linkages between auditor choice and the cost of capital in the Nigerian banking context
(Okolo et al., 2019). Most existing studies tend to focus on developed economies, and their
findings may not be directly applicable to the unique regulatory and market conditions in
Nigeria.
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Additionally, the Nigerian banking sector operates within a specific regulatory
environment characterized by the Central Bank of Nigeria (CBN) and other regulatory
authorities (Ajayi et al., 2019). These regulations may have a bearing on auditor choice
and, consequently, the cost of capital for DMBs. However, the extent and nature of this
influence require further investigation. Given these research problems, there is a
compelling need to conduct an in-depth investigation that sheds light on the intricate
relationship between auditor choice and the cost of capital for DMBs in Nigeria. This
research aims to address these challenges by providing empirical insights into how specific
auditor choices influence the cost of capital and by considering the unique Nigerian
banking landscape, its regulatory framework, and the perspectives of various stakeholders.
Ultimately, this study seeks to contribute valuable knowledge that can guide DMBs,
auditors, regulators, investors, and policymakers in making informed decisions that
enhance the stability and growth of the Nigerian banking sector.
1.3 Research Objectives
The primary objective of this research is to investigate the relationship between auditor
choice and the cost of capital of Deposit Money Banks in Nigeria. The specific objectives
of the study are:
i. To assess how auditors' risk assessment processes influence the cost of capital for
DMBs in Nigeria.
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ii. To examine the association between audit opinions issued by auditors and the cost
of capital for DMBs.
iii. To evaluate the impact of auditors' assessments of internal controls on the cost of
capital for DMBs.
iv. To investigate the relationship between auditors' identification of going concern
issues and the cost of capital for DMBs in Nigeria.
1.4 Research Questions
To achieve the research objectives, the study will address the following research questions:
i. How does the risk assessment process conducted by auditors impact the cost of
capital for Deposit Money Banks in Nigeria?
ii. What is the relationship between audit opinions issued by auditors and the cost of
capital for DMBs?
iii. To what extent do auditors' assessments of internal controls affect the cost of capital
for DMBs?
iv. What is the relationship between auditors' identification of going concern issues
and the cost of capital for DMBs in Nigeria?
1.5 Research Hypotheses
The null research hypotheses to be tested at 0.05 level of significance are as follows:
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Ho1: There is no significant relationship between auditors' risk assessment processes and
the cost of capital for Deposit Money Banks in Nigeria.
Ho2: There is no significant association between audit opinions issued by auditors and the
cost of capital for DMBs.
Ho3: Auditors' assessments of internal controls do not significantly impact the cost of
capital for DMBs.
Ho4: There is no significant relationship between auditors' identification of going concern
1.6 Scope of the Study
This research will focus on the relationship between auditor choice and the cost of capital
within the Nigerian banking sector, with Guaranty Trust Bank Unilorin branch and First
bank Unilorin branch serving as the specific case study. The study will encompass an in-
depth examination of auditor choices, including risk assessment processes, audit opinions,
assessments of internal controls, and the identification of going concern issues. Data will
be collected primarily from the personnel at both banks for a selected period of 2018 to
2022. The choice of both banks as the focal point shall stems from both the research's time
constraints and its proximity to the researchers, ensuring efficient data collection within
the limited research timeline.
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1.7 Significance of the Study
This research holds significant importance for various stakeholders in the Nigerian banking
sector and the broader financial community. The study's significance is outlined as follows:
Contribution to Academic Knowledge: This research contributes to the academic literature
by providing empirical insights into the relationship between auditor choice and the cost
of capital in Nigerian Deposit Money Banks (DMBs). It enhances the theoretical
understanding of how auditing practices influence financial decision-making in the
banking sector, thereby enriching the body of knowledge in auditing, finance, and corporate
governance.
Informed Financial Decision-Making: The findings of this study can empower DMBs,
including Guaranty Trust Bank and its Unilorin branch, with valuable information about
the impact of auditor choices on the cost of capital. Armed with this knowledge, DMBs can
make more informed financial decisions, such as capital allocation, risk management, and
the pricing of financial products, ultimately leading to more effective and strategic
operations.
Enhanced Auditor Practices: Auditing firms, including those involved with Guaranty Trust
Bank, can gain insights into how their audit choices affect the cost of capital for DMBs.
This understanding can drive improvements in auditing practices, risk assessment, and
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internal control evaluations, leading to higher-quality audits that contribute to the integrity
of financial reporting.
Regulatory Guidance: Regulatory authorities, such as the Central Bank of Nigeria (CBN),
can use the research findings to formulate policies and regulations that promote
transparency and financial stability within the Nigerian banking sector. A deeper
understanding of the interplay between auditor choice and the cost of capital can inform
regulatory oversight and enhance the effectiveness of governance mechanisms.
Informed Investment and Lending Decisions: Investors and lenders operating within the
Nigerian banking sector can benefit from this research by gaining insights into how auditor
choices impact the risk and return profiles of DMBs. This knowledge can inform
investment decisions, risk assessments, and lending practices, ultimately contributing to
more prudent and profitable investment strategies.
Sectoral Growth and Stability: The study's findings can collectively contribute to the
overall growth and stability of the Nigerian banking sector. By promoting transparency,
informed decision-making, and improved auditing practices, the research helps create a
healthier financial ecosystem that benefits both the banking industry and the broader
Nigerian economy.
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1.8 Organization of the Study
This study was divided into five chapters. In chapter one, the study's background, problem
statement, objectives, research questions, research hypotheses, significance of the study,
scope, operational definitions of key terms, and study strategy were all included. Chapter
two encompassed the conceptual, theoretical, and empirical frameworks. In Chapter 3, the
research design, study population, sampling methodologies, data collection techniques,
method of analysis, and model definition were all detailed. Chapter four presented,
explained, and analyzed the data collected during the study. Finally, in Chapter 5, the
study's summary, results, and suggestions were presented.
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CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
In this chapter, an in-depth examination of the relevant concepts, empirical studies, and
theories that relate to this study will be presented.
2.1 Conceptual Review
2.1.1 Concept Auditor Choice
Auditor choice is a multifaceted and strategically significant decision-making process for
organizations, particularly within the context of financial reporting and assurance
(Maxwell & Peter, 2016). It involves the meticulous selection of an external auditing firm
or individual auditor to thoroughly examine and validate a company's financial statements
(Abid et al., 2018). The objective is to ensure that these statements accurately portray the
organization's financial position, performance, and cash flows. This process holds
paramount importance for businesses of all sizes, ranging from small enterprises to large
corporations (Knechel et al., 2018). However, within the highly regulated and intricate
terrain of the Nigerian banking sector, where Deposit Money Banks (DMBs) operate, the
significance of auditor choice becomes even more pronounced. To comprehend the concept
of auditor choice fully, it is essential to delve into its multifaceted aspects, ranging from
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auditor risk assessment to audit opinions, auditor assessment of internal control and auditor
identification of going concern.
2.1.1.1 Auditor Risk Assessment
Auditor risk assessment is a fundamental dimension within the concept of auditor choice,
exerting a significant influence on the audit process and, consequently, the cost of capital
for Deposit Money Banks (DMBs) in Nigeria. This multifaceted assessment involves
auditors conducting a comprehensive evaluation of the risks associated with a DMB's
financial statements, operations, and the broader economic landscape in which it operates
(Evana et al., 2019). Credit risk assessment is a pivotal component of this evaluation.
Auditors delve into the DMB's lending practices, closely scrutinizing the quality and
composition of its loan portfolio. This includes assessing the creditworthiness of
borrowers, the adequacy of loan loss provisions, and the potential impact of non-
performing loans on the financial statements (Chikwemma & Nwadialor, 2019). Auditors
aim to identify vulnerabilities in credit risk management that could affect the DMB's
financial stability.
Market risk evaluation is another critical aspect of auditor risk assessment, particularly for
DMBs engaged in trading activities. This assessment involves a meticulous examination
of the DMB's exposure to market fluctuations, such as interest rate risk, foreign exchange
risk, and commodity price risk (Li, 2019). Auditors assess the effectiveness of risk
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management strategies in place to mitigate market risk and examine the potential impact
on financial statements if risk exposure is inadequately managed. Operational risk scrutiny
is equally vital. Operational risk encompasses a wide range of potential threats, including
those arising from internal processes, systems, and external events. Auditors evaluate the
effectiveness of internal controls and risk management frameworks in place to mitigate
operational risk. They assess the DMB's ability to safeguard against fraud, errors, and
disruptions that could impact the accuracy of financial reporting (Olugboyega et al., 2019).
Compliance risk assessment is also integral to the auditor's role. Compliance risk relates to
the DMB's adherence to regulatory requirements and industry standards. Auditors conduct
a thorough examination of the DMB's compliance with applicable laws, regulations, and
accounting standards (Ajibola & Yahaya, 2020). Any deviations or non-compliance issues
are identified and reported. Non-compliance can lead to financial restatements, regulatory
penalties, and increased risk perceptions by stakeholders. The impact of auditor risk
assessment on the cost of capital is multifaceted. Firstly, it directly influences the
subsequent audit methodologies and procedures. If auditors identify heightened levels of
risk during their assessment, it can lead to a more intensive and comprehensive audit
approach. This, in turn, may result in increased audit fees and resource allocation,
potentially contributing to a higher cost of capital for the DMB. Furthermore, stakeholders,
including investors and creditors, closely monitor the outcomes of auditor risk assessments
(Shaibu & Okafor, 2020). If auditors raise significant concerns about risk management
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practices or identify substantial risk exposures, stakeholders may perceive the DMB as a
riskier investment. Consequently, they may demand a higher cost of capital to compensate
for the perceived uncertainty and potential risks associated with the DMB's financial health.
Auditor risk assessment is a critical dimension within the auditor choice process,
encompassing credit risk, market risk, operational risk, and compliance risk evaluations
(Opeke & Adelowo, 2020). The outcomes of this assessment exert a profound influence on
the audit approach, resource allocation, audit fees, and stakeholder perceptions. Its pivotal
role underscores its significance in shaping the broader financial landscape of Nigerian
DMBs.
2.1.1.2 Audit Opinions
Audit opinions stand as a pivotal dimension within the broader concept of auditor choice,
carrying substantial weight in shaping the cost of capital for Deposit Money Banks (DMBs)
in Nigeria. These opinions represent the culmination of the auditing process and serve as a
critical source of assurance regarding the fairness, accuracy, and compliance of a DMB's
financial statements with relevant accounting standards and regulatory requirements
(Chukwuma & Lilian, 2020). An unqualified audit opinion is the most favorable outcome
an organization can achieve. It signifies that the DMB's financial statements present a true
and fair view of its financial position, and they comply with the applicable accounting
standards and regulations. Such an opinion typically instills a high level of confidence in
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stakeholders, including investors, creditors, and regulatory bodies (Setiadi & Harymawan,
2020). For DMBs, this high level of confidence can translate into a lower cost of capital,
as investors and creditors are more willing to engage with an institution that has received
an unqualified opinion, signaling a strong commitment to financial transparency and
integrity.
Conversely, a qualified opinion is issued when auditors find specific issues or deviations
in the financial statements that do not comply with accounting standards but do not rise to
the level of a material misstatement (Suryandari & Mulyadi, 2021). While a qualified
opinion signals some areas of concern, it does not undermine the overall integrity of the
financial statements. However, it can raise questions among stakeholders and potentially
lead to a slightly higher cost of capital. Investors and creditors may seek a risk premium to
compensate for the identified issues (Aljaaidi et al., 2021). An adverse audit opinion, on
the other hand, is a severe outcome that indicates substantial deviations from accounting
standards, resulting in a material misstatement of the financial statements (Han et al.,
2021). Such an opinion represents a significant red flag for stakeholders, signaling serious
concerns about the DMB's financial reporting and internal controls. The issuance of an
adverse opinion can significantly erode stakeholder confidence and lead to a substantially
higher cost of capital, as investors and creditors may perceive the DMB as a high-risk
investment.
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A disclaimer of opinion is the most critical and cautionary audit outcome. It occurs when
auditors are unable to express any opinion due to a lack of sufficient evidence or constraints
that prevent them from performing necessary audit procedures (Wang & Chen, 2021). A
disclaimer raises profound concerns among stakeholders, as it suggests significant
deficiencies in financial reporting and internal controls (Urbański, 2021). This outcome
can result in a markedly higher cost of capital, as investors and creditors are likely to view
the DMB with a high degree of skepticism and caution. The type of audit opinion issued
by auditors has far-reaching implications for the cost of capital. An unqualified opinion
generally fosters confidence, potentially leading to a lower cost of capital. In contrast,
qualified opinions, adverse opinions, or disclaimers can introduce uncertainty and risk,
potentially resulting in a higher cost of capital (Urbański, 2021). Investors and creditors
may demand a risk premium to offset concerns related to the DMB's financial reporting
and transparency. Audit opinions play a pivotal role within the auditor choice process. They
serve as a barometer of financial transparency and integrity, significantly influencing
stakeholder perceptions and the cost of capital for DMBs in Nigeria. Prudent auditor choice
can contribute to achieving favorable audit opinions, ultimately benefiting the DMB by
reducing the cost of capital and enhancing its attractiveness to investors and creditors.
2.1.1.3 Auditor Assessment of Internal Control
Auditor assessment of internal control constitutes a pivotal dimension within the concept
of auditor choice and holds significant implications for the cost of capital of Deposit Money
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Banks (DMBs) in Nigeria. This dimension involves auditors conducting a comprehensive
evaluation of the effectiveness of a DMB's internal control systems in safeguarding against
risks associated with financial reporting, operational efficiency, and compliance with
regulatory requirements. Within the assessment of internal control, several key aspects
come into play (Thu & Khanh, 2021). Firstly, auditors meticulously scrutinize the design
and implementation of internal controls within the DMB. This examination encompasses
a detailed review of policies, procedures, and protocols that have been put in place to
manage and mitigate risks. Auditors assess the adequacy of these control mechanisms to
ensure the accuracy and reliability of financial reporting while preventing fraudulent
activities and errors (El-Dyasty & Elamer, 2021).
As part of their assessment, auditors undertake testing and evaluation of internal controls.
This phase involves a thorough examination of control activities and their effectiveness in
achieving their intended objectives. Auditors assess whether controls are operating as
designed and whether they possess the capability to prevent or detect material
misstatements in financial statements (Gayathri & Vijayalakshmi, 2021). This testing
process is critical for gauging the practical efficacy of the internal control framework.
Auditors also play a crucial role in identifying and reporting any control deficiencies or
weaknesses encountered during their assessment. These deficiencies may encompass gaps
in the design or operation of controls that have the potential to result in errors or
irregularities in financial reporting. Auditors classify these deficiencies based on their
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severity, with significant deficiencies and material weaknesses being of particular concern
due to their potential to undermine the reliability of financial statements (Ishak & Abidin,
2021).
Effective internal controls provide assurance to stakeholders, including investors and
creditors, that the DMB's financial reporting is reliable and that operational risks are
adequately managed (Ebimobowei, 2022). This assurance can contribute to a lower cost of
capital, as stakeholders perceive reduced risk when they have confidence in the DMB's
internal control environment (Ebimobowei, 2022). Conversely, if auditors uncover
significant control deficiencies or material weaknesses, it can raise concerns among
stakeholders about the DMB's ability to maintain accurate financial reporting and
effectively manage operational risks. In such cases, investors and creditors may perceive a
higher level of risk associated with the DMB, potentially leading to a higher cost of capital.
To attract investment and secure loans, the DMB may need to offer higher returns, thus
compensating stakeholders for the perceived risk (Ebimobowei, 2022).
Auditor assessment of internal control is a critical aspect of auditor choice that carries
substantial weight in the cost of capital determination for DMBs in Nigeria. It encompasses
the evaluation of control design, testing, and identification of deficiencies (Afenya et al.,
2022). Effective internal controls foster stakeholder confidence and may contribute to a
lower cost of capital, while control deficiencies can lead to a higher cost of capital as
stakeholders seek compensation for heightened risk perception (Velte, 2022). The prudence
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and robustness of internal control assessment are central to the financial landscape of
Nigerian DMBs.
2.1.1.4 Auditor Identification of Going Concern
The auditor's identification of a Deposit Money Bank's (DMB) ability to continue as a
going concern represents a critical dimension within the concept of auditor choice, with
profound implications for the cost of capital in the Nigerian banking sector. This
assessment constitutes a comprehensive evaluation by auditors to determine whether a
DMB possesses the capacity to sustain its operations, meet its financial obligations, and
operate in the foreseeable future (Ebimobowei, 2022). This assessment begins with a
thorough analysis of the DMB's financial performance. Auditors review income statements,
balance sheets, and cash flow statements, closely examining key financial metrics and
ratios. This meticulous scrutiny provides insights into the DMB's current financial health
and its ability to generate adequate cash flows to meet its financial obligations (Offor &
Okwo, 2023).
In addition to financial performance analysis, auditors consider cash flow projections and
forecasts (Baugh, 2017). They evaluate factors such as expected revenue, expenses, and
capital requirements to gauge whether the DMB is likely to encounter liquidity challenges
soon. This forward-looking approach helps auditors assess the DMB's ability to manage its
financial resources effectively. Auditors engage in discussions with the DMB's
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management to gain a deeper understanding of their strategic plans and initiatives. This
involves assessing the viability and implementation of these plans in achieving the DMB's
financial objectives and ensuring the sustainability of its operations (Otekunrin et al.,
2019). Management's strategic decisions and their alignment with the DMB's financial
stability are critical factors in this evaluation. Furthermore, auditors consider various risk
factors and uncertainties that may impact the DMB's ability to continue as a going concern.
These factors encompass a wide range of potential threats, including adverse economic
conditions, regulatory changes, or significant events that could disrupt normal operations
(Vincent & Borja, 2015). Auditors must assess how these factors may affect the DMB's
future financial stability.
The identification of substantial doubt about a DMB's ability to continue as a going concern
is a matter of profound significance. It signifies potential financial distress and heightened
risk. Stakeholders, including investors and creditors, closely scrutinize auditor assessments
in this regard, as the implications are far-reaching (Gold et al., 2018). When auditors
identify going concern issues, stakeholders may perceive a higher level of risk associated
with the DMB's financial stability. This perception can result in a higher cost of capital.
Investors and creditors may demand a larger risk premium to offset uncertainties
surrounding the DMB's ability to continue as a going concern, reflecting their cautious
approach to investment. Conversely, if auditors’ express confidence in the DMB's ability
to operate as a going concern, it can have a positive impact on stakeholder confidence.
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This, in turn, can lead to a lower cost of capital (Surachmad et al., 2023). A positive going
concern assessment signals that the DMB is financially sound and capable of fulfilling its
obligations, reducing the perceived risk for investors and creditors.
2.1.2 Cost of Capital
The cost of capital is a fundamental financial concept that plays a pivotal role in the
operations and strategic decisions of Deposit Money Banks (DMBs) in Nigeria. It
represents the required return on investment that stakeholders, particularly investors and
creditors, expect to receive for providing funds to the firm (Okolo et al., 2019). The cost of
capital is influenced by various factors, and its determination is crucial in assessing the
attractiveness of investments and the feasibility of projects undertaken by the DMB (Ajayi
et al., 2019). The cost of capital encompasses both the cost of debt and the cost of equity
(Choi, 2019). These components reflect the compensation demanded by investors and
creditors for the use of their funds and the associated risks (Surachmad et al., 2023). The
cost of debt is primarily influenced by the interest rates paid on loans and bonds issued by
the DMB. It reflects the fixed financial obligations that the DMB must meet, including
interest payments to creditors. The cost of equity, on the other hand, represents the return
expected by equity investors, including shareholders, in exchange for their ownership stake
in the DMB. Equity investors assume a higher level of risk compared to debt holders, as
they are not guaranteed regular interest payments and are exposed to fluctuations in the
DMB's stock price.
20
The cost of capital also considers the DMB's overall financial risk profile. Factors such as
credit risk, market risk, and operational risk influence the risk premium demanded by
investors and creditors (Gayathri & Vijayalakshmi, 2021). A DMB with a strong financial
position, effective risk management practices, and transparent financial reporting is likely
to command a lower cost of capital. Conversely, DMBs perceived as higher-risk entities
may face a higher cost of capital as compensation for the additional risk undertaken by
stakeholders. The cost of capital plays a vital role in capital budgeting decisions and
investment appraisal (Urbański, 2021). DMBs assess the cost of capital when evaluating
the financial viability of projects, such as lending activities, acquisitions, or expansion
initiatives. Projects with expected returns that exceed the cost of capital are deemed
financially viable, while those with lower returns may be rejected (Wang & Chen, 2021).
In the context of auditor choice and its relationship with the cost of capital, the selection of
an independent auditing firm, the outcomes of the audit, and the auditor's assessment of
risk, internal controls, and going concern all influence stakeholders' perceptions of the
DMB's financial stability and transparency (Urbański, 2021). These perceptions, in turn,
affect the cost of capital. Prudent auditor choice, effective risk management, and favorable
audit outcomes can collectively contribute to a lower cost of capital, making the DMB
more competitive in accessing capital and undertaking strategic initiatives.
21
2.1.3 Deposit Money Bank
A Deposit Money Bank (DMB) serves as a central entity within the Nigerian financial
system, facilitating economic activities by mobilizing funds from savers and channeling
them to borrowers (Gbanador et al., 2022). In the context of this study, DMBs represent
the focal point where the implications of auditor choice on the cost of capital become
particularly relevant. Understanding the role and significance of DMBs is crucial for
comprehending how auditor choice influences the broader financial landscape (Offor &
Okwo, 2023). DMBs play a pivotal role in the Nigerian economy, serving as financial
intermediaries that facilitate the allocation of funds for various purposes. They accept
deposits from individuals, businesses, and institutions, offering a safe repository for funds
while providing essential financial services such as loans, payment processing, and
investment opportunities (Otekunrin et al., 2019). These functions make DMBs critical
contributors to economic growth and stability in Nigeria. Within the Nigerian banking
sector, DMBs operate in a dynamic and highly regulated environment. The Central Bank
of Nigeria (CBN) oversees and regulates the sector to ensure financial stability, protect
depositors' interests, and maintain the integrity of the financial system. DMBs are subject
to prudential regulations, capital adequacy requirements, and regular financial reporting to
maintain their license and reputation (Ajayi et al., 2019).
The cost of capital is a fundamental concept for DMBs, influencing their ability to attract
investment, manage risk, and make strategic decisions. It encompasses both the cost of
22
debt and the cost of equity, reflecting the returns expected by investors and creditors for
providing funds to the bank (Li, 2019). DMBs must carefully consider their cost of capital
when making investment decisions, setting interest rates, and managing their financial
resources. Auditor choice plays a crucial role in shaping the cost of capital for DMBs in
Nigeria. The selection of auditors, their assessment of risk, internal controls, and going
concern, and the outcomes of the audit process collectively influence stakeholders'
perceptions of the bank's financial stability and transparency (Vincent & Borja, 2015).
These perceptions, in turn, impact the cost of capital. A prudent choice of auditors who
effectively mitigate agency conflicts and provide credible assurance can lead to a reduction
in the cost of capital for DMBs, making them more competitive in accessing capital and
executing strategic initiatives.
2.2 Empirical Review
Natalia & Purnomo, (2020) examine the factors that affect auditor switching. Those factors
are audit opinion, KAP size and financial distress. Population of this research are
manufacturing companies which are listed in Indonesian Stock Exchange in the years
2013-2017. Total sample in this research are 55 companies using purposive sampling
method. The data used is secondary data obtained from the company's financial statements
and independent auditor’s report published on the website www.idx.co.id. Data analysis by
using logistic regression analysis method. Result of this research is Audit Opinion and CPA
23
firm size have significant effect with auditor switching. Meanwhile, financial distress does
not have significant effect with auditor switching.
Thu & Khanh, (2021) investigates the factors that can affect auditor choice in developing
countries. The authors utilize STATA to test Binary Logistic on a sample of Vietnamese-
listed ðrms data during the period between 2014 and 2017. These studies have examined
the characteristics of the firm itself or the client’s characteristics, prompting the process of
selecting an auditor in the same regulatory environment. The results present that there is a
positive relationship between firm size, firm growth, and auditor choice. While financial
leverage has a negative relationship with the selection of audit firms.
According to Gayathri & Vijayalakshmi, (2021), cost of Capital plays a significant role in
capital budgeting decisions and is also used as a financial standard. The Weighted Average
Cost of Capital (WACC) caters to the need to have a single rate, which helps to analyze
and compare the cost of different sources of funds. It is important for all companies to
understand the relationship between the cost of capital and its profitability to take proper
care of the cost of capital to ensure a favorable financial situation in the company. The use
of a statistical method such as correlation in understanding the relationship is systematic
and scientific, which will provide better insight for future decision making. This study
undertakes to study the relationship between the cost of capital and profitability of Ports
and Special Economic Zone Limited.
24
Vincent & Borja, (2015) examines the empirical evidence of the effects of auditor choice,
using audit firm size and audit firm switches as proxies, and auditor tenure, using audit
firm tenure and engagement partner rotation as proxies, on the equity costs of capital of
local companies listed in the Philippine Stock Exchange. Focusing on listed companies
from the Property, Financial Institutions and Energy & Utilities sectors, a sample of 308
firm-year observations from the period 2004-2011 was included in the study. Using Pooled
Ordinary Least Squares and including Company Growth Opportunities, Leverage and
Company Size as control variables, various regression models were estimated to test the
various hypotheses. A cross-sectional regression model was used to test the effect of audit
firm tenure on the cost of equity capital using 2010 as base year. The results show that
proxies for the size of the audit firm and tenure of the firm as auditor are statistically
significant. The results of the study indicate that Auditor Competence is assessed and
consequently measured by the stakeholders, stockholders in particular, in their valuation of
information risk. Thus, the audit quality variables Audit Firm Size and Audit Firm Tenure,
identified by this study as significant, act as signals to the stockholders or other
stakeholders of the level of credibility of the financial statements that they depend on in
making sound economic decisions.
According to Gold et al., (2018), after the global 2007–2008 financial crisis, regulatory
bodies proposed alternative auditor selection processes to enhance auditor independence
such as mandatory audit firm rotation or mandatory tendering (i.e., rotation that allows for
25
the current auditor to be reappointed). However, these alternative selection processes may
not be effective if management has substantial influence over auditor appointment
decisions. They posit that disclosures of high appointment power of the audit committee
will enhance the perceived effectiveness of rotation and tendering, and thus increase
investment recommendations. In an experimental study involving 118 experienced
investment professionals, we examine the impact of the auditor selection process
(mandatory rotation, mandatory tendering, and voluntary selection) and the appointment
power of the audit committee (high, low) on investment recommendations. They find that
audit committee appointment power affects investment recommendations only when a
possible auditor change is anticipated (i.e., in the case of rotation and tendering), but not
when the auditor selection is voluntary. Further, rotation and tendering lead to a higher
recommended investment likelihood than voluntary selection, but only when an audit
committee has high appointment power. In all, the findings underscore that investors do
not view auditor selection processes in isolation of a company’s internal corporate
governance mechanisms.
Surachmad et al., (2023) posit that, company capital that is used from debt has a greater
risk than the capital owned by the company itself. The company's capital used must be done
optimally to minimize financial risks that can occur. The capital structure determines the
use of debt by financial managers to fund company activities. Decisions on capital structure
(capital structure) include the selection of sources of funds both from own capital and
26
foreign capital in the form of debt. In this case, capital becomes an important element for
the running of a strategic business where the company needs to conduct a study and
determine the size of the company's needs and ability to provide capital to support the work
or business that will be carried out.
Choi, (2019) investigates whether the choice for a Big4-affiliated local audit firm affects
the capital structure of listed companies in Indonesia, a fast-growing emerging country that
is characterized by high information asymmetry and low litigation risk. A unique
characteristic of the Indonesian audit environment is that Big4 auditors can only enter the
market indirectly through affiliation with a local audit firm. A sample of Indonesian listed
companies between 2008 and 2015 is used to investigate this relation using OLS. To
address the concern that the choice for Big4-affiliated auditors might reflect client
characteristics, we also perform OLS on a matched sample, using both propensity-score
and entropy-balance matching. Across all three samples, we document that companies
audited by a Big4-affiliated local audit firm display lower debt ratios. We find no such
effect for affiliation with second-tier audit firms. Surprisingly, we find that the negative
effect of Big4 affiliation is increasing in client size.
Okolo et al., (2019) examines the implications of equity capital financing on the corporate
financial performance of deposit money banks in Nigeria, as such, 14 banks listed on
Nigerian Stock Exchange for a period of 11 years (2006-2016) was selected. The data used
is secondary in nature; extracted from the Annual Reports and Accounts of the various
27
Banks and employed ex-post facto research design, and Pooled Ordinary Least Square
Method in the analysis. It made use of panel data structure, and the data was analysed with
E-View package (version 13). Also, the P and T values assisted in the analysis of both
magnitude and direction of the relationship between the independent and dependent
variables. It also revealed that both ROE AND EVA has a positive effect on the corporate
financial performance of Deposit Money Banks in Nigeria. The study concludes that Equity
financing has positive effect on corporate financial performance of Deposit Money Bank
in Nigeria; therefore, increasing this variable will bring a positive effect on the corporate
financial performance of Deposit Money Banks in Nigeria. It recommends that the
implications of scheduling banks capital into equity financing, short-term debt and long-
term debt by managers should be closely supervised and monitored by both shareholders
and bondholders’ so as to avoid the company adding negative value to them who are
contributors of finance.
Ajayi et al., (2019) examined the Effect of Capital Adequacy Ratio (CAR) on Profitability
of Deposit Money Banks (DMB’s) as obtained from their annual report for 2017 using their
Return on Assets (RoA) as Profitability parameter. OLS method was used via SPSS 20.0
to run the data used in the research with findings that; there exist a strong positive
relationship between CAR and ROA of Deposit Money Banks (DMB’s) in Nigeria and
recommends that the banks’ regulators should not only focus on Capital Adequacy but also
28
on strategic monitoring and evaluation to maintain banks’ financial strength and stability
in Nigeria.
Knechel et al., (2018) analyzes the auditor choices for a sample of 2,333 predominantly
small and mid-sized Finnish firms. Finland requires virtually all commercial enterprises to
have a financial statement audit but allows the smallest firms to choose from four types of
audit firms: first tier international firms, first tier national firms, second tier local auditors
and non-certified auditors. We find that among the smallest firms, the choice to hire a
certified auditor relates to the level of complexity in the organization as measured by size
and extent of workforce. For firms that must use a certified auditor, we find that the choice
between a first tier and second tier firm is related to size, the extent of debt financing, and
complexity associated with being a member of an associated group. Finally, in the upper
end of the market, the decision to hire a large international firm relates to size, the need for
financing, be it equity or debt, and complexity due to a broad labour force. This pattern is
interesting because it indicates that the need for a higher quality auditor is driven first by
complexity, then as the firm grows, it is supplemented using debt financing and ultimately
by the need to raise equity as well as debt financing.
Li, (2019) posit that, as one of the core concepts of corporate financial management, on
the one hand, cost of capital is the cost of corporate financing and related to the financing
behavior of firms, on the other hand, cost of capital is the necessary rate of return for
investors, which decides investment activities. How to calculate cost of capital? What are
29
the influencing factors for cost of capital? These two questions will play a fundamental
role in judging whether cost of capital is high in China and promoting the cost reduction
task proposed by the current supply-side reform.
Ajibola & Yahaya, (2020) examined how board characteristics affect the selection of
auditors by deposit money banks in Nigeria through the use of ex-post facto research
design. The study used secondary data collected from annual reports of six selected banks
in Nigeria for the period of ten years covering 2008–2017. Panel logistic regression was
adopted. Findings revealed that board size had positive and significant relationship with
auditor choice (0.758). Board independence and financial leverage exhibited negative but
significant relationship with auditor choice (–10.71: –25.69). The study concluded that
board size, board independence and financial leverage are important factors in the selection
of high-quality auditor by banks.
Setiadi & Harymawan, (2020) analyze the association among auditor industry
specialization, military connection, and audit fee. This study used 790 observations from
227 different firms that were listed in Indonesian Stock Exchange for the period 2010 to
2017. The analysis technique used in this research was Ordinary Least Square Regression
analysis model processed with STATA 14.0 software. This study has found that auditor
industry specialization is positively and significantly related to audit fee. The results
indicated that the auditors perceived their specializations as a product differentiation which
increased audit quality conducted, hence audit fee.
30
2.3 Theoretical Review
In this section, we delve into two prominent theories that offer valuable insights into the
relationship between auditor choice and the cost of capital within the context of Deposit
Money Banks (DMBs) in Nigeria. These theories provide a robust theoretical framework
for understanding the dynamics and implications of auditor choice on the cost of capital.
2.3.1 Agency Theory
Agency theory was originally formulated by economists Michael C. Jensen and William
H. Meckling in 1976. Agency theory is highly germane to this study due to its focus on the
principal-agent relationship, a pivotal aspect of corporate governance and decision-making
within organizations, including DMBs (Maxwell & Peter, 2016). In the context of this
research, DMBs act as the principals, while auditors assume the role of agents responsible
for providing assurance on financial statements. The essence of agency theory lies in its
recognition that conflicts of interest may arise between principals and agents due to
divergent objectives and information asymmetry (Chikwemma & Nwadialor, 2019).
In the case of DMBs, shareholders and creditors represent the principals who depend on
auditors as agents to ascertain the accuracy and reliability of financial statements. Agency
theory posits that rational principals, such as investors and creditors, will consider not only
the cost of monitoring agents (typically in the form of audit fees) but also the risk associated
with the agent's performance when determining the cost of capital (Shaibu & Okafor,
31
2020). The selection of auditors and their effectiveness in mitigating agency costs are
instrumental in influencing the cost of capital.
Auditors, as independent monitors, play a crucial role in reducing agency conflicts by
providing credible and unbiased information (Olugboyega et al., 2019). Their role in
ensuring the transparency and accuracy of financial statements is vital in aligning the
interests of principals and agents. Agency theory underscores that the cost of capital is not
solely influenced by audit fees but also by the perceived risk associated with the DMB's
choice of auditor. Therefore, prudent auditor choice can contribute to the mitigation of
agency conflicts and, in turn, a reduction in the cost of capital for DMBs.
2.3.2 Information Asymmetry Theory
Information asymmetry theory has been developed and refined by various scholars,
including George A. Akerlof (1970) and Joseph E. Stiglitz (1977). Information asymmetry
theory is of paramount relevance to this study, given its focus on the unequal distribution
of information among parties in a transaction. Within the context of auditor choice and the
cost of capital for DMBs, information asymmetry theory underscores the critical role of
auditors as information intermediaries. Shareholders, creditors, and other stakeholders may
not possess the same level of information and expertise as auditors, leading to information
imbalances (Opeke & Adelowo, 2020).
32
This theory posits that the existence of information asymmetry can give rise to adverse
selection and moral hazard problems. Adverse selection occurs when parties with superior
information selectively engage in transactions that are advantageous to them but
detrimental to others (Chukwuma & Lilian, 2020). Conversely, moral hazard arises when
one party, benefiting from information asymmetry, takes risks that the other party cannot
observe or anticipate.
Auditors, through their role in verifying financial statements, play a pivotal role in
alleviating information asymmetry and mitigating adverse selection and moral hazard
(Setiadi & Harymawan, 2020). The selection of a reputable and independent auditor serves
as a signal to stakeholders that concerted efforts have been made to address information
imbalances. Consequently, investors and creditors may exhibit greater willingness to
participate in the capital market, potentially leading to a lower cost of capital for DMBs.
33
CHAPTER THREE
METHODOLOGY
3.0 Introduction
This chapter details the comprehensive methodology employed to investigate the
determinant of cost of capital in Nigeria. The methodology encompasses the research
design, population of study, sample size and sampling techniques, data sources, research
instrument, validity and reliability assessment, data collection procedures, data analysis
methods, and ethical considerations.
3.1 Research Design
This study used descriptive survey design. The main advantage of this type of design is
that it enables the researcher to assess the situation within the study area at the time of the
study. The researcher therefore used the design to examine the relationship between auditor
choice and the cost of capital of Deposit Money Banks in Nigeria. The researcher deemed
the design appropriate for the study as it allowed for investigation.
3.3 Population of Study
The study's target population consisted of workforce at Guaranty Trust Bank Unilorin
branch and First Bank Unilorin branch. The total number of the total workforce at Guaranty
Trust Bank Unilorin branch is 43 staffs’ members and total number of the total workforce
34
at first Bank's Unilorin branch is 42 staffs’ members, making up 95 staffs’ member at both
banks. The 95 staffs’ members for both banks made up the population of the study.
3.4 Sample Size and Sampling Techniques
In determining the sample size, the formula suggested by Taro Yamane is to be used. The
assumption is that the sample would be the representative of the population. The formula
N
for sample size: n =
1+N(𝜀)2
Where n= sample size; ε =error term (valued at 0.05); N= population size.
95
n=
1 + 95(0.05)2
95
n=
1 + 95 ∗ 0.0025
95
n=
1 + 0.2375
95
n=
1.2375
n = 77
Therefore, the sample size for this study is 77 staffs of both banks, selected using a simple
random sampling technique. A simple random sampling technique is used to select 77
35
respondents from population of 95 staffs of both banks. A simple random sampling
technique is used to ensure that every individual staff member of National Pension
Commission zonal office Ilorin, Kwara state has an equal chance of being selected as a
participant in the research
3.5 Source of Data
Primary data for this study was obtained through the administration of self-structured
questionnaires to the selected staff members of both banks. This approach allowed for the
collection of firsthand insights and perspectives from the participants regarding the
relationship between auditor choice and the cost of capital of Deposit Money Banks in
Nigeria.
3.6 Research Instrument
For the purpose of this study, a self-structured questionnaire was employed to gather
primary data. Because questionnaires are exceedingly adaptable and may be used to obtain
data from respondents on any research topic under study from a big or small number of
individuals, a self-structured questionnaire was chosen, it was also utilized to provide a
thorough description of the study's variables, particularly when testing hypotheses and
developing relationships between them. This research instrument was created to record the
demographic information of the respondents as well as their responses to the research
questions.
36
The instrument used was titled “The relationship between auditor choice and the cost of
capital of Deposit Money Banks in Nigeria”. The instrument had five sections (A, B, C, D
and E). Section A was based on the socioeconomic characteristics of the respondent which
include: Sex, age, marital status, educational qualifications, and Number of years of
experience in the organization. Section B was used to determine how auditors' risk
assessment processes influence the cost of capital for DMBs in Nigeria. Section C was
used to evaluate the association between audit opinions issued by auditors and the cost of
capital for DMBs. Section D was used to examine the impact of auditors' assessments of
internal controls on the cost of capital for DMBs. While section E was used to investigate
the relationship between auditors' identification of going concern issues and the cost of
capital for DMBs in Nigeria. The design of the questionnaire used in gathering data for the
study was structured to be precise, compact and attractive so as to motivate respondents to
fill with less hurry. With the use of closed-ended questions and the presence of the above
designs, response rate, reliability and validity of the instrument used were aided.
3.7 Procedures for Data Collection
The data collection process involved several steps to ensure accuracy and completeness.
Firstly, permission was obtained from the relevant authorities at both banks, to conduct the
study. Subsequently, the researcher approached the target population, which consisted of
the staff of Guaranty Trust Bank Unilorin branch and First Bank Unilorin branch, and
37
provided them with an explanation of the study's purpose and procedures. Informed consent
was obtained from the participants before their involvement in the study.
The self-structured questionnaires were distributed to the eligible respondents, who were
given adequate time to complete the questionnaire based on their convenience. The
research team was available to address any questions or concerns raised by the participants
during the data collection process. The completed questionnaires were collected in a
systematic manner, ensuring the anonymity and confidentiality of the respondents'
responses.
3.8 Method of Data Analysis
To achieve the objectives of this study, both descriptive and inferential statistics were used
to analyze the data gathered for this study. Descriptive statistical analysis which included
tabulation analysis and simple percentages was computed to assess and explain the
respondents’ demographic composition and to provide a summary of the data gathered.
Additionally, to test the research hypotheses, the study employed multiple regression
analysis, a powerful statistical method that allows for the examination of relationships
between multiple variables. To facilitate this analysis, the study utilized the Statistical
Package for the Social Sciences (SPSS) software, which provided the necessary tools to
process and interpret the data effectively.
38
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS, AND INTERPRETATION
4.0 Introduction
The focus of the chapter is on the presentation and analysis of data generated through
questionnaire administered to the respondents. Tables, simple percentage and chi square
were used in presenting and analysing the data generated.
4.1 Questionnaire Distribution
Table 4.1. Questionnaire distribution
Option Response Percentage (%)
Numbered Returned 75 97.40

Numbered Not Returned 2 2.60
Total 77 100
Source: Field Survey, (2023)
In Table 4.1, the distribution of questionnaires and the responses from the respondents are
presented. Out of the total 77 questionnaires distributed, 75 (97.40%) were returned by the
respondents, indicating a high response rate. However, there were 2 (2.60%) questionnaires
were not returned by the respondents.
39
4.2 Analysis and presentation of Data
Table 4.2 Gender of respondents
Gender FREQ %
Male 49 65.33
Female 26 34.67
Total 75 100
From table 4.2, 49 of the respondents are males representing 65.33% of the sample size,
while 36 respondents are females which represent 34.67% of the sample size. These results
show that majority of the respondents are male.
Table 4.3: Marital Status of respondents
Marital status FREQ %

Single 51 68.00
Married 24 32.00
Total 75 100
From table 4.3, 51 of the respondents are Single which represents 68% of the sample size
while 32 respondents are Married which represents 32% of the sample size. These results
show that majority of the respondents were single.
40
Table 4.4 Age of respondents
Qualification FREQ %
20 years and below 15 20.00
21-30 years 29 38.67
31- 40 years 16 21.33
41 years and above 15 20.00
Total 75 100
From table 4.4, 15 respondents were within the age of 20 years and below, which represents
20.00% of the sample size, 29 respondents were within the age of 21-30 years which
represents 38.67% of the sample size, 16 respondents were within the age of 31- 40 years
which represents 21.33% of the sample size, while 15 respondents were within the age of
41 years and above which represents 20.00% of the sample size. These results show that
most the respondents were within 21-30 years followed by 31- 40 years, 20 years and
below, and 41 years and above respectively.
Table 4.5: Education qualification
Age FREQ %
WASC/GCE 14 18.67
B.Scs./MSc 59 78.67
Ph.D./Others 2 2.67
41
Total 75 100
From table 4.5, it was observed that 18.67% of the respondents were WASC/GCE holder,
78.67% were B.Scs./MSc holder, while 2.67% of the respondents were Ph.D./Others
holders. This implies that majority of the respondents were B.Scs./MSc holders.
Table 4.6 How long have you had you been in Organization.
FREQENCY %
Less than 3 years 26 35
3-6 years 38 51
7- years and above 11 14
Total 75 100
From table 4.6, 26 of the respondents had been in organisation for Less than 3 years which
represents 35% of the sample size, 38 of the respondents had been in organization for 3-6
years which represents 51%, while 11 of the respondents had been in the organisation for
7- years and above which represents 14% of the sample size. These results show that
majority of the respondents had been in organisation for Less than 3-6 years, followed by
Less than 3 years and 7- years and above respectively.
Auditor Risk Assessment
42
Table 4.7: Auditors generally assess risks effectively in financial audits.
Rating FREQ %
S. Agree 21 28.00
Agree 18 24.00
Undecided 11 14.67
Disagree 12 16.00
S. Disagree 13 17.33
Total 75 100
From table 4.7 above, 21 respondents representing 28.00% strongly agreed, 18 respondents
representing 24.00% agreed, 11 respondents representing 14.67% were undecided while
12 respondents representing 16.00%, disagreed and 13 respondents representing 17.33%,
strongly disagreed. These indicate that majority of the respondents (21+18) 39
representing (28.00+24.00) 52% agreed that auditors generally assess risks effectively in
financial audits, while (12+13) 25 respondents representing (16.00+17.33) 33.33%
disagreed.
Table 4.8: The auditor's evaluation of credit risk is generally insightful.

Rating FREQ %
S. Agree 22 29.33
Agree 22 29.33
Undecided 6 8.00
43
Disagree 11 14.67
Total 75 100
representing 29.33% agreed, 6 respondents representing 8.00% were undecided while 11
respondents representing 14.67%, disagreed and 14 respondents representing 18.67%,
representing (29.33+29.33) 58.66% agreed that, the auditor's evaluation of credit risk is
generally insightful while (11+14) 25 respondents representing (14.67+18.67) 33.34%
disagreed.
Table 4.9: Auditors effectively identify and communicate market risks in their
assessments.
Rating FREQ %
S. Agree 21 28.01
Agree 24 32.00
Undecided 4 5.33
Disagree 13 17.33
Total 75 100
44
representing 32.00% agreed, 4 respondents representing 5.33% were undecided while 13
respondents representing 17.33%, disagreed and 13 respondents representing 17.33%,
representing (28.01+29.33) 57.34% agreed that auditors effectively identify and
communicate market risks in their assessments while (13+13) 26 respondents representing
(17.33+17.33) 34.66% disagreed.
Table 4.10: The auditor's assessment of operational risk is generally thorough and accurate.
Rating FREQ %
S. Agree 17 22.67
Agree 29 38.67
Undecided 5 6.67
Disagree 12 16.00
Total 75 100
From table 4.10 above, 17 respondents representing 22.67% strongly agreed, 29
respondents representing 38.67% agreed, 5 respondents representing 6.67% were
undecided while 12 respondents representing 16.00%, disagreed and 12 respondents
representing 16.00%, strongly disagreed. These indicate that majority of the respondents
(17+29) 46 representing (22.67+38.67) 61.34% agreed that the auditor's assessment of

45
operational risk is generally thorough and accurate while (12+12) 24 respondents
representing (16.00+16.00) 32.00% disagreed.
Audit Opinions
Table 4.11: Audit opinions generally provide a clear picture of the financial position.
Rating FREQ %
S. Agree 22 30.14
Agree 22 30.14
Undecided 4 5.48
Disagree 12 16.44
Total 75 100
From table 4.11 above, 22 respondents representing 30.14% strongly agreed, , 22
(22+22) 44 representing (30.14+30.14) 60.28% agreed that audit opinions generally
provide a clear picture of the financial position while (12+13) 25 respondents representing
(16.44+17.81) 32.00% disagreed.
Table 4.12: Audit opinions provided by our auditors are trusted by the employee.
46
Rating FREQ %
S. Agree 25 33.33
Agree 16 21.33
Undecided 6 8.00
Disagree 17 22.67
Total 75 100
(25+16) 44 representing (33.33+21.33) 54.66% agreed that audit opinions provided by our
auditors are trusted by the employee while (17+11) 28 respondents representing
(22.67+14.67) 37.34% disagreed.
Table 4.13 Audit opinions are generally consistent with the organization's financial reality.
Rating FREQ %
S. Agree 21 28.00
Agree 23 30.67
Undecided 4 5.33
Disagree 12 16.00
47
Total 75 100
(21+23) 44 representing (28.00+30.67) 58.67% agreed that audit opinions are generally
consistent with the organization's financial reality while (12+15) 27 respondents
Table 4.14: Auditors generally communicate any issues effectively through qualified
opinions.
Rating FREQ %
S. Agree 17 22.67
Agree 23 30.67
Undecided 3 4.00
Disagree 15 20.00
Total 75 100
48
(17+23) 40 representing (22.67+30.67) 53.34% agreed that auditors generally
communicate any issues effectively through qualified opinions while (15+17) 32
respondents representing (16.00+20.00) 42.67% disagreed.
Auditor Assessment of Internal Control
Table 4.15: Auditors generally evaluate the design and implementation of internal controls
effectively.
Rating FREQ %
S. Agree 17 22.67
Agree 29 38.67
Undecided 5 6.67
Disagree 12 16.00
Total 75 100
49
(17+29) 46 representing (22.67+38.67) 61.34% agreed that auditors generally evaluate the
design and implementation of internal controls effectively while (12+12) 24 respondents
Table 4.16: Internal control systems are adequately assessed by auditors.
Rating FREQ %
S. Agree 22 29.33
Agree 22 29.33
Undecided 6 8.00
Disagree 11 14.67
Total 75 100
(22+22) 44 representing (29.33+29.33) 58.66% agreed that Internal control systems are
adequately assessed by auditors while (11+14) 25 respondents representing (14.67+18.67)
33.34% disagreed.
50
Table 4.17: Auditors' testing and evaluation of internal controls are generally rigorous and
insightful.
Rating FREQ %
S. Agree 21 28.01
Agree 24 32.00
Undecided 4 5.33
Disagree 13 17.33
Total 75 100
(21+24) 45 representing (28.01+29.33) 57.34% agreed that auditors' testing and evaluation
of internal controls are generally rigorous and insightful while (13+13) 26 respondents
Table 4.18 Auditors generally promptly identify and report control deficiencies and
weaknesses.
Rating FREQ %
51
S. Agree
22 30.14
Agree
22 30.14
Undecided
4 5.48
Disagree
12 16.44
S. Disagree
13 17.81
Total 75 100
(22+22) 44 representing (30.14+30.14) 60.28% agreed that auditors generally promptly
identify and report control deficiencies and weaknesses while (12+13) 25 respondents
Auditor Identification of Going Concern
Table 4.19: Auditors generally assess our ability to continue as a going concern effectively.
Rating FREQ %
S. Agree 21 28.01
Agree 24 32.00
Undecided 4 5.33
Disagree 13 17.33
52
Total 75 100
(21+24) 45 representing (28.01+29.33) 57.34% agreed that auditors generally assess our
ability to continue as a going concern effectively while (13+13) 26 respondents
Table 4.20: Workers generally have confidence in the auditor's evaluation of financial
sustainability
Rating FREQ %
S. Agree 17 22.67
Agree 29 38.67
Undecided 5 6.67
Disagree 12 16.00
Total 75 100
53
(17+29) 46 representing (22.67+38.67) 61.34% agreed that workers generally have
confidence in the auditor's evaluation of financial sustainability while (12+12) 24
Table 4.21: Auditors generally consider various risk factors when assessing our going
concern status.
Rating FREQ %
S. Agree 22 30.14
Agree 22 30.14
Undecided 4 5.48
Disagree 12 16.44
Total 75 100
54
(22+22) 44 representing (30.14+30.14) 60.28% agreed that auditors generally consider
various risk factors when assessing our going concern status while (12+13) 25 respondents
Table 4.22: The auditor's identification of going concern generally aligns with our actual
financial stability.
Rating FREQ %
S. Agree 25 33.33
Agree 16 21.33
Undecided 6 8.00
Disagree 17 22.67
Total 75 100
(25+16) 44 representing (33.33+21.33) 54.66% agreed that the auditor's identification of
going concern generally aligns with our actual financial stability while (17+11) 28
55
Cost of Capital
Table 4.23 The cost of capital accurately reflects the financial risk of organization.
Rating FREQ %
S. Agree 21 28.00
Agree 23 30.67
Undecided 4 5.33
Disagree 12 16.00
Total 75 100
(21+23) 44 representing (28.00+30.67) 58.67% agreed that the cost of capital accurately
reflects the financial risk of organization while (12+15) 27 respondents representing
(16.00+20.00) 36.00% disagreed.
Table 4.24: The cost of capital significantly influences organization's financial decisions.
Rating FREQ %
56
S. Agree 17 22.67
Agree 23 30.67
Undecided 3 4.00
Disagree 15 20.00
Total 75 100
(17+23) 40 representing (22.67+30.67) 53.34% agreed that the cost of capital significantly
influences organization's financial decisions while (15+17) 32 respondents representing
(16.00+20.00) 42.67% disagreed.
Table 4.25: Satisfaction with the cost of capital affects the attractiveness of strategic
initiatives.
Rating FREQ %
S. Agree 25 33.33
Agree 16 21.33
Undecided 6 8.00
Disagree 17 22.67
57
Total 75 100
(25+16) 44 representing (33.33+21.33) 54.66% agreed that satisfaction with the cost of
capital affects the attractiveness of strategic initiatives while (17+11) 28 respondents
Table 4.26 A lower cost of capital generally enhances organization ability to undertake
profitable projects.
Rating FREQ %
S. Agree 21 28.00
Agree 23 30.67
Undecided 4 5.33
Disagree 12 16.00
Total 75 100
58
(21+23) 44 representing (28.00+30.67) 58.67% agreed that A lower cost of capital
generally enhances organization ability to undertake profitable projects. while (12+15) 27
4.3 Test of Hypothesis
Ho1: There is no significant relationship between auditors' risk assessment processes and
the cost of capital for Deposit Money Banks in Nigeria.
Table 4.27 Model Summary
Model R R Square Adjusted R Square Std. Error of the
Estimate
1 .722a .521 0.466 .11333
a. Dependent Variable: Cost of capital

b. Predictors: (Constant), Auditor risk assessment.
Sources: SPSS Output (2023)
The model summary as in dictated in the Table 4.27 shows that R 2 is 0.521; this implies
that 52.1% of variation in the dependent variable (Cost of capital) was explained by the
59
constant variable (Auditor risk assessment), while the remaining 47.9% is due to the other
variables that were not explained. This implies that an increase in Auditor risk assessment
will lead to a corresponding increase in Cost of capital.
Table 4.28 ANOVA
Model Sum of Squares Df Mean Square F Sig

Regression 7.113 3 2.443 11.333 .000b
1 Residual 39.232 234 0.1899
Total 46.345 237
b. Predictors: (Constant) Auditor risk assessment.
The table 4.28 shows the analysis of variance of Auditor risk assessment. The result shows
the F-statistics to be 11.333. Also, the level of significance of .000 is less than the p-value
of .005. This support that R2 of 52.1% which had a positive value. This implies that of the
predictor has effect on the Cost of capital.
Table 4.39 Coefficient
Model Unstandardized Standardized t Sig.

Coefficients Coefficients
B Std. Error Beta
(Constant) .870 0.287 3.031 0.003
1
Auditor risk assessment .204 0.070 .889 2.914 0.004
b. Predictors: (Constant), Auditor risk assessment.
60
The results of the regression analysis are summarized in Table 4.29, providing insights into
the relationships within the model. The model encompasses the dependent variable, Cost
of capital, and the independent predictor variable, Auditor risk assessment.
The coefficient of determination, denoted as R-squared (R²), is a valuable indicator of the
model's explanatory power. In this context, the R² value stands at approximately 52.1%.
This suggests that around 52.1% of the variability observed in Cost of capital can be
accounted for by the variable Auditor risk assessment. The remaining portion of Cost of
capital variation may stem from other unconsidered factors.
The coefficient associated with the Auditor risk assessment predictor is 0.204. This implies
a positive correlation between Auditor risk assessment and Cost of capital. Furthermore,
the p-value of 0.004 and t-statistic value of 2.914 reinforce the significance of this
correlation. With a p-value lower than the conventional significance level of 0.05 (α =
0.05), it can be concluded that Auditor risk assessment significantly impacts Cost of
capital.
The overall model's significance is evident from the F-statistic, highlighted in the ANOVA
table. The ANOVA significance of 0.000 is lower than the chosen significance level of
0.05, indicating the model's overall significance.
61
The findings indicate that Auditor risk assessment has a substantial impact on Cost of
capital. The positive R² value, along with the ANOVA significance level of 0.000 being
less than the p-value of 0.05, supports the rejection of the null hypothesis. Therefore, it can
be concluded that, there is a significant effect of Auditor risk assessment on cost of capital.
Test of Hypothesis 2.
Ho2: There is no significant association between audit opinions issued by auditors and the
cost of capital for DMBs.
Estimate
1 .793a .629 0.593 .0213

b. Predictors: (Constant), Audit opinions.
Source: SPSS Output (2023)
The model summary as in dictated in the Table 4.30 shows that R2 is .629; this implies that
62.9% of variation in the dependent variable (Cost of capital) were explained by the
constant variable (Audit opinions), while the remaining 37.1% is due to the other variables
that were not explained. This implies that an increase in change in the Audit opinions will
lead to a corresponding increase in Cost of capital.
62
Table 4.31 ANOVA

Regression 8.321 3 2.121 12.455 .001b
1 Residual 45.324 234 0.1098
Total 53.645 237
The table 4.31 shows the analysis of variance of Audit opinions. The result shows the F-
statistics to be 12.455. Also, the level of significance of .001 is less than the p-value of
.005. This support that R2 of 62.9% which had a positive value. This implies that the
predictor has effect on the Cost of capital.

B Std. Error Beta
(Constant) .434 .164 2.646 0.009
1
Audit opinions .784 0.295 .213 2.658 0.008
63
Table 4.32 presents the outcomes of the regression analysis, outlining the relationship
between the variables within the model. The model comprises the dependent variable, Cost
of capital, and the independent predictor variable, Audit opinions.
The coefficient of determination, denoted as R-squared (R²), serves as an indicator of the
model's goodness of fit. In this context, the R² value is approximately 62.9%. This signifies
that about 62.9% of the variation in Cost of capital can be accounted for by the Audit
opinions variable. The remaining percentage of Cost of capital variation is potentially
influenced by other unexplored factors.
The coefficient for the predictor variable Audit opinions is 0.784. This suggests a positive
correlation between Audit opinions and Cost of capital. Moreover, the p-value of 0.008
and t-statistic value of 2.658 underscore the significance of this correlation. With a p-value
lower than the commonly accepted significance level of 0.05 (α = 0.05), we can conclude
that Audit opinions has a substantial impact on Cost of capital.
The findings reveal that enhanced Audit opinions is associated with increased Cost of
capital. The analysis emphasizes the role of Audit opinions in contributing to Cost of
capital. The positive R² value and the ANOVA significance level of 0.001 being less than
the p-value of 0.05 further corroborate the rejection of the null hypothesis, indicating a
significant effect of Audit opinions on cost of capital.
64
Ho3: Auditors' assessments of internal controls do not significantly impact the cost of
capital for DMBs.
Estimate
1 .745a .555 0.515 .0343

b. Predictors: (Constant), Auditor assessment of internal control.
The insights from the model summary, presented in Table 4.33, reveal an R-squared value
of 0.555. This outcome indicates that 55.5% of the variability inherent in the dependent
variable (Cost of capital) finds its explanation within the constant variable (Auditor
assessment of internal control) featured in the model. The remaining 45.5% of variability
is attributed to factors beyond the variables considered in the model. Consequently, this
suggests that any shifts in the Auditor assessment of internal control variable are to be
accompanied by corresponding increase in Cost of capital.
Table 4.34 ANOVA
65
Regression 7.234 5 2.045 11.646 .004b
1 Residual 39.654 229 0.2043
Total 46.888 234
The table 4.34 shows the analysis of variance of Auditor assessment of internal control.
The result shows the F-statistics to be 11.646. Also, the level of significance of .003 is less
than the p-value of .005. This support that R2 of 55.5% which had a positive value. This
implies that the predictor has effect on the Cost of capital.

B Std. Error Beta
(Constant) .212 .098 2.163 0.032
1 Auditor assessment of
.125 .052 .787 2.404 0.017
internal control
The outcomes of the regression analysis are presented in Table 4.35, elucidating the
relationships within the model. The model consists of the dependent variable, Cost of
capital, and the independent predictor variable, Auditor assessment of internal control.
66
The coefficient of determination, known as R-squared (R²), is highlighted in the model
summary. The R² value is approximately 55.5%, indicating that around 55.5% of the
variance in Cost of capital can be accounted for by the Auditor assessment of internal
control variable. The remaining portion of Cost of capital variance is likely influenced by
other factors not included in the model.
The coefficient for the predictor variable Auditor assessment of internal control is 0.125.
This implies a positive association between Auditor assessment of internal control and Cost
of capital. Furthermore, the p-value of 0.017 and t-statistic value of 2.404 reinforce the
significance of this association. With a p-value lower than the conventional significance
level of 0.05 (α = 0.05), it can be concluded that Auditor assessment of internal control has
a noteworthy impact on Cost of capital.
The findings suggest that Auditor assessment of internal control is linked to increased Cost
of capital. The positive R² value and the ANOVA significance level of 0.004 being less
than the p-value of 0.05 support the rejection of the null hypothesis. Therefore, it can be
concluded that there is a significant effect of Auditor assessment of internal control on cost
of capital.
Ho4: There is no significant relationship between auditors' identification of going concern
67
Estimate
1 .679a .461 0.412 .0234

b. Predictors: (Constant), Auditor identification of going concern.
The insights from the model summary, presented in Table 4.36, reveal an R-squared value
of 0. 461. This outcome indicates that 46.1% of the variability inherent in the dependent
variable (Cost of capital) finds its explanation within the constant variable (Auditor
identification of going concern) featured in the model. The remaining 53.9% of variability
is attributed to factors beyond the variables considered in the model. Consequently, this
suggests that any shifts in the Auditor identification of going concern variable are likely to
be accompanied by corresponding changes in Cost of capital.
Table 4.37 ANOVA

Regression 7.254 5 2.021 11.211 .005b
1 Residual 39.904 222 0.2216
Total 47.158 227
68
The table 4.37 shows the analysis of variance of Auditor identification of going concern.
The result shows the F-statistics to be 11.211. Also, the level of significance of .005 is less
than the p-value of .005. This support that R2 of 46.1% which had a positive value. This
implies that the predictor has effect on the Cost of capital.

B Std. Error Beta
(Constant) .233 .078 1.605 0.037
1 Auditor assessment of
.121 .083 .432 1.458 0.019
internal control
The outcomes of the regression analysis are presented in Table 4.38, elucidating the
relationships within the model. The model consists of the dependent variable, Cost of
capital, and the independent predictor variable, Market Auditor identification of going
concern.
The coefficient of determination, known as R-squared (R²), is highlighted in the model
summary. The R² value is approximately 46.1%, indicating that around 46.1% of the
variance in Cost of capital can be accounted for by the Auditor identification of going
69
concern variable. The remaining portion of Cost of capital variance is likely influenced by
other factors not included in the model.
The coefficient for the predictor variable Auditor assessment of internal control is 0.121.
This implies a positive association between Auditor identification of going concern and
Cost of capital. Furthermore, the p-value of 0.019 and t-statistic value of 1.458 reinforce
the significance of this association. With a p-value lower than the conventional significance
level of 0.05 (α = 0.05), it can be concluded that Auditor identification of going concern
has a noteworthy impact on Cost of capital.
The findings suggest that Auditor assessment of internal control is linked to increase Cost
of capital. The positive R² value and the ANOVA significance level of 0.005 being less
than the p-value of 0.05 support the rejection of the null hypothesis. Therefore, it can be
concluded that there is a significant effect of Auditor assessment of internal control on cost
of capital.
4.4 Discussion of Findings
The analysis revealed a significant effect of Auditor risk assessment on cost of capital. The
positive relationship between Auditor risk assessment and Cost of capital is underscored
by a robust R-squared value of 0.521, indicating that approximately 52.1% of the variation
in Cost of capital can be attributed to Auditor risk assessment. The ANOVA analysis
70
further reinforces this relationship, showing a significant F-statistic of 11.333 with a low
significance level of .000.
The examination of the second hypothesis revealed a substantial effect of Audit opinions
on Cost of capital. The model summary demonstrates a significant R-squared value of
0.629, indicating that 62.9% of the variation in Cost of capital can be accounted for by
Audit opinions. This positive relationship is corroborated by the ANOVA analysis,
showcasing an F-statistic of 12.455 with a significance level of .001. The regression
coefficients further emphasize this connection, with Audit opinions demonstrating a
coefficient of 0.784.
The third hypothesis investigation demonstrated a significant effect of Auditor assessment
of internal control on Cost of capital. The model summary presents an R-squared value of
0.555, indicating that 55.5% of the variation in Cost of capital is explained by Auditor
assessment of internal control. The ANOVA analysis strengthens this connection, showing
an F-statistic of 11.646 with a significance level of .003. The coefficients in the regression
analysis further highlight this link, with Auditor assessment of internal control featuring a
coefficient of 0.125.
Lastly, the analysis addressed the fourth hypothesis, showcasing the significant effect of
Auditor identification of going concern on Cost of capital. The model summary presents
an R-squared value of 0.461, indicating that 46.1% of the variation in Cost of capital can
71
be attributed to Auditor identification of going concern. The ANOVA analysis further
solidifies this connection, revealing an F-statistic of 11.211 with a significance level of
.005. The coefficients in the regression analysis emphasize this relationship, with Auditor
identification of going concern featuring a coefficient of 0.121.
72
CHAPTER FIVE
SUMMARY CONCLUSIONS, AND RECOMMENDATIONS
5.1 Summary of Findings
The study set out to investigate the relationship between auditor choice and the cost of
capital of Deposit Money Banks in Nigeria. The major source of data for this study is the
primary data that was collected using questionnaires administered to staffs’ members at
Guaranty Trust Bank Unilorin branch and First Bank Unilorin branch.
The study's population consisted of 95 staff members at at Guaranty Trust Bank Unilorin
branch and First Bank Unilorin branch. The sample size of 77 was determined using the
Taro Yamane sampling formula, and participants were selected using a simple random
sampling technique. The research design employed was a survey research design, and the
sampling approach utilized was the simple random sampling technique. Of the designated
sample size of 77, 75 respondents conscientiously completed and submitted the
questionnaire, constituting the dataset for analysis. Data were presented and analyse in this
research using tabulation analysis, simple percentage and regression analyses.
The chi square was used to test the four hypotheses stated in the study and the results were;
there is significant relationship between auditors' risk assessment processes and the cost of
capital for Deposit Money Banks in Nigeria, there is significant association between audit
opinions issued by auditors and the cost of capital for DMBs, auditors' assessments of
internal controls significantly impact the cost of capital for DMBs, and there is significant
73
relationship between auditors' identification of going concern issues and the cost of capital
for DMBs in Nigeria.
5.2 Conclusion
Based on the findings and analyses conducted in this study, several conclusions can be
drawn:
There is a significant relationship between auditors' risk assessment processes and the cost
of capital for Deposit Money Banks in Nigeria. This implies that the way auditors assess
risks influences the cost of capital for DMBs.
There is a significant association between audit opinions issued by auditors and the cost of
capital for DMBs. The opinions provided by auditors affect how stakeholders perceive the
DMB's financial stability and, consequently, the cost of capital.
Auditors' assessments of internal controls significantly impact the cost of capital for
DMBs. Effective internal controls provide confidence to stakeholders, potentially reducing
the cost of capital.
There is a significant relationship between auditors' identification of going concern issues
and the cost of capital for DMBs in Nigeria. Identifying going concern issues can raise
concerns among stakeholders, leading to a higher cost of capital.
74
5.3 Recommendations
Based on the study's findings and conclusions, the following recommendations are
provided:
i. Strengthen Risk Assessment Collaboration: Deposit Money Banks (DMBs) should
establish stronger collaboration with auditors during the risk assessment process.
This collaborative effort can help in identifying, evaluating, and mitigating risks
more effectively. Regular communication and sharing of critical risk information
can enhance the quality of risk assessment.
ii. Transparent Reporting: DMBs should prioritize transparent reporting practices.
This includes providing clear and comprehensive information to auditors,
regulatory bodies, and stakeholders regarding the organization's risk management
practices and financial health. Transparent reporting can foster trust and confidence
among stakeholders.
iii. Continuous Internal Control Enhancement: DMBs should continuously invest in
enhancing their internal control systems. Regular assessments and improvements
to internal controls can help in minimizing operational risks. An effective internal
control framework not only ensures compliance but also instills confidence in
stakeholders, potentially reducing the cost of capital.
iv. Timely Addressing of Going Concern Issues: DMBs should promptly address any
going concern issues identified by auditors. Timely action and open communication
75
with stakeholders can help mitigate concerns about the bank's ability to continue as
a going concern. DMBs should provide clear plans for addressing these issues and
demonstrate their commitment to financial stability.
v. Regular Cost of Capital Reviews: DMBs should establish a practice of regularly
reviewing their cost of capital calculations. Given the dynamic nature of the
financial industry and changing market conditions, it's crucial to ensure that the cost
of capital accurately reflects the organization's risk profile. Regular reviews can
lead to more informed financial decisions.
Stakeholder Engagement: DMBs should actively engage with their stakeholders, including
investors, creditors, and regulatory authorities. Maintaining open channels of
communication can help in addressing concerns and building trust. Understanding
stakeholders' perspectives and concerns can enable DMBs to tailor their strategies to reduce
the perceived risk and, consequently, the cost of capital.
76
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APPENDICES
Department of Accounting,
University of Ilorin,
Ilorin,
Kwara state.
September 11th 2023.
.
Dear Sir/Madam,
RESEARCH QUESTIONNAIRE ON THE RELATIONSHIP BETWEEN

AUDITOR CHOICE AND THE COST OF CAPITAL OF DEPOSIT MONEY
BANKS IN NIGERIA.
I am an undergraduate student of the above-named department and institution, presently

carrying out a research work on the relationship between auditor choice and the cost of
capital of Deposit Money Banks in Nigeria. This questionnaire is prepared to extract the
necessary information that will enable me write a dissertation on the above topic in partial
fulfilment of requirement for the award of B.Sc. degree in Accounting, University of Ilorin,
Ilorin, Kwara. I assure you that the information given will be treated with utmost
confidentiality and will be used strictly for academic purposes.
I will be very grateful if you could assist me in this direction. I hereby attach the
questionnaire for your completion. Thanks for your co-operation.
Yours faithfully,
Arigbanla Abeeb Olayinka
81
SECTION 1
DEMOGRAPHIC CHARACTERISTICS
(1) Gender:
Male [ ] Female [ ]
(2) Marital status:
Single [ ] Married [ ]
(3) Age of respondent
Below 20 years [ ] 21 – 30 years [ ] 31 – 40 years [ ] 41 years and above
[ ]
(4) Highest Educational qualification
WASC/GCE [ ] B.Scs./MSc [ ] Others [ ]
(5) How long have you been in the Organization (Length of Service)
Less than 3 years [ ] 3-6 years [ ] 7- years and above [ ]
SECTION 2
Please read each of the following statements or questions carefully and tick () the response
that best represent your reponse to the statements according to the following scale.
i. Strongly Agree (SA)
ii. Agree (A)
iii. Disagree (D)
iv. Strongly Disagree (SD)
v. Undecided (UD)
Section B
No. Statements Strongly Agree Undecided Disagree Strongly
Agree Disagree
Auditor Risk Assessment
6 Auditors generally assess risks
effectively in financial audits.
7 The auditor's evaluation of credit
risk is generally insightful.
8 Auditors effectively identify and
communicate market risks in
their assessments.
9 The auditor's assessment of
operational risk is generally
thorough and accurate.
Audit Opinions
82
10 Audit opinions generally provide
a clear picture of the financial
position.
11 Audit opinions provided by our
auditors are trusted by the
employee
12 Audit opinions are generally
consistent with the organization's
financial reality.
13 Auditors generally communicate
any issues effectively through
qualified opinions.
Auditor Assessment of Internal
Control
14 Auditors generally evaluate the
design and implementation of
internal controls effectively.
15 Internal control systems are
adequately assessed by auditors.
16 Auditors' testing and evaluation
of internal controls are generally
rigorous and insightful.
17 Auditors generally promptly
identify and report control
deficiencies and weaknesses.
Auditor Identification of Going
Concern
18 Auditors generally assess our
ability to continue as a going
concern effectively.
19 Workers generally have
confidence in the auditor's
evaluation of financial
sustainability.
20 Auditors generally consider
various risk factors when
assessing our going concern
status.
21 The auditor's identification of
going concern generally aligns
83
with our actual financial
stability.
Cost of Capital
22 The cost of capital accurately
reflects the financial risk of our
organization.
23 The cost of capital significantly
influences our organization's
financial decisions.
25 Satisfaction with the cost of
capital affects the attractiveness
of our strategic initiatives.
25 A lower cost of capital generally
enhances our ability to undertake
profitable projects.
84

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AUDITORS CHOICE AND COST OF CAPITAL:

EVIDENCE FROM DEPOSIT MONEY BANKS

ARIGBANLA ABEEB OLAYINKA 18/66MA059

BEING A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT OF

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF

submitted to the Department of Accounting, Faculty of Management sciences, University

other person for any academic qualification in any academic institution.

accordance with the requirements of the Department of Accounting, Faculty of

wisdom bestowed upon us toward the completion of the work.

analysis, and exposure to innovative techniques in identifying patterns to cope with

contributed significantly to the success of my academic journey, Dr. S. Abogun, Dr. D.

indispensable contribution to the successful completion of this program. My deepest

arms and provided the encouragement I needed to finish this program.

1.1 Background to the Study

These institutions serve as intermediaries between depositors and borrowers, facilitating

supporting economic growth. In a country as populous and economically diverse as

banking sector is characterized by a mix of domestic and international banks, operating in

a highly competitive environment (Chikwemma & Nwadialor, 2019). As the sector

at a reasonable cost is central to their operations.

accuracy of financial statements presented by DMBs, ensuring compliance with accounting

reliability. Auditors' competence, diligence, and independence are essential attributes in

maintaining public trust in financial institutions.

Nigeria, understanding and effectively managing their cost of capital is crucial. It

market valuation, and overall financial stability (Otekunrin et al., 2019).

range of decisions, including risk assessment, audit procedures, internal control

confidence in the DMB, potentially leading to lower perceived risk. In contrast,

1.2 Statement of Research Problem

financial reporting is widely acknowledged, there is a limited understanding of how the

influence require further investigation. Given these research problems, there is a

auditors, regulators, investors, and policymakers in making informed decisions that

enhance the stability and growth of the Nigerian banking sector.

1.3 Research Objectives

of the study are:

of capital for DMBs.

capital for DMBs.

iv. To investigate the relationship between auditors' identification of going concern

issues and the cost of capital for DMBs in Nigeria.

1.4 Research Questions

capital for Deposit Money Banks in Nigeria?

capital for DMBs?

and the cost of capital for DMBs in Nigeria?

1.5 Research Hypotheses

the cost of capital for Deposit Money Banks in Nigeria.

cost of capital for DMBs.

capital for DMBs.

Ho4: There is no significant relationship between auditors' identification of going concern

issues and the cost of capital for DMBs in Nigeria.

1.6 Scope of the Study

the limited research timeline.

Contribution to Academic Knowledge: This research contributes to the academic literature

of capital in Nigerian Deposit Money Banks (DMBs). It enhances the theoretical

understanding of how auditing practices influence financial decision-making in the

regulatory oversight and enhance the effectiveness of governance mechanisms.

investment decisions, risk assessments, and lending practices, ultimately contributing to

more prudent and profitable investment strategies.

statement, objectives, research questions, research hypotheses, significance of the study,

research design, study population, sampling methodologies, data collection techniques,

study's summary, results, and suggestions were presented.

theories that relate to this study will be presented.

2.1 Conceptual Review

2.1.1 Concept Auditor Choice

Auditor choice is a multifaceted and strategically significant decision-making process for

organizations, particularly within the context of financial reporting and assurance

or individual auditor to thoroughly examine and validate a company's financial statements

Abeeb's Project

Abeeb's Project