Abstract
To defend its stewardship role to business owners, corporate management often employs audit firm industry specialists to assert their roles and validate the authenticity of the financial reporting system. In the event of the prevalence of audit risk and complexities in clients' financial statements, these specialist auditors may expend additional effort to protect their reputational capital, justify their industry-specific skills and knowledge, and ultimately achieve high-quality audits. However, the nature and direction of the association between audit firm industry specialisation, audit effort, and audit quality may be unidirectional or reciprocally related. Therefore, this study investigates the nexus between audit industry specialisation, audit effort, and audit quality in Nigerian banks between 2011 and 2023. Audit firm industry specialisation is proxied by a binary variable, where 1 represents an audit firm with a market share above 30 per cent and 0 otherwise. Audit effort is proxied by audit report lag, defined as the difference in days between fiscal year-end and the auditor's sign-off date on the financial statements, while audit quality is proxied by using a discretionary accrual model. A panel vector autoregression model is applied to examine the annual data of 12 commercial (deposit money) banks. The results show that audit quality is influenced by audit firm industry specialisation, which in turn is influenced by both itself and audit effort, while audit effort is driven by its past performance. The Granger causality tests lend credence to these results by showing unidirectional causality from audit firm industry specialisation to audit quality and from previous observation of audit efforts to audit firm industry specialisation. The study's findings have implications for management, regulatory authorities, and sustainable development goals.