Effect of Forensic Auditing on The Financial Performance of Quoted Food And Beverage Firms in Nigeria

CHAPTER ONE: INTRODUCTION

1.1 Background to the Study

Financial scandals and corporate fraud have increased in recent years. This trend has created a demand for stronger systems that protect the financial integrity of business organizations. The issue is particularly important in Nigeria’s food and beverage industry. Listed companies in this sector must maintain high reporting standards because of their public visibility and influence on the economy.

Forensic auditing has become a key strategy in fighting financial fraud. It helps detect, prevent, and resolve financial irregularities through a structured and investigative approach. Unlike traditional auditing, it focuses on uncovering hidden misconduct and supporting legal processes. According to Okoye and Gbegi (2013), forensic auditing promotes transparency, builds stakeholder confidence, and ensures long-term corporate stability.

In Nigeria, many firms have adopted forensic auditing to address problems such as poor accountability, financial mismanagement, and fraud. The food and beverage sector contributes significantly to employment, GDP, and industrial output. However, it remains highly vulnerable to unethical practices. Fraud in procurement, inventory manipulation, and falsified accounts has reduced investor trust and weakened financial performance.

Therefore, it is necessary to examine whether forensic auditing improves financial performance in this industry. This study investigates how forensic auditing affects key indicators such as Return on Assets (ROA), Return on Equity (ROE), and Earnings Per Share (EPS) among quoted food and beverage firms in Nigeria. The analysis covers the period from 2010 to 2016.

1.2 Statement of the Problem

The financial performance of quoted food and beverage firms in Nigeria has been unstable. Fraud, weak internal control systems, and poor oversight have led to corporate failures and low investor confidence. Traditional audit methods often fail to detect complex financial crimes that require deeper investigation.

Forensic auditing offers a more effective approach to uncovering these problems. Yet, there is limited evidence on how it affects financial performance in Nigeria. Researchers disagree on whether forensic auditing directly influences profitability indicators such as ROA, ROE, and EPS.

This study aims to fill that gap. It examines the relationship between forensic auditing and financial performance in quoted food and beverage firms. The findings will provide useful insights for managers, policymakers, and regulators who seek to strengthen corporate governance and improve transparency.

1.3 Objectives of the Study

The main objective of this study is to examine how forensic auditing influences the financial performance of quoted food and beverage firms in Nigeria. The specific objectives are to:

1. Determine the effect of forensic auditing on Return on Assets (ROA).

2. Examine the relationship between forensic auditing and Return on Equity (ROE).

3. Assess the impact of forensic auditing on Earnings Per Share (EPS).

1.4 Research Questions

To achieve these objectives, the study will answer the following questions:

1. What effect does forensic auditing have on Return on Assets (ROA)?

2. How does forensic auditing influence Return on Equity (ROE)?

3. What impact does forensic auditing have on Earnings Per Share (EPS)?

1.5 Research Hypotheses

The following null hypotheses will be tested:

• H₀₁: Forensic auditing has no significant effect on Return on Assets (ROA).

• H₀₂: Forensic auditing has no significant effect on Return on Equity (ROE).

• H₀₃: Forensic auditing has no significant effect on Earnings Per Share (EPS).

1.6 Significance of the Study

This study contributes to knowledge on forensic accounting and its role in improving financial integrity. It also provides evidence on how forensic auditing affects the financial performance of firms in Nigeria’s food and beverage sector.

Moreover, the study will benefit several stakeholders. Business managers and auditors will understand how forensic auditing strengthens internal controls and prevents fraud. Investors will gain confidence in firms that apply transparent audit systems. Policymakers and regulators such as the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), and the Economic and Financial Crimes Commission (EFCC) can use the results to enhance audit standards and enforcement.

Consequently, this research will help promote accountability, improve financial transparency, and build a stronger corporate sector in Nigeria.

1.7 Scope of the Study

The study focuses on quoted food and beverage firms listed on the Nigerian Stock Exchange from 2010 to 2016. It examines the impact of forensic auditing on three performance indicators: Return on Assets (ROA), Return on Equity (ROE), and Earnings Per Share (EPS). The analysis is based on secondary data from published financial statements and regulatory filings.

1.8 Definition of Terms

Forensic Auditing: A specialized form of auditing that applies investigative and accounting skills to detect and prevent financial fraud.

Financial Performance: A measure of how efficiently a company uses its resources to generate profit. It is assessed through ROA, ROE, and EPS.

Return on Assets (ROA): A ratio that measures how well a company uses its assets to generate earnings.

Return on Equity (ROE): A ratio that shows the level of return a company generates from shareholders’ investments.

Earnings Per Share (EPS): A financial indicator that represents the profit earned for each outstanding share of stock.