Augustine Ehijeagbon Akhidime

Benson Idahosa University, Nigeria

This study examined the drivers of audit failures and fraudulent financial reporting in distressed Nigerian banks. The historical study carried out an analytical review of literature that included previous empirical studies, reports of investigations of the Banks by Financial Regulatory Agencies and content analysis of audited financial statements of the distressed banks. The major findings of this study are that the incidence of audit failure in distressed Nigerian banks were driven by the auditor’s ineffectiveness attributable to inadequate regulation, a lenient legal liability system that failed to make auditors liable for audit failure, and corporate corruption whose detection, the auditing standards failed to clearly make the auditor’s responsible. Fraudulent financial reporting was considered to have been caused by corporate corruption. The board and management of the banks used fraudulent financial statements to cover-up the negative effects of their corrupt and unethical practices. The policy implication of the findings are that auditing standards and auditors’ legal liability framework require a drastic review that would make auditor’s responsible for the detection of corporate corruption clearer and their liability for audit failure more automatic.

KEYWORDS: Audit Failure; Bank distress; Bank failure; Corporate governance; Fraudulent Financial Reporting