Regulatory Compliance and Financial Reporting Quality: The Moderating Role of Audit Quality in Listed Manufacturing Companies in Nigeria

Abstract

Regulatory compliance refers to the extent to which firms adhere to applicable laws, accounting standards, and disclosure requirements. Although compliance is expected to improve transparency in financial reporting, it does not always guarantee high-quality reporting, as firms may satisfy formal requirements without faithfully reflecting underlying economic realities. This limitation highlights the importance of examining factors that can strengthen the relationship between regulatory compliance and financial reporting quality, particularly audit quality. Against this backdrop, this study examined the effect of regulatory compliance on the financial reporting quality of listed manufacturing companies in Nigeria, with audit quality serving as a moderating variable. Specifically, the study investigated the influence of accounting-based and non-accounting-based regulatory compliance on financial reporting quality and assessed the moderating role of audit quality. An ex-post facto research design was adopted using secondary data obtained from the annual reports of manufacturing firms listed on the Nigerian Exchange Group over the period 2015–2024. The population comprised 54 listed manufacturing companies as of 31 December 2024, while a sample of 40 actively listed firms was selected using a census sampling technique. Data were analysed using the Driscoll–Kraay standard error regression technique to address cross-sectional dependence and heteroskedasticity. The findings revealed that accounting-based regulatory compliance had a positive but insignificant effect on financial reporting quality, while non-accounting-based regulatory compliance had a positive and significant effect. Furthermore, audit quality significantly moderated the relationship between regulatory compliance and financial reporting quality. The study concludes that regulatory compliance enhances financial reporting quality, particularly when supported by strong audit quality, and recommends stronger enforcement of regulatory frameworks and the engagement of high-quality auditors among listed manufacturing firms in Nigeria.