The Impact of External Audits on Investor Confidence: A Case Study of Seplat Energy Plc
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Background of the Study
Investor confidence is a cornerstone of financial market stability and economic growth. It is largely driven by the perceived reliability of financial information disclosed by companies. External audits play a pivotal role in reinforcing this confidence by providing independent verification of an entity’s financial statements, ensuring transparency and accountability (FRCN, 2023).
Seplat Energy Plc, as one of Nigeria's leading oil and gas companies, operates in a sector where investor confidence is often influenced by volatility and governance challenges. External audits serve as a mechanism for validating the company’s financial integrity, especially given the industry's susceptibility to regulatory scrutiny and financial mismanagement (KPMG, 2024). For investors, the assurance provided by reputable external audit firms is essential for informed decision-making and long-term engagement with the company.
However, recent financial scandals in Nigeria have highlighted lapses in audit practices, raising concerns about the extent to which external audits can effectively bolster investor confidence. This study seeks to examine the specific impact of external audits on investor confidence in Seplat Energy Plc, offering insights into the broader relationship between audit quality and investor behavior.
Statement of the Problem
In Nigeria, the erosion of investor confidence due to financial misstatements and corporate scandals has become a recurring issue. While external audits are designed to enhance transparency and accountability, their effectiveness in restoring investor trust has been called into question. Seplat Energy Plc, as a publicly traded company, relies heavily on investor confidence to attract capital and sustain its operations.
Despite engaging reputable audit firms, the company faces ongoing challenges in addressing stakeholders' concerns about the accuracy of financial disclosures. Research indicates that investor perceptions of audit quality are influenced not only by the auditor’s reputation but also by the timeliness, scope, and findings of the audit report (Deloitte, 2025). This study aims to explore the extent to which external audits impact investor confidence at Seplat Energy Plc, identifying gaps and recommending strategies for improvement.
Objectives of the Study
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To analyze the impact of external audits on investor confidence in Seplat Energy Plc.
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To evaluate investor perceptions of audit quality and its influence on investment decisions.
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To propose measures for enhancing the role of external audits in boosting investor confidence.
Research Questions
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How do external audits impact investor confidence in Seplat Energy Plc?
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What are the key factors influencing investor perceptions of audit quality?
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What measures can enhance the effectiveness of external audits in improving investor confidence?
Research Hypotheses
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H₁: External audits significantly improve investor confidence in Seplat Energy Plc.
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H₂: Investor perceptions of audit quality are positively influenced by the reputation of the auditing firm.
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H₃: Enhanced transparency in audit findings leads to increased investor confidence.
Scope and Limitations of the Study
The study focuses on the role of external audits in influencing investor confidence in Seplat Energy Plc. It will assess the perceptions of institutional and individual investors, with data sourced primarily from Seplat’s audited financial statements and investor reports. Limitations may include restricted access to confidential audit data and the subjective nature of investor confidence metrics.
Definitions of Terms
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External Audit: An independent examination of an organization’s financial statements to ensure accuracy and compliance with regulatory standards.
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Investor Confidence: The trust investors place in a company’s financial integrity and governance practices.
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Audit Quality: The ability of an audit to detect and report material misstatements in financial statements.
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