An Examination of Tax Audit and its Influence on Financial Performance

This report investigates the relationship between tax audit and financial performance of firms in Nigeria. It begins with an introduction defining financial performance and the importance of tax audit in achieving government revenue goals. The study addresses the problem of tax audit in Nigeria and sets out to examine the connection between tax audit and the financial performance of firms. The objectives include ascertaining the relationship between desk and field tax audits with return on assets and equity, formulating research questions, and establishing hypotheses. The study also highlights the significance of the research for the private sector, students, researchers, employees, and government parastatals. The scope of the study covers content, geographic area (Nigeria from 2008-2018, specifically Port Harcourt), and unit of analysis (macroeconomic level). The report defines key terms, including desk and field tax audits, financial performance, return on assets, and return on equity. Chapter two delves into theoretical frameworks such as audit theories, including the policeman theory, lending credibility theory, theory of inspired confidence, moderator of claimants theory, and agency theory. The theory of planned behavior is also discussed. The study aims to provide insights into how tax audits affect financial outcomes and contribute to the existing literature on tax audit compliance, particularly from a developing country perspective. The research considers the interrelation of government regulations, tax audit, and tax revenue.

CHAPTER ONE
INTRODUCTION
1.1 Background to the study
Financial performance can be defined as the outcomes of work because they provide the
strongest linkage to the strategic goals of an organization, customer satisfaction and economic
contributions (Salem, 2013). Financial Performance is quite different than individual
Performance Management which specifically targets the personal performance of an employee
although the latter comprises an essential part of the overall organizational performance
framework. It is, ideally, the means through which organization performance can be improved by
ensuring appropriate recognition and reward for their efforts, and by improving communication,
learning and working arrangements.
Financial Performance is one of the most popular terms in today’s business management
terminology. The idea of managing organizational performance is being widely accepted and
adopted all over the world. It spread rapidly from the private sector to the public sector in the
developed world and has recently found its way in many developing countries (Beirut, 2003).
The global economy is changing rapidly and organisations are increasingly being forced to make
changes in order to maintain a competitive edge.
According to Abbott, (2010), understanding the characteristics of tax audit is key in determining
its effectiveness. Carcello (2012), emphasized that tax auditors should be made up of
independent individuals, with some possessing financial knowledge and experience.

The ultimate aim of any government‟s tax system is to achieve its legitimate projected revenue
to finance the country‟s expenditure. This can only be immensely realized if all taxpayers both in
developed countries such as “USA, China, Russia, Malaysia, New Zealand” and less developing
countries such as Nigeria, Togo, Ghana and Mail” willingly comply with the tax laws. Even
though the development of tax audit in Nigeria has expanded recently with a few empirical
studies exploring tax compliance audit, the role of tax audit has been neglected. The current
study provides a different standpoint to view tax audit in Nigeria while contributing to the
existing tax audit compliance literature, particularly from a developing country perspective.
The findings may also be generalized for other countries since all of the world‟s major tax audit
have a substantial representation in Nigeria (Adediran., Alade & Oshode, 2013; Nwaiwu, 2016).
The underlying assumption is that the more highly tax audit the taxpayers are, and the more
positive their perceptive towards government, the more they comply with tax laws (Due, 2008;
Avi – Jonah, 2009; Ironkwe & Nwaiwu, 2016).
Carcello, (2012) gave emphasis on the frequent meetings of the tax audit. High level corporate
failures have been experienced in the world. Hence, focus has been shifted to the governance of
corporate and the effectiveness of tax audit, boards, disclosures, internal controls and auditors
and director’s independence. Globally corporate internal governance has been strengthened by
tax audit. Previously the tax audit committees were non-mandatory instruments that ensured
accountability.
Nevertheless, many countries have established regulations for institutions to adopt audit
committees and emphasize on the increase of their roles (Raghunandan & Rama, 2011).

Tax audit is a much discussed topic and many researchers have investigated the relationship
between tax audit and tax revenue. Allinghan & Sandom (2012) find that the explanatory power
of tax revenue is very low and this casts doubts on the descriptive validity of deterrence theory.
They suggest that it is important to test the explanatory value of alternative paradigms to the
deterrence based models. Avi-Jonah (2009); Adediran, Alade & Oshode (2013) use deterrence
theory to explain the relationship between tax audit and tax revenue; Alade & Oshod (2013);
Nwaiwu (2015) on the other hand, use a strategic management perspective to explain the same
relationship and they reach a different conclusion. In sum, economic theory, psychological
theory, sociological theory and deterrence theory and other management theories may give
contrasting predictions on the relationship between tax audit and tax revenue.
A number of recent studies take a contingent view of the sector. Researchers have investigated
the mutual relationship among government regulations, tax audit and financial performance. This
research argues that examining tax audit in an isolated context is not effective. For example,
Abudlrazaq (1992); Akindele & Obiyan (2002) examine the inter-linkages between tax audit,
and argue that the tax operate as substitutes and work simultaneously in the sector. The
underlying assumption in this study is that government regulations, tax audit and tax revenue are
interrelated.
It is on this premise that the study tends to investigate why individuals, corporate bodies, trust
and other institutions choose to be tax audited via desk and field tax audit. Thus, this study
examined the relationship between tax audit and financial performance in Nigeria.
The foregoing has shown the inability of government to realistically curb the high rising problem
of tax audit in Nigeria.

1.2 Statement of the Problem
1.3 Aim and Objectives of the Study
The aim of the study is to examine the relationship between tax audit and financial performance
of firms in Nigeria.
The specific objectives are to:
1 Ascertain the relationship between desk tax audit and return on assets.
2 Evaluate how desk tax audit relate to return on equity.
3 Ascertain the relationship between field tax audit and return on assets.
4 Evaluate how field tax audit relate to return on equity.
1.4 Research Question
1. What is the relationship between desk tax audit and return on assets?
2. What is the relationship between desk tax audit and return on equity?
3. What is the relationship between field tax audit and return on assets?
4. What is the relationship between field tax audit and return on equity?
1.5 Research Hypotheses
Ho1 Desk tax audit does not relate significantly to return on assets.
Ho2 Desk tax audit does not relate significantly to return on equity.
Ho3 Field tax audit does not relate significantly to return on assets.
Ho4 Field tax audit does not relate significantly to return on equity.
1.6 Significance of the study

This study will be useful to the following
Private sector: it will give them a better understanding about the benefit or importance of tax
audit and financial performance. It will also enable them to know the effect tax audit has on
financial performance of firms in Nigeria.
Student: this study broadens the knowledge of accounting students on tax audit and also teaches
them how tax evasion can be a catalyst to financial performance.
Researchers: This study will serve as a source of data to them and also increase their
knowledge.
Employees: this study enables them to work in line with the standard set for the organization.
Government Parastatals: The study will provide useful information for planning and
forecasting.
1.7 Scope of the study
Scope: The study scope was discussed under three perspectives – content scope, geographic
scope and unit of analysis.
a. Content Scope: The content scope of this study is streamlined to the effect of tax audit
and financial performance in Nigeria. The study shall also examine the likely causes and
challenges tax audit may pose on the Nigerian economy, performance and development.
b. Geographic Scope: Geographically, the review of extant literature cuts across the
Nigerian economy from 2008 - 2018. However, the analysis was carried out in Port
Harcourt, Rivers State, Nigeria.

c. Unit of Analysis: Since the study is focused on the influence of tax audit and economic
development in Nigeria, the unit of analysis was at the macroeconomic level.
1.8 Definition of Terms
Desk Tax Audit: This kind of audit, tax officer reviews the document that taxpayers submit to
them monthly or annually as per tax law requirement. For example, the entity is required to
file tax returns monthly including salary tax, withholding tax, prepayment profit tax, and other
related tax
Field Tax Audit: is a comprehensive tax audit conducted by the Internal Revenue Service (IRS)
at either the taxpayer's home, place of business or accountant's office, so they can examine your
individual or business financial records to ensure you filed your tax return accurately.
Financial Performance: it is a measure of how well a firm can use assets from its mode of
business and generate revenue.
Return on Assets: it is an indicator of how profitable a company is relative to its total assets.
Return on Equity: a measure of financial performance calculated by dividing net income by
shareholders equity
Tax Audit: is an examination of your tax return by the IRS to verify that your income and
deductions are accurate. A tax audit is when the IRS decides to examine your tax return a little
more closely
1.9 Organization of study
The study was organized into five chapters.

Chapter one anchors on introduction. This section discusses the background of the study,
statement of the problem, objectives of the study, purpose, the research questions, the research
hypotheses, significance of the study and scope and limitation of the study.
Chapter two reviewed related theoretical, conceptual and empirical literature on tax audit and
financial performance of firms in Nigeria.
Chapter three deals with the methodology used in data collection and analysis which includes
research design, population of study, sample and sampling techniques, nature of data, methods of
data collection, validity and reliability of instrument.
Results and discussion will be presented in chapter four which is made up of presentation of data
in table, data analysis and discussion of findings.
Finally, chapter five will discuss the summary, conclusion, recommendations and contribution to
knowledge.

CHAPTER TWO
LITERATURE REVIEW
2.1 Theoretical Framework
2.1.1 Audit Theories
The form on tax administration (2004) “identified some of the basic theories of tax audit and
compliance which include, among others: audit theory, economic theory, psychological theories
and sociological theories.
Awe (2008) defines auditing as an independent examination of the books and accounts of an
organization by a duly appointed person to enable that person give an opinion as to whether the
accounts give a true and fair view and comply with relevant statutory guidelines. The American
Accounting Association (1971) in its Statement of Basic Auditing Concepts in Hayes, Schilder,
Daseen and Wallage (1999) described auditing as: a systematic process of objectively obtaining
and evaluating evidence regarding assertions about economic actions and events to ascertain the
degree of correspondence between these assertions and established criteria and communicating
the results to interested users. Akinbuli (2010), Hayes et al (1999) reported that several theories
of auditing were made to specify and determine the audit functions. Some of these theories
include:
The Policeman Theory: This theory of auditing was purely on the arithmetical accuracy and on
the prevention and detection of fraud. This theory makes the auditor to detect and prevent errors
and fraud in organizations.

The Lending Credibility Theory: This theory of auditing regards the primary function of
auditing to be the addition of credibility to the financial statements. Akinbuli (2010) states that
audited financial statements can enhance stakeholders’ faith in management’s stewardship.
Theory of Inspired Confidence: This theory states that stakeholders demand accountability
from the management in return for their contribution to the organization.
The Moderator of Claimants Theory: This theory states that it is important that all vital
participants in an organization continue to contribute. In order to continue these contributions, it
is important that each group believes it receives a fair share of the organizations income.
Agency Theory: This theory is associated with conflicting interests of shareholders and
management of organizations, suggesting that the less informed party will have to demand for
information that monitors the behaviour of better informed manager (Akinbuli, 2010). According
to Hayes et al (1999), agency theory can be used to explain the supply side of the audit market.
The contribution of an audit to third parties is basically determined by the probability that the
auditor will detect errors in the financial statements and the auditor’s willingness to report these
errors.
2.1.2 Theory of Planned Behaviour
The theory of planned behaviour states that the behaviour of individuals within the society are
under the influence of definite factors, originate from certain reasons and emerge in a planned
way (Erten, 2002). Benk et al (2011) stated that the ability to perform a particular behaviour
depends on the fact that the individual has a purpose towards that behaviour. Therefore, the
factors that determine the purpose towards that beahviour are attitude towards behaviour,
subjective norms and perceived behavioural control (Armitage and Conner, 2001).

Ajzen (2002) says that these factors are under the influence of behavioural beliefs, normative
beliefs and control beliefs. Wenzel (2004a), Braithwaith (2003) highlighted that sociological and
psychological factors have proved to be important in understanding the high levels of tax
compliance. In such analyses, concepts such as trust in authorities (Murphy, 2004), perceived
fairness of the system (Wenzel, 2004b), moral considerations and norms (Frey, 2003; Wenzel,
2004b) are used to promote better understanding of tax compliance.
2.1.3 Psychological theories
Many analysts, researchers and professional accountancy bodies have suggested that the
economic model of human behaviour reflects a too simplistic view of human beings and, in the
real world of everyday life, is without any predictive value. Like economists, psychologists also
tend to explain human behaviour in terms of variables that relate to individuals. However, they
tend to model human behaviour in much more complex terms than economists.
2.1.4 Classical Theory of Tax Compliance
This theory of tax compliance is also called the A-S models based on the deterrence theory. The
theory states that the taxpayer is assumed to maximize the expected utilities of the tax evasion
gamble, balancing the benefits of successful tax cheating against the risky prospect of being
caught and punished by tax authorities (Sandmo, 2005). Alabede, Zainol-Affirm, and Idris,
(2011) stated that the deterrence theory depends largely on tax audit and penalty. They further
stressed that this theory of tax compliance makes taxpayers to pay tax as a result of fear and
sanctions.
Trivedi and Shehata (2005) says that the deterrent theories suggest that taxpayers “play the audit
lottery”, that is they make calculations of the economic consequences of different compliant

alternative. Verboon and Dijke (2007) stated that the essence of the deterrence model of tax
compliance is to chiefly examine the interaction between probability of detection and sanction
severity that should affect non-compliance. Brook (2001) says that classical theory is only based
on economic analysis but social and psychological variables are equally important in
understanding the issue of noncompliance to tax.
Some of the important studies about the effects of deterrence on compliance include Hasseldine
(2000), Torgler (2002) and Kirchler (2007). Elffers (2000) and Braithwaith (2003) argued that if
deterrence (that is the probability of detection and sanction severity) would be the most
significant variable in explaining compliance, rational individuals in most societies of the world
would be non-compliant because the levels of deterrence are low.
2.1.5 Sociological theories
Under these trends, sociologists tend to see the cause of variation in human behaviour in the
structure of the social system. Thus, they explain people‟s actions by examining the forces that
impinge on the position that they occupy within the system.
2.1.6 Economic theories
Strikingly, economists approaching the question of why people fail to comply with the law began
by constructing a theory based upon the assumption about human behaviour that underlies all
economics, namely that individuals generally act rationally in evaluating the cost and benefit of
any chosen activity.

2.2 Conceptual Framework
Taxes are considered as a source of revenue for economic growth and development. Tax
revenues and other revenues are central to the current economic development agenda. They
provide a stable flow of revenue to finance development priorities, such as strengthening
physical infrastructure, and are interwoven with numerous other policy areas, from good
governance and formalizing the economy, to spurring growth (Pfister, 2009).
The Nigeria tax system has failed on the area of it „administration. Personal and company
income tax administration in Nigeria today do not measure to the appropriate standard. The self-
employed persons earn more than those in paid employment. The self-employed earn four times
than those in paid employment but the bulk of personal income yield comes from those paid
employment whereas those who are self-employed earn most of the money. As a result of
inadequacy in monitoring taxes paid, lots of those who are self-employed evade tax. These thus
call for the need for a good and standard tax audit.
2.2.1 Tax Audit
Tax audit is an inspection of a taxpayer's business records and financial affairs to ensure that are
the amount of tax reported and paid are in accordance with tax laws and regulations. This is an
additional audit to the statutory audit and is carried out by tax officials from a relevant tax
authority. This is not the same as the statutory audit with respect to the requirement of the
Company and Allied Matter Act (CAMA) 1990 (as amended).
It should also be noted that the criteria for selecting cases for tax audit include persistent loses,
nil tax returns, refund cases, nonsubmission of returns, low tax yield, suspicion of tax avoidance,
fraud or evasion, transfer mispricing, thin capitalization and most often when the taxpayers

request for tax clearance certificate among others (Bitrus, 2014, Okonkwo 2014, Oyedokun
2014) .
Tax audit exercise as concluded by Okonkwo (2014) is a very important compliance tool in most
tax jurisdictions all over the world. It has contributed immensely in creating awareness amongst
5 stakeholders, strengthening of the self-assessment tax system, bringing of more taxpayers into
the tax net, increased generation of tax revenue and checking of various abuses in the tax system.
2.2.2. Objectives of Tax Audit
The purpose of tax audit is to determine a true and fair view of the business records for tax
purposes. The tax audit officer is responsible to ensure that the reported amount is correct and
that the amount of tax paid is correct accordance with tax laws and regulations.
The other purpose of tax audit is to achieve the voluntary compliance with the tax laws and
regulations and to ensure that a higher tax compliance rate is achieved under the Self-Assessment
System (eeVonn, 2009).
The objectives of tax audit according to Bitrus (2014) are to enable the tax auditors to determine
whether or not:
i. Adequate accounting books and records exist for the purpose of determining the
taxable profits or loss of the taxpayer and consequently the tax payable;
ii. The tax computations submitted to the authority by the taxpayer agree with the
underlying records.
iii. All applicable tax legislation have been complied with.
iv. Provision of an avenue to educate taxpayers on various provisions of the tax laws; v.
Discourage tax evasion.
v. Detect and correct accounting and/or arithmetic errors in tax returns.

vi. Provide feedback to the (tax administrators) on various provisions of the law and
recommend possible changes.
vii. Identify cases involving tax fraud and recommend them for investigation.
viii. Forestall a taxable person’s failure to render tax returns.
ix. Forestall a taxable person rendering incomplete or inaccurate returns in support of the
self-assessment scheme.
2.2.3. Types of Tax Audit
Okonkwo (2014) opined that the scope and type of audit steps to be executed would depend
on the type of audit to be performed, the underlying trigger and the objectives to be achieved.
He further stated that Federal Inland Revenue Service (FIRS) is involved in the following
types of audit:
1. Registration Audit – The purpose of this audit is to bring all relevant companies and
individuals into the tax net. The audit involves obtaining information on businesses from
the Corporate Affairs Commission (CAC), the Nigeria Customs Service, other third
parties and routine visits to premises of suspected non-registered taxpayers in order to
ensure that all companies and individuals who fall under FIRS’ tax jurisdiction are
properly registered. In some cases, information in this regard can be obtained from other
FIRS departments who may alert the Tax Audit Processes and Policies Department on the
need to carry out registration checks regarding certain companies and individuals who are
outside the FIRS tax net. At the end of each registration audit, companies and individuals
found to be outside tax net are usually registered and given Taxpayer’s Identification
Number, and a Permanent Note Jacket file is opened.

2. Advisory Audits – A visit to newly established businesses advising them of their
obligations in terms of tax types, filing of declarations, payment of amounts due, records
to be maintained and likelihood of audit if it is considered to be a risk and the sanctions
that might apply for non-compliance. Obtaining information on newly registered
companies from CAC and visiting their offices to advise them of their obligations under
the law.
3. Record Keeping Audits – A check on enterprises that may have a reputation of not
keeping adequate records. The visit would point out the obligations of the taxpayer as
provided for in the CITA Section 63 regarding the keeping of records. Penalties are to be
computed in line with CITA Section 92.
Adesina (2005) defined an tax audit as the examination of accounting documents and of
supporting evidence for the purpose of reaching an opinion concerning their propriety. It is an
examination intended to serve as a basis for an expression of opinion regarding the fairness,
consistency, and conformity with accepted accounting principles of statement prepared by a
corporation or other entity for submission to the public or to other interested parties. Tax audit is
therefore a means of ensuring compliance with the tax laws.
The primary purpose of tax audit is to maintain the confidence in the integrity of the self
assessment system. It helps to improve voluntary compliance by detecting and bring to book
those who do not pay the correct amount of tax.
One of the cardinal principles governing the tax audit program is that each line of grade or
business should receive at least a nominal amount of audit attention. The selection of times for
audit is management decision and criteria used vary from time to time. (Ola: 1999).

The idea of tax audit became known through Lagos state where monitoring agents were
appointed to carry out tax audit on government behalf. These monitoring agents mostly
Chartered Accountants who are performing the function of carrying out tax audit of PAYE.
The function of these monitoring agents however was taken over by tax consultant in 1996 and
their mode of operations different from that of monitoring agents. It has become fashionable for
state government to carry out tax audit exercise in order to fulfill all righteousness that the actual
tax due to the government have been deducted and remitted to the government account (Ojo,
1998).
This exercise has however received some credits which are;
1. Making the taxpayer conversant with the applicable tax laws
2. The rate at which the taxpayers comply with tax laws has been increased.
3. It has added depth to the Nigeria tax practice
4. The revenue of the government was increased.
Erard (1994) mentioned some reasons for tax audit which include, among others:
To assist the government in collecting appropriate tax revenue necessary for budget, maintaining
economic and financial order and stability, to ensure that satisfactory returns are submitted by
the tax payers, to minimize the degree of tax avoidance and tax evasion, to ensure strict
compliance with tax laws by tax payers, to improve the degree of voluntary compliance by tax
payers and to ensure that the amount due is collected and remitted to government. It will enable
the government to control and ensure the taxpayers‟ compliance with tax laws thus this will
increase tax revenue collected from taxpayers. One of the functions of auditing is to detect errors
and frauds, RRA‟s tax audit and investigation aim at stopping the loss which comes from tax
evasion, fraud and corruption.

If there is a fraudulent event by taxpayers, auditing practices will enable the RRA to find out the
taxpayers who had avoided paying tax and paying the tax due with penalties and fines. The
purpose of auditing is to discover, check, verify and control some or other aspects in an
organization. It can therefore be said that one of the main characteristics of an audit is that it is
diagnostic.
James (1993) identified a priority list of tax audit mission, this includes: to establish a viable and
effective tax administration in order to deal with constantly changing economy, to put strategies
in place in order to resolve tax dispute between the tax authority and the liable tax payers, to
maintain a strong mechanism to deal with tax avoidance techniques which are available to
various organizations, but are susceptible to tax abuse, to bring defaulting tax payers to the net of
tax authorities, to prove the completeness, accuracy and timely filing of tax returns submitted by
the tax payers.
Today‟s tax agencies typically lose some percentage of total revenues due to tax evasion and
other types of noncompliance known as the “tax gap” Brown et al , (2003). The primary goal of a
revenue body‟s compliance activity is to improve overall compliance with their tax laws, and in
the process instill confidence in the community that the tax system and its administration are fair.
Instances of failure to comply with the law are inevitable whether due to taxpayers‟ ignorance,
carelessness, recklessness and deliberate evasion, or weaknesses in administration. To the extent
that such failures occur, governments, and in turn the communities they represent, are denied the
tax revenues they need to provide services to citizens Forum on tax administration‟s compliance,
(2006).
At a time when tax evasion techniques have grown more sophisticated, tax agencies have
simultaneously been hit with a cascade of budgetary and staffing restrictions, continually

changing tax statutes and more rigorous requirements for privacy. As a result of these pressures,
many tax agencies continue to rely on audits of taxpayers‟ business records and financial affairs
to ensure taxpayers have computed their tax payable in accordance with current tax laws and
regulations and this implies the tax revenues growth otherwise, tax agencies can lose significant
revenues opportunities.
According to Bassey (2013), he classified tax audit into two: Desk Audit; and Field Audit
2.2.4 Desk Tax Audit
Desk or office audit is said to be the tax audit or examination which takes place in the tax office
where books and financial records of the taxpayers are examined. This is one which the whole
activity of the audit takes place within the confines of the office of the tax officials. In this
situation the tax official may simply request the taxpayers to provide some additional documents
to his office to enable him clear some issues in the returns submitted.
In this type of audit, no official notice is given to the taxpayer of the impending desk audit
exercise. He only gets to know when letters are written to him requesting for certain documents
or explanations. The essence is to ensure some level of compliance with tax laws, rules and
regulations as well as performing the administrative checks on returns submitted.
2.2.5 Field Audit: Field audit refers to that tax audit conducted in the taxpayers‟ office. In
field tax audit, tax auditors have opportunity to examine the relevant documents, accounts, and
other necessary schedules in taxpayers‟ business premises and this affords the auditors
opportunity to obtain information and explanations directly from the staff of the company
(Bassey, 2013).
By the nature and scope of their work, regular assessing officers can only carry out limited desk
audit through examination of accounts and returns. It is in a bid to check this handicap as well as

to improve on tax compliance that tax authorities carry out field audit exercise on taxpayers by
physically conducting the exercise in the office of the taxpayer. The taxpayers are however
formally notified of the arrival of the auditor prior to the commencement of the audit and the
requirements of the auditors in terms of documents to be audited will also be requested for in
advance. Field audit involves physical verification of documentary evidence and materials at the
premises of a taxpayer so as to confirm the facts and figures of the tax returns filed by corporate
taxpayers. The scope or depth of verification depends on the outcome of the desk audit work
carried out by the tax auditor as well as the risk factors of the audit exercise. Special attention
will normally be paid to those items likely to have high tax yield potentials. A third classification
of tax audit as indicated in the literature is the back duty audit.
2.2.6 Condition for a Good Tax Audit
For the tax inspector to carry out a good audit exercise, the following conditions must be
fulfilled.
1. The tax auditor must be familiar with the environment in which he works. It is a condition
which is highly critical that the tax inspector must be properly schooled in the political,
economical, social, cultural and religious environment of the taxpayer. A good knowledge of his
environment will affect the decision made by him.
2. The tax officials should be motivated to carry out tax audit, he should be properly trained and
have experience in his area. The tax inspector should not be carried away by corrupt practices
that render the aim of the tax audit useless.
3. The tax audit should be properly supervised by those who are professional and when new tax
inspectors are sent to carry out the audit, they should be monitored by older ones so as to make
sure that the right thing is done.

4. Specialization should be encouraged. The cases should be grouped. This will allow the tax
audit staff to become specialist in specific field.
5. The manner in which the audit is being carried out should be changed. The use of computer
should replace the manual process as this will go a long way in facilitating the job and helping to
preserve information for a long time. This will improve the efficiency of the exercise (Ogundele,
1999).
2.2.7 Legal Basis of Tax Audit
Unlike the statutory audit that derived its power form the CAMA 1990 (as amended), the legal
framework for tax audit and investigation are in relation to various tax laws. The tax laws confer
power on the tax authorities to carry out tax audit and investigations. Some of the provisions
could be inferred. In the word of Okonkwo (2014), there was no specific provision in Companies
Income Tax Act (CITA) for tax audit prior to the introduction of the selfassessment scheme.
Subsection 4 of Section 43 was, however, introduced to empower FIRS to carry out tax audit.
“Nothing in the foregoing provisions of this Section or in any other provisions of the Act shall be
construed as precluding the Revenue Service from verifying by tax audit any matter relating to
entries in any books, documents, accounts or returns as the Service may from time to time
specify in any guideline.” An integral part of the self assessment scheme is the need to
periodically verify the tax returns filed by taxpayers through tax audit procedures. The tax audit
exercise essentially is meant to enable the revenue authority to further satisfy itself that audited
financial statements and the related tax computations submitted by the taxpayer agree with the
underlying records. Examples of specific legal provisions according to Okonkwo (2014) and
Bassey (2013) include:
i) FIRS (Establishment) Act, 2007- S.8, S. 23, S 29 & S.35;

ii) Companies Income Tax Act Cap. C21, LFN 2004-S.60, S.66, S. 58 (Section 17, of
the Companies Income Tax (Amendment) Act 2007.
iii) Personal Income Tax Act- S.46, S.47, S. 55, S.103.
iv) Petroleum Profit Tax Act Cap. P13, LFN 2004 S3 (1), S.36.
v) Value Added Tax Cap. VI LFN 2004. S. 39.
vi) Stamp Duties Act Cap. S8, 2004 S 24.
vii) Education Tax Act Cap E4, LFN 2004 S. 2(1) (b).
2.1.9. Tax Audit and Tax Investigation
From the forging, it can be established that tax investigation is an in-depth investigation
processed by a tax authority in order to recover tax undercharged in previous years of
assessment. It is carried out when a taxpayer is suspected of tax evasion, or just by random
sampling (HMRC Codes of Practice).
Audit is an examination of books, financial statement and other company documents with the
aim of expressing opinion. On the other hand, however, forensic accounting, investigation, the
tax investigation could be informed of both civil and criminal in nature. To be more specific, tax
investigation could be civil tax investigation or criminal tax investigation. Civil tax investigation
involves the activity of detection of tax evasion. This will lead to the tax payers having the
responsibility to recover the tax loss and coupled with heavy penalties. Criminal tax
investigations focus on gathering some acceptable evidence that prosecute and belief that the tax
evader is offences to the law.
The purpose of Tax investigation varies from business to business. It ensures that the correct
amounts of taxes are collected and determine the person responsible for the offence and follow
the criminal prosecution.

According to Cheng & Co (2014), tax investigation is a more serious exercise with heavy
penalties and financial implications than tax audit.
Tax investigation is an examination by the tax authorities of the taxpayers' business, documents
& records to verify and assess that the correct amount of taxable income had been reported and
the correct amount of tax had been paid by the tax payers in accordance with the tax laws and
regulations. The main difference between a tax audit and a tax investigation is that a tax
investigation will only be carried out based on having precise and definite evidence that the
taxpayer has deliberately tried to avoid paying tax or has committed an act of willful evasion
under the provisions of the relevant Tax Laws (Cheng & Co, 2014).
It is also important to note that there is no specific qualification for would be tax auditors or tax
investigators unlike the conventional auditors and investigators. However, it is implied that
whoever is taking the role as tax auditor and tax investigator must first be a tax administrator, or
consultant who must have been trained with requisite knowledge in taxation.
In Nigeria, the most recognized and acceptable taxation professional qualification is that of the
Chartered Institute of Taxation of Nigeria (CITN). The Institute which was established in 1982
and Chartered by Act No. 76 of 1992 is saddled with the responsibility of regulating Tax Practice
and Administration in the country. The Institute awards Associates and Fellowship to its
deserving members and do offer Mandatory Professional Training Programmes (MPTPs) to its
members from time to time.
Audit is an examination of books, financial statement and other company documents with the
aim of expressing opinion. On the other hand, however, forensic accounting, investigation, the
tax investigation could be informed of both civil and criminal in nature. To be more specific, tax
investigation could be civil tax investigation or criminal tax investigation. Civil tax investigation

involves the activity of detection of tax evasion. This will lead to the tax payers having the
responsibility to recover the tax loss and coupled with heavy penalties. Criminal tax
investigations focus on gathering some acceptable evidence that prosecute and belief that the tax
evader is offences to the law.
The purpose of Tax investigation varies from business to business. It ensures that the correct
amounts of taxes are collected and determine the person responsible for the offence and follow
the criminal prosecution.
According to Cheng & Co (2014), tax investigation is a more serious exercise with heavy
penalties and financial implications than tax audit. Tax investigation is an examination by the tax
authorities of the taxpayers' business, documents & records to verify and assess that the correct
amount of taxable income had been reported and the correct amount of tax had been paid by the
tax payers in accordance with the tax laws and regulations.
The main difference between a tax audit and a tax investigation is that a tax investigation will
only be carried out based on having precise and definite evidence that the taxpayer has
deliberately tried to avoid paying tax or has committed an act of willful evasion under the
provisions of the relevant Tax Laws (Cheng & Co, 2014).
It is also important to note that there is no specific qualification for would be tax auditors or tax
investigators unlike the conventional auditors and investigators. However, it is implied that
whoever is taking the role as tax auditor and tax investigator must first be a tax administrator, or
consultant who must have been trained with requisite knowledge in taxation.
In Nigeria, the most recognized and acceptable taxation professional qualification is that of the
Chartered Institute of Taxation of Nigeria (CITN). The Institute which was established in 1982
and Chartered by Act No. 76 of 1992 is saddled with the responsibility of regulating Tax Practice

and Administration in the country. The Institute awards Associates and Fellowship to its
deserving members and do offer Mandatory Professional Training Programmes (MPTPs) to its
members from time to time.
2.3 Empirical Review
A lot of scholars had conducted empirical studies on the need for taxation and how the proceeds
would benefit the Nation at large, others premised theirs on tax compliance culture, tax audit, tax
avoidance and revenue generation in the country. These are reviewed below:
Machira & Irura (2009) on taxation and SMS's sector growth in Nigeria, they found that there is
a significant correlation between taxation and SMS's sector growth. Data used for this study was
collected using the questionnaire, interview and observation. It was analyzed using binary
logistic regression empirical model. This study though concentrated only on the growth of SME's
in Nigeria.
Chigbu, Akujuobi & Ebimobowei (2011) conducted an empirical study on the casualty between
economic growth and taxation in Nigeria in 2014. They used econometrics model such as
Augmented Dickey-Fuller and Johnsen Co-integration to analyzed their data and they found out
that taxation is a very important tool for fiscal policy which can stimulate economic growth of
any country.
Adereti, Adesina & Sanni (2011) also studied the effect of value added tax on Nigerian economic
growth from 1994 to 2008. Secondary data were collected and analysed using multiple
regression. The study revealed a positive correlation between VAT and GDP. James and Moses
(2012) in the United Kingdom examined the impact of tax administration on revenue generation
in a developing economy with Nigeria as a case study. Primary data were collected via
questionnaires and analyzed using simple percentages. They found that inadequate training of

personnel, lack of modern information communication tools are some of the challenges facing
effective administration of tax in Nigeria.
Abiola & Asiweh, (2012) was the Nigerian Tax Administration and its capacity to reduce tax
evasion and generate revenue for development desire of the populace. The study made use of 121
online questionnaires containing 25 relevant questions. Descriptive statistics were used to
analyze 93 usable responses. The study found among other things that increase tax revenue is a
function of effective enforcement strategy which is the pure responsibility of tax administration.
The study found out that Nigeria lack enforcement machineries which include adequate
manpower, computers and effective postal and communication system.
Okafor, (2012) explored the impact of income tax revenue on the economic growth of Nigeria as
provided by the Gross Domestic Product (GDP). The ordinary least squares regression analysis
was adopted to explore the relationship between the GDP (the dependent variable) and a set of
federal income tax revenue heads over the period 1981-2007. A simple hypothesis was
formulated in the null form which states that there is no significant relationship between
federally collected tax revenue and GDP in Nigeria. The regression result indicated a very
positive and significant relationship. Suggestions were made as to strategies to be adopted to
improve the system of tax administration to increase tax revenue generation.
Ogbonna & Ebimobowei (2012) examined the impact of tax reforms on the economic growth of
Nigeria from 1994 to 2009. Relevant secondary data were collected from the central Bank of
Nigeria (CBN) Statistical Bulletin, Federal Inland Revenue Service (FIRS), Office of Accountant
General of the Federalism and other relevant government agencies. The data collected were
analyzed using relevant descriptive statistics and Econometric Models as White test, Ramsey
Resey test, Breusch Godfrey test, Jacque Berra test, Augment Dickey Fully test, Johanson test,

and Granger Causality test. The results from the various tests show that tax reforms are
positively and significantly related to economic growth. It was recommended that sustainable
economic growth cannot be attained except obsolete tax laws and rates are reviewed in line with
macroeconomic objectives.
Akintoye & Tashie (2013) examined the effect of Tax Compliance on economic growth and
development in Nigeria. Tax compliance is proxied on willingness to pay tax. A comparative
analysis of willingness to pay taxes in two (2) large states of Nigeria, Lagos and Oyo was
presented. Primary data was collected through the administration of questionnaires to self-
employed in each senatorial district in Oyo and Lagos states. Frequencies and percentages were
used to measure the demographic variables of respondents while chi-square technique was used
to measure the difference between the willingness of citizens to pay tax and that of the
willingness of citizen to pay tax in Lagos state. It was discovered that many Nigerians are
complying with tax payment and the willingness to pay tax in Lagos is significantly higher.
Tax system in the sub-Saharan Africa with special emphasis on Nigeria was the interest of
Akintoye & Dada (2013). Various causes of tax evasion and tax avoidance were considered with
a view to finding solutions to evasion looking at enormous importance of taxation in meaningful
economic growth and development in all developing economies generally. In addition, a feeling
of injustice in the application of taxation proceeds in terms of benefits to the public is another
grouse against different tiers of government. The study recommended that policies should be
progressive rather than regressive to make the rich bear more burden that the poor in relation to
the proportion of income.

Usman & Bilyaminu (2013) examined taxation and societal development in Nigeria. Secondary
data was used and the study found that more tax compliance is significantly associated with
adequate campaign and judicious utilization of tax funds.
Matthew (2014) analyzed the impact of tax revenue on the Nigerian economy using the Federal
Board of Inland Revenue as a case study. He used chi-square and found that tax revenue
significantly impacts on Federal government budget implementation. He also concluded that tax
policies significantly affect revenue generation.
Samuel & Tyokoso (2014) on an empirical investigation of taxation and revenue generation in
Nigeria, found that both tax avoidance and tax evasion have significant effect on revenue
generation in Nigeria. Regression analysis was used to analyses both primary and secondary data
generated. The scope of this study was from 2001 to 2010, current issues left out.
Stanley (2014) conducted a study titled Effective Tax Administration and Institutionalization of
Accounting Systems in Small and Medium Scale Enterprises; Evidence from Nigeria". He used
the econometric e-view to analyse the data obtained and he found out that lack of effective tax
administration undermines the collection of profit tax from the operators of those sector. His
study also revealed that several variables mitigate against the establishment of an effective tax
administration in Nigeria. The study concentrated more on the SMS's than the Nigerian economy
as a whole.
Edame & Okoi (2014) in their research effort examined the impact of taxation on investment and
economic development in Nigeria. They used the ordinary least square (OLS) method to analyse
the secondary data collected and it was revealed that taxation is negatively related to the level of
investment and the output of goods and services (GDP) and it is positively related to 16

Ibrahim, Yusuf & Bello (2014) examined the contribution of tax audit and investigation to the
sustainable development of the Nigerian economy and concluded that the practicing accountants
should uphold the fundamental principles of professional ethics while rendering consultancy
services since they often act for taxpayers in their dealing with the relevant tax authority.
Afuberoh & Okoye (2014) examined impact of taxation on revenue generation in Nigeria and
recommends among others that Well Equipped Data Base (WEDB) on all tax payers should be
established by the federal, state and local governments with the aim of identifying all possible
sources of income of taxpayers for tax purpose however the tax collection process must be free
from corruption.
Zakariya & Muzainah, (2015) looked into the problems and prospects of tax administration in
Nigeria using Gombe as a case study. Secondary data and field survey were used by the
researchers. They found poor working conditions, insufficient public awareness and poor
remuneration among other things as problems facing Gombe state internal revenue service.
Ironkwe & Nwaiwu (2017) studied the effect among government regulations on tax audit and
government tax revenue generation in Nigeria. Adopting a three phase modeling approach, the
authors used tax laws passed in 2000, cumulating into tax reform fact of 2000, in Nigeria to
provide evidence that government regulations have on tax audit compliance and government tax
revenue. The study first examined the relationship among government regulations on tax audit
compliance and government tax revenue, effect of government regulations on tax audit
compliance and government tax revenue generation.
Nwaiwu & Okoro, (2018) noted that government regulations have evolved into a major research
topic in economic psychology. The issue has been approached from various view points
shedding light on different aspects of tax payer’s behaviour. Attitudes were measured, prevailing

social norms and lay theories explored, which people have made where fulfill their annual tax
declarations. The main objectives of this study is to establish empirically the moderating effect
of government regulation on tax audit and government tax revenue generation specially, the
moderating effect of government regulation on tax audit and government tax revenue generation.
Data were collected through primary and secondary source and the data collected was analyzed
using descriptive analysis, using Pearson product moment of coefficient of correlation, ordinary
least square regression analysis and partial correlation with the aid of SPSS version 22. With an r
value of .835, 0.594, 0.613, and 0.500, 0.218 and .677 the study evidences that government
regulation have moderating significant effect on tax audit and government tax revenue
generation in Nigeria. Based on this, the study recommends that government should try as much
as possible to engage tax auditors and other tax staff of high and proven integrity in tax matters.
Such tax officers should be well trained and motivated staff so as not to compromise their stand.
It is clear that governments all over the world wish to increase tax audit and government tax
revenue.

CHAPTER THREE
METHODOLOGY
3.1 Research Design
For the end goal of the study, two essential sorts of research designs will be examined; the test
experimental research designs and the quasi-experimental designs. The experimental research
design which is a design in which elements are controlled and manipulated by the investigator,
while in the quasi experimental design, the elements are not under the control and can't be
controlled by the agents.
As a result of the phenomenon under study not being under the entire control of the researcher,
the cross-sectional survey of the quasi-experimental is the most proper in accomplishing the
objectives of this investigation.
3.2 Population of the Study
All research questions address issues that are of great significance to groups of individuals,
organizations, Country, and so on, known as the research population. A population is the
summation or totality of component in a given area of interest. As confirmed by Okeafor (2002)
inquire about population as a total set of items that is important to an examiner.
The population of this study consists of all National Government agencies in charge of revenue
matters in Nigeria.
Given the fact that the researcher could not conduct an effective research on the target population
because the population was too large, the researcher decided to limit the study to an accessible
population.

3.3. Sampling and Sample Size Determination
The study adopted purposive sampling technique to select the sample size. Thus, the sample size
consists of five (5) of Federal government that are in charge of revenue in Nigeria as presented in
the table below.
S/N Name of Revenue Agencies
1 Federal Ministry of Finance
2 Federal Ministry of Budget and National Planning
3 Central Bank of Nigeria
4 Federal Inland Revenue Service
5 National Bureau of Statistics
Consequently, using a targeted population of the five federal government agencies that are in
charge of revenue, the Taro Yamen sample selection formula was used to determine the sample
size N = N
1+N (e)2
Where n represents sample size
N represents population size
e represents level of significance

Table 3.1 Administration and Questionnaire Retrieval
S/N Names of firms Copies of
Questionnaire
Distributed
Copies of
Questionnaire
Retrieved.
1 Federal Ministry of Finance 20 20
2 Federal Ministry of Budget and
National Planning
20 20
3 Central Bank of Nigeria 20 20
4 Federal Inland Revenue Service 20 20
5 National Bureau of Statistics 20 20
Total 100 (100%) 100(100%).
Source: research survey 2020
3.4 Nature/Sources of Data- Primary/Secondary
The nature and sources of data used for this study comprises of both primary and secondary data.
The secondary data was collected from libraries, journals, bulleting, papers and the financial
Report of five federal government agencies that are in charge of revenue in Nigeria.
The primary data were derived from the distribution of questionnaire to the various federal
government agencies that are in charge of revenue. A total of one hundred (100) questionnaires
were distributed personally to each of the five federal government agencies that are in charge of
revenue. The selected persons for the study includes: the managers at the top and middle levels,
accountants and supervisors respectively. The questions where related to the federal government
agencies that are in charge of revenue characteristics and their opinion on desk tax audit, field
tax audit and financial performance.
3.5 Methods of Data Collection/ Instrumentation
This study shall be aided with the use of questionnaire. The researcher designed the
questionnaire for the study with due care and simplicity in order to avoid errors and ensure that
the respondents have a full knowledge of the subject matter. The questionnaire for the study was

titled; Tax Audit and Financial Performance. It was designed in 5 Scale Likert format ranging
from Strongly Disagree to Strongly Agree to give respondents a variety of options that suit their
opinions on the items scales. Furthermore, was accompanied with a cover letter seeking the
assistance of the respondents in providing unbiased answers to question raised on the construct.
It was divided into two sections A and B, first section deals with the exogenous variable of the
study which is tax audit while the second section deals with questions on the endogenous
variable which is financial performance.
3.6 Operational Measurement of Variables
The independent and the dependent variable in this study were operationally measured with the
ordinal scale and twenty research questions were raised on the questionnaire. Five research
questions each was used to measure the research variables. The independent variable (tax audit)
dimensions includes; desk tax audit and field tax audit, while the dependent variable (financial
performance) was measured with return on assets and return on equity respectively. The ordinal
scale was used to rank the effect of the independent variable on the dependent variable. The
Likert scale on a five point scale was used to rank the responses from the highest to the lowest.
Through such ranking, the researcher was able to determine the relationship between the
independent and dependent variables using a correlation of rank test statistic. Twenty research
questions were raised.
3.7 Validity/Reliability of Instrument
Validity is the extent to which a test measures what it ought to measure. In this study, the
researcher, after designing the questionnaire, reviewed each statement to assess its contents to
which it relates to the variables in question. Validity refers to the degree to which a study

accurately reflects the specific concepts that the researcher is attempting to measure. To confirm
the validity of the research instrument, the questionnaire was subjected to proper scrutiny and
examination by the researcher’s supervisor. Their observations and suggestions were used to
modify and improve the content and structure of the final draft of the instrument. The researcher
also took a face validity to ensure that the scope of the study is covered.
The Content validity in most cases is measured by relying on the knowledge of people who are
conversant with the concept being measured (Drost, 2011). Face validity is premised on adequate
review and consultation from researchers’ supervisor and experts in the field of accounting in
University of Port Harcourt, Rivers State. The questionnaire was developed in line with Drost,
(2011) recommendations.
Reliability refers to the degree to which a measuring instrument gives the same results over
repeated trials. The journals and books are reliable database instrument for obtaining secondary
data since they are consistent in their data content. Cronbach’s alpha is the most widely used
reliability measure in research. Cronbach’s alpha assesses the consistency of the entire scale and
indicates how well the items correlate positively to another. Cronbach’s alpha ranges; from 0 to 1,
with 0 standing for a completely unreliable test, higher values closer to 1, indicating higher
internal reliability and one standing for a completely reliable test. A reliability coefficient (alpha)
of 0.70 or higher is considered acceptable reliability (Nunnally 1978).
In the study the Cronbach’s alpha coefficient for the 20 items is 0.910. Therefore the value
exceeding the foregoing proportion indicates that the questionnaire is reliable.

3.8 Method of Data Analysis
When selecting statistical methods therefore, the researcher must choose those techniques that
correspond to the characteristics of the particular variable being measured otherwise, the data may
be improperly analyzed and interpreted.
The SPSS 23, a computer program and a compendium of statistical tools will aid the researcher in
the data analysis, of the data collected for this study using the triangulation method. The following
are in respect of some aspects of data analysis used in the study.
Simple percentages and frequency distribution tables will be used in presenting summary data
obtained during the study in appropriate sections. This enabled us convey the information obtained
clearly as percentages were interpreted at a glance.
The ordinary least square method and multiple regression analysis will be adopted for the test of
hypotheses
3.8.1: Multiple Regression Model
Multiple regression model was employed to specify the nature of the relation between two
variables.
Model Specification
In order to examine the relationship between tax audit and financial performance in Nigeria, a
multiple linear model was built. The model shows the functional, mathematical and econometric
relationships that exist between the independent and the dependent variables and the model for
the parameters of the function. Thus, it is specified as functional, mathematical and econometric
relationships which can be implicitly stated as follows:

Functional Expression of Model:
FP = ROA, ROE....................1
FP = f(DT, FT)...............................2
ROA = f(DT, FT)..........................................3
ROE = f(DT, FT)...........................................4
Mathematical Expression of Model:
ROA = α 0 + α1DT +α2FT .................................5
ROE= = β 0 + β1DT +β2FT ..............................7
Econometrical Expression of Model:
ROA = α 0 + α1 DT + α2 FT + εt1................................7
ROE= β 0 + β1 DT +β2 FT + εt2...................................8
Where;
FP = Financial Performance
ROA = Return on assets
ROE = Return on equity
DT = Desk tax audit
FT = Field tax audit
εt3= Stochastic error term.
αo, xo, βo,wo = Constant or intercept
α1, x1, β1,w1 = Coefficient or slope

CHAPTER FOUR
RESULTS AND DISCUSSIONS
To further understanding the interrelationships between employed variables, the study presents
the data, results and discussions under the following subheads in such a way that tax audit is
captured by desk tax audit and field tax audit is pitted against two crucial measures of financial
performance as captured by return on assets and return on equity. Data presentation, analysis and
the test of relevant research hypotheses is also carried out trying to give answers to the research
question.
4.1 Questionnaire Distribution and Analysis
The table below reveals the total number of questionnaire that was issued out and collected from
each of the firms under study.
S/N Names of ministry Copies of
Questionnaire
Distributed
Copies of
Questionnaire
Retrieved.
1 Federal Ministry of Finance 20 20
2 Federal Ministry of Budget and
National Planning
20 20
3 Central Bank of Nigeria 20 20
4 Federal Inland Revenue Service 20 20
5 National Bureau of Statistics 20 20
Total 100 (100%) 100(100%).
Source: research survey 2020
Table 4.1 illustrates the number of questionnaire distributed and retrieved. A total of hundred
questionnaires were distributed and all of the questionnaires were collected.

4.2 Demographic Analyses
This section demonstrates the demographic analysis of the respondent in the study.
Table 4.2.1 GENDER DISTRIBUTION
Frequencies
Statistics
GENDER
N Valid 100
Missing 1899
GENDER
Frequency Percent Valid Percent
Cumulative
Percent
Valid MALE 68 3.4 68.0 68.0
FEMALE 32 1.6 32.0 100.0
Total 100 5.0 100.0
Missing System 1899 95.0
Total 1999 100.0
Source: Research Survey 2020.

Table 4.2 reveals that thirty two of the respondent where female which represent 32% while sixty
eight of the respondent where males representing 68%.
Table 4.2.2 LENGTH OF SERVICE
Frequencies
Statistics
EXPERIENCE
N Valid 100
Missing 1900
EXPERIENCE
Frequency Percent Valid Percent
Cumulative
Percent
Valid 1-5YRS 14 .7 14.0 14.0
6-10YRS 26 1.3 26.0 40.0
11-15YRS 28 1.4 28.0 68.0
16YRS AND ABOVE 32 1.6 32.0 100.0
Total 100 5.0 100.0
Missing System 1900 95.0
Total 2000 100.0
Source: Research Survey 2020

Table 4.2.2 shows the distribution the length of service of respondent fourteen of the respondent
representing 14% had 1-5yrs of service, 6-10yrs represents 26% which had twenty six
respondents, twenty eight respondent representing 11-15yrs has 0.28 % and thirty two
respondents who had sixteen yrs and above length of service has 32%.
Table 4.2.3 QUALIFICATIONS
Frequencies
Statistics
QUALIFICATION
N Valid 100
Missing 1900
QUALIFICATION
Frequency Percent Valid Percent
Cumulative
Percent
Valid BSC/HND 10 .5 10.0 10.0
BSC (ACA) 13 .7 13.0 23.0
BSC (MSC/MBA, ACA) 25 1.3 25.0 48.0
BSC (MSC/MBA, FCA) 30 1.5 30.0 78.0
BSC (MSC/MBA, FCA, PHD) 22 1.1 22.0 100.0
Total 100 5.0 100.0
Missing System 1900 95.0
Total 2000 100.0
Source: Research Survey 2020.

Table 4.2.3 indicates the qualification of the respondent. The ten respondents representing
BSC/HND had 0.10%, thirteen respondents representing BSC (ACA) had 13%, twenty five
respondent representing BSC (MSC/MBA, ACA) has 25%, thirty respondent representing BSC
(MSC/MBA, FCA) which had 30% and the last of them all is twenty two respondent
representing BSC (MSC/MBA, FCA, PHD) which had 22%.
Table 4.2.4 POSITIONS
Frequencies
Statistics
POSITION
N Valid 100
Missing 1900

POSITION
Frequency Percent Valid Percent
Cumulative
Percent
Valid Accountant 28 1.4 28.0 28.0
Account Officer 17 .9 17.0 45.0
Internal Auditor 33 1.7 33.0 78.0
Manager 22 1.1 22.0 100.0
Total 100 5.0 100.0
Missing System 1900 95.0
Total 2000 100.0
Source: Research Survey 2020.
Table 4.2.4 indicates the position of the respondent. The twenty eight respondents representing
accountant has 28%, seventeen respondents representing account officer had 17%, thirty three
respondent representing internal auditor has 33% and the last of them all is twenty two
respondent representing manager which had 22%.

Descriptive
This section further proceeds to evaluate the underlying trend of employed data in this subsection
based on various attributes of the employed data.
Table 4.2.5: Descriptive Statistics of desk tax audit, field tax audit, return on assets and
return on assets in some selected firms in Nigeria
Frequencies
Statistics
DT FT ROA ROE
N Valid 2000 2000 2000 2000
Missing 0 0 0 0
Mean 3.8600 3.9200 3.0900 3.5000
Mode 4.00 4.00 4.00 4.00
Std. Deviation .56618 .36560 1.09659 .83087
Skewness -4.319 -4.661 -.725 -1.467
Std. Error of Skewness .055 .055 .055 .055
The table above indicated that desk tax audit has an average of 3.8600 and a standard deviation
of .56618, field tax audit has a mean of 3.9200 with a standard deviation of .36560, return on
assets indicated a mean of 3.0900 with a standard deviation of 1.09659 and return on equity
indicated a mean of 3.5000 with a standard deviation of .83087.

Frequency Table
DT
Frequency Percent Valid Percent
Cumulative
Percent
Valid SD 60 3.0 3.0 3.0
D 20 1.0 1.0 4.0
A 60 3.0 3.0 7.0
SA 1860 93.0 93.0 100.0
Total 2000 100.0 100.0
FT
Frequency Percent Valid Percent
Cumulative
Percent
Valid D 60 3.0 3.0 3.0
A 40 2.0 2.0 5.0
SA 1900 95.0 95.0 100.0
Total 2000 100.0 100.0

ROA
Frequency Percent Valid Percent
Cumulative
Percent
Valid SD 240 12.0 12.0 12.0
D 400 20.0 20.0 32.0
A 300 15.0 15.0 47.0
SA 1060 53.0 53.0 100.0
Total 2000 100.0 100.0
ROE
Frequency Percent Valid Percent
Cumulative
Percent
Valid SD 60 3.0 3.0 3.0

D 260 13.0 13.0 16.0
A 300 15.0 15.0 31.0
SA 1380 69.0 69.0 100.0
Total 2000 100.0 100.0
ROE
Frequency Percent Valid Percent
Cumulative
Percent
Valid SA 58 55.8 58.0 58.0
A 24 23.1 24.0 82.0

D 10 9.6 10.0 92.0
SD 8 7.7 8.0 100.0
Total 100 96.2 100.0
Missing System 4 3.8
Total 104 100.0

Correlations
To evaluate the influence of the dependent variable on the independent study variables, the study
presents the correlation as follows.
Descriptive Statistics
Mean Std. Deviation N
DT 1.2600 .57945 100
FT 1.4100 .80522 100
ROA 1.7000 .87039 100
ROE 1.6800 .95219 100

Correlations
DT FT ROA ROE
DT Pearson Correlation 1 .310** -.124 .064
Sig. (2-tailed) .002 .218 .811
N 100 100 100 100
FT Pearson Correlation .310** 1 .019 .278**
Sig. (2-tailed) .002 .853 .005
N 100 100 100 100
ROA Pearson Correlation -.124 .019 1 -.080
Sig. (2-tailed) .218 .853 .426
N 100 100 100 100
ROE Pearson Correlation .024 .278** -.080 1
Sig. (2-tailed) .811 .005 .426
N 100 100 100 100
**. Correlation is significant at the 0.01 level (2-tailed).
The above bivariate correlation shows a significant influence of the independent variable on the
dependent variable. This shows that the independent variables play a great role in ensuring the
influence of dependent variable in government parastatals in Nigeria.

Nonparametric Correlations
Correlations
DT FT ROA ROE
Kendall's tau_b DT Correlation Coefficient 1.000 .195* -.132 -.035
Sig. (2-tailed) . .041 .157 .710
N 100 100 100 100
FT Correlation Coefficient .195* 1.000 .043 .325**
Sig. (2-tailed) .041 . .639 .000
N 100 100 100 100
ROA Correlation Coefficient -.132 .043 1.000 .004
Sig. (2-tailed) .157 .639 . .965
N 100 100 100 100
ROE Correlation Coefficient -.035 .325** .004 1.000
Sig. (2-tailed) .710 .000 .965 .
N 100 100 100 100
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
The above bivariate correlation shows a significant influence of the independent variable on the
dependent variable. This shows that the independent variables play a great role in ensuring the
influence of dependent variable in government institutions in Nigeria.
Ordinary Least Square Regression
The study further examined the influence of the predictors on the criterion by conducting a
regression exercise as displayed below in table 4.5 which is a summary of the model estimate
extracted from the SPSS 24 outputs (appendix iv-vi).

Table 4.2.6: Extract of the Regression Model Results
Hypotheses Testing
The formulated hypotheses were statistically tested as shown in their null form.
Hypothesis one
There is no significant relationship between desk tax audit and return on assets.
Regression
Variables Entered/Removeda
Model
Variables
Entered
Variables
Removed Method
1 DTb . Enter
a. Dependent Variable: ROA
b. All requested variables entered.
Model Summary
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate
1 .124a .015 .005 .86805
a. Predictors: (Constant), DT
ANOVAa
Model Sum of Squares Df Mean Square F Sig.
1 Regression 1.156 1 1.156 1.535 .218b
Residual 73.844 98 .754
Total 75.000 99
a. Dependent Variable: ROA
b. Predictors: (Constant), DT

Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
T Sig.B Std. Error Beta
1 (Constant) 1.935 .209 9.275 .000
DT -.187 .151 -.124 -1.239 .218
a. Dependent Variable: ROA
The result indicates that desk tax audit significantly influence return on assets. From the analysis
above and in appendix iv-vi, desk tax audit and return on assets produced (R = 0.124) positive
relationship and also desk tax audit significantly influenced return on assets. The significant level
was greater than 0.05. The null hypothesis was rejected and the study concluded that tax audit
(desk tax audit) significantly influence return on assets in Nigeria in the period of this study.
Hypothesis Two
There is no significant relationship between desk tax audit and return on equity.
Regression
Variables Entered/Removeda
Model
Variables
Entered
Variables
Removed Method
1 DTb . Enter
a. Dependent Variable: ROE
b. All requested variables entered.
Model Summary
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate
1 .064a .004 -.010 .95676
a. Predictors: (Constant), DT

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression .052 1 .052 .057 .811b
Residual 89.708 98 .915
Total 89.760 99
a. Dependent Variable: ROE
b. Predictors: (Constant), DT
Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
T Sig.B Std. Error Beta
1 (Constant) 1.630 .230 7.089 .000
DT .040 .166 .024 .239 .811
a. Dependent Variable: ROE
The result indicates that desk tax audit significantly influence return on assets. From the analysis
above and in appendix iv-vi, desk tax audit and return on equity produced (R = 0.064) positive
relationship and also desk tax audit significantly influenced return on equity. The significant
level was greater than 0.05. The null hypothesis was rejected and the study concluded that tax
audit (desk tax audit) significantly influence return on equity in Nigeria in the period of this
study.
Hypothesis Three
There is no significant relationship between field tax audit and return on assets.

Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
T Sig.B Std. Error Beta
1 (Constant) 1.935 .209 9.275 .000
DT -.187 .151 -.124 -1.239 .218
a. Dependent Variable: ROA

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