Environmental Determinants of Audit Quality and Regulatory Compliance among Small and Medium Enterprises in Osun State, Nigeria

Abstract

This study examines the environmental determinants of audit quality and their implications for regulatory compliance among small and medium enterprises (SMEs) in Osun State, Nigeria, integrating accounting and political science perspectives by treating compliance as both a financial reporting obligation and an outcome of institutional capacity and regulatory legitimacy. A qualitative documentary design was adopted, drawing secondary data from legislation, regulatory notices, official reports, and peer-reviewed studies published mainly between 2010 and 2026, analysed through directed content analysis and thematic synthesis. Six connected determinants were identified: regulatory clarity and enforcement, professional competence and auditor independence, economic and compliance costs, accounting technology, administrative coordination, and trust in public institutions. Audit quality was found to improve compliance when it strengthens records, detects misstatement, clarifies obligations, and raises the perceived probability of detection, although this pathway is weakened by informality, limited accounting capacity, fragmented oversight, and the statutory audit exemption for qualifying small companies. The study concludes that a proportionate, graded assurance system supported by digital filing, registered practitioners, coordinated regulation, and targeted capacity building offers a more credible approach than uniform enforcement, and it proposes an integrated institutional model with specific policy relevance for Osun State.