Audit Firm Characteristics and Audit Quality for Firms Listed at the Nairobi Securities Exchange in Kenya.
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Date
2018
Authors
Mugo, Eliud Munene
Makori, Daniel
Journal Title
Journal ISSN
Volume Title
Publisher
International Academic Journals
Abstract
There have been numerous financial
scandals and audit reporting failures in both
public and private organizations some of
which are listed in the NSE which has led
Companies in various sector of the economy
to experience financial distress; that is
circumstances in which a company cannot
meet its current obligations using operating
cash flows and it is therefore faced with the
need to employ corrective measures. Such
distresses have been occasioned by
professional misconduct while handling
financial accounts and consequently raising
doubts on auditing profession.
Consequently, a lot of questions have been
raised about the auditing profession in
Kenya. Much of the concerns are about
reduced quality audit and independence of
auditors and especially the Big 4. This study
therefore sought to establish the effect of
audit firm characteristics on audit quality of
firms listed in the Nairobi Securities
Exchange. This study aimed to investigate
the joint effect of audit firm tenure, auditor
reputation, auditor independence and auditor
professional competence and due care on
quality audit of firms listed in the Nairobi
Securities Exchange in Kenya. The study
was anchored on the agency theory, role
theory and audit expectation gap and the
signaling effect theory. A descriptive
research design was used. The researcher
used primary and secondary data for a
period of five years between 2011 and 2015.
Primary data was collected using structured
questionnaires issued to selected
respondents and secondary data was derived
from audited and published financial
statement for the listed companies in the
Nairobi Securities Exchange and the NSE,
CMA and other relevant websites and
recorded in a data collection sheet. A
population of 67 listed firms was the object
of study out of which 33 firms were selected
using purposive sampling technique. This
sample was approximately 50%. Inferential
statistics like correlation analysis and
multiple regression analysis were used to
measure and analyze the results of the study
which was analyzed and presented in form
of statements and tables. The researcher
applied high ethical standards to ensure no
information is misrepresented and citations
made accordingly. SPSS package version
7.0 was used to analyze the data. The
findings and conclusions focused on effects
the independent variables have on quality
audit for selected firms listed in the NSE in
Kenya. The recommendations thus enables
audit firms, clients, all users of financial
information and investors to have in-depth
knowledge of firm characteristics that allow
objective financial reporting and sound
investment decision making. The study
found that firms allowed quality audit work
to be carried out because of strong
commitment and dedication to management
role and profession in the organization, that
management ensured that there was no
personal relationship with the auditors that
would lead to familiarity threats and
compromise their independence, that
duration in years and rotation of auditor or
lead partner greatly affect quality audit for
firms and that auditors have the required
academic qualifications to be professional
auditors. The study concluded that audit
tenure activities had the greatest effect on
the influence of stakeholder activities on audit quality, followed by auditor reputation,
then auditor independence then auditor
professional competence while disciplinary
measures had the least effect on audit
quality. The study recommends that there is
need to increase the proportion of
independent auditors since an increase in
their number reduces the chances of
financial misreporting and leads to positive
perception by investors and that there should
be high level of professionalism by the audit
firms.
Description
A research article published in International Academic Journal of Economics and Finance
Keywords
audit firm characteristics, audit quality, firms listed, Nairobi Securities Exchange, Kenya
Citation
Mugo, E. M. & Makori, D. (2018). Audit firm characteristics and audit quality for firms listed at the Nairobi Securities Exchange in Kenya. International Academic Journal of Economics and Finance, 3(2), 133-159