INFLUENCE OF FINANCIAL AUDITING PRACTICES ON AUDIT QUALITY OF AUDIT FIRMS IN KENYA
Abstract
This study sought to examine influence of audit disclosure, audit service cost, audit committee composition and audit risk reporting on audit quality in selected audit firms in Kenya. The study used explanatory survey design and collected primary data using structured questionnaires. The target population of the study was 98 senior and middle level management staff from 14 registered audit firms whose headquarters were in Nairobi City County, Kenya. A census method was used to select all respondents to participate in the study. The study employed purposive sampling technique. Validity was measured by content validity while Cronbach alpha test which is a measure of internal consistency was used to test instrument reliability. Data collected from the field was coded, cleaned, tabulated and both descriptive and inferential statistics were computed with the aid of Statistical Package for Social Sciences (SPSS) version 24 software. Descriptive statistics such as frequencies and percentages and measures of central tendency (mean) and dispersion (standard deviation) was used. Further, inferential statistics such as regression and correlation analyses was used to determine both the nature and the strength of the relationship between the dependent and independent. From 98 questionnaires that were dispatched for data collection, 87 questionnaires were returned completely filled, representing a response rate of 88.7% which is very good for generalizability of the research findings to a wider population. Both descriptive and inferential statistics showed that all conceptualized independent variables (audit disclosure, audit service cost, audit committee composition and audit risk reporting) significantly influenced audit quality in selected audit firms in Kenya. The study concluded that: one, audit disclosure significantly influences audit quality, that is, judgement and consequent action of the auditor are influenced and impaired when accounting matters are disclosed as KAM, thus affecting audit quality; two, audit service costs in terms of audit charges and insurance cover, client size, audit firm reputation costs have a significant bearing on audit quality. The study recommended that one, audit firms should consider all key and critical audit matters when making audit disclosures, two, audit firms should have binding audit charges corresponding to client size so as to avoid litigation and reputation costs, three, audit firms should have manageable audit committee size and diverse audit committee composition so as to win clientele and public trust. A similar study can be done in on clients of audit firms to assess audit quality in the eyes of the clients. Secondly, another study can be done to examine whether audit outsourcing has an effect of audit quality.
Key Words: Audit Disclosure, Service Cost, Committee Composition, Risk Reporting, Audit Quality
CITATION: Okumu, S. O., & Otinga, H. (2020). Influence of financial auditing practices on audit quality of audit firms in Kenya. The Strategic Journal of Business & Change Management, 7(4), 358 – 374.
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DOI: http://dx.doi.org/10.61426/sjbcm.v7i4.1793
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