EFFECT OF EXTERNAL AUDITING ON FIRM PERFORMANCE OF FINANCIAL INSTITUTIONS IN RWANDA: A CASE OF BANK OF KIGALI, HEAD QUARTER
Abstract
The main objective was to establish the effect of external auditing on the firm performance of financial institutions in Rwanda. Under four specific objectives; the first was to determine the effect of financial statement audit on firm performance of bank of Kigali, head quarter, the second was to establish the effect of compliance audit on firm performance of bank of Kigali head quarter, the third was to investigate the effect of performance audit on firm performance of bank of Kigali, head quarter and the forth was to investigate the moderating effect of skilled employees on the relationship between external auditing and the financial firm performance of bank Kigali, head quarter. In order to conduct clearly our research study we formulated the following hypothesis; Ho1 financial audit has no significant effect on firm performance of bank of Kigali, head quarter.Ho2 compliance audit has no significant effect on firm performance of bank of Kigali head quarter.Ho3 Performance audit has no significant effect on firm performance of bank of Kigali head quarter. H04 skilled employees has no significant moderating effect on the relationship between external auditing and the financial firm performance of bank of Kigali head quarter. The explanatory research design was applied. Data was collected from both primary and secondary source where the primary data was collected using questionnaire and secondary data was collected using documentation techniques. The target population of was 87 employees of bank of Kigali head quarter. A sample size of 87 employees was selected using universal sampling technique. The results from the table 11 indicated that the ANOVA statistics show that (F=198.977, p = .000b), the p-value (0.000) is less than the level of significance (0.05). Hence, the study concluded that the skilled employees, Performance audit, Compliance audit, Financial statement audit has a significant effect on firm performance of bank of Kigali, head quarter (ROE). Then alternative hypothesis were accepted while null hypothesis were rejected. The study concluded that the skilled employees, Performance audit, Compliance audit, Financial statement audit has a significant effect on firm performance of bank of Kigali, head quarter (ROE). Then alternative hypothesis were accepted while null hypothesis were rejected.
Key Terms: Audit, External auditing, firm performance, and financial institutions
CITATION: Dushimimana, S., & Twesige, D. (2024). Effect of external auditing on firm performance of financial institutions in Rwanda: A case of Bank of Kigali, head quarter. The Strategic Journal of Business & Change Management, 11 (1), 589 – 614. http://dx.doi.org/10.61426/sjbcm.v11i1.2874
Full Text:
PDFReferences
Adams, R. B., & Santos, J. A. (2006). Identifying the effect of managerial control on firm performance. Journal of Accounting and Economics, 41(1-2), 55-85.
Ali-Baba, S. (2016). The impact of external audit in accountability and transparency of NGO’s in the Bolgatanga Municipality (Doctoral dissertation). Kwame Nkrumah University of Science and Technology School of Business, Kumasi.
Anderson, D., Francis, J. R., & Stokes, D. J. (1993). Auditing, directorships, and the demand for monitoring. Journal of Accounting and Public Policy, 12 (2), 353–375.
Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency costs and ownership structure. Journal of Finance, 55(1), 81-106.
Angye, G. (2018). External auditing and the performance of commercial enterprises.Finland: Centria University of Applied Sciences.
Antle, R., &Nalebuff, B. (1991). Conservatism and auditor-client negotiations. Journal of Accounting Research, 29, 31-54.
Atril, P. (2006). Financial management for decision makers (9thed.). London: Pearson Education Ltd.
Baker, C. R., &Owsen, D. M. (2002). Increasing the role of auditing in corporate governance. Critical Perspectives on Accounting, 13 (6), 783-795.
Bechhofer, F., & Paterson, L. (2008). Principles of research design in the social sciences. London: Routledge.
Bell, E., Bryman, A., & Harley, B. (2018). Business research methods. Oxford university press.
Benkel, M., Mather, P., & Ramsay, A. (2006). The assassination between external auditing and earnings management: The role of independent. Corporate Ownership and Control, 3.
Borg, W., & Gall, J. (1997). Educational research. An introduction. New York: Longman BPP Professional Education .
Bouri, A., &Bouaziz, W. (2007). Indices de gouvernanceactionnarialecontre indices de gouvernancepartenariale: application aux banquestunisiennescotées. In 4 th International Finance Conference «Investissement&Financement: immatériel, TIC et valeur (pp. 15-17).
Brigham, E. G. (1999). Intermediate financial management (6th ed.). Florida: McMillan Publishers Inco.
Chen, H., Chen, J. Z., Lobo, G. J., & Wang, Y. (2011). Effects of audit quality on earnings management and cost of equity capital: Evidence from China. Contemporary Accounting Research, 28(3), 892-925.
Chow, C. W. (1982). The demand for external auditing: size, debt and ownership influences. The Accounting Review, 57(2), 273-291.
Chung, R., Firth, M., & Kim, J. B. (2002). Institutional monitoring and opportunistic earnings management. Journal of Corporate Finance, 8(1), 29-48.
Cooper, D. R., & Schindler, P. S., (2000). Business research methods. New York: Irwin/ McGraw-Hill.
Davidson, R., Goodwin‐Stewart, J., & Kent, P. (2005). Internal governance structures and earnings management. Journal of Accounting & Finance, 45(2), 241-267.
De Vaus, D., & de Vaus, D. (2013). Surveys in social research. London: Routledge.
Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. Academy of Management Review, 20(1), 65-91.
Eilifsen, A., Messier, J. W. F., Glover, S. M., &Prawitt, D. F. (2010). Auditing & assurance services (2nd ed). London: McGraw-Hill.
Eriksson, P., &Kovalainen, A. (2015). Qualitative methods in business research: A practical guide to social research. London: Sage Publications.
Eriksson, P., &Kovalainen, A. (2015). Qualitative methods in business research: A practical guide to social research. Sage.
Fargason, J. S. (1993). Legal compliance auditing and the federal sentencing guidelines. Journal of the Institute of Internal Auditors, Altamonte Springs: FL.
Farouk, M. A., & Hassan, S. U. (2014). Impact of audit quality and financial performance of quoted cement firms in Nigeria. International Journal of Accounting and Taxation, 2(2), 1-22.
Fraenkel, J. R., &Wallen, N. (2000). How to design and evaluate research in education. San Francisco: McGraw-Hill Higher Education.
Franklin, M. I. (2012). Understanding research: Coping with the quantitative-qualitative divide. London: Routledge.
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman.
Freeman, R. E., Wicks, A. C., &Parmar, B. (2004). Stakeholder theory and “the corporate objective revisited”. Organization Science Journal, 15(3), 364-369.
Ghadhab, A. K., Matrood, A. K., & Hameed, A. M. (2019). Factors affecting the quality of external auditor performance: An analytical study of the opinions of auditors working in iraqi audit firms and companies. Academy of Strategic Management Journal, 18(1), 1-27.
Gheorghe, S. (2012). Statutory audit and performance audit. Annals-Economy Series, 2, 202-206.
Goodwin, J., &Seow, J. L. (2009). The influence of external auditors on the quality of financial reporting and auditing: Perceptions of auditors and directors in Singapore. Journal of Accounting and Finance, 42(3), 195-223.
Gray, R., Owen, D., & Adams, C. (1996). Accounting & accountability: changes and challenges in corporate social and environmental reporting. London: Prentice Hall.
Grinnell, R. M., & Williams, M. (1990). Research in social work (5thed.). A primer Illinois: F.E. Peacock Publishers,Inc.
Harper, K. (1989). Introduction to educational research. Egerton: Egerton University Education Book Series.
Hay, D., & Davis, D. (2004). The voluntary choice of an auditor of any level of quality. Auditing: A Journal of Practice & Theory, 23(2), 37-53.
Hayes, R., Dassen, R., Schilder, A., &Wallage, P. (2005). Principles of Auditing. An Introduction to International Standards of Auditing. New Dehli: Pearson Education Publisher.
Hodge, F. D. (2003). Investors' perceptions of earnings quality, auditor independence, and the usefulness of audited financial information. Accounting Horizons, 17, 37-48.
Inyiama, I. O. (2010). Auditing principles and practice. Enugu: Providence Press Ltd.
ISA. (2012). International standard on auditing: Understanding the entity and its environment and assessing the risks of misstatement.
Jensen, M., &Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
John, A. O. (2010). The role of auditors in fraud detection, prevention and reporting in Nigeria. Journal of Research in National Development, 8(1), 1-10.
Josheski, D., &Jovanova, B. (2012). External audit and relation between internal auditors, supervisory body and external auditors of the banking sector in the Republic of Macedonia: Supervisory Body and External Auditors of the Banking Sector in the Republic of Macedonia. London: Munich Personal RePEc Archive (MPRA).
Kantiolm, J. (1998). International standard organization (ISO 1001 requirements) – 16 requirements checklist and compliance guide. Pasadena: AQA Press.
Kiel, G. C., & Nicholson, G. J. (2003). Board composition and corporate performance: How the Australian experience informs contrasting theories of corporate governance. Corporate governance: An International Review, 11(3), 189-205.
Kombo. K. D., & Tromp A. L. D. (2011). Proposal and thesis writing. Nairobi: Pauline’s Publication Africa.
Koo, C. M., & Sim, H. S. (1999). On the role conflict of auditors in Korea. Accounting, Auditing & Accountability Journal, 12(2), 206–219.
Lowe, D. J., & Pany, K. (1995). CPA performance of consulting engagements with audit clients: Effects on financial statement users' perceptions and decisions. A Journal of Practice & Theory, 14(2), 35-51.
Luyen, k. (2009). The theory of auditing: compliance audit (2nded.). Retrieved from http://searchcompliance.techtarget.com/definition/compliance-audit on 23rd July, 2020.
Manjeet, S. (2018). What are financial institutions and markets? Explain with examples. New Dehli: Rupeelend. Retrieved from https://www.quora.com/What-are-financial-institutions-and-markets-Explain-with-examples on 21st July, 2020.
McDaniel, L., Martin, R. D., & Maines, L. A. (2002). Evaluating financial reporting quality: The effects of financial expertise vs. financial literacy. The accounting review, 77(1), 139-167.
Miettinen, J. (2011). The role of audit quality on the relationship between auditee’s agency problems and financial information quality (Paper presented at the Department of Accounting and Finance), University of Vaasa, Finland.
Nedelcu, M., Siminica, M., &Turlea, C. (2015). The correlation between external audit and firm performance of banks from Romania. Amfiteatru Economic, 17(9), 1273.
Nkurunziza, E. (2012). The contribution of external audit on the management of financial resources in public organizations: A case of Burera District, a period of the study 2008-2010. Musanze: INES Ruhengeri Press.
OECD. (1998). Central bank audit practices. Sigma. Papers, No. 24, OECD Publishing.https://doi.org/10.1787/20786581.
Oladutire, M., Oladeji, E., Enofe, A. O., &Akani. N. F. (2013). Compliance audit and corporate financial performance: Banks in rivers state. Research Journal of Financial Accounting, 4 (7), 1-9.
Osmand, V. (2012). What is an independent audit? Retrieved from http://www.wisegeek.com/what-is-an-independentaudit.htm on 23rd July, 2020.
Power, M. (1997). The audit society: Rituals of verification. Oxford: OUP Oxford.
Quick, R. (2012). EC green paper proposals and audit quality. Accounting in Europe, 9(1), 17-38.
Quinlan, C. (2019). Business research methods. UK: South-Western Cengage Learning.
Richard, M. G.,& Margaret, W. (1992), Research in Social Work (3thed.). New York: Prentice Hall.
Rouse, M. (2010). Compliance audit: How does your company use compliance audits to improve business processes? Retrieved from on 21 July, 2020 from https://www.techtarget.com/contributor/Margaret-Rouse?_ga=2.205757203.1897472305.1595355046-385363220.1594103299.
Saunders, M. N. (2011). Research methods for business students (5th ed.). New Dehli: Pearson Education India.
Sekaran, U. (2005). Research methods for business; A skill building approach (4th ed.). Birmingham: Malloy Lithographing, Inc.
Sekaran, U., &Bougie, R., (2010). Research methods for business: A skill building approach (5thed.). Chichester: John Wiley and Sons
Stephen, P. (2002). The Case of an IT operation for improved understanding and control of audit. Journal of the Institute of Internal Auditor, Altamonte Springs: FL.
Unegbu, A. O. (2007). Advanced financial accounts (2th ed.). Lagos: Shack Publishers Nigeria.
Unegbu, A. O., & Kida, M. I. (2011). Effectiveness of internal audit as instrument of improving public Sector management. Journal of emerging trends in economics and management sciences, 2(4), 304-309.
Van den Berghe, L. A., &Levrau, A. (2004). Evaluating boards of directors: what constitutes a good corporate board?. Corporate Governance: An International Review, 12(4), 461-478.
Vitez, O. (2010). Compliance audit procedures. Journal of the Institute of Internal Audits, or New York, Alamonte Springs.
Watts, R. L., &Zimmermen, J. (1986). Positive accounting theory. Engle wood Cliffs: Prentice Hall.
Wen, W. (2010). Ownership structure and banking performance new evidence in China. University of Barcelona. Development of Economics, 62(4), 8-21.
Xie, B., Davidson III, W. N., &DaDalt, P. J. (2003). Earnings management and corporate governance: The role of the board and the audit committee. Journal of Corporate Finance, 9(3), 295-316.
Zikmund, W. G. (2000). Business Research Methods(6thedition). USA: Harcourt.
Zikmund, W. G., Carr, J. C., & Griffin, M. (2013). Business Research Methods (Book Only). Cengage Learning
DOI: http://dx.doi.org/10.61426/sjbcm.v11i1.2874
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.
PAST ISSUES:
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.