The Effects of Audit Quality on the Financial Performance of Commercial Banks in Kenya

Abstract

In today’s business world, many corporations have followed diverse strategies in governing and monitoring tools to address the developing competitiveness and economic needs. Commercial banks play a key strategic role in the development of the financial sector and are the primary drivers of the economic growth of the country. Hence, their performance is of imperative performance within any economy. This study therefore sought to establish the effects of audit quality on the financial performance of commercial banks in Kenya. The study will significantly contribute to auditing functions to financial management to foster quality service delivery. It will additionally add to the existing body of knowledge as well as create bases of literature review for future researchers. This research study was anchored on the following theories; lending credibility theory, stakeholder theory, and contingency theory. The study employed cross-sectional research design, with a target population of the 42 registered and licensed commercial banks in Kenya. Within these banks, the researcher targeted the officers within the audit department and the audit committees. Simple random sampling was employed and thus the sample size was 199 respondents. The study used questionnaires to collect primary data. The data was analyzed using descriptive and inferential statistics with the help of the Statistical Package for Social Sciences (SPSS). Descriptive statistics included percentages, means and standard deviations represented by way of tables and figures. Inferential statistics will include correlation and regression analysis to measure the relationship between the study variables. Descriptive statistics included percentages, means and standard deviations represented by way of tables and figures. Inferential statistics included correlation and regression analysis to measure the relationship between the study variables. The findings indicated an R2 of 0.632 implying that all the predictor variables explained 63 percent of variations in financial performance. The research concluded that Audit quality is an audit that is both systematic and an objective evaluation of financial accounts. Audit quality is achieved when performed by a competent auditor with the professional experience. Audit quality is important to a company because when the accounts are found to be in good order, it is a demonstration of sound financial position and performance and this predisposes the company to investors and other venture partners. The main drivers of audit quality espoused by the findings of the current study are compliance with auditing standards and auditor independence. The study recommended that organizations would be assured of audit quality by creating an environment that promotes auditor independence, In addition, audit staff should be given opportunities to practice so that they can gain the required experience and thus improve on the quality of their work.