Effect Of Auditors’ Rotation On Audit Quality Of Commercial Banks In Kenya

Abstract

Theoretically, it is presumed that auditors’ rotation steers to high-quality audits since the new auditor is not accustomed to management. Auditor change by a company depends on different factors that vary across companies, but according to experts some of the reasons may include, conflicts of interest, price, and service, and company ownership change, regulations are the major reasons that trigger an auditor change. Auditor independence is the main goal of audit firm rotation. Audit committees are responsible for independence in appearance, but the auditor is the main culprit of being independent in fact. Because an auditor may not appear 100% independent in appearance, it does not mean the auditor cannot, completely unbiased, create an opinion based on evidence recovered from the audit, which would make them independent in fact. This research looked into the effect of audit rotation on firm audit quality of commercial banks in Nairobi County, Kenya. The study population was 43 registered banks in Nairobi however the response rate reduced the numbers to 32 registered banks. Primary data was gathered using a structured questionnaire based on the different audit quality parameters and the independent variables. Analysis of data adopted descriptive statistics that used frequency tables to show the means, standard deviations and inferential statistics which included correlation and regression coefficients. Statistically, there exists a notable relationship between auditor rotation and audit quality since overall statistical significance was 0.000 which is less than 0.05 at 95% confidence level. Audit rotation had the highest correlation with audit quality with a positive value of 0.662. Audit rotation and audit additional services were statistically significant with p-values of (.007) and (.008) respectively with beta coefficients of 0.088 and 0.327 had positive beta coefficients of 0.088.Audit team characteristics and audit fees were not statistically significant at 95% confidence level. The outcomes from the study established that audit quality is influenced by auditors’ rotation and putting in place rules that will ensure mandatory rotation in all banks will enhance the quality of the work done. The extra mile auditors’ play in offering additional services to the bank's impacts positively on the audit quality carried out thus should be embraced. The study suggests that more analysis should be done with regards to audit quality using other measures like Chi-square and not necessarily econometric models which can also be used to ascertain the consequences on audit quality as a result of auditors’ rotation. Other variables may also be identified in future studies and their impact on audit quality-analyzed so as to depict better R2 values of at least above 80% indicates a robust association between the independent and dependent variables.