RELATIONSHIP BETWEEN AUDIT QUALITY, FIRM SIZE AND FINANCIAL PERFORMANCE OF DEPOSIT TAKING SACCOS IN KENYA

Abstract

Audits exist because of a separation between the ownership and the control of companies in the modern economy where shareholders or owners have given resources to managers with the aim of maximizing their wealth. They therefore expect the agents to give them authentic reports that are true and perfect. However, an increasing number of Kenyan Saccos are reeling under the weight of mismanagement, fraud and bad loans that have put the Sh1 trillion sector on a path of instability that if not reversed could have damaging contagion on the entire economy. The main objective of the study is to determine the influence of audit quality on performance of deposit taking SACCOs in Kenya. The specific objectives are to determine the influence of auditor’s competence and experience on performance of deposit taking SACCOs in Kenya, to determine the influence of auditor’s independence on performance of deposit taking SACCOs in Kenya, to determine the influence of internal audit standards financial performance of deposit taking SACCOs in Kenya, to determine the influence of Audit committee characteristics on performance of deposit taking SACCOs in Kenya, and to determine the moderating influence of firm size on the relationship between audit quality and performance of deposit taking SACCOs in Kenya. The research was based on four theories: Agency theory, legitimacy theory, stakeholder theory, and transaction theory. The research philosophy used in this study aligns with the positivist approach. The study used a descriptive survey research approach. The research included both primary and secondary data. The research participants consisted of individuals holding the positions of Finance manager, Head of internal audit, and Chief accountant at deposit accepting SACCOs in Kenya. The sample size consisted of 528 participants. A sample size of 228 was chosen using simple random sampling procedure. A structured-questionnaire was used. A pilot test was conducted in 8 SACCO. The data was analyzed using descriptive and inferential statistics. Descriptive statistics, such as mean, standard deviation, and percentages, were used to summarize the data. For inferential correlation analysis, multiple, hierarchical and step wise regression was used. Data was analyzed using the SPSS 26 software. The results revealed that independent variables used in the research were able to account for about 64.3% (R2=0.642, P=0.000) of the variations that were noted in the financial performance of Deposit Taking SACCOs in Kenya. A unit increase in auditor’s competence and experience leads to a 0.263 unit’s improvement in the financial performance (β1=0.263, p=0.000). A unit increase in internal auditor’s independence leads to a 0.343 units improvement in the financial performance (β2=0.343, P=0.000). a unit increase in internal audit procedures and standards leads to a 0.139 units improvement in the financial performance (β3=0.139, P=0.010). A unit increase in audit committee characteristics leads to a 0.181 units improvement in the financial performance (β4=0.181, P=0.015). Hierarchical regression analysis revealed that Sacco size significantly accounts for 3.7% change in financial performance. The research recommended that the internal personnel should possess relevant academic and professional credentials. Saccos should prioritize the promotion of autonomy for both their internal and external auditors, since this has a major impact on their financial performance.