INFLUENCE OF RISK BASED AUDITING ON FINANCIAL PERFORMANCE OF SACCOS IN WESTERN REGION, KENYA

Abstract

Risk-based internal audit (RBIA) enables organizations to enhance their risk management and control practices by using their intern al audit capabilities. Furthermore, it enhances the level of accountability and precision in financial reporting. This research focused on the licensed deposit-taking savings and credit cooperatives (DT-SACCOs) located in the Western Region of Kenya. Certain DT-SACCOs now have difficulties in conducting audits as part of their operations. The 3 main 3 objective 3 of 3 this 3 research 3 was 3 to 3 examine 3 the influence 3 of 3 risk-based 3 internal 3 audit 3 on 3 the 3 financial 3 performance 3 of 3 DT-SACCOs 3 in 3 the 3 Western 3 Region 3 of 3 Kenya. 3 3 The 3 specific 3 objectives 3 of 3 the 3 study 3 were 3 to 3 determine 3 the 3 influence 3 of 3 internal 3 audit 3 risk 3 planning 3 practices 3 on 3 financial 3 performance, 3 to 3 analyze 3 the 3 influence 3 of 3 internal 3 audit 3 risk 3 management 3 on 3 financial 3 performance 3 and 3 to 3 analyze 3 the 3 influence 3 of 3 Internal 3 audit 3 risk 3 capacity 3 on 3 financial 3 performance 3 of 3 Saccos 3 in 3 Western 3 Region, 3 Kenya. This research provides valuable insights for policymakers to enhance governance through effective internal audit functions, aids SACCO management in implementing robust audit practices, supports financial managers in creating reliable financial reports, and serves as a resource for academics studying internal audits’ impact on financial reporting quality. The 3 study 3 used 3 a 3 descriptive correlational 3 research 3 design 3 and was anchored 3 on 3 three 3 theories 3 namely: 3 Positive 3 accounting 3 theory 3 in 3 regards 3 internal 3 auditing 3 risk 3 planning, 3 contingency 3 theory 3 in 3 relation 3 to 3 internal 3 audit 3 risk 3 management 3 and 3 agency 3 theory 3 in 3 regards 3 to 3 Internal 3 audit 3 risk 3 capacity. 3 The 3 research was 3 conducted on 15 3 DT-SACCOs 3 in 3 Western 3 Region, 3 Kenya. 3 Primary 3 data 3 from 3 respondents 3 consisting 3 of 3 five 3 per 3 Sacco 3 DT-SACCO. 3 Secondary 3 data 3 was 3 collected 3 to 3 validate 3 data 3 on 3 financial 3 performance. 3 The data collected was analyzed using descriptive and inferential statistics with aid of SPSS version 26.0. Descriptive statistics entailed frequencies and percentage while inferential statistic consisted of Pearson correlation and regression analysis. Regression 3 models 3 was 3 used 3 to 3 test 3 hypotheses 3 where 3 internal 3 risk-based 3 audit 3 planning, internal ,3 audit 3 risk 3 management and 3 internal 3 audit 3 risk 3 capacity proved 3 affirmative 3 to 3 having 3 a 3 statistically 3 significance 3 influence 3 on 3 the 3 financial 3 performance 3 of 3 DT-SACCOs 3 in 3 Western 3 region. 3 The 3 overall 3 summary 3 of 3 the 3 findings 3 was 3 that 3 risk-based 3 auditing 3 accounted 3 for 3 72.1%(R2=0.721, P=0.000) 3 of 3 the 3 variation 3 in 3 financial 3 performance 3 as 3 obtained 3 from 3 multiple 3 linear 3 regression. 3 Stepwise 3 regression 3 revealed 3 that 3 internal 3 audit 3 risk 3 planning 3 practices 3 explained 3 32.4%(R2=0.324, P=0.000) 3 variance 3 in 3 financial 3 performance 3 of 3 Saccos 3 in 3 Western 3 Region, 3 Kenya, 3 while 3 the 3 contribution 3 of 3 internal 3 audit 3 risk 3 management 3 is 3 29.9%(R2=0.299, P=0.000), 3 the 3 contribution 3 of 3 internal 3 audit 3 risk 3 capacity 3 to 3 the 3 model 3 is 3 9.8%(R2=0.098, P=0.000). 3 The 3 study 3 concluded 3 that 3 risk-based 3 auditing 3 has 3 a 3 significant 3 positive 3 influence 3 on 3 financial 3 performance 3 of 3 saccos 3 in 3 western 3 region, 3 Kenya. According to the findings, Sacco management might improve transparency and accountability by adopting risk-based audits, which would require careful preparation on the part of all relevant parties. Additionally, management has to respond quickly to audit inquiries. The report also indicated that management of Saccos ought to establish, recognize and handle risks as duty of all workers of the Saccos. Last but not least, administration must set up procedures for vetting auditors' qualifications.