Effect Of Audit Firm Size Input Factors, Firm Size Process Factors And Information Technology Adoption On Audit Quality In Kenya

Abstract

Concerns about audit quality and the factors that influence quality have been longstanding subjects of interest in academic, practitioner, and regulatory debates. The objective of enhancing audit quality underlies standard setting activities and doubts about the quality of audit motivate investigations and other actions by regulators. Audit quality protects the economic interests of the owners and other interested parties by enhancing the value of the financial statements prepared by the managers. An auditor is able to identify errors and advice clients on the same to avoid future mistakes. Use of more accurate data for credit and investment analysis, negotiations regarding the workforce, or decisions affecting activities outside the organization improves the performance of the management. An audit covering all the six elements of the International Standard on Quality Control 1 should bring out any material misstatement as a mark of quality. However, lack of quality reporting has been observed in both large and small firms. This study aimed at establishing the effect of firm size factors on audit quality in Kenya. The specific objectives of the study were to determine the effect of firm size input factors on audit quality, to determine the impact of firm size process factors on audit quality, and to evaluate the effect of information technology adoption on audit quality. Descriptive survey design was used and the population targeted was the 613 Audit Firms registered by the Institute of Certified Public Accountants Kenya [ICPAK] in Nairobi. Simple random sampling technique was used whereby a sample size of 236 audit firms was surveyed. The firms in Nairobi were chosen as they are representative of the other entire towns in Kenya. The study used structured questionnaire as the main data collection tool. The coefficient of determination (Adjusted R 2) Shows that the selected variables explain 25.3% of the variation in the audit quality. Pearson’s correlation was used to establish the relationship between firm size input, process, and information technology factors and audit quality. Regression analysis determined the effect of the independent variables on audit quality and the model generated from the study is AQ = 1.593 + .223X1 + .031X2 + .359X3. The F Table (3,691) value of 2.6049 is lower than the F calculated value of 79.356 hence we fail to accept the null hypothesis at α=0.05 significance level and state there is significant relationship between the independent variables and audit quality. Findings from this research are of great importance to different stakeholders interested in audit quality. These interest groups include the audit firms, regulators and corporations which will learn whether firm size input, process, and information technology factors affect audit quality; the regulators who will learn whether audit quality is dependent on firm size input, process, and information technology.