Effect Of Financial Audit On Performance Of Non-governmental Organisations In Nairobi City County, Kenya

Abstract

The performance of Non-Governmental Organizations has attracted scholarly attention for a while. This study therefore sought to establish the effect of financial audit on performance of Non-Governmental Organizations in Nairobi County. Three theories anchored the study: institutional theory, agency theory and auditor's theory of inspired confidence. The researcher assessed the impact of four independent variables against performance of the NGOs in Nairobi County. The variables included audit quality, auditor‟ independence, auditor size and audit practices. The study adopted a descriptive research design in carrying out the analysis. The researcher targeted a total population of more than 1700 NGOs based in Nairobi County. The Yamane (1967) formula was used to establish the sample size of 324 for the study. Structured questionnaires were employed in collecting data from the respondents. From the findings, audit quality has the strongest (r=0.711, p=0.012) impact on performance of the NGOs, followed by audit practice (r=0.651, p=0.000), then auditor independence (r=0.604, p=0.025). The weakest relationship was established to be between audit firm size and performance of NGOs (r=0.432, p=0.007). A significant relationship was established to exist between audit quality, auditor independence, audit size and audit practices on organizational performance. The study recommends that the NGOs enhance the quality of their audit thus their performance through developing and implementing ways to evaluate the likelihood of the auditors to unravel and report a misstatement in the organizations financial system.