Financial Factors Affecting Growth Of Audit Firms In Kenya-Books Pdf

Financial Factors Affecting Growth of Audit Firms in Kenya
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International Journal of Science and Research IJSR. ISSN Online 2319 7064, Index Copernicus Value 2015 78 96 Impact Factor 2015 6 391. and industry 50 and others including public sector and implementation facing audit firms in Nairobi Kenya. academia 10 ICPAK Annual Report 2015 In addition Nyakang o 2007 did a study on competitive strategies. estimates show that there are over 20 000 qualified adopted by audit firms in Nairobi Despite of this. accounting technicians It is further estimated that the recognition and awareness of the deterred growth of local. Kenyan auditing accountancy sector has more than 700 audit firms little research has been conducted in Kenya with. firms at the moment regard to the factors that affect the growth of audit firms. This study therefore sought to investigate factors affecting. The audit industry in Kenya is dominated by five of the growth of audit firms in Kenya with reference to a few. largest auditing firms in the country also known as big five selected firms stationed in Nairobi County. all of which have international backgrounds These five. firms are the auditors of practically all the publicly traded 1 3 Research objective. companies in Kenya The partners of these firms both local. and expatriate actively participate in various committees of 1 To establish the effect of internal control on the growth. the local professional accountancy body The Institute of of audit firms in Kenya. Public Accountants of Kenya ICPAK Many of the audit 2 To determine the effect of audit fee on growth of audit. firms fall under the category of small and medium firms in Kenya. enterprises with only the top five firms PWC Ernst. Young Deloitte Touche and KPMG therefore the audit 1 4 Scope of the study. industry is still growing However Medium sized audit firms. in Kenya are facing stiff competition and are operating This study was confined to audit firms in Nairobi County in. under a highly turbulent environment Kimeli 2013 Kenya The research was based in Nairobi because is the. According the IPACK Report 2015 the audit industry in hub of business in Kenya and thus many auditing firms are. Kenya has been experiencing deterred growth with most of registered and based there The study population involved. the firms quitting the market the proprietors of the audit firms and other staffs within the. audit firm s environment, 1 2 Statement of the problem. 2 Theoretical Review, The fact that the world has become a global village has. forced local firms across all industries to improve their 2 1 Gibrat s Law on Growth of the Firm. efficiency and effectiveness in order to survive in a dynamic. environment Kimeli 2013 This being the case a lot is Gibrat 1931 suggested that proportionate growth rate of a. expected from the auditor who is the sole proprietor of the firm is completely random and independent of firms initial. audit firm Generally the challenges that audit firms face size or previous growth rates This is known as Gibrat s Law. are fraudulent financial reporting and audit failures new or the Law of Proportionate Effect Factors that influence. legislation regulation and standards audit costs and audit firm growth such as increase in demand management talent. fees staff training transformation and retention auditor and innovation organizational structure and luck are. independence and the provision of non audit services the distributed across firms in a manner which cannot be. audit expectation gap auditor litigation and changes in predicted from information about firm s current size or its. technology This has forced audit firms to come up with new previous growth performance Goddard et al 2001 In. strategies to counter these challenges and improve their fact firm growth is the result of a multiplicative process that. performance Many of the audit firms in Kenya are affects the initial size The factors that can affect firm. categorized in to small firms with few medium size firms growth relate not only to the firm but also to its. and only five large in the industry over the decades This environment This theory supports the dependent variables. pose a question as to why the many small firms do not of the study in explanation about firm s growth. growth to fit the medium or large size firm or the medium. firms growing to large firms Management of internal factors 2 1 1 The Agency Theory. in the audit firms such as policy adherence auditor s Agency theory describes firms as necessary structures to. independence and audit fee management affect operations maintain contracts and through firms it is possible to. in the audit firm Lack of proper internal control measures in exercise control which minimizes opportunistic behavior of. the audit firm has led to not only improper adherence to agents The theory recognizes the incomplete information. policies but also poor management of resources leading to about the relationship interests or work performance of the. high employees turnover this many of the audit firms in agent described as adverse selection and moral hazard. Kenya The aspect of high employee turnover in any firm Moral hazard and adverse selection affects the output of the. reduces clients confidence hence growth of the audit firm agent in two ways not doing exactly what the agent is. appointed to do and not possessing the requisite knowledge. Most research on growth and performance of Audit firms about what should be done This affects the overall. has been done on developed nations with no or very little performance of the relationship as well as the benefits of the. done locally Agina 2013 did a study on adoption and principal in the form of cash residual Other related reviews. implementation of key performance indicators by auditing include The Sarbanes Oxley Act of 2002 SOX which. firms in Kenya in their International Operations Barongo requires companies to report on the effectiveness of their. 2012 conducted a study on competitive strategies adopted internal controls over financial reporting as part of an overall. by small and medium audit firms in Nairobi City County effort to reduce fraud and restore integrity in the financial. Kenya Polle 2012 did a study challenges of strategy reporting process It is further asserted that software vendors. Volume 6 Issue 10 October 2017, www ijsr net, Licensed Under Creative Commons Attribution CC BY. Paper ID ART20177430 DOI 10 21275 ART20177430 1035. International Journal of Science and Research IJSR. ISSN Online 2319 7064, Index Copernicus Value 2015 78 96 Impact Factor 2015 6 391.
that market Enterprise Resource Planning ERP systems 2 4 Audit Fees. have taken advantage of this new focus on internal controls. by emphasizing that a key feature of ERP systems is the use Audit fees refer to the remuneration payable to an auditor for. of built in controls that mirror a firm s infrastructure audit services rendered Kimeli 2013 When entering into. Morris 2011 negotiations regarding professional services a professional. accountant in public practice may quote whatever fee. 2 2 Conceptual framework deemed to be appropriate There is a significant branch of. literature dedicated to the understanding of audit pricing. Simunic 1980 developed a representative model of the. process by which audit fees are determined and since then. various authors have continued to bring forth empirical. results that show which factors concur to the setting of audit. fees In this segment some of those contributions relevant to. this study are reviewed, Theoretically the amount of fees for audit services that a. client firm pays to its audit firm reflects the level of audit. Figure 2 1 Conceptual Framework work the latter has to perform in the auditing process The. definition of this level of work embodies the auditor s. 2 3 Empirical review assessment of the process s complexity and the desired level. of risk In other words all other things considered if an. 2 3 1 Internal Control auditor wishes to decrease the risk of issuing a clean opinion. Mire and Mukhongo 2015 assert that internal controls when there are materially relevant distortions in the client s. refer to the measurers instituted by an organization so as to financial statements he generally acts on the nature extent. ensure attainment of the entity s objective goals and and timing of audit procedures which naturally influence. missions They are a set of policies and procedure adopted the final amount of required fees Low audit fees can restrain. by an entity in ensuring that an organization s transactions audit firms by restricting compensation to audit staff Part. are processed in the appropriate manner to avoid waste theft of the problem is that many clients fail to recognize the. and misuse of organization resources intrinsic value of an audit regarding it purely as a. compliance exercise Izma 2011, Uwaoma Ordu 2015 note that an internal control. comprises of the plan of the organization and all co An interesting recent finding is that audit fees reflect the. ordinates methods and procedures that are concerned with client s future performance because auditors have access to. operational efficiency and adherence to management some information that contains forward looking judgments. policies and directives When the internal controls are weak e g uncollectible receivables obsolete inventory pension. operational efficiency can be undermined regardless of the and warranty costs Stanley 2011 Moreover the disclosed. nature of the organization If there are no audit systems in audit fee is also found to be related with errors in forecasts. place organization financial management tends to end in of earnings made by financial analysts which could indicate. anarchy Financial internal control ensures that the assets of a superlative precision in the predictions of auditors when. the company is protected protecting improper disbursement compared with the predictions of financial analysts The. of the assets for the company and securing the accuracy and potential usefulness of this evidence is a sign embed in the. reliability of all accounting financial and other operational disclosed audit fee of the firm s future economic condition. information of the company other market participants could pay attention to Many audit. firms in Kenya depend on audit fee as the main source of. Internal Controls are processes designed and affected by revenues Therefore the performance and growth of the firm. those charged with governance management and other will greatly be dependent on their returns from the services. personnel to provide reasonable assurance about the provided. achievement of an entity s objectives with regard to. reliability of the financial reporting effectiveness and 2 5 Audit firms Growth. efficiency of operations and compliance with applicable. laws and regulations David 2001 Increasingly reliability Firm growth is typically defined and measured using. of financial reporting in accounting context is very important absolute or relative changes in sales assets employment. for the investors who use the information for decision productivity profits and profits margins Davidson et al. management Jenning et al 2008 According to Mawanda 2005 Allinson et al 2006 Firm growth is one of the most. 2008 a sound internal control system helps the firm to analysed fields in economics Its impact on employment. prevent frauds errors and minimize wastage The increase of industry concentration firm survival and economic activity. business units has encouraged the use of internal control as it are reasons enough for it to be considered an issue of crucial. ensures orderly and efficient conduct of business including interest According to Gichuke 2013 First firm growth is. adherence to internal policies The completeness and related very closely to firm survival Specifically firm. accuracy of accounting records timely preparation of growth is positively correlated with the likelihood of. financial information can only be achieved if the proper survival and firms that experience continuous growth have a. internal control system is in place higher probability of surviving in the market Second firm. growth is related to employment A positive rate of growth. Volume 6 Issue 10 October 2017, www ijsr net, Licensed Under Creative Commons Attribution CC BY. Paper ID ART20177430 DOI 10 21275 ART20177430 1036. International Journal of Science and Research IJSR. ISSN Online 2319 7064, Index Copernicus Value 2015 78 96 Impact Factor 2015 6 391. implies a net creation of new jobs and the vice versa is true From table 4 1 show the summary statistics for the primary. The third factor is the effect of business growth on economic data observations of the response provided on the study. growth The economic dynamics are related to the growth of variables The results shows that the means and standard. the firm Fourth firm growth is a way to introduce deviations for internal control and audit fee in the large firms. innovation and is a leading factor leading to technological were between mean score of 4 29 and 4 20 respectively for. change Firm growth varies widely depending on business all the variables With a standard deviation of 0 477 and. age size and industry Koech 2015 1 414 respectively The high mean of 4 29 and 420 of the. three large firm signified that large Auditingfirms adopted. 3 Research Methodology internal control measures in the firms and that determination. of audit fee was not a problem given that they have a. The overall objective of the study was to find out the predetermined criteria for charging their clients. Financial Factors Affecting Growth of Audit Firms in Kenya A Survey of Audit Firms in Nairobi City County Stephen Wambua Munuve1 Dr Joseph Obwogi2 School of Business JomoKenyatta University of Agriculture and Technology P O Box 62000 00200 Nairobi Kenya Abstract Auditingfirmsincreasingly face challenges when performing their work with the challenges emanating from both the internal and

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