Arthur G

Abstract

Commercial banks play a very important role by providing financial services that support economic growth and development including the operation of a payment system and channelling of funds from where they are in excess to where they are needed for investment purposes. Kenya has experienced audit scandals that had led to the collapse of firms in the private and public sectors. Many fraudulent practices were discovered in the forensic audit conducted by KPMG. In this regard, the proposed study sought to examine whether there existed an AEG in the Kenyan banking sector and why auditors were not held liable despite corporate failures especially when the affected organizations had received unqualified audit opinions on review of their financials. The precise objectives of this research were to analyse an auditor’s skill effect level on AEG, establish how the firm size of an auditor influences AEG, understand the effect of the nature of audit on AEG, understand the effect of participant’s level of education on AEG and understand the impact of an investor perception on AEG. The research was based on stewardship, credibility, and inspired confidence theories. Employing a descriptive survey design, the study purposed to understand the interaction of investor perception and an audit expectation Gap (AEG) in commercial banks in Kenya. The target population consisted of 204 individuals, and a sample of 181 was selected. Data collection utilized a structured 5-point Likert self-administered questionnaire. The researcher presented descriptive data in tables, whereas inferential statistics employed regression as well as correlation analysis. Multiple regression revealed a statistically positive linearity association between investor perception and AEG in Kenyan commercial banks (p=0.028, ρ<0.05). Nonetheless, the study found a positive yet statistically insignificant linear relationship between auditor's skill level and AEG (p=0.402, ρ>0.05), auditor’s firm size and AEG (p=0.435, ρ>0.05), the nature of audit and AEG (p=0.954, ρ>0.05), and the participant’s level of education and AEG (p=0.951, ρ>0.05).The recommendation was that the commercial banks need to concentrate on investor perception to realize AEG effectively. The study findings will be of value both to the private and public users of financial statements by helping them better understand the benefits of audited financial statements in assisting them make sound investment decisions. Future studies should concentrate more on other aspects that may have influence on AEG besides the banking sector and to a wider population.