The determinants of auditor changes by unquoted companies operating in Nairobi

Abstract

This study sought to determine the factors that influence auditor changes by unquoted companies operating in Nairobi. The study covered the period 1981-1990 and to achieve the objective of the study , a sample of 100 firms out of 25463 companies was selected. The Primary data was collected using a questionnaire Fifteen factors were obtained from pertinent literature They included audit fees, quality of audit service, industry expertise , management change, reporting disputes, qualified opinion, auditor reputation, lacked confidentiality, influence of head office , need for non-audit services , size, organization complexity, demand by shareholders and tax services. The preliminary analysis showed that 32 out the 65 firms changed auditors during the period of study. More auditor changes occurred between 1986 and 1990 inclusive than the period between 1981 and 1985 inclusive. Quality of audit service had the highest sample mean whereas the dependent variable (AC) and tax services had wide variations when compared with the other variables. It was also shown that auditor change was common with small firms. The conditional logit model and correlation analysis were used for data analyses and and the results indicated that: (1) Quality of audit service was very significant in explaining auditor switching. (2) organization complexity , size and financial distress were also significant in explaining auditor changes. (3) Multicollinearity was not a serious problem. Most of the identified factors , however , did not show any significant influence of auditor switching. The findings of this research should be understood and evaluated in light of the limitations of the study In view of the results , it is recommended that audit firms be more sensitive to that clientele that seek specialised type of audit service tailored to suit them