The usefulness of auditors report in investment decisions: a study on user perception amongst institutional investors in Kenya

Abstract

This study sought to identify whether private institutional investors in Kenya perceive auditor's report to be of importance in making investment decision. This need arose partly from the fact that the Companies Act requires all registered companies to be audited annually. In addition when making primary issues companies are required to present audited accounts as part of their prospectuses. The Act therefore presumes that the auditors report is useful which presumption is the subject of study in this paper. In order to achieve the objectives of the study primary data was collected from a sample of 30 institutional investors. Descriptive statistical methods and chi-square test of association were used to analyze the data. The results of the analysis indicate that institutional investors perceive the auditors report to have utility in investment decision making and further that they actually utilise it in decision making. The study also found out that the auditors report can be improved by additional information being incorporated. This information especially touch on the integrity of the company's managers and the status of internal controls employed to safeguard the assets of the company.