The relationship between internal audit independence and corporate governance among commercial banks in Kenya

Abstract

Internal audit is a subject that has been studied by scholars on various aspects. Some of the main areas of focus have been: the audit board committee function; risk management and internal audit; internal audit and organizational performance and the evolving trends within internal audit function. However, the concept of internal audit independence has not been reviewed in the past more so among commercial banks. Therefore this study sought to establish the independence of internal audit and how it relates to corporate governance among commercial banks in Kenya. Data was collected using a structured questionnaire distributed to all the 43 commercial banks in Kenya as at 31/12/2012. It was further analyzed by the use of descriptive statistics aided by SPSS data analysis tool and for each of the commercial bank a level of internal audit independence and a level of corporate governance was determined. A regression model was then used to analyze the relationship between internal audit independence and corporate governance within a test of significance of 95% confidence level. The study found out that there was indeed a threat to internal audit independence since the Chief Executive Officer (CEO) had powers in most banks to approve the internal audit budget, determine the compensation of the Chief Audit Executive (CAE) as well as hire and fire the CAE. The study further found out that there was a strong linear relationship between internal audit independence and corporate governance among commercial banks in Kenya. This implies that in policy and practice there are gaps in relation to internal audit independence that needs to be addressed by management