The Relationship Between Risk Based Internal Audit and Financial Performance of Commercial State Corporations in Kenya

Abstract

Risk based internal auditing influences a firm’s use of its internal audit function to enhance risk management and control as well as governance which in turn influences accountability and enhances accuracy of financial statements thereby influencing financial performance in financial institutions. To understand the relationship between risk based internal audit and financial performance, the study examined whether use of risk based internal audit practices such as risk management, internal audit planning, internal audit capacity and internal audit standards affected financial performance of commercial State Corporations in Kenya. The study adopted descriptive survey research with a view to obtaining information that describes existing phenomena. The target population for the proposed study was the 53 commercial State Corporations operating in Kenya and a census survey of all the 53 commercial State Corporations was undertaken. Primary data was collected using questionnaires that were self-administered after which the researcher used quantitative techniques to analyse the data. After receiving questionnaires from the respondents, the collected data was examined and checked for completeness and comprehensibility. Inferential statistical regression and correlation was done to establish the impact of risk based internal audit on financial performance of commercial State Corporations. The study concluded that there existed a positive relationship risk management, internal audit planning, internal audit capacity and internal audit standards on financial performance and therefore recommends that management in Commercial state corporations should embrace risk based internal auditing practices. From the findings, the study recommends that managers in commercial state corporations in Kenya should adopt risk based internal audit practices such as risk management, internal audit planning, internal audit capacity and internal audit standards in order to enhance financial performance of their organisations.