Factors Affecting Audit Quality in Listed Manufacturing and Commercial Services Companies in Kenya

Abstract

This study sought to establish the factors affecting audit quality in listed manufacturing and commercial services companies in Kenya. A cross-sectional approach was adopted in the analysis in which a linear regression model was used to establish the impact of the independent variables namely; auditor size, financial status of the company and the logarithm of the auditor fees. The logarithm of audit fees was taken so as to make the data normal. The independent variable was leverage ratio (total debts divided by total assets of the company). This variable was used as a proxy for debt pressure by the companies. Debt pressure by the companies can be used as a proxy for the audit quality because high debts in relation to company assets can lead to bankruptcy. Ten manufacturing and commercial service companies listed at Nairobi Stock exchange were used as the sample of the study. The results of analysis indicated that logarithm of audit the fees, financial status of the company, and auditor size were significant in influencing the leverage of the companies and thus audit quality. The size of audit firm had a positive impact on audit quality, while the companies that were struggling financially were more likely to have poor audit quality. The logarithm of audit fees was negatively related with the audit quality. The recommendations made is that there should be regulation of audit fees as well as taking action on the audit companies that does not adhere to auditing standards and the officials of companies who take part in misstating the financial statements and other financial records so as to conceal the actual financial position of the company.