The Relationship Between Internal Audit Function and Financial Performance of Mid-size Manufacturing Firms in Nairobi County, Kenya

Abstract

This study sought to investigate the existing relationship between the internal audit function and financial performance of mid-size manufacturing firms in Nairobi County, Kenya. To fulfill its objective the study operated a descriptive research approach. The target population in the study was the medium size manufacturing firms. 30% of the medium size manufacturing firms in Nairobi were selected for the study. This generated 30 firms. Primary data was collected using a quantitative approach. The respondents were either of the three (3) business unit heads designated as CEOs or senior Managers, general managers and functional heads from each of the firms who are responsible for day – to day operations of the enterprises. The data obtained was mainly quantifiable in nature and hence was analyzed by descriptive analysis. The researcher conducted inferential analysis which included a multiple regression analysis. The study concludes that internal audit functions have a significant effect on the financial performance of mid- size manufacturing firms in Nairobi. There was a strong positive relationship between financial performance of mid-size manufacturing firms and internal audit aspects of functions. There is therefore the need for mid-size manufacturing firms to adopt effective internal processes and practices that address key internal auditing practices for effectiveness of audit quality. In order to implement good internal audit independence, managers need to know that they should be concerned about the interrelationships between internal audit independence and financial performance. Internal auditors must have sufficient proficiency and training to carry out the tasks assigned to them.