The Impact of Audit Firm Tenure, Client Importance and Auditor Reputation on Audit Quality: Evidence From Listed Firms in Kenya

Abstract

The study aimed to investigate the joint effect of audit tenure, client importance and auditor reputation on audit quality. Previous studies have investigated these factors independently and most done in developed countries. Little published research exist on developing countries how these factors jointly affect audit quality. Secondary data was used which spanned for five year period between years 2011 and 2015. Audited and published annual reports for these companies were gathered from NSE, CMA and respective company websites. A population of 67 listed firms were the object of the study out of which 33 firms were found to be responsive representing a response rate of about 50%. Correlation approach where a single number is used to deduce the relationship between variables was used. Correlation coefficient (R) was found to be 0.86 while coefficient of determination (R2) was found to be 0.754 implying that 75.4% of the variation in audit quality can be explained by the variables in the study, while 24.6% of the variation in audit quality is explained by the error term and other factors. The model is statistically significant as indicated by the F value of 63.354 and significance value of 0.000.The main analysis, where audit quality was inferred by accrual quality showed that companies audited by firms with higher reputation (big 4), with increased audit tenure produce higher audit quality reports.