Effect of Auditing on Financial Performance of Water and Sanitation Company in Kirinyaga County, Kenya

Lucy Wangithi Munene

doi:10.11648/j.jfa.20160405.14

Abstract

Within the framework of modern business world, auditing is a major part of managing an organization. Audits are performed to ascertain the validity and reliability of information and also to provide an assessment of a system's internal control. The goal of an audit is to express an opinion on the truth and fairness of the organization financial statements. The theories guiding this research are the policeman theory, the lending credibility theory and the theory of inspired confidence and the agency theory. The overall objective of this study was to examine the effect of auditing on financial performance of Water and Sanitation Company in Kirinyaga County. The specific objective was to determine the influence of auditor’s independence on financial performance of Water and Sanitation Company in Kirinyaga County. The study used a descriptive survey research design targeting the top management level, middle management level and lower management level staffs of Kirinyaga Water and Sanitation Company. A sample of 42 respondents was selected from a study population of 137 staffs of the company. Proportionate stratified random sampling method was used to get the sample size. Data was collected from primary sources i.e. directly from respondents through open and close ended questionnaires. The collected data was both qualitative and quantitative. The qualitative data was analyzed using content analysis while quantitative data was analyzed using multiple regression analysis and correlation analysis. Analyzed data was then presented in form of data tables. The results of the study revealed that there is a positive relationship between financial performance success and auditor’s independence. The study therefore recommends that Kirinyaga Water and Sanitation Company should maintain and enhance audit assurance services and strong internal control environment.

Highlights

External auditor independence is impaired if he becomes familiar with the clients business year after year
Knowledge Gap Study did not look into the external auditor independence and organizational policies that may affect realization of its goals and objectives
Focus of proposed study Current study to focus on corporate governance, auditors independence, internal audit function and audit Committee

Summary

Introduction

The word audit is derived from the Latin word audile, which means to hear. The word audit was meant to hear and auditor literally meant a hearer (Salehi, 2008). External auditors are authorized by law to examine and publicly issue an opinion on the status and reliability of company’s financial reports. The main objective of the financial statement audit is to add credibility to management’s financial statements allowing owners, investors, bankers, and other creditors to use them with greater confidence. An audit does not guarantee financial statements accuracy. It provides users with a reasonable assurance that the firm financial statements give a true and fair view about its financial position and its operations

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Conclusion