Influence of Risk-Based Audit Practices on Financial Performance of Registered Fruit Processing Firms in Thika Municipality, Kenya.

Abstract

Purpose: The internal audit objective is to elevate the efficiency and effectiveness of an organization’s risks through productive criticisms. Due to the increasingly changing business environments, risk-based audit practice is essential as it focuses on domains exposed to high risks. The motivation of the study was to determine the influence of risk-based audit practices on financial performance of registered fruit processing firms in Thika Municipality, Kenya. The study was led by specific objectives which were: to determine the influence of audit risk management on financial performance of registered fruit processing firms in Thika Municipality, Kenya ;to evaluate the influence of audit quality on financial performance of registered fruit processing firms in Thika Municipality, Kenya; to assess the influence of internal control on financial performance of registered fruit processing firms in Thika Municipality, Kenya, and to explore the influence of the risk governance on financial performance of registered fruit processing firms in Thika Municipality, Kenya. The theories embraced comprised of Contingency, Agency, Risk, and Stewardship.
 Methodology: The study applied a descriptive research design. The target population was 130 management staff of registered fruit processing firms in Thika municipality Kenya. Census survey techniques were used for the study. Both primary and secondary data were used. A questionnaire was used as the instrument for data collection. The reliability and validity of the questionnaires were determined. Data collected from the field was sorted, processed, and categorized according to the questionnaire list of items. The collected data was analyzed using computer-aided SPSS Standard Version 28. Descriptive statistics were used to determine the percentages, cross-tabulation, mean scores, and standard deviations. Frequency distribution was used to describe the demographic characteristics of the respondents, whereas inferential statistics were used to determine the significance and relationship between independent and dependent variables.
 Results: The regression coefficient of the study showed that a unit change in audit risk management leads to a 2.73 change in the financial performance of registered fruit-processing firms in Thika Municipality, Kenya. The study also revealed that a unit change in audit quality leads to a 2.277 change in the financial performance of registered fruit-processing firms in Thika Municipality, Kenya. Further, the study established that a unit change in internal control leads to a 3.295 change in the financial performance of registered fruit-processing firms in Thika Municipality, Kenya. Finally, the study found that a unit change in risk governance leads to 3.512 changes in the financial performance of registered fruit-processing firms in Thika Municipality, Kenya.
 Unique Contribution to Theory, Policy, and Practices: The study recommended that recognizing the importance of risk culture, board risk oversight, and independent disclosure of risk programs, the fruit-processing firms need to build a reasonable short-term and long-term corporate governance strategy. This will build corporate risk culture, create a reputation in the market and enhance a transparent business environment.