ASSESSING THE RELATIONSHIP BETWEEN INTERNAL AUDIT FUNCTIONALITY AND ACCOUNTING QUALITY IN SELECTED FIRMS AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Katieno, Jeff Oganga
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In view of sudden collapse of some reputable companies, this study examines whether the internal audit departments in selected companies listed at the Nairobi Securities Exchange are functional and assesses the level of accounting quality in the financial statements of the selected companies. Finally, it explores the relationship, if any, between the functionality of internal audits and accounting quality. The indicators of internal audit functionality are identified as internal audit structure, internal audit independence and management support. Questionnaires were purposively administered to ten selected companies to evaluate perception of internal audit functionally while on accounting quality; Healy Model of earnings management was used. The weakest perceived indicator of internal audit functionality was found to be internal audit independence where political pressure was perceived as the greatest barrier to internal audit functionality. On accounting quality three of the ten selected companies showed undesirable levels of accruals hence poor accounting quality. It is recommended that corporate governance report of listed companies should include a signed statement on internal auditor independence. Finally accounting bodies should also explore ways of managing discretionary accruals to improve on accounting quality.
- SCHOOL OF BUSINESS