EFFECTS OF AUDIT PRACTICES ON FINANCIAL PERFORMANCE

OF STATE CORPORATIONS IN THE WESTERN REGION

PRESENTER: BENSILLIAN NYAMACHAGANI ANTHONY

INDEX NUMBER: 7410040343

COURSE: DIPLOMA IN ACCOUNTANCY

INSTITUTION: THE KISUMU NATIONAL POLYTECHNIC

A RESEARCH PROJECT SUBMITTED TO THE KENYA NATIONAL

EXAMINATIONS COUNCIL IN PARTIAL FULFILMENT OF THE

REQUIREMENTS FOR THE AWARD OF DIPLOMA IN

ACCOUNTANCY

NOVEMBER 2021
DECLARATION
This research project is my original work and has not been presented to any other institution.

Sign………………………………………………………

Date……………………………………

Bensillian Anthony

This research project has been submitted for examination with our approval as the college

supervisor.

Sign ………………………………………… Date…………………………………………...

Mr. Nyangor

Lecturer

i
DEDICATION
I dedicate this study to almighty God and my beloved parents.

ii
ACKNOWLEDGEMENT
I would like to give a special thanks to my entire family, classmates and friends for their daily

encouragements which made me to be stronger during data collection, data analysis and

writing process, may God bless them abundantly.

Special thanks go to my lecturers, for good guidance, direction and advice given to me

throughout the period of this course.

I thank quickmart supermarket for allowing me collect data and my institution The Kisumu

National Polytechnic for the support and knowledge.

iii
 ABSTRACT
The study was to assess the influence of audit practices on financial performance of state

corporations in western Kenya. The general objectives were, to identify the influence of audit

practices; to determine the indicators of financial performance and to assess the relationship

between audit practices effects and financial performance and financial performance of state

corporations.

The study target population comprised of 56 individuals drawn from finance and audit

department; managers, accountants and audit staff and the sample size of this study was 15

respondents. The researcher analysed data both quantitative and qualitative data. The study

used a case study method with the true essence, explore and case investigate contemporary

was to enables the researcher to closely examine the influence of audit practices on financial

performance

From the finding, the study found that the study implies that the respondents agreed with very

high extent that there is very high extent of audit practices influence on financial

performance of state corporations, the study also found that most of the respondents agreed

with very high extent that there is a positive relationship audit practices and financial

performance The study further resolved that staff should also be engaged on decisions

concerning audit practices.

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Table of Contents
DECLARATION.......................................................................................................................i
DEDICATION..........................................................................................................................ii
ACKNOWLEDGEMENT......................................................................................................iii
ABSTRACT.............................................................................................................................iv
CHAPTER ONE.......................................................................................................................1
INTRODUCTION....................................................................................................................1
1.1 Background of the study................................................................................................1
1.1.1 Audit practices.........................................................................................................1
1.1.2 Financial performance............................................................................................2
1.2 Statement of the study....................................................................................................3
1.3 Objectives of study.........................................................................................................4
1.4 Research questions.........................................................................................................4
1.5 Significance of the study................................................................................................4
1.6 Scope of the study...........................................................................................................5
1.7 Limitations..........................................................................................................................5
CHAPTER TWO: LITERATURE REVIEW.......................................................................6
2.1 Introduction........................................................................................................................6
2.2 Theoretical Literature Review......................................................................................6
2.2.1 Lending Credibility Theory....................................................................................6
2.2.2 The Policeman Theory.............................................................................................7
2.3 Empirical literature review...........................................................................................8
2.4 Research gap...................................................................................................................8
2.5 Conceptual framework................................................................................................10
CHAPTER THREE: METHODOLOGY............................................................................11
3.1 Introduction..................................................................................................................11
3.2 Research design............................................................................................................11
3.3. Target population........................................................................................................11
3.4 sample design.............................................................................................................11
3.4.1 Sampling Size.........................................................................................................12
3.5 Data collection...............................................................................................................13

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3.6 Instrumentation................................................................................................................14
3.6.1 Data validity...........................................................................................................14
3.6.2 Data reliability........................................................................................................15
3.7 Data analysis.................................................................................................................15
CHAPTER FOUR: DATA ANALYSIS, FINDINGS, CONCLUSSIONS AND
RECOMMENDATIONS.......................................................................................................16
4.1 Introduction..................................................................................................................16
4.2 Data Presentation.........................................................................................................16
Table 4.1 data presentation...............................................................................................16
4.3 Data Analysis................................................................................................................17
4.3.1 general information...............................................................................................17
Table 4.2: Gender.............................................................................................................17
Table 4.3: level of education.............................................................................................18
Table 4.4: current position................................................................................................18
Table 4.5: how long have you been in the current position?............................................19
Table 4.6: what is your age...............................................................................................19
Table 4.7: how long have you been working in the organization.....................................20
Table 4.8: terms of employment....................................................................................20
4.3.2 audit practices........................................................................................................21
Kindly indicate to what extent you are conversant with the following practices.............21
Table 4.9 audit independence practice..............................................................................21
Table 4.10 audit control practice......................................................................................21
Table 4.11 audit quality practice.......................................................................................22
Table 4.12 to what extent does the top management work closely with the entire audit
team...................................................................................................................................23
Table 4.13 to what extent are you satisfied with the academic qualification of the audit
team...................................................................................................................................23
Table 4.14 are the audit policies operational in the organization.....................................24
4.3.3 financial performance............................................................................................24
Table 4.15 which of the following performance indicators is the most effective............24
Table 4.16 to what extent does the top management reward performance.......................25
4.3.4 relationship between audit practices and financial performance.....................25
4.4 FINDINGS.....................................................................................................................27
4.5 CONCLUSIONS...........................................................................................................28
4.6 Recommendations.........................................................................................................29
4.7 Suggestion for further research..................................................................................30

vi
REFERENCE.........................................................................................................................31

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 CHAPTER ONE

INTRODUCTION
1.1 Background of the study

Globally, the word audit comes from the Latin word “audire” meaning “to hear”. “Auditing is

mainly concern with the verification of accounting data which determining the accuracy and

reliability of accounting statement and records”. An internal audit practice is the examination

of the financial report of an organization as represented in the annual report by some one

independent in the organization (Moutz R.K. 1964). The demand for internal auditing is

sourced in the need to have some means of independent verification to reduce record-keeping

errors, incompleteness data, asset misappropriation, and fraud within business and non-

business organizations. The roots of auditing, in general, are intuitively described by

accounting historian Richard Brown 1905, quoted in Mautz & Sharaf, 1961 as follows: “The

origin of auditing goes back to times scarcely less remote than that of accounting. Whenever

the advance of civilization brought about the necessity of one man being in trusted to some

extent with the property of another, the advisability of some kind of check upon the fidelity

of the former would become apparent.”

Starting as an internal business function primarily focused on protection against payroll

fraud, loss of cash, and other assets, internal audit’s scope was quickly extended to the

verification of almost all financial transactions, and still later, gradually moved from an

“audit for management” emphasis to an “audit of management” approach (Reeve, 1986).

1.1.1 Audit practices

Internal auditing is the activity of objective examination of all activities of economic entities

in the real purpose of independent evaluation, risk management and control and their

processes. Internal Audit has as aims; verification of compliance of the economic entity

1
audited policies, programs and their management in accordance with legal provisions,

evaluating the implementation of financial and non-financial controls and arranged and

performed by the head entity in order to increase economic and financial efficiency,

evaluating the adequacy of financial and non-financial data and information for management

to know the reality of the economic entity and protecting those assets and off balance sheet

and identify measures to prevent fraud and losses of any kind. Internal Auditing practices

performing different functions such as; examination evaluation and monitoring the adequacy

and effectiveness of internal control (Paramasivan&Subramanian 2016)

1.1.2 Financial performance

Financial performance refers to the act of performing financial activity. In broader sense,

financial performance refers to the degree to which financial objectives are being or have

been accomplished. It is the process of measuring the results of a firm's policies and

operations in monetary terms. It is used to measure firm's overall financial health over a

given period of time and can also be used to compare similar firms across the same industry

or to compare industries or sectors in aggregation. Financial performance measure includes

profitability and financial efficiency (Metcalf, R. W et al 1976). Profitability measures the

extent to which a business generates a profit from the factors of production, labor,

management and capital. Profitability analysis focuses on the relationship 24 between

revenues and expenses and on the level of profits relative to the size of investment in the

business, whereas financial efficiency measures the degree of efficiency in using labor,

management and capital. Efficiency analysis deals with the relationships between inputs and

outputs. Because inputs can be measured in both physical and financial terms, a large number

of efficiency measures in addition to financial measures are usually possible. According to

Adebawojo, Enyi & Adebawo (2015), defined performance as the extent to which

organizations, viewed as social systems, fulfill their objectives. Thus, performance can be

2
viewed as a composite reflection of how well a bank attains its objectives. Stoner (2003)

described performance as the ability to operate efficiently, profitably, survive, grow and react

to environmental opportunities and threats. Performance is “doing today what will lead to

measured valued outcomes tomorrow” (Lebas & Euske, 2002). In essence, performance is the

result of organizational activities over a given period of time. Kinyua (2016), argued that

financial performance is a measure of a company’s policies and operations in monetary

terms. It is a general measure of a firm’s overall financial health over a given period of time,

and can be used to compare similar firms across the same industry or to compare industries or

sectors in aggregation.

1.2 Statement of the study

State corporations in the country have been struggling. These poor financial performances of

the corporations may be attributed to various factors such as poor management, poor internal

audit control system, inadequate human resource skills and economic hardship in the country.

This visible financial performance state owned corporations has led to the researcher to

design this study to investigate whether this performance is influenced by internal auditing

practices. Studies have been done on internal auditing such as those of Harrison (2015),

influence of audit independence on financial performance of SME’s, Njanike et al (2011)

factors that influence the internal audit controls in ensuring good cooperate governance.

However, these studies did not focus on internal audit practices on financial performance of

state corporation.

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1.3 Objectives of study
The general objectives of the study were

i. To identify audit practices

ii. To determine indicators of financial performance

iii. To assess the relationship between audit practices on financial performance

1.4 Research questions

i. What are the audit practices?

ii. What are the indicators of financial performance?

iii. What is the relationship between audit practices and financial performance?

1.5 Significance of the study

This study will help in enhancing the role of audit practices in management staff to make

them more successful and expert. It helps the shareholders welcome the role of the audit

practices as a standout amongst the most essential administrative control frameworks in an

organization required to shield their interests.

financial institutions and public sector financial organizations in particular to reduce the

overhead identify ways to improve efficiency and maximize exposure to possible losses from

inadequately safeguarded company assets all of which can have a significant effect on the

bottom-line due to an effective internal audit service.

For researchers it may help them to acknowledge and upgrade their insight into inside review

to hold fast to the expert morals as required by the Internal Accounting System (IAS). The

finding also helps the researcher to understand why organizations perform the way they do in

terms of financial factor, despite internal controls put in place.

4
The students and academics would use this study as a basis for discussions on the corporate

governance practices and how these affect financial performances. Also, the study will help

the researcher to gain more skills, knowledge and competences particularly in internal audit

practices areas to the financial performance improvement for running organizations

1.6 Scope of the study

The study will focus on the influence of audit practices on financial performance of state

corporations. the study will be carried out in selected companies, Kenya pipeline and Lake

Victoria south water board in muhoroni Kisumu county.

1.7 Limitations
The researcher faced constraints of time due to the pressure of workload. However, the

researcher managed to complete the study by utilizing the available time.

Financial challenges were another limitation that researcher faced to carry out this study

successfully, the researcher was forced to make financial sacrifices by forgoing commitments

that could be attended to on a later date. Confidentiality was also an issue as some

respondents felt that giving other details would expose the institutions weakness

Due to the current pandemic affecting the globe schools were prematurely closed reducing

the available time for the research.

The respondents were also not willing to release adequate information concerning the study

claiming that confidentiality of the information could be compromised

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 CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction
This chapter provides comprehensive theoretical evidence on wage regulation methods, in

particular, the chapter begins with an overview of theoretical literature, empirical literature

review, the research gap, conceptual framework and explaining the variables.

2.2 Theoretical Literature Review

The framework of any theory of an organization is a set on initial premises which form the

basis for the logical developments of propositions concerning the structure behaviour,

performance and the existence of the organization. Theories are conceptualizations and

models of business enterprises which explain and predict their structure and behaviour. As a

result, the study is based on two theories Lending Credibility Theory and The Policeman

Theory

2.2.1 Lending Credibility Theory

The primary function of audit practices is to add credibility to the financial statements as

suggested by the theory of lending credibility (Hayes & Knechel, 2006). Lending credibility

theory is used by the management on the firm’s audited financial statements to assure the

stakeholder’s of quality in management’s leadership. In this view, the service that the

auditors are selling to the clients is credibility (Watts, 2010). In the construction industry,

audited financial statements are seen to have elements that increase the financial statement

users’ confidence in the figures presented by the management (Hillebrandt, 2000). The users

are perceived to gain benefits from the increased credibility. These benefits consider the

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quality of investment decisions improve when they are based on reliable information (Bon,

1992). The theory helps the study to explore or to explain the auditor ‘s report in order

comment on how accurately the corporation presents its financial situation and how it is

performing. This should support the shareholders that their investment is secured and also

help to reduce the practice of misleading accounting procedures designed to show the

company in a more favourable light. Essentially, the audit is represented as a process

designed to evaluate the credibility of information of corporations financial statements.

2.2.2 The Policeman Theory

Itton (2010), “The policeman theory suggests that the auditor is responsible for searching,

discovering and preventing fraud within the organization’’. The Policeman Theory is very

help 13 to the study because, the main focus of internal auditing is to provide reasonable

assurance and verify the fairness and truth of financial statements. Hayes et al (2005)

recently, the auditors’ responsibility to discover fraud has been relevant, whereby the main

purpose to the financial performance and development of the organization. The theory helps

the study to provide reasonable assurance and verify the fairness and truth of financial

statements and increase responsibility to internal auditors to discover the financial frauds,

increases physical control, information processing controls and monitoring its led internal

auditors to gain skills and competence which bring positive impacts on financial performance

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2.3 Empirical literature review
Past studies done to investigate audit practices include

Kagashe (2008) assessed the effectiveness of internal audit services unit in safeguarding

public resources in LGAs in Tanzania,

Harrison (2015) assessed the influence of internal audit independence on the financial

performance of small and medium enterprises: a case of the construction industry in

Mombasa County, Kenya.

Mwakimasinde, Odhiambo and Byaruhanga (2014) investigated the effect of internal audit

control systems on the financial performance of sugarcane out grower companies in Kenya.

Abdi (2015) investigated the impact of internal audit control system on financial performance

in Somalia- Mogadishu private banks.

2.4 Research gap

Studies have been done such as; Kagashe (2008) assessed the effectiveness of internal audit

services unit in safeguarding public resources in LGAs in Tanzania using Kibaha District 26

Council as a case study, Harrison (2015) assessed the influence of internal audit

independence on the financial performance of small and medium enterprises: a case of the

construction industry in Mombasa County, Kenya, but the studies mentioned above did not

focuses on the aspects of internal audit independence which influences the financial

performance of state corporation where by those aspects are independence of internal audit

committee, free minded of internal audit management, internal audit reports, plans of internal

audit and organization’s budget, all studies mentioned failed to discuss positively impacts

which contributed by the aspects of audit independence which contributes to financial

performance.

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Odhiambo and Byaruhanga (2014) investigated the effect of internal audit control systems on

the financial performance of sugarcane out grower companies in Kenya and Abdi (2015)

investigated the impact of internal audit control system on financial performance in Somalia-

Mogadishu private banks. Studies mentioned investigated on the effects of internal audits

control system on financial performance, but the studies failed to discuss the characteristics

of audit control system such as physical control, control environments, information

processing and sharing, assessment of risks, monitoring financial activities and system of

verification on reconciliations which contributes positively on the financial performance of

state corporations. Much as many studies presented above have focused on effective of

internal auditing, internal audit control system and obstacles to achieve financial

performance, but does not focus on audit practices and financial performance. This creates a

literature gap that this study intended to fill it

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2.5 Conceptual framework
The study intended to find out the influence of audit practices on financial performance of

state corporations in western Kenya It was hypothesized that improvement in financial

performance of state corporations is influenced by how effective audit practices are. The

conceptual model is summarized below.

Dependent variable: audit practices independent variable: financial

performance

Audit independence

i. Audit committee i. Profitability

ii. Audit Management
iii. Physical control ii. Financial efficiency
iv. Information control
v. Audit skill
vi. Audit competence

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 CHAPTER THREE: METHODOLOGY
3.1 Introduction
This chapter presents the research methodology, the research design, target population, data

collection procedures and instruments as well as data analysis techniques.

3.2 Research design

A research design encompasses the methodology and procedures employed to conduct

scientific research. The design of a study defines the study type the researcher used a case

study approach which allows for intensive observation and investigation of various factors in

the units of the study Kothari, 1990. This research design facilitates a better understanding of

the impact audit practices on the financial performance of state coperatives. The study design

is a descriptive method. In addition, quantitative methods were applied in data collection and

analysis. The descriptive design is found suitable because it addresses major objectives and

research questions proposed Mugenda and Mugenda, (2003).

3.3. Target population

The target population refers to a group of people or study subjects who are similar in more

ways and which forms the subject of the study in particular study that are being investigated

cooper and Schindler, 2007. The study comprised of two internal audit managers and six

internal audit staff. The study was conducted at Kenya pipeline limited and Lake Victoria

south water board in Kisumu County and the researcher targeted a population of 8

respondents.

3.4 sample design

A sample design is the framework or road map that serves as the basis for the selection of a

survey sample and affects many other important aspects of a survey as well provides the

basic plan and methodology for selecting the sample(google).

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3.4.1 Sampling Size
A sample is a finite part of a statistical population whose properties are studied to gain

information about the whole project. A good sample should be adequate and representative of

the underlying population. A sample of 30% is an adequate sample in a descriptive study of

this nature as supported by Gay (2005). An optimum sample is one which fulfils the

requirements of efficiency, representativeness, reliability and flexibility (Kothari, 2004).

Amin (2005) emphasize that a researcher must determine the sample size that will provide

sufficient data to answer the research problem. A sample is important to reduce costs, time

and has a high degree of accuracy (Amin, 2005).

A sample size of 8 respondents was selected from 18 employees of two state corporations.

table 3.3 shows various categories of the respondents drawn from the target population.

Category Target Sample size Percentage of Percentage of

population target sample size

population

Internal audit 2 2

manager

Internal audit 16 6

staff

18 8

Source: Author 2021

The selected sample size of 8 was a representative of the population and thus the findings

could be generalized.

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The researcher will use simple random sampling because of the following reason; the ease of

assembling the sample. It will consider a fair way of selecting a sample from a given

population since every member will be given equal opportunity of being selected due to the

representativeness of a sample obtained by simple random sampling, it will reasonably make

generalizations from the results of the sample back to the population as one of the goals of

research will be able to make conclusions pertaining to the population from the results

obtained from a sample.

3.5 Data collection

According to Chandran, (2004), the main type and sources of data are primary and secondary

data. Primary data consists of data collected by the researcher from original sources from the

field. primary data was used in the form of structured questionnaires. Questionnaires were

used for the collection of data from the two state corporations within Kisumu County; Kenya

pipeline limited and Lake Victoria south water board, despite the small number of target

population; the researcher used census method where respondents in the companies were

supplied with questionnaires. The questionnaires were structured in four areas that is; section.

A general information; section B internal audit; section C indicators of financial performance

and section D the relationship between internal audit practices and financial performance.

The questionnaires were structured to answer inquiry questions based on 5 pint likert scale

questions which were close ended to give the respondents limited and predetermined

responses to choose from. The questionnaires were made of simple and easy to answer.

Questionnaires were distributed to the respondents by the researcher using a drop and pick

method to reduce disruptions on the respondent’s routines.

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3.6 Instrumentation
Instrumentation refers to the selection or development and the later use of tools to make

observations about variables in a research study. The observations are collected, recorded,

and used as primary data. Instrumentation builds on the study design and problem statement

and assumes that both are approximately specified.in considering the quality of the

instrumentation the reviewer should focus on the rigor with which data collection is executed.

Jaa Shea (2001)

3.6.1 Data validity

Validity refers to the extent to which an instrument measures what is supposed to measure,

data need not only to be reliable but also true and accurate. If a measurement is valid, it is

also reliable (Mugenda and Mugenda, 2003). To establish the validity of the data collection

instruments, the research instruments will be given to contractors, managers, district officials,

opinion leaders, consultants, supervisors, and political leaders in the region. The managers

and staffs will be expected to tick if the item in the questionnaires addresses the influence of

the efficient performance in organizations. The content of the responses given by the

managers and other stakeholders will be checked against the study objectives and rated using

a scale of 1(very relevant) to 4 (not very relevant). The Content Validity Index will be used to

determine the validity by adding up all the items rated using a scale of 3 and 4 by the

managers and dividing the total sum by the total number of items in the questionnaires. The

coefficient of the data gathered from the pilot study will be computed with assistance of

Statistical Package for Social Sciences (SPSS). Statistical package for social science is a

software package used for interactive, or batched statistical analysis. Current version as the

brand name IBMSPSS.

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3.6.2 Data reliability
Reliability refers to the consistence, stability, or dependability of the data. Whenever an

investigator measures a variable, he or she wants to be sure that the measurement provides

dependable and consistent results (Cooper & Schindler, 2003). A reliable measurement is one

that if repeated a second time gives the same results as it did the first time. If the results are

different, then the measurement is unreliable (Mugenda & Mugenda, 2003). To measure the

reliability of the data collection instruments an internal consistency technique using

Cronbach's alpha will be applied. Cronbach's alpha is a coefficient of reliability that gives an

unbiased estimate of data generalizability

3.7 Data analysis

Analysis is the process of categorizing, manipulating, ordering and summarizing data to

obtain answers from research questions. The study adopted descriptive statistics. According

to Leary (2004), descriptive analysis involves a process of transforming a mass of row data

into tables, charts with frequency, distribution and percentages which are vital part of making

conclusions to the data. The data collected from the questionnaires were checked for

completeness and accuracy. The questionnaire was coded according to each variable of the

study to ensure margin of error is minimized and assure accuracy during analysis.

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 CHAPTER FOUR: DATA ANALYSIS, FINDINGS, CONCLUSSIONS AND
RECOMMENDATIONS
4.1 Introduction
In this chapter, analysis of results that have been presented in three major objectives; to

determine influence of audit practices; to determine the indicators of financial performance in

state corporations and to establish the relationship between audit practices and financial

performance in state corporations. The analysis and discussion in this chapter is based on the

response from research questionaries’ as the primary research instrument employed in the

study. this chapter further presents the response rate, analysis of the data, conclusions of the

study, recommendations of the study and suggestions for further study.

4.2 Data Presentation

The researcher administered questionnaires and sought to analyse the number of

questionnaires which were returned. Table 4.1 illustrates the response rate of respondents.

Table 4.1 data presentation

Category Frequency (n) Percentage (%)

Questionnaire administered 18 100

Questionnaire returned 15 83.3

Source: research, data 2021

In reference to the above table the researcher administered 15 questionnaires. 15 out of the

questionnaires were returned, fully filled. This represented 100% response rate. A 50%

response rate is adequate and a response rate greater than 70% is very good Mugenda and

Mugenda (2003). hence the response rate was satisfactory as outlined in table 4.1.

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4.3 Data Analysis

The data from the questionaries were analysed. The findings are discussed according to the

sections of the questionnaires. The four sections of the questionaries were:

Section A: general information

Section B: influence of audit practices.

Section C: financial performance.

Section D: relationship between influence of audit practices and financial performance.

4.3.1 general information

Table 4.2: Gender
Gender Frequency (n) Percentage (%)

Male 12 80.0

Female 3 20.0

Total 15 100

Source: research data, 2021

In reference to table 4.2, it was established that out of the 15 respondents, 80.0% were men

while the remaining 20.0% were female. This implied that male recorded the highest number

of staff compared to the female counterparts hence the organizations are male dominated.

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Table 4.3: level of education
Level Frequency (n) Percentage (%)

Diploma 2 13.3

Degree 10 66.7

Masters 3 20.0

Other(specify) 0.0

Total 15 100

Source: research data, 2021

In reference to table 4.3, it was established that out of the 15 respondents,13.3% had diploma

qualifications,66.7% had degree qualifictions,20.0% had master qualification while there was

none without academic qualifications. This implied that all the staff had academic

qualifications which was important to the firms taking into consideration the kind of work

involved.

It was further established that the whole staff had CPA qualifications as an addition to their

academic qualifications.

Table 4.4: current position

Position Frequency (n) Percentage (%)

Internal audit manager 2 13.3

Audit staff 8 53.4

Accountants 5 33.3

Total 15 100

Source: research data, 2021

In reference to the table 4.4 above, it was established that out of the 15 respondents, 13.3%

were internal audit mangers, 53.4% were audit staff and the remaining 33.3% were

18
accountants. This implied that most of the respondents were audit staff taken from the

internal audit department.

Table 4.5: how long have you been in the current position?
Years Frequency(n) Percentage (%)

Less than 5 years 3 20.0

5-10 years 5 33.3

Over 10years 7 46.7

Total 15 100

Source: research data, 2021

In reference to table 4.5 above, it was established that out of the 15 respondents, 20.0% had

spent less than five years in their current positions 33.3% had spent between 5-10 years in

their current positions while the remaining 46.7% had spent over 10 years in their current

positions in the organizations, this implied that most of the staff had spent more than 10 years

in the organizations, giving the organizations the much needed experience.

Table 4.6: what is your age

Age Frequency (n) Percentage (%)

21-30 years 2 13.3

31-40years 3 20.0

41-50years 6 40.0

51-60years 4 26.7

Total 15 100

Source: research data, 2021

In reference to table 4.6 above, it was established that out of the 15 respondents, 13.3%

belonged to the age bracket of between 21-30 years 20.0% belonged to between 31-40

years,40.0% belonged to age racket between 41-50 years and the remaining 26.7% belonged

19
to the age racket between 51-60 years. This implied that the work force of the organization

mainly was comprised of staff between 41-50 years.

Table 4.7: how long have you been working in the organization
Duration Frequency (n) Percentage (%)

Less than 5 years 3 20.0

5-10 years 4 26.7

Over 10 years 8 53.3

Total 15 100

Source: research data,2021

In reference to table 4.8 above it was established that, of the 15 respondents in the

study,20.0% had spent less than 5 years in the orgaizatios,26.7% had spent 5-10 years in the

organizations and the remaining 53.3% had spent over 10 years in the organization. this

implied that most of the staff had spent over 10 years in the organizations which also gave

them the much-needed experience.

Table 4.8: terms of employment

Term Frequency (n) Percentage (%)

Permanent 10 66.7

Casual 5 33.3

Total 15 100

Source: research data,2021

In reference to table 4.8 above, it was established that of the 15 respondents 66.7% were

employed under permanent and pensionable basis while the remaining 33.3% were under

contractual basis. This implied that most of the respondents in the procurement department

were permanent. this offered them job security.

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4.3.2 audit practices
Kindly indicate to what extent you are conversant with the following practices.
Table 4.9 audit independence practice
Extent of agreement Frequency Percentage

Very great extent 9 60.0

Great extent 6 40.0

Moderate 0 0

Disagree 0 0

Not aware 0 0

Total 15 100

Source: research data ,2021

In reference to table 4.9 above, it was established that of the 15 respondents in the study

60.0% of the respondents agreed to a very great extent that they were conversant with audit

independence practice,40.0% agreed to a great extent. This implied that the entire audit team

was conversant with audit independence practice and this ensured jo effectivity.

Table 4.10 audit control practice

Extent of agreement Frequency Percentage

Very great extent 6 40.0

Great extent 6 40.0

Moderate 4 20.0

Disagree 0 0

Not aware 1 0

Total 15 100

Source: research data ,2021

In reference to the above table 4.10, It was established that out of the 15 respondents in the

study,40.0% of the respondents agreed to a very great extent that they were conversant with

21
audit control practices,40.0% agreed to a great extent while the remaining 20.0% agreed to a

moderate extent. This implied that mall the audit team was conversant with audit control

practices.

Table 4.11 audit quality practice

Extent of agreement Frequency Percentage

Very great extent 8 60.0

Great extent 6 40.0

Moderate 0 0

Disagree 0 0

Not aware 1 0

Total 15 100

Source: research data ,2021

In reference to the above table 4.11, it was established that of the 15 respondents in the

study,60.0% of the respondents agreed to a very great extent that they were conversant with

audit quality practices while the remaining 40.0% agreed to a great extent. This implied that

the audit team was well conversant with the audit quality practices.

Table 4.12 to what extent does the top management work closely with the entire audit team
Extent of agreement Frequency Percentage

Very great extent 8 53.3

22
 Great extent 4 26.7

Moderate 2 13.3

Disagree 0 0

Not aware 1 6.7

Total 15 100

Source: research data ,2021

In reference to the above table 4.12, it was established that of the 15 respondents in the study

53.3% of the respondents agreed to a very great extent that the top management works

closely with the audit team,26.7% agreed to a very great extent ,13.3% agreed to a moderate

extent while the remaining 6.7 % was not aware of anything. This implied that most of the

audit team had agreed that the top management work closely with them.

Table 4.13 to what extent are you satisfied with the academic qualification of the audit team
Extent of agreement Frequency Percentage

Very great extent 8 53.3

Great extent 6 46.7

Moderate 0 0

Disagree 0 0

Not aware 1 0

Total 15 100

Source: research data ,2021

In reference to the above table 4.13, it was established that of the 15 respondents in the

study,53.3% of the respondents agreed to a very great extent ,46.7 of the respondents agreed

to a great extent. This implied that most of the respondents were satisfied with the

qualifications of the audit team and this could not put their opinions to question.

Table 4.14 are the audit policies operational in the organization.

Extent of agreement Frequency Percentage

23
 Very great extent 4 26,7

Great extent 4 26.7

Moderate 0 0

Disagree 4 26.7

Not aware 3 20.0

Total 15 100

Source: research data ,2021

In reference to the above table 4.14, it was established that of the 15 respondents in the

study,26.7 % agreed to a very great extent that audit policies are operational in the

organization,26.7% of the respondents agreed to a great extent ,26.7 disagreed to the

statement while the remaining 20% were not aware if the policies were operational.

4.3.3 financial performance

Table 4.15 which of the following performance indicators is the most effective
Indicator Frequency Percentage

Profitability 10 66.7

Financial efficiency 5 33.3

Total 15 100

Source: research data,2021

In reference to the above table 4.15it was established that of the 15 respondents in the study

66.7% respondents agreed that profitability was the most effective performance indicator

while the remaining 33.3% agreed on financial efficiency this implied that most of the

respondents agreed on profitability of the organization as the indicator of performance.

Table 4.16 to what extent does the top management reward performance
Extent Frequency Percentage

24
 Very great extent 10 66.7

Great extent 5 33.3

Moderate 0 0

Disagree 0 0

Not aware 15 100

Total 15 100

Source: research data,2021

In reference to table 4.16 above it was established that 66.7% of the respondents agreed to a

very great extent that top management reward top performance while the remaining 33.3%

agreed to a great extent. This implied that the organizations rewarded staff for good

performance.

4.3.4 relationship between audit practices and financial performance

Table 4.17 internal audit staff expertise affects financial performance of the corporation

Extent Frequency Percentage

Very great extent 10 66.7

Great extent 5 33.3

Moderate 0 0

Disagree 0 0

Not aware 0 0

Total 15 100

Source: research data,2021

In reference to table 4.16 above it was established that of the 15 respondents in the study

66.7% respondents agreed to a very great extent that internal audit staff expertise affects

financial performance, while the remaining 33.3 % agreed to a great extent. This implied that

audit staff expertise influences financial performance.

25
4.4 FINDINGS

The research aimed at looking at the influence of audit practices on financial performance of

state corporations in western Kenya. The study also sought to establish the effect of internal

audit staff expertise, internal audit controls and Top management support of internal Audit

26
function on performance of state corporations. The finding of the study was based on the

study objectives and research questions. The first research objective sought to examine the

influence of internal audit controls on financial performance of state corporations.

The finding is positive and insignificant. This meant that lack of internal controls could have

an effect on financial performance. The findings are in agreement with Feng, Li, McVay and

Skaife (2014) who noted ineffective internal controls could adversely affect a firm's

operations. The second research objective sought to determine the impact of internal audit

staff expertise on performance of state corporations. The study established the existence of a

significant positive relationship between internal audit staff expertise on performance of state

corporations. The study findings indicate that majority of the respondents confirmed to

understand their roles as internal audit representing. Majority of the respondents agreed that

they are given adequate training. Majority confirmed that state corporations conduct frequent

training to staff. The findings are in line with the findings of Salanova, Agut and Peiro

(2005) on linking organizational resources and work engagement to employee performance

and customer loyalty. The third research objective of the study sought to determine the

impact of top management support of internal Audit function on performance of state

corporations in western Kenya. It was established that top management support had a

significant effect on the performance. Lack of support demotivates internal audit staff

Hollenbeck, Gerhart, and Wright (2017) on human resource management as a source of

competitive advantage.

4.5 CONCLUSIONS
The study concludes that internal audit practices influence financial performance of state

corporations in western Kenya The study concluded that internal audit has a positive and

27
significant on performance of state corporations in western Kenya. The findings of the study

revealed significant positive relationship between internal audit staff expertise and the

financial performance of state corporations in Kenya.

The study concludes that Top management support of internal Audit function having no

influence on performance. The finding is positive and significant. The findings of the study

revealed a significant positive relationship between Top management support of internal

Audit function and the performance of state corporations in western Kenya.

28
4.6 Recommendations

From the conclusion drawn, it recommended that managers and policy makers should pay

attention to Internal Audit staff expertise. Public institutions should hire qualified staff for

better performance. Resources should be directed toward staff development and

compensation, for they hold the key to financial performance. It is recommended that top

management must be committed to ensuring internal audit function works in their

corporations. Top management should therefore give support internal audit function to

enhance effectiveness, independence and efficiency on their service delivery. It is further

recommended that management should not direct all resources toward internal audit controls

because increased internal audits may not have significant influence to performance.

29
4.7 Suggestion for further research

Based on the adjusted R square performance of public commission is not purely begged

on internal audit function alone since the study indicated that internal audit only explains

60.8% of performance leaving 39.2% unexplained. Further study could be conducted to

establish the other factors that affect performance other than internal audit function in an

organization.

This study was based on public commission on Kenya, similar study should be done in

other countries especially in the East African Communality member countries in order to

establish whether similar results will be arrived at. It will also indicate whether there are

other influencers of performance other than the internal audit function.

The study was conducted relying on case of study of parliamentary service commission.

Similar studies could be done on other organization in different industries like private

sector, public limited company, and non-governmental organization among others

30
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