Effects of Internal Audit Capacity on Quality of Financial Reporting in County Governments in Western Kenya

Abstract

County governments in Kenya have been in existence since 2013, but despite the changes that have been put in place, the performance of the majority of them is still a matter of controversy. The quality of financial reporting is relatively low, and the internal audit capacity is not yet fully operational. Therefore, this study assessed the effects of internal auditing capacity on quality of financial reporting in County Governments in Western Kenya. The study was based on positive accounting theory, agency theory, contingency theory, and the resource-based viewpoint theory. The study used a descriptive-correlational approach to research. The study was conducted in Kakamega, Bungoma, Busia, and Vihiga Counties in Western Region of Kenya. The target population was 124 personnel from the Treasury Department. Census method was used to select sample size. The research collected data from 124 participants via the use of stratified random sampling. Pilot study was carried out in Kisumu County. Content validity and construct validity was used to determined validity of the research instruments. The dependability of the data was evaluated using Cronbach's Alpha coefficient. The study used descriptive analysis as well as inferential analysis to evaluate the quantitative data. The findings were presented via the use of tables and graphs. Person Correlation results revealed that internal audit capacity have a strong significant relationship on quality of financial reporting in County Governments in Western Kenya (r = 0.752, P < 0.01). Also, internal audit capacity had a positive and significant influence on quality financial reporting (β = .674, p < 0.05). The study recommends that there is need to enhance internal audit staffing capacity. This can be achieved through recruitment of qualified and experienced internal auditors, as well as providing training and development opportunities to existing staff