Factors Influencing Effectiveness of Internal Auditors in the Audit of Financial Statements in County Treasuries in Rift Valley Region Kenya

Abstract

Internal auditing is essential for good governance of public funds and good corporate governance. The purpose of the study was to examine the factors influencing effectiveness of internal auditors in the audit of financial statements in Rift Valley Treasuries Kenya. The study adopted cross sectional research design. The specific objectives of the study included: the effects of remuneration on auditors’ effectiveness in the audit of financial statements in the rift valley treasuries Kenya; the effects of independence on auditors’ effectiveness in the audit of financial statements in the rift valley treasuries Kenya; the effects of training on the auditors effectiveness in the audit of financial statements in rift valley treasuries Kenya, the effects of auditors’ effectiveness in the audit of financial statements in treasuries in the rift valley Kenya; the effect of auditor’s reputation on auditors’ effectiveness in the audit of financial statements in the rift valley treasuries Kenya. The study adopted a cross-sectional survey design. The targeted population was 360 internal auditors and accountants from the 45 sub-counties in Rift valley out of which a sample of 108 respondents was selected using stratified sampling. Data collected was analyzed by the use of descriptive statistics and was presented through percentages, means, standard deviations and frequencies. The study established that resources are allocated to audit, leadership ensures the auditors are independent, leaders take personal responsibility on their obligation in the audit through guidance of audit committee, treasuries ensures the auditor is free from management influence, internal auditors are transparent on material issues, auditor’s judgment are made without compromise from the board of director’s directives, management offers support to auditors as an obligation to offer management report on all material queries and there is no auditor client negotiation conflict over financial reporting issues. The study concludes that for effective and credible financial statements adequate resources have to be allocated to audit, effective auditors work the auditors should ensures high leadership and management skills and proficiencies on their engagement, audit staff should be selected on merit for effective audit of financial statements and that auditor reputation serves as an important proxy for the quality and accuracy of client financial statements and therefore paramount for effective audit of financial statements. The study recommends that to enhance the credibility of financial statements the auditor and client should negotiate terms of reference without prejudice to auditors independence, internal auditors should build reputation over time by producing consistent, high-quality work and that remuneration of the auditors should be put into consideration when the allocation of treasury resources are being allocated. This will ensure that the auditors fees are well evaluated and paid on time and this will ensure that the auditors are not compromised while undertaking the audit or when reporting on their assignments in the treasury.