AN ANALYSIS OF AUDIT QUALITY ATTRIBUTES AND CLIENT SATISFACTION FOR COMPANIES QUOTED AT THE NAIROBI SECURITIES EXCHANGE

ABSTRACT
With the collapse of Enron involving the misconduct of one of the Big 4, Arthur Andersen & Co. in the US and the CMC and Uchumi scandals in Kenya involving the big audit firms Delloitte and PwC, the argument for audits for big audit firms as synonymous with quality audit has become questionable. Despite several studies having been done on audit quality, none of them has touched on the analysis of audit quality attributes in relation to client satisfaction for the listed companies on the Nairobi Securities Exchange. The general objective of the study was to analyze audit quality attributes and client satisfaction for companies listed at the Nairobi Securities Exchange and the study will be significant to the management of the listed companies and the audit firms alongside the scholars who may want to pursue the subject further. The study comprised of all the listed companies on the Nairobi Securities Exchange as at 31st December 2013, they were 60 companies in number. The study reviewed literature on audit qualities which included audit reliability, audit tangibility, auditors assurance, auditors responsiveness and auditors empathy, also auditors experience and auditors independence were reviewed. Client satisfaction, empirical studies and theoretical review were also covered, the literature review finalized with the conceptual framework. The study employed descriptive study design and entailed the 60 listed companies as the population, which was taken as a census because of the small number. Primary data was collected by use of a structured questionnaire by use of drop and pick later. The collected data was analyzed first by use of descriptive statistics; correlation analysis was done to establish the relationship between the dependent and independent variables and finally a regression analysis was performed on the model to test the hypotheses. A total of 60 questionnaires were sent out of which 49 were respondent to, 41 were satisfactorily filled and considered for analysis, this formed 84 percent response rate. The study found that only two out of five audit quality attributes (i.e., Responsiveness, Assurance, Empathy, Tangibles, and Reliability) were statistically significant related to client satisfaction. Thus the two attributes of tangibility and responsiveness has a significant impact on the client satisfaction.

CHAPTER ONE: 
INTRODUCTION 
Introduction 
This chapter briefly highlights: background to the study, statement of the problem, objectives of the study, research hypotheses, justification of the study, scope and limitation of the study and finally outlines definition of variables. 

Background of the study 
In the recent past, the world has experienced a rise in corporate failures, financial scandals and audit failure. This has stimulated firm debate among the accounting profession’s regulators and the public about the audit expectations gap. This is because the accounting information users often ask where auditor was when the scandals were taking place. Some accounting information users therefore seem to partly blame the auditors for corporate failures (Sidani, 2007). With the collapse of Enron involving the misconduct of one of the Big 4, Arthur Andersen & Co., the argument for audits for big audit firms as synonymous with quality audit has become questionable. These corporate scandals confirmed a requirement for high quality audit and considerable attention to different factors that may have effect on audit quality. High quality audit refers to the production of financial information without misstatements, omissions or biases. From an agency theory perspective, Dang (2004) argues that audited financial statements are a monitoring mechanism to provide assurance for users of financial information 

In Kenya Deloitte exhibited poor audit quality by failing to recognize losses from CMC assets that were damaged, failing to disclose the auto firm’s subsidiary in South Sudan in the annual reports, abetting the booking of undelivered vehicle sales as revenues and not capturing interest payments for cars sold on credit (Kamau et al. 2012). A final report on CMC’s operations by the regulator CMA for the 2009 and 2010 released revealed that directors and management signed misleading financial statements, the accounts were not prepared in compliance with the International Financial Reporting Standards, consequently putting the firm on a precarious business model. Such evidence has raised questions concerning the extent to which audit firms participate in company activities and whether shareholders rights are protected moving forward to avoid recurrences. The Deloite saga marked the second time one of the Big Four audit firms in Kenya was being put on the spotlight over the quality of its audit services after the investigation of PwC in the wake of Uchumi Supermarket’s near-collapse in 2006. These latest CMC developments turned the spotlight on the auditors’ responsibility in failing to detect the alleged inflation of invoices and diversion of funds from the company by its directors which greatly impacts on the quality of the audit services (Onwong’a, et al. 2010) 

During the early development of the profession, auditors were engaged to provide almost absolute assurance against fraud and planned mismanagement since the size of the firms during that time were reasonably small. This role however was reduced to the provision of reasonable assurance as time went by and organizations became much complex. According to Porter (1997) the primary objective of an audit in the pre-1920’s phase was to uncover fraud. This objective however changed by the 1930’s, whereby the primary objective of an audit changed to verification of accounts. This was perhaps due to the increase in size and volume of companies’ transactions which in turn made it difficult for auditors to examine all transactions. As a result the auditing profession therefore begun to assert that the responsibilities of fraud detection rested with the management. Further, management should also implement appropriate internal control systems to avert fraud in their companies. Schelluch et al. (2006). Most of the users of accounting information may not have adjusted to the changed role of the auditors hence the existence of an audit expectation gap. 

The audit expectation gap has two components, the first one being the difference between what society expects auditors to achieve and what they can reasonably expect to accomplish, known as the reasonableness gap and the second one being the difference between the responsibilities society reasonably expects of auditors and auditors' actual performance, known as the performance gap. In view of the discussion above on the role of auditor in Kenya as required by law and accounting international standards, Kimutai (2012) explains that an expectation gap mainly in relation to the level and nature of auditor's responsibility exists in Kenya. 

Audit quality by Khomsiyah and Indriantoro (1998) has become an important issue for the accounting profession. So much pressure from the outside parties to monitor the work and demands to increase audit quality process. To fulfill the good audit quality then auditors in carrying out his profession as an examiner should be guided on the accounting code of ethics, professional standards, and applicable accounting standards in Kenya. Each auditor must maintain the integrity and objectivity in carrying out their duties, by acting honestly, firmly, without pretensions, so that he can act fairly, regardless of pressure or demand certain parties to fulfill their personal interests. Basuki and Krishna (2006) states that audit quality is a complex issue because so many factors that can affect the quality of the audit depends on the point of view of each party, making audit quality difficult to measured becomes a matter that is sensitive to individual behavior conducting the audit. Theoretically, the quality of work is usually associated with auditor qualifications, expertise, timeliness of completion of the work, a competent examination of the sufficiency of evidence at the lowest cost and the independence to client. 

Rudyawan and Badera (2007) states that the auditor who has a reputation can provide a better audit quality, including in revealing going concern problems in order to maintain their reputation. According to Cheng, Liu, and Chien (2008) reputation of the auditor has a relationship with the human resources of the audit office, human resources (human capital) is the most important asset of a public accounting firm. Audit firm must ensure that they have enough personnel equipped with the competencies and professional characteristics so that they can perform according to standards, legal requirements and community expectations. To address these expectations, audit firms must establish a planned process of human resource management. To ensure the viability and flexibility and its ability to meet the needs of investors, audit firms must continue to recruit, develop, educate, and train auditors at all levels are prepared to conduct high quality audits in a dynamic environment. The task is to examine public accounting and give opinion on the fairness of financial statements of a business entity based on standards set by the Cheng, Liu, and Chien (2008). Based on these two public accounting have an obligation to maintain the quality of audits to the standards set by the Indonesian Institute of Accounting. 

Oliver (1997) defines satisfaction as the consumer’s fulfillment response, the degree to which the level of fulfillment is pleasant or unpleasant. Zeithaml and Bitner (2000) define satisfaction as the customers’ evaluation of a product or service in terms of whether that product or service has met their needs and expectations. Dissatisfaction with the product or service is resulted as failure to meet the customers’ needs and expectations. Satisfaction and perceived quality are highly inter-correlated (Bitner and Hubbert, 1994). Some studies find that satisfaction drives a general perception of quality, while others find that perceptions of quality drive satisfaction (De Ruyter, Bloemer, and Peters, 1997). Most marketing researchers accept a theoretical framework in which quality leads to satisfaction Oliver (1997), which in turn influences purchasing behaviour (Oliver, 1999). These arguments suggest that service quality is likely to affect customer satisfaction.

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Item Type: Kenyan Material  |  Attribute: 72 pages  |  Chapters: 1-5
Format: MS Word  |  Price: KSh900  |  Delivery: Within 30Mins.
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