Risk-Based Internal Audit and Corporate Governance on the Financial Performance of Deposit Taking Cooperatives in Nairobi Metropolis, Kenya

Abstract

Risk-based internal auditing enables a firm to use its internal audit function to improve risk management and management controls.The study focused on the deposit-taking savings and credit cooperatives (DT-SACCOs) in Nairobi Metropolis, Kenya. Some deposit-taking savings and credit cooperatives today are faced with the challenges of auditing in their operations despite having an audit department in place. The study was guided by the following specific objectives: to determine the effect of risk maturity on the financial performance of DT-SACCOs in Nairobi Metropolis, Kenya; to determine the effect of audit assignment on the financial performance of DT-SACCOs in Nairobi Metropolis, Kenya; to determine the effect of risk-based audit planning on the financial performance of DT-SACCOs in Nairobi Metropolis, Kenya; to evaluate the moderating effect of corporate governance on the relationship between risk-based internal audit and financial performance of DT-SACCOs in Nairobi Metropolis, Kenya. The study combined both descriptive and explanatory research designs. The study took a census survey of the 43 DT-SACCOs in Nairobi Metropolis, Kenya where primary data was collected from the respondents comprising one audit manager per DT-SACCO. Regression models were used to test hypotheses where audit assignment and risk-based audit planning were found to have positive statistical significance on the financial performance of DT-SACCOs. Corporate governance was also found to have a moderating effect on the relationship between risk-based internal audit and financial performance of SACCOs.