Factors Affecting Audit Expectation Gap In Listed Companies In Nairobi Securities Exchange (NSE)

Abstract

The principal function of the auditor is to offer impartial judgment on the books of accounts and the subsequent financial statements. Users of accounting information whether shareholders or the general public, nonetheless, have unreasonable high expectations from auditor in contrast with the actual role of the auditor hence the realization of audit expectation gap. This study seeks to investigate the factors affecting audit expectation gap in listed companies in NSE. Specifically, the study looked at the auditor’s independence, auditor’s competence, as well as the users’ knowledge of auditors role as the principle objectives. The study employed descriptive research design. A population of 62 public companies trading on NSE was targeted. A closed-ended questionnaire was administered to 29 senior managers in charge of finance and 29 auditors resulting to 58 respondents purposively sampled. Data collected was grouped, coded and analyzed using SPSS, version 21 and results presented in form of tables, graphs and pie charts. Multiple linear regression and correlation analysis was used for testing relationship between the dependent and the independent variables. The findings were presented in figures and tables. The study established that the auditor’s independence had a negative effect on the audit expectation gap. The study further established that the auditor’s competence had a negative effect on the audit expectation gap as a decline in the auditor competence led to an increase in the expectation gap. The same effect was found to exist between the user knowledge of the auditor role and the audit expectation gap. The study recommended that, the independence of the auditor should be strengthened by drafting legal laws promoting the independence of the auditors in Kenya. The study recommends a need to carry out a study on the expectations of the users of the financial statements and in order to identify and meet the reasonable ones, and correction the unreasonable expectations to mitigate the audit performance gap. Study further recommends a need to strengthen the role of the competent professional auditors and perform the effective supervision of the audit profession and accounting, as well as examining the audit standards, and the laws regulating auditing career, and carry out the necessary amendments to meet the reasonable expectations of the users of financial statements and increased quality of professional performance. There is need for the audit association in Kenya and the government to contribute to the dissemination of information culture and increase communication, and educate of the users of financial statements about the functions of the audit and the auditor's responsibilities, duties, functions with the aim of mitigating the unreasonable expectations gap. Key words: audit expectations gap, unreasonable expectations, users of financial information, financial statements and books of accounts.