INFLUENCE OF INTERNAL AUDIT INDEPENDENCE ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES: A CASE OF THE CONSTRUCTION INDUSTRY IN MOMBASA COUNTY, KENYA.

Abstract

The focus of this study was to examine the influence of internal audit independence on the financial performance of Small and Medium Enterprises in the construction industry in Mombasa County. The study was specifically concerned with determining the effect of four components of internal audit independence, namely: records accessibility, reporting structure, internal auditors ‘qualifications and internal audit roles on the financial performance of Small and Medium Enterprises in the construction industry in Mombasa County. The study focused on the construction companies in Mombasa County. The study was carried out in 65 Class National Construction Authority (NCA 8) Construction Companies that represented the units of analysis for the study. Systematic sampling was used to obtaining the sample size of the respondents in the construction companies. Purposive sampling technique was used to get respondents from different construction companies and expected sample derived from internal auditors, audit committee members and audit assistants of the sample population. The survey involved collecting information by administering questionnaires. Data collected was descriptively analyzed using microsoft excel. Results were summarized using tables and presented in form of pie charts, graphs, and bar charts. The summarized responses were used for further analysis and facilitated comparison to ascertain if the objectives would be achieved from conducting the study. From the study, it was evident that some construction companies (59%) within Mombasa County did not accord the internal auditors the independence they deserved to effectively give their opinion on the financial statements of the organizations. It is recommended that SMEs should be given Public education by the Minister for commerce and industry on the importance of internal audit independence. The government should establish an internal audit unit, which should be independent to ensure that all SMEs in Kenya comply with the laid down audit procedures and rules.