Non-audit services, audit quality, and fraudulent financial reporting among listed firms in NSE, Nairobi, Kenya

Abstract

The NSE firms contribute highly to national economic growth thus if fraudulent reporting is left without being detected, it will highly affect the public just like the Anglo leasing effects that are still being experienced in Kenya. This research sought to examine the relationship between Non-audit service, audit quality and fraudulent financial reporting among listed firms in NSE. The specific objective was to establish the effect of Non-audit service on fraudulent financial reporting, the effect of Audit quality on Fraudulent Financial reporting and lastly to establish the joint effect of Non Audit service, Audit Quality and Fraudulent Financial reporting among firms listed in NSE. The study used a descriptive research design with a study population of 63 as listed by NSE 2023 and a Census survey was adopted. The researcher targeted the appointed internal auditors from each firm as the respondents. The data was of primary nature where 57 closed ended questionnaires were dropped and picked for analysis while the 6 questionnaires were used in pilot study. The data collected was run via SPSS software. Quantitative method of analyzing data that is descriptive statistical method where the statistical tools such as mean, mode and standard deviation was adopted. Inferential statistic such as simple and multiple regression models was used to predict the relationships among the variables. Findings on the first objective showed that non audit service has positive and insignificant effect on fraudulent financial reporting. On the second objective, findings showed that audit quality positively but significantly affect the fraudulent financial reporting among firms listed in NSE. Finally, the joint effect Non-Audit service and Audit quality have positive and statistically significant effect on fraudulent financial reporting among firms listed in at a minimum of 95% confidence level. The study recommends that further research be conducted on other factors not covered under this study; that contribute to fraudulent financial reporting to assist in uncovering fraudulent financial reporting. The study is significant to investors, portfolio managers and other market players to make the best decisions in regard to the investments. The study is also significant to those charged with governance to ensure there is production of quality financial statements.