Factors Affecting Auditor’s Independence for Quoted Companies in Nairobi Securities Exchange

Factors Affecting Auditor’s Independence for Quoted Companies in Nairobi Securities Exchange

Helena Linnah Liu, Fredrick Kalui

Faculty of commerce, Egerton University, Kenya

DOI: https://dx.doi.org/10.47772/IJRISS.2025.906000294

Received: 22 May 2025; Accepted: 27 May 2025; Published: 12 July 2025

ABSTRACT

The purpose of this study was to evaluate the factors that affect the auditor’s independence among the companies that are quoted on the Nairobi securities exchange. The specific objectives of the study were to establish the effect of audit firm size on auditor’s independence, to determine the effect of audit firm’s tenure on auditor’s independence, to establish if size of the audit fee has an effect on the auditor’s independence among the companies quoted on the securities exchange and to examine the effect of audit committee competence on the auditor’s independence among companies quoted on the Nairobi securities exchange. The study used a descriptive sample design. The target population entailed all the 64 companies quoted on the NSE by December 2023. The accountants, internal auditors and senior managers formed the main respondents. A total of 180 respondents were selected and used for the study. Questionnaire was used for data collection. Data was analyzed using descriptive statistics (mean and standard deviation), correlation analysis as well as simple and multiple linear regression analysis. The SPSS software was used to analyse the data. Results indicated the existence of a strong positive correlation between auditor independence and audit firm size (r = 0.928, P value = 0.008< 0.05),  auditor tenure shows a strong positive correlation with auditors independence (r = 0.919, P value = 0.021<0.05) , audit fees charged was also strongly correlated with auditors independence (r = 0.946, P value = 0.000< 0.05) and lastly, there was a strong positive statistically significant correlation between audit committee competence and auditor independence (r= 0.853, P value  = 0.000<0.05). Based on these results, the study concluded that firms that need to enhance their auditor’s independence must be ready to address not only the four factors described in this study but also make consideration of all the other factors and address their effect. This will lead to better reporting of the financial statements and hence it will help to provide appropriate performance indicators for the firms.

Keywords: Auditing ,Auditor independence, Quoted company, Audit committee Nairobi securities Exchange.

INTRODUCTION

Auditor independence has been termed the cornerstone of the auditing profession, since it is the foundation for the public’s trust in the attest function (Jachi, & Yona,  2019). Auditor independence helps to ensure quality audits and contributes to financial statement users’ reliance on the financial reporting process. Herath, and Pradier,  (2018) argue that when independent auditors render unbiased audit decisions, the broader goal of auditor independence, namely “to support user reliance on the financial reporting process and to enhance capital market efficiency,” is accomplished. However, several major instances of misstated earnings have been reported over the last several years (Avci,  Schipani,  & Seyhun,2018). These misstatements have led many to question the effectiveness of various aspects of the audit function, especially auditor independence.

The independence of auditor is also regarded as key to the credibility of external financial statements. The requirement for external auditors to be independent of their clients when undertaking an audit is enshrined in the International Federation of Accountant’s (IFAC) Code of Ethics and in the European Union’s Eighth Directive. In the IFAC code, this requirement is translated into various situations where observance of certain rules should ensure independence. Auditor’s Independence has been described as “avoidance of situations which would tend to impair objectivity or permit personal bias to influence delicate judgement” (Avci, Schipani,  & Seyhun, 2018). Auditor independence, in particular, implies “absence of influence or control in the matter of the auditor’s conduct, action and opinion”. It simply refers to the auditor’s ability to express his conclusions honestly and impartially.

Ola, and Oto(2019) noted that in accounting practice of today, the independence of the auditor is one of the most important issues because it increases the effectiveness of the audit by ensuring that the auditor plans and carries out the audit objectively. They further maintains that high quality audits enhance the reliability of the financial reporting process and facilitate optimal allocation of capital by investors and other users of the financial statements. The nature of the auditor ‘s work requires him to be independent from the influence of any party so that he can objectively form an opinion on the financial statements examined by him and not tossed by wind from either the owners of the resources or the managers of such resources. Auditor independence is also an important element of the assurance that an audit report provides to its readers. With increasing globalization of business and the expansion of the large audit firms into truly multinational enterprises, the need for consistent international standards is paramount.

Mansur, & Tangl,(2018) noted that financial scandals and corporate failures, are proven to have had a detrimental effect on the public’s perception of auditors. More worryingly, has been raised by  the issues related to independence are threatening the survival of accounting firms of all sizes and indeed it has the power to destroy the accounting profession as a whole. It is therefore, vital that auditors maintain their independence and ensure that they provide a high quality of auditing to ensure the credibility of financial information not only for the purpose of reducing the number of corporate scandals but most importantly the survival of their profession and the development of healthy financial and capital market (Yen,  Thuy,  Tien, & Anh, 2019).

Hussein,  Hanefah,  & Endaya, (2020) noted that the concept of auditor independence changed during the late 19^th and early 20^th centuries. Because there was a large shift from capital coming from some sources to capital deriving primarily from domestic sources, noted economic sectors means articulated this change that large corporations were based on the separation of ownership from management, which they also emphasized the growing importance and role of accounting and auditing. The auditors’ primary duty was to serve the needs of proprietary interest, which comprises of shareholders and general public. The creation of SEC laid emphasis on standards for financial reporting and auditing. The concept of auditor independence shifted in favour of objectivity and neutrality in reporting.

The foregoing discussions show that the independence of an auditor is fundamental when the issue of accountability is concerned and is influenced by many factors within and outside the control of the auditor himself. In addition, most literature appears to concentrate on the developed countries and the Asian countries. In Kenya, much evidence from literature dwells more on private sector audit. There are limited studies, particularly about audit in the public sector; hence this study is concerned about independence of auditors in the Kenyan public sector, by considering the effect of audit committee competence.

Statement of the problem 

Most recent cases pointing out on the weakness of auditing is the collapse of Lehman Brothers, which brought Ernst & Young’s audit firm to court by the New York prosecutor. Ernst & Young allegedly helped conceal Lehman Brothers’ financial troubles. As a result, Ernst & Young agreed to pay $10 million to settle the case and pay $99 million to former investors of Lehman Brothers. Or more recently the case involving a leading German technology and finance company called Wirecard that went bankrupt in 2019. It is worth mentioning here that Ernst & Young, which audited the financial statements for Wirecard in 2018 failed to allegedly warn the firm of the anomaly in their reports leading to the collapse of the firm.

In Kenya, majority of the studies have showed both contextual and conceptual gaps. contextually the variables that have been focused on have included failure of auditors to maintain and ensure independence for clients, lack of integrity and principle of good governance. Conceptually the relationship between these variables has been mainly on financial performance of the firms. Limited studies done among Kenyan companies have focused on auditors’ independence. Although evidence of studies focusing on factors affecting the independence of auditors has been receiving a lot of attention from academics and practitioners, the studies are still limited in the Kenyan context hence the need for this study to highlight the relationship that exists between various factors and their effect on auditor independence. The results and recommendations have also indicated conceptual and geographical gaps as most of the studies have been conducted in different economic and social conditions and outside of Kenya. Therefore, the main purpose of this project is to find out how audit firm size, the audit firm’s tenure,  audit fee and audit committee competence  affect the independence of auditors among companies quoted on the Nairobi Stock Exchange.

Objective of the study

To determine the factors affecting auditor independence among companies quoted on the Nairobi securities exchange.

LITERATURE REVIEW

Agency Theory

This theory was advanced by Watts and Zimmerman (1978, 1986a, 1986b) suggests that the auditor is appointed in the interests of both the third parties as well as the management. A company is viewed as a web of contracts. Several groups (suppliers, bankers, customers, employees etc.) make some kind of contribution to the company for a given price. The task of the management is to coordinate these groups and contracts and try to optimize them: low price for purchased supplies, high price for sold goods, low interest rates for loans, high share prices and low wages for employees. In these relationships, management is the agent, which tries to gain contributions from principals (bankers, shareholders, employees etc).

The most prominent and widely used audit theory is the agency theory. Consequently, chapter three will focus on discussing issues that arise from the principal-agent relationship.  More recently a study by Arena and Azzone (2007), based on survey involving 364 Italian companies, found that the isomorphic pressures have a significant impact on the companies’ support of internal auditing. The researchers suggest a need for future research to address the internal audit effectiveness by using institutional theory. Mihret et al. (2010) argue that there is a positive relationship between compliance with ISPPIA and organizational goal achievement, and this relationship could evaluate internal audit effectiveness.

Auditors are agents acting on behalf of principals(shareholders),Agency theory helps in recognizing that auditors are agents acting on behalf of principals (shareholders) who have conflicting interests with the company’s management. This framework helps understand how factors like audit fees,size of the audit firm,tenure of the audit firm and committees competence can compromise auditors independence.

Investors want their investments to be maximized, while management might prioritize their own interests  at the expense of shareholders’ wealth.This conflict becomes a problem when management has more information than shareholders for decision making. This allows management to potentially engage in actions that benefit them at the expense of shareholders. For audit fees,low audit fees can create pressure on auditors to be less critical, as they may fear losing the client. High fees can create the perception of dependence, as auditors may feel they need to justify the high cost by being less critical.Audit committees play a crucial role in ensuring auditor independence by providing oversight and monitoring the audit process to ensure auditors give credible reports.Compromised auditor independence can lead to unreliable financial statements, potentially misleading investors and damaging the market’s trust leading to reduced investor confidence, increased risk of market manipulation, and decreased financial performance.

Agency theory can be employed to test empirically whether cross-sectional variations between internal auditing practices reflect the different contracting relationships emanating from differences in organizational form. Research in auditing has traditionally been conducted under the framework of agency theory. However, Mihret et al. (2010) argued that the neoclassical economic theories including agency theory were the main reason for limited research in internal auditing. They criticized the assumption that organizational phenomena are only driven by maximizing the self-interest of individuals, and they confirmed that the behaviour of individuals cannot be abstracted from the social settings. Thus, they suggested institutional theory.

Institutional Theory

Institutional theory explains how organizational structures and practices are shaped through changes induced by normative pressures, including both external and internal sources such as laws and regulations, or by the professions (Mihret et al., 2010). Similarly, Arena and Azzone (2007) identified the following external forces that impact both individuals and organizations: laws and regulations (coercive isomorphism); choices of other organizations (mimetic isomorphism); and consultation or professional bodies (normative isomorphism).

Several previous studies in internal audit have adopted an institutional theory (Arena & Azzone, 2006; Mihret et al., 2010). Arena & Azzone, (2007) adopted the isomorphic perspective to investigate internal audit in Saudi Arabia, and the institutional theory is employed to explain their findings regarding the establishments of internal audit and the role of the government in promoting their development. Similarly, Arena and Azzone (2006) focused, on the coercive isomorphism, to investigate the development of internal audit in six Italian companies as a multiple case study. Their findings confirmed that the adoption and development of internal audit were impacted by the coercive and normative pressures that auditors are subjected to by the   institutions. Hence, the theory is appropriate in understanding the factors   that affect the auditor’s   independence in an organization. The use of more than theory in combination enables considering social and behavioral aspects and the economic dimensions. Several previous studies have adopted both agency and institutional theories (Yaqi et al., 2012).

Integrating institutional theory into a conceptual model helps explain how the social and political environment of the Nairobi Securities Exchange (NSE) influences auditor independence, beyond just economic factors. This approach recognizes that auditors’ behavior is shaped by societal norms, regulatory expectations, and the pressures of maintaining legitimacy within the market. The theory suggests that auditors are not simply rational actors seeking to maximize their own interests. Instead, their decisions and actions are influenced by the institutional context in which they operate. Regulatory bodies like the Capital Markets Authority (CMA) in Kenya, plays a significant role in shaping auditor behaviour. Regulations regarding audit fees, audit firms  tenure,audit fees and committees competence can influence how auditors operate and maintain independence.Political pressures from various stakeholders, including shareholders, management, and other investors also influence their decision-making and reporting practices.The NSE, as a financial market, has its  expectations regarding auditor behavior. This can include expectations about many factors and reporting standards where  deviations from these norms may face bad reputation or risk future jobs. The advantage of integrating this institution theory is that, It provides a more complete picture of the factors that influence auditor independence, going beyond traditional economic models,It helps to identify areas where regulatory changes or other interventions can improve auditor independence and also  provide a framework for conducting research that examines the role of institutional factors in shaping auditor behavior.

In this study, while agency theory is mainly employed to understand economic motives that make internal auditors seek in achieving their personal interests even if they were against the organization members’ interests or organizational interests, institutional theory informs about the level of compliance with ISPPIA, and its impact on the companies’ support of internal audit. More recently a study by Arena and Azzone (2007), based on survey involving 364 Italian companies, found that the isomorphic pressures have a significant impact on the companies’ support of internal auditing. The researchers suggest a need for future research to address the internal audit effectiveness by using institutional theory. Mihret et al. (2010) argue that there is a positive relationship between compliance with ISPPIA and organizational goal achievement and this relationship could evaluate internal audit effectiveness. Based on the above discussion, it can be seen clearly that, the institutional theory is a valid theory for internal audit effectiveness in both developed and developing countries; and it is a useful theory, which can explain the relationship between some variables of the study, and it is relevant to be embedded in the development of this research conceptual framework.

Empirical Review

Size of the Audit Firm and auditors Independence

Several studies have been conducted to investigate the effect of size of the audit firm on the independence of the auditors. Daoud (2020) assessed the effect of audit firm size, auditor tenure, institutional ownership, board independence, and board diversity on the audit quality. The study adopted a descriptive case study research design with a study population consisting of 52 listed service firms on the Jordanian Stock Exchange, whose data were obtained for the years from 2013 to 2016. The findings of the study reveal that companies with a higher proportion of institutional ownership and independent members of the board and being audited by a Big 4 firm are more likely to maintain the independence of the external auditor.

A similar study was conducted by Triani and Yanthi (2020) investigated the effect of audit firms’ size, leverage, going concern opinion, audit tenure, on audit quality in Indonesia. The study adopted a descriptive causal research design with a secondary data obtained from website of study banks.  The findings of the study revealed that audit firm size has a positive influence on audit quality, while leverage, and audit opinion and additional testing for company age do not affect audit quality.

Salman and Setyaningrum (2023) investigated the effect of audit firm size, audit period, and audit rotation on audit quality. The study was a descriptive case study where the data was obtained from annual reports of infrastructure, utilities and transportation companies listed on the Indonesia Stock Exchange (IDX) from 2016 to 2020. The findings of the study showed that the role of audit professional services performed by audit firms can minimize agency problems that arise. Empirically, study findings show that the size of an audit firm and its audit period positively affect audit quality.

Audit Firm’s tenure and Auditor’s Independence

Martani et.al., (2021) conducted an assessment on the effect of audit tenure and audit rotation on audit quality. The study was conducted using audit firms in Indonesia. The findings of the study revealed that relationship between the tenure of auditor and audit quality is not significant. Audit firm rotation positively impacts audit quality, and the positive impact is lower in Big 4. In non-Big 4, audit partner rotation has no effect on audit quality, but audit firm rotation could improve audit quality. Wahyuni, (2019) assessed the effect of auditor independence, fee audit, audit tenure toward audit quality. The specific objectives of the study were to investigate the effect of the influence of auditor independence on audit quality, the effect of audit fees on audit quality and the effect of audit tenure on audit quality. The findings of the study revealed that auditor independence has a significant effect on audit quality, audit fees have a significant effect on audit quality and audit tenure has no significant effect on audit quality.

Langat, Cheboi and Kemboi, (2021) sought to investigate the impact partner tenure on auditor independence. The study adopted a cross-sectional research design with a sample of 120 Kenyan firms and data for the years 2011-2018. The findings of the study revealed that partner’s tenure has a significant and positive effect on auditors’ independence suggesting that auditor’s independence is maximized when partners’ tenures are shorter. Oziegbe and Odien (2022) conducted a study to investigate the effect of auditors’ independence, audit tenure ship, firm characteristics on audit quality in Nigeria. The population of the study comprised of a sample of ten (10) listed pharmaceutical companies listed on the Nigerian Exchange Group (NGX) covering periods between 2013-2019. The findings of the study revealed that all of the explanatory and control variables have a positive and significant effect on audit quality.

Gaffar and Ibrahim, (2024) investigated the effect performed by audit fees and audit tenures on audit quality mediated by auditor independence. The study a quantitative research method with a study population population in this study consisting of seven public accounting firms covering 61 auditors willing to fill out the questionnaires. the findings of the study revealed that audit tenure positively and significantly affects audit quality and audit independence.  Auditor independence mediates the audit fees on audit quality. It was further noted that auditor independence mediates audit tenure on audit quality.

Audit Committee Competence and auditor’s independence

Alkhazaleh,Al Abbas, and Sadaa, (2023) investigated the impact of corporate governance of the Audit firm on the quality of audit. The study utilized 624 observations from a panel of 78 firms that were listed on the Amman Stock Exchange (ASE) over 8 years, from 2012 to 2019. The findings of the study revealed that board independence and family ownership had a negative impact on audit quality, whereas board size and concentration ownership had a positive impact. The findings further revealed that managerial ownership and the number of women on the board have no impact on the quality of the audit.

Nduviri (2022) investigated the effect characteristics of the audit committee had on the financial performance of manufacturing firms listed on the Nairobi Securities Exchange in Kenya. The study adopted a mixed research design combining descriptive research design and longitudinal research design. The findings of the study revealed that individually the size, expertise and independence all had a positive and statistically significant association with firm’s financial performance. The negative but statistically significant effects were found on the relationship between audit committee meetings and financial performance.

Saeed, et.al., (2022) investigated the relationship between audit committee independence (by using stock holding as a measure to assess substantive independence) and auditor reporting for financially distressed companies. The study was descriptive which utilized a data collected from 86 financially distressed companies listed on Pakistan Stock Exchange (PSX) for the period 2011 to 2019. The findings of the study revealed that alongside procedural independence, it is important to focus on substantive independence of audit committees by using stock holding as an independence measure and assessing its impacts on auditor reporting.

Audit Fee and The Auditor’s Independence

A study conducted by Gao, et.al, (2019) investigated the impact of auditing fee on the efficiency and quality of audit among Korean firms. The study used an empirical review research design where it reviewed past studies that were carried on audit fees and quality of audit. This study uses data from 1540 Chinese counties from 2005 to 2018 to examine the environmental effects of national audit governance. The results show that, with the digital economy acting as a moderator, efficient national audits help lower haze pollution (HP) levels. The findings also show heterogeneity; areas with large rates of urbanization, severe HP, and strict environmental restrictions are most served by national audits. According to the mechanism analysis, the main ways that national audits lower regional HP are through improved government governance and industrial restructuring. Reforming the audit management system can also increase the impact of national audits on HP reduction. The findings of the study also revealed that there was a significant decrease in auditing quality for auditing firms affected by the rule, relative to those not affected.

Yahaya and Onyabe, (2022) investigated whether audit fees and independence affect audit quality in the context of Nigeria poor corporate governance setting. The study used a sample of 12 quoted industrial goods firms from the Nigerian Exchange Group over 2006-2020, yielding 180 observations. The findings of the study showed a significant relationship between the Audit fee and the audit quality. It was revealed that increased audit fee resulted to increased quality of Audit.

Meidawati and Assidiqi, (2019) assessed the effects of audit fees, auditor’s competence, independence, and ethics, as well as time budget pressure on audit quality. Quantitative research methodologies were used in the study to assess the effects. This study employed a quantitative approach. The auditors who worked for accounting firms in Semarang, Indonesia, made up the population. Forty-five respondents were selected using a basic random sample procedure. A number of auditors employed by the accounting firms were given the questionnaires in order to gather the data. Multiple regression analysis was used to examine the data. The findings of the study revealed that the competence, auditor ethics, and time budget pressure had positive effect toward audit quality.

Auditors Independence

According to Koswara, Kustiani, and Harmono, (2023) independence is the primary justification of the existence, and thus the hallmark of the auditing profession. It is recognized as the primary attribute to be maintained by auditors in all circumstances to give credibility to financial statements. The purpose of this study was to evaluate the factors that affect the auditor’s independence among the companies that are quoted on the Nairobi securities exchange. To examine the influence of the audit committee competence on the auditor’s independence among companies quoted on the stock exchange. Independence is a social construct wherein claims regarding auditor’s independence are socially assured.

Rana, Steccolini, Bracci, & Mihret (2022) on the other hand noted that, auditor independence is a tough idea to comprehend because it is a manifestation of their professional integrity (Pham, Nguyen, and Tran, 2025). Therefore, independence is a concept for which there is no agreed-upon definition and which the auditor determines to be appropriate in order to preserve the value of auditing and objectivity. The auditor independence is derived from a number of sources, including business and auditing law, professional codes, auditing procedures, citizenship education and knowledge of how democracies operate.

RESEARCH METHODOLOGY

The descriptive survey design was used in the study. The descriptive survey design is an effective tool to get opinions, attitudes and descriptions as well as getting cause-and-effect relationships from a sample or a population under study (Ghauri, Grønhaug, & Strange, 2020).   Surveys are chiefly used in studies that have individual people as the units of analysis. Prozesky, and Mouton, (2019) noted that descriptive surveys can also be used for units of analysis such as groups or interactions, some individual persons must serve as respondents or informants.  Descriptive Survey was used to understand the opinion of respondent in relation to the auditor’s independence for the companies quoted on the NSE.

The present study targeted internal auditors, accountants and senior managers from the 64 companies listed on the NSE in Kenya by December 2023. These organizations represent key sectors of the Kenyan economy which include the agricultural, commercial and services, finance and investment, and industrial and allied sectors. The three respondents were chosen because of their knowledge and use of financial statements for decision making therefore they were in a better position to respond to the statements. Since it was a small manageable population, a census was used.

The primary data was collected by use of a structured questionnaire which was administered personally to the respondents. The questionnaire was preferred as a data collection instrument because of its ability to yield the most satisfactory range of reliable data (Alhazmi, & Kaufmann, 2022). The advantage of selecting this instrument is confidentiality and keeps track of those who do not return the questionnaire on time and need to be reminded again. Questionnaires are also easier to administer thereby making it possible to reach a large population.

The data was edited to ensure its completeness, accuracy, uniformity and consistency. The data was analyzed using inferential statistics. Where Pearson correlation, ANOVA test and regression analysis were used in testing the relationship between competence of the audit committee and how it affects auditor’s independence. All the tests were carried out at 95% confidence level. Kumari & Yada (2018) states that the correlation and regression analysis statistic is suitable for randomly selected samples provided that the samples are not biased. The multiple regression model was developed such that;

Y= ß₀ + ß₁X₁ + ß₂X₂ + ß₃X_{3 +} ß₄X₄+ ε …………………..3.1

Where Y = the auditor’s independence

ß₀ = constant

 X₁ = The audit firm size,

 X₂ = The audit firm’s tenure,

 X_{3 =}The size of the audit fees,

X_{4   =} The audit committee competencies

ε = Error term

FINDINGS AND DISCUSSIONS

Correlation analysis

Since this study sought to establish  factors affecting the auditors independence among the companies quoted on the Securities exchange auditor’s independence among companies quoted on Nairobi securities exchange, it was important to establish the nature of the correlation between auditors’ competence and auditors’ independence among the listed companies. The results of the analysis were presented in table 2.

Correlations analysis

The results demonstrate several statistically significant correlations. Firstly, a strong positive correlation exists between auditor independence and audit firm size (r = 0.928, P value = 0.008< 0.05). This means larger audit firms tend to display higher levels of independence. Additionally, auditor independence shows a strong positive correlation with audits independence (r = 0.919, P value = 0.021<0.05), audit fees charged was also strongly correlated with auditors’ independence (r = 0.946, P value = 0.000< 0.05). Finally, there was a strong positive statistically significant correlation exists between audit committee competence and auditor independence (r= 0.853, P value = 0.000<0.05).

With significance levels (Sig. 2-tailed) mostly below 0.01, these correlations are highly unlikely to be due to chance. This strengthens the conclusion that larger audit firms, those with longer tenures, those charging higher fees, and those overseen by competent audit committees are contribute to enhanced auditor independence. These findings offer valuable guidance for companies quoted on the Nairobi Securities Exchange. To bolster auditor independence, companies should consider partnering with larger, reputable audit firms with established track records. Prioritizing longer-term audit relationships is advisable, as the data suggests that a history with an audit firm fosters greater independence. Companies should also understand that investing in adequate audit fees is linked to higher levels of independence. Finally, by developing a highly competent audit committee, companies create an environment that actively supports and encourages auditor independence.

Multiple Regression Analysis for the combined effect of audit firm size , audit tenure, audit fees and audit committee competence

In order to know how much of the auditor’s independence can be explained by the factors that were considered for the study. The regression analysis was done and the results presented  below.

Regression Model Summary

From the results it can be noted that there is a strong positive correlation (R = 0.538) between the four factors defining the independent variable (Size of the firm, Tenure of the firm, size of the audit fees, audit committee competencies) and the dependent  variable that  is auditors independence. The R square is 0.289 indicating any change in the relationship between the independent variables and the dependent variables can be explained by 28.9%. this shows that the remaining 71.1%  of the effect can be explained by other factors not considered in this study.

ANOVA

The analysis of variance is used to test the variation and   also the difference between the means. The results were presented below.

Analysis of variance

It is noted the larger the F value the more the independent variables explained the variation in dependent variable. It also helps to reject the null hypothesis that the coefficients are not equal to zero. The F- value =15.885 with a very strong significant value at 95% confidence level indicates that;, size of the firm, Tenure of the firm, the audit fees and audit committee competencies has a very significant relationship. The results show that the model   is a good predictor of the auditor’s independence.

Regression Coefficients

The regression model explaining the relationship between the factors affecting auditor’s independence basing on the regression analysis results showing the beta values.

The regression model was developed as indicated .

Y=f(X₁, X₂, X₃, X₄)

Y = β_o + β₁X₁+ β₂X₂ + β₃X₃ + β₄X₄ +  ε

Where:

X₁ – Size of the firm,

 X₂ – Tenure of the firm,

X₃ – Size of the audit fee

X₄ – Audit committee competencies

Y – Auditors independence

ε- Standard error

Y = 2.353 + 0.809X₁+ 0.824 X₂ + 0.596X₃ +0.699 X₄

The model indicates that the size of the firm has very small influence on the overall regression model of the study. From the study the size of the firm has a beta coefficient of 0.809 which is significant 0.050 at 5%. It is important to note that t-statistics identify whether a variable is a useful predictors among the independent variables. Values well above +2and well above –2 are strong predictors of dependent variables. In this study size of the firm seems not to be a very strong predictor of auditor’s independence, since the t statistic was 2.975 meaning that the audit firm size might not significantly affect auditor’s independence.

It is also noted that though tenure of the firm had a beta coefficient of 0.824, with a p- value of 0.002 which is very significant and a t value of 3.116 indicating that audit firms’ tenure is a strong predictor of auditor’s independence.  It is also noted that the audit fees is a very strong predictor of the auditor’s independence with a coefficient of 0.596 and a t- value of 4.011 and a p- value of 0.000.  While audit committees’ independence was noted to have a very strong statistical influences, hence a strong predictor of auditor’s independence among the selected firms (t = 5. 562; beta value = 0.596 and p- value = 0.000). This indicates that among the variables chosen the audit committee’s competence has the strongest influence on the auditor’s independence among the firms quoted on Nairobi securities exchange. Finally, the audit committee competencies were also noted to be a very strong predator of audit independence with a beta coefficient value of 0.699, a t- value of 5.562 and a p- value of 0.000. This indicates that audit committee competence influence auditors’ independence with a very big effect. Similar findings were revealed by Nduviri, 2022; Saeed et al., 2022). These studies consistently suggest that working with larger, reputable audit firms and building longer-term audit relationships are key factors in fostering greater auditor independence.

Similarly, our findings regarding the positive impact of audit fees on auditor independence are consistent with existing research (Yahaya & Onyabe, 2022; Gao et al., 2019). These studies, along with our results, highlight the importance of adequate compensation in supporting an environment of auditor independence. This suggests that companies seeking to enhance auditor independence should carefully consider audit fee structures to ensure they reflect the scope and complexity of the audit work. While our study supports the idea that a competent audit committee plays a role in auditor independence, the strength of this relationship was moderate compared to the other factors examined. This finding contrasts slightly with some studies that have found a very strong influence of audit committee competence on independence (Nduviri, 2022; Saeed et al., 2022). This difference could be explored further by examining the specific measures of “competence” used across the various studies.

Since the p value < 0.05 the null hypothesis ( H₀₅) indicating that there is no statistically significant effect of the combined factors of audit firm size, audit tenure, audit fees and audit committee competence on auditors’ independence was rejected and the alternative hypothesis that there is a statistically significant effect of the four various on auditors’ independence was accepted.

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

The purpose of this study was to evaluate the various factors affecting the auditors independence among the companies quoted on the Securities exchange. This study revealed a moderately strong, positive relationship between the competence of a company’s audit committee and auditor independence. This finding highlights the critical role that a knowledgeable and engaged audit committee plays in safeguarding financial reporting integrity. Audit committees comprised of individuals with deep financial expertise and a strong understanding of auditing principles are better equipped to provide effective oversight, ask probing questions, and challenge management when necessary. This creates an environment that actively supports and encourages auditor independence.

Conversely, a less competent audit committee may struggle to fully grasp complex accounting issues or appreciate the nuances of the audit process, potentially leading to a less robust environment for auditor independence. Companies committed to bolstering auditor independence should prioritize the development of a highly competent audit committee. This includes attracting members with relevant financial backgrounds and providing ongoing training to ensure their knowledge remains up-to-date within a dynamic accounting and auditing landscape.

Conclusions

Based on the findings of the study , companies should prioritize the development of highly competent audit committees, comprised of members possessing deep financial expertise and a strong understanding of auditing standards. These committees play a critical oversight role, setting the tone at the top that emphasizes the importance of independence and empowers auditors to perform their duties free from undue influence.

Recommendations for Policy And Practice

A highly competent audit committee is essential in safeguarding auditor independence. Companies should strive to attract members with expertise in accounting, financial reporting, and internal controls. Providing ongoing training is equally important, empowering the committee to stay current on evolving standards and risks. A well-informed audit committee sets a clear expectation for independence at the top and creates a supportive environment where both management and auditors recognize the value of objectivity.

While the audit committee takes the lead, the full board of directors also plays a crucial role in upholding auditor independence. Communicating a strong commitment to independence throughout the company creates a culture where auditors feel supported and encouraged to act independently. Companies that genuinely prioritize auditor independence will find it easier to attract and retain audit partners who share those values, ultimately enhancing the integrity and reliability of their financial reporting.

Figures and Tables

Conceptual framework of the study

This study conceptualizes that there are various factors that affect the independence of the auditors not only for the listed companies with NSE but for all companies.  This study conceptualized auditor’s independence as the dependent variable and the audit firm size, the audit firm’s tenure, the size of the audit fees or relative client’s size and   the audit committee competencies as the independent variables. In order to have appropriate and reliable financial reports for public use when making decision about a particular company the relationship between the auditor’s independence and the factors given must be clearly understood. This relationship can be explained by the conceptual framework shown in Figure 2.1.

Figures and Tables

Figure 2.1: Conceptual framework

Source: Researcher (2023)

From the figure presented, it is clear that the auditor’s firm size affects the auditor’s independence for companies quoted on NSE. From literature it is shown that small   firms tend to be highly influenced in providing appropriate audit reports as compared to the large audit companies. However, the level of influence will be influenced by various moderating factors such as corporate governance, audit firm’s policies, culture among others. Auditor’s tenure is also noted to be an important factor in determining the auditor’s independence when handling the audit activities of the company, and hence it has an effect on the auditor’s independence, this relationship however is influenced by other moderating factors that might affect the direct effect. As shown in figure 2.1.It is also clear that the size of the audit fees has an effect on the auditor’s independence; a firm that charges little fees might be influenced by the company management who may decide to offer more money for the auditor to compromise his professionalism hence interfere with his independence. In such cases the firm’s policy and regulations and the individual auditor’s independence will have an influence in the effect that will arise from the auditor fees.The auditor independence in providing appropriate financial reports is highly influenced by the competencies of the audit committee both from the external auditors and the internal auditors. If these committees are able to stand by the principles and the truth then the auditor’s independence is upheld, but if this committee is not competent the chances of it being manipulated is very high.

REFERENCES

1. Alkhazaleh, Q. K. A., Al Abbas, S. A., & Sadaa, A. M. (2023). The effect of corporate governance on audit quality: evidence from Jordanian listed firms. Asian Journal of Economics, Business and Accounting, 23(17), 40-52.
2. Avci, S. B., Schipani, C. A., & Seyhun, H. N. (2018). Do independent directors curb financial fraud: the evidence and proposals for further reform. Ind. LJ, 93, 757.
3. Gao, Z., Zhao, Y., Li, L., & Hao, Y. (2024). The environmental consequences of national Audit governance: An analysis based on county-level data in China. Journal of Environmental Management, 359, 120976.
4. Ghauri, Grønhaug, & Strange, (2020) A literature review on auditor independence. The Business and Management Review, 9(3), 404-409.
5. Mansur, H., & Tangl, A. (2018). The Effect of Audit Firm Size on Audit Quality. Gödöllő Pub, Hungary.
6. Martani, D., Rahmah, N. A., Fitriany, F., & Anggraita, V. (2021). Impact of audit tenure and audit rotation on the audit quality: Big 4 vs non big 4. Cogent economics & finance, 9(1), 1901395.
7. Meidawati, N., & Assidiqi, A. (2019). The influences of audit fees, competence, independence, auditor ethics, and time budget pressure on audit quality. Journal Akuntansi Dan Auditing Indonesia, 117-128.
8. Musyoka, W. M., Mogeni, E. G., Murunga, D. M., & Mutunga, P. M. (2018). Effect of Stock Market Development on Economic Growth: A Case of Nairobi Securities Exchange, Kenya.
9. Nduviri, W. K. (2022). The Effect of Audit Committee Characteristics on The Financial Performance of Manufacturing Firms Listed at the Nairobi Securities Exchange in Kenya (Doctoral dissertation, KCA University).
10. Oziegbe, D., & Odien, R. (2022). Auditors’ independence, audit tenureship, firm characteristics and audit quality: Evidence from Nigeria. The Journal of Accounting and Management, 12(2).
11. Pham, H. H., Nguyen, T. H. L., & Tran, M. T. (2025). Audit Quality of Financial Statements of Commercial Banks, Whether or not There is a Difference in Audit Quality Provided by Big4 and Non-Big4 Audit Firms. International Journal of Economics and Financial Issues, 15(1), 159-181.
12. Rana, T., Steccolini, I., Bracci, E., & Mihret, D. G. (2022). Performance auditing in the public sector: A systematic literature review and future research avenues. Financial Accountability & Management, 38(3), 337-359.
13. Ryu, S. L., & Won, J. (2023). The effect of input hours by each audit professional on audit efficiency: evidence from Korea. International Journal of Trade and Global Markets, 17(3-4), 319-329.
14. Saeed, A., Zafar, M. W., Manita, R., & Zahid, N. (2022). The role of audit quality in waste management behaviour. International Review of Economics & Finance, 89, 1203-1216.
15. Salehi, M., Mokhtarzadeh, M., & Adibian, M. S. (2021). The effect of audit committee characteristics and auditor changes on financial restatement in Iran. Revista de Métodos Cuantitativos para la Economía y la Empresa, 31, 397-416.
16. Yahaya, O. A., & Onyabe, J. M. (2022). Does audit fees and auditor’s independence influence audit quality? Evidence from a weak corporate setting. Asian Journal of Finance and Accounting, 14(1), 66-80.
17. Yen, N. T. H., Thuy, V. H. N., Tien, N. H., & Anh, D. B. H. (2019). Enhancing auditors’ independence in auditing enterprises in Vietnam. Cogent Economics & Finance.

APPENDIX 2: RESEARCH QUESTIONNAIRE

SECTION C: AUDIT FIRM SIZE

Please tick the most appropriate response whether you agree or disagree with the statements   provided on the influence of audit firm size on the auditor’s independence Where,

1=Strongly disagree   2-=Disagreese 3= Neutral   4= Agree   5=Strongly Agree