Compliance Auditing Practices and Corporate Financial Performance of Commercial Banks in Kenya
DOI:
https://doi.org/10.53819/81018102t2595Abstract
In the fast-paced and highly regulated business environment, compliance auditing has emerged as a backbone that influences how well financial institutions perform. Despite the widespread adoption of compliance auditing practices among commercial banks in Kenya, many institutions continue to experience inconsistent financial performance, characterized by unstable profitability trends, rising non-performing loans, and inability to maintain adequate capital and liquidity ratios. This study investigated the impact of compliance auditing practices on the corporate financial performance of commercial banks in Kenya, specifically examining the effects of policy audits, risk management audits, operational audits, and data privacy audits. The study was grounded in Agency Theory, Legitimacy Theory, System Theory, and the Balanced Scorecard Model. A descriptive survey design was adopted, targeting a population of 902 top and middle-level management staff from all 39 commercial banks in Nairobi, Kenya. Using the Taro Yamane (1967) formula, a sample size of 277 respondents was determined and selected through proportionate stratified random sampling. A questionnaire was used as the primary data collection instrument, and data was analysed using descriptive and inferential statistics through SPSS Version 29.0. The findings revealed that compliance auditing practices had a significant combined impact on corporate financial performance (Adj R² = 0.762, F = 208.65, p < 0.05). All four compliance auditing practices demonstrated statistically significant positive effects on financial performance, with policy audits recording the strongest effect (B = 0.389, p = 0.001), followed by risk management audits (B = 0.373, p = 0.000), data privacy audits (B = 0.361, p = 0.000), and operational audits (B = 0.261, p = 0.003). The study concludes that entrenchment of compliance auditing practices is essential for optimizing profitability, growth, and cost efficiency in commercial banks. Future researchers should extend the investigation to other sectors and incorporate both financial and non-financial performance attributes.
Keywords: Compliance Auditing, Policy Audits, Risk Management Audits, Operational Audits, Data Privacy Audits, Financial Performance, Commercial Banks, Kenya.
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