Micro Factors Affecting Financial Performance of Small and Medium Audit Firms in Nairobi County

Abstract

Small and medium enterprises (SMEs) audit firms in Nairobi, despite undergoing major changes, have experienced different problems and challenges. This study aimed to identify variables negatively influencing small and medium audit firms SMEs. The variables mainly constitute micro variables affecting audit firm's profit levels. The research objective was to identify these variables and if there are any relations with the profit levels of the SME audit firms in Nairobi. Descriptive research was used in the study. Self-administered questionnaires were used to collect the data; from a population of 90 SME audit firms in Nairobi County, Kenya. The research design took the form of a census covering audit firms. Regression analysis was used to establish the relation between micro variables in the form of firm size, audit quality, management support and liquidity. In analyzing the data, the dependent variable, and in measuring parameters, SPSS (23) was used. The study found that firm size, audit quality, management support and liquidity have a positive and statistically significant effect on the financial performance of SME audit firms. The study recommends that to be able to obtain funds from investors for expansion and financial performance, a business must generate sufficient profit to cover the costs of running the business. An effective audit quality can assist in the identification of ways to improve the efficiency of a company and in the reduction of overhead costs. Higher audit quality has the potential to constrain better earnings management, which in turn has the potential to improve the quality of financial reports. To improve the efficiency of the organization's process, the full commitment of the highest management must be agreed upon, connected and effected at all levels of the organization.