Role of Auditors in Enhancing Corporate Governance in Commercial Banks.

A Project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA)The need to focus on corporate governance has increased particularly in the wake of economic collapse and financial crises. Additionally, scholars have found that corporate governance influences a firm’s performance. Corporate failures and scandals have imposed the demand for reforms and for improved regulations particularly on governance matters. The purpose of the study was to identify ways of enhancing corporate governance through auditing. The study focused on the following research questions: What is the role of auditors on Corporate Governance? What is the role of an audit committee on Corporate Governance? And What can be done to enhance Corporate Governance through audits? The target population for this study was made up of the ten (10) Commercial Banks licensed by the Central Bank of Kenya of which five banks are listed in the NSE while another five banks that are not listed in the NSE. The target population was 169 respondents which constitute the members of the audit function of the banks. The sample size was 119 respondents. The researcher distributed questionnaires to the identified groups of respondents. The data collected was coded and interpreted with the use of SPSS software and Microsoft excel workbook. The findings were presented in form of tables and charts and inferential statistics were also used to interpret the data. The study conclude that the role of audit or that can enhance corporate governance were evaluating risks, evaluating controls and operations, advising managers, assessing compliance with policies and procedures, verifying the existence of assets and providing opinion on financial statements. The study also concluded that the role of audit committee that can enhance corporate governance were review internal audit plans, report and significant figures, monitor choice of accounting principles, ensuring risk management process is comprehensive and ongoing, establishing a direct reporting relationship with the external auditors, oversee financial reporting and disclosure and ensuring that financial statements are understandable, transparent and reliable. The study was able to able to conclude that the banks used audit to enhance corporate governance in the banks by prioritizing risk management, setting and enforcing clear lines of responsibility, ensuring timely and effective information policy, promoting appropriate ethics and values, clarifying board’s role in strategy, enhance information transparency, engaging stakeholders and making accountability real and promoting good values for the whole organization and demonstrating this values. The study recommends that the auditors be given more autonomy so that they can be able to produce quality financial statements. This will help in increasing stakeholder’s confidence and attract new potential investor’s. The study recommends that the audit committee be given the authority to initiate an audit. This will help the audit committee to be able to do audits when there seems to be a problem rather than when the audit is set. The study recommends more support to the audit function in preparation of proper financial records. This will help more consistent and better records for the banks