International Journal of Science and Research (IJSR) ISSN (Online): 2319-7064 Index Copernicus Value (2015): 78.96 | Impact Factor (2015): 6.391 Volume 6 Issue 10, October 2017 www.ijsr.net Licensed Under Creative Commons Attribution CC BY Financial Factors Affecting Growth of Audit Firms in Kenya: A Survey of Audit Firms in Nairobi City County Stephen Wambua Munuve 1 , Dr. Joseph Obwogi 2 School of Business, Jomo Kenyatta University of Agriculture and Technology P.O Box 62000-00200 Nairobi, Kenya Abstract: Auditing firms increasingly face challenges when performing their work, with the challenges emanating from both the internal and external environment, thus causing deterred growth in the industry. Therefore this study focused on some selected internal factors which affect the growth of auditing firm. The specific objectives were to establish the effects of internal control and the effect of audit fee on audit firms’ growth in Kenya. The study applied descriptive research design. The population was 122 audit firms in Nairobi County given that Nairobi is the capital city of Kenya and the hub of business, many firms are located there.For sampling three cluster were identified, that is; large firms, medium firms and small firms based on the market share.From each of the cluster random sampling was adopted. Primary data was used for analysis, to describe the relationship between the study variables.The findings revealed that internal control and audit fee significant effect the growth of audit firms in Kenya. The regression results showed that all the variable had a positive significant effect on the growth of the firm. The correlation results indicated that there was a strong positive relationship between the independent variables and the dependent variable. Based on the finding, the study concluded that internal control and audit fee were major determinants on growth of audit firms in Kenya. The study recommended that the management of audit firms should put emphasis on audit internal control measure and audit fee when strategizing the growth of their firms as the two are key determinants to growth of a firm. Keywords: Internal control, Audit fee, Firm growth 1. Introduction Auditing did not start „yesterday‟; it was in use in all ancient countries and during the time of agrarian revolution. The main objective of auditing was to detect and prevent errors and frauds. Auditing evolved and grew rapidly after the industrial revolution in the 18th century with the growth of the joint stock companies. The ownership and management become separate that, the shareholders needed a report from an independent expert on the accounts of the company managed by the board of directors appointed by them. An audit is an investigation or search for evidence to enable an opinion to be formed on truth and fairness of financial and other information by independent person or persons (Gray and Manson, 2008). The person(s) are independent of the preparer and persons likely to gain directly from the use of the information and the issue of a report on that information with the intention of increasing its credibility and therefore its usefulness. The main objective of auditing was to detect and prevent errors and frauds. Over the years the precise role of auditing shifted and was expected to ascertain whether the accounts were true and fair rather than detection of errors and frauds. After the 2 nd world war many countries became independent and started focusing on business and commerce. Many industries have come up and the need for accounting and auditing increased. It is through this transition period for industrialization where the developed and developing countries adopted the auditing principles to provide a fair view of the books of account. The environment within which audit firms operate has been very volatile. The political anxieties, competition from new entrants, social reforms, technological advancement and globalization are some of the challenges that have greatly affected the growth of this sector (Leggatt and Martin, 2003). These challenges cannot be ignored because the industry plays a significant role in our economy. The challenges posed have serious strategic threats to existing firms and a good number of these firms are not able to survive the new turn of events and those that are still surviving have had to adopt urgent measures in form of strategies. According to Githae (2004), many audit firms in Kenya are quick to affirm that doing business is more difficult than was the case in the past eras. They cite numerous factors like increased competition; undercutting and increasing need for more compliance as more and more legislations is enacted. This is aggravated by inadequate government support among other reasons. The business environment in which the small and medium size audit firms operate has been very volatile. The political anxiety, competition from new entrants, social reforms, technological advancement and the global challenges are some of the challenges that have greatly affected the growth of this industry (Nyakang‟o, 2007). 1.1 The growth of auditing firms in Kenya Kenya being a developing country, and experiencing a high rate of industrialization, the demand for audit has also increased. This has led to formation of audit companies to serve the demanding market. The audit companies which are also referred to as audit firms are forms of sole proprietorship or partnership businesses which provide audit, accountancy, and consultancy services to clients who may be individuals or other firms and companies. Auditing is one of the largest professional services in Kenya today. ICPAK estimates that there are about 18,000 qualified professional in this area with about a third of them being registered with ICPAK. The distribution of the ICPAK membership is as follows: private practice 40%, commerce Paper ID: ART20177430 DOI: 10.21275/ART20177430 1034