AUDIT PLANNING AND FINANCIAL PERFORMANCE OF CONSTRUCTION AND ALLIED FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
AUDIT PLANNING AND FINANCIAL PERFORMANCE OF CONSTRUCTION AND ALLIED FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Joel Makhanu - Postgraduate Tharaka University, Department of Business Administration, Kenya
Dr. James Nyamu (Ph.D.) - Postgraduate Tharaka University, Department of Business Administration, Kenya
Dr. Collins Sitienei (Ph.D.) - Postgraduate Tharaka University, Department of Business Administration, Kenya
ABSTRACT
Internal audit planning is one of the governance mechanisms through which listed firms direct scarce assurance resources towards material risks, yet its contribution to financial outcomes remains insufficiently established in the capital-intensive sectors of emerging markets. Construction and Allied Firms listed at the Nairobi Securities Exchange (NSE) operate in an environment characterized by long project cycles, procurement and contract risks, volatile input costs and recurring liquidity pressure, all of which expose their financial performance to weaknesses in planning and control. This study examined the effect of audit planning on the financial performance of Construction and Allied Firms listed at the NSE, Kenya, with financial performance measured using Return on Assets (ROA). The study was anchored on Agency Theory, with Stewardship Theory and Systems Theory providing complementary explanations. An explanatory longitudinal panel research design was adopted, and secondary data were extracted from the annual reports, audited financial statements, corporate governance reports and audit committee reports of four listed firms, namely Bamburi Cement PLC, Crown Paints PLC, East African Portland Cement PLC and East African Cables PLC, over a ten-year period (2016-2025), yielding 40 firm-year observations. Audit planning was measured using a disclosure-based Audit Planning Index (API) constructed from the number of audit committee meetings, audit committee size and audit fees paid to external auditors. Data were analysed using descriptive statistics, Pearson correlation and simple linear regression. The Audit Planning Index averaged 0.88 (SD = 0.17), indicating generally high disclosure, while ROA averaged 1.92 percent (SD = 7.90). The results revealed a weak negative and statistically insignificant relationship between audit planning and ROA (r = −0.244, p = 0.129). The regression model explained only 6.0 percent of the variation in ROA (R² = 0.060; adjusted R² = 0.035) and was not statistically significant (F(1, 38) = 2.409, p = 0.129), with an unstandardized coefficient of B = −11.069 (standardized β = −0.244, t = −1.552, p = 0.129), leading to failure to reject the null hypothesis. The findings imply that the formal presence or disclosure of audit planning practices does not, on its own, translate into superior financial performance unless the plans are risk-based and effectively implemented. The study recommends that management and audit committees of listed construction and allied firms align audit plans with project cost overruns, procurement risks and contract management, strengthen the follow-up of audit recommendations, and invest in audit technology and auditor competence. Regulators, including the Capital Markets Authority and the Institute of Certified Public Accountants of Kenya, should encourage disclosure practices that reflect the substance, and not merely the existence, of internal audit planning.
