Chapter one Introduction Background of the study
Audit quality is vital for every organization to achieve efficient and effective management of resources. It leads to the improvement of financial performance as a key implementation strategy of the accounting system and helps management check the work of each department within the firm as a whole. Around the world, audit quality assures the achievement of quality financial statements or reports for firms listed on the stock markets of any country. This is the cornerstone of institutions of any type that are charged with the responsibility of checking records related to business activities. The functions of internal audit reflect the quality of the financial reports or information that the institutions maintain to create confidence among the stakeholders, and also reflect the efficiency and credibility of the institution’s audit department within the organization’s practices as part of the corporate governance structure of the firm’s management and practices.
According to Clarkson (1995), stakeholders have the organization’s interest at heart and are impacted by its operations, it could be negative or positive in the way in which it affects them. Stakeholders normally mentioned are employees, government, customers, competitors and political activist groups and the viability of any organization is greatly influenced by them. (Dill, 1958; Murray & Vogel, 1997). In stakeholder theory, the firm intends to convert the stakeholders’ interests into goods and services thereby creating value for them. Profits can no longer be taken solely as success of a firm, but its success is influenced greatly by stakeholder relationships and is a broad range of issues which need to be addressed.
Agency theory is a contract whereby a person (agent) is appointed by another person or a number of people (principal(s)) to perform some service on their behalf. Conflicts may arise when the agent and the principal have interests which are different and do not align. An internal audit function can address this when it is independent and has the support of top management. Legitimacy theory is established on the belief that companies are always seeking for confirmation that they are doing business