This study analyzes the effect of risk-based auditing on value-based financial performance of banks listed on the Ghana stock exchange. The study utilized a cross-sectional and quantitative research design. The study population encompasses listed banks in Ghana Stock Exchange (GSE) for the study period spanning thirteen years (2008 to 2020) owing to data availability. The study used a judgemental sampling technique to select nine (9) banks out of thirty-five (35) fully licensed and operational commercial banks in Ghana as per the (Bank of Ghana Report, 2021). Forty-eight (48) respondents were purposively selected for this study comprising of Managing Director, Head of Retail Banking, Head of Operations, Head of Risk Management, Head of Conduct and Compliance, Head, Internal Audit, Head, Financial Control and Strategy, Head of Information Technology, Head of Internal Control, and Head of Treasury. Principal Component Analysis (PCA) was used to identify the principal risk-based audit practices that add value to shareholders. Both linear and multiple regression models were employed to test the relationship between risk-based audit practices (RBAP) and value based financial performance of the listed banks in Ghana. The study established that risk management has a significant positive effect on the value-based financial performance of banks listed on the Ghana Stock Exchange. The study also revealed that annual risk-based planning has a significant positive effect on the value-based financial performance of banks listed on the Ghana Stock Exchange. The study also confirmed that internal audit capacity has a significant positive effect on the value-based financial performance of banks listed on the Ghana Stock Exchange. Lastly, the study found that internal auditing standards have a significant positive effect on the value-based financial performance of banks listed on the Ghana Stock Exchange. As such the null hypothesis that risk base financial audit has a significant positive effect on value-based financial performance was accepted. The study concluded that there was a significant positive relationship between risk based financial audit and value-based financial performance. it is recommended that a similar study be conducted on all financial and non-financial institutions that trade on Ghana Stock Exchange to facilitate comparison and allow for the generalization of findings on the effect of risk-based audits on shareholder value. The research recommends that other researchers should explore more about the influence of non-financial related factors and their implication on shareholder value in the Ghanaian Banking Sector.
Abdel-Khalik, A. R. (1993).Why Do Private Companies Demand Auditing? A Case for Organizational Loss of Control. Accessed: https://doi.org/10.1177%2F0148558X9300800103
Date: 18/10/2021
Adams, M., and Mehran, J. (2003). Dominant Issue in the Nigeria Local Government System: A Contemporary focus. Lagos: Imprint Services, pp.5-6, 195.
Al-Tamimi, J. (2002). Risk Management Practices:An Empirical Analysis of the UAE Commercial Microfinance Institutions.Finance India (pp.16).
Ayagre, P., Appiah-Gyamerah, I., Nartey, J. (2014), Effectiveness of Internal Control Systems of Ghanaian Banks.
Banks and SDI Fraud Report (2020).
Beasley, M. S., Carcello, J. V., Hermanson, D. R., and Lapides, P. D. (2000). Fraudulent Financial Reporting: Consideration of Industry Traits and Corporate Governance Mechanisms. Accounting Horizons (2000) 14 (4): 441–454.
Beumer, Hans. (2006). A risk-oriented approach: auditors at a Swiss textile firm demonstrate the value of focusing on risk management. Internal Auditor(Vol. 63, Issue 1). Publisher: Institute of Internal Auditors, Inc.
Bowlin, Kendall. (2011). Risk-Based Auditing, Strategic Prompts, and Auditor Sensitivity to the Strategic Risk of Fraud. The Accounting Review (2011) 86 (4): 1231–1253.
Coram, P., Ferguson, C., and Moroney, R. (2008). “Internal Audit, Alternative Internal Audit Tructures and The Level of Misappropriation of Assets Fraud”. Accounting and Finance, 48 (4), 543-559.
Davidson, R., Goodwin?Stewart, J., and Kent, P. (2005), “Internal governance structures and earnings management”, Accounting and Finance, Vol. 45 No. 2, pp. 241?67.
DeFond, M. L., Francis, J. R., and Wong, T. J. (2000). Auditor Industry Specialization and Market Segmentation: Evidence from Hong Kong. A Journal of Practice & Theory (2000) 19 (1): 49–66.
Dogui, K., Boiral, O., Heras-Saizarbitoria, I. (2014) Audit fees and auditor independence: The case of ISO 14001 certification. Int J Audit 18:14–26
Drzik, J. (2005), “New Directions in Risk Management”, Journal of Financial Econometrics, Vol.1, pp. 26-38.
Fama, E. F., and Jensen, M. C. (1983). "Agency Problems and Residual Claims." J. Law and Econ. 26: 327-49. (a)
Fatemi, A., and Glaum, M. (2000). Risk managemnt practices in German firms,Managerial
Finance
Geke, Abel. Manas. (2017). Effect of risk based audit practices on financial performance in selected public owned Sugar companies in Kenya Accessed: https://repository.maseno.ac.ke/handle/123456789/1252
Date: 11/10/2021
Ghana Banking Survey, 2018
Goodwin-Stewart, J., and Kent, P. (2006). The use of internal audit by Australian companies. Managerial Auditing Journal. ISSN: 0268-6902
Gramling, A. A., Maletta, M. J., Schneider, A., and Church, B. K. (2004), ‘The role of the internal auditfunction in corporate governance: A synthesis of theextant internal auditing literature and directions for future research’, Journal of Accounting Literature, Vol.23, pp. 194–244.
Hair, J. F., Black, W. C., Babin, B. J., and Anderson, R. E. (2010). Multivariate Data Analysis. 7th ed. Prentice Hall.
Haniffa, R., and Hudaib, M (2006). Corporate Governance Structure and Performance of Malaysian Listed Companies. J. Bus. Finan. Account. 33(7-8): 1034-1062.
Hay, D., and Knechel, W. R. (2004). Evidence on the Association among Elements of Control and External Assurance. Working Paper (University of Auckland).
Hayes, R., Dassen, R., Schilder, A., Wallage, P. (2005), Principles of Auditing, An Introduction of International Standards on Auditing, second edition. Pearson Education Limited. Harlow. England
Hironori, F., Theodore, M., & Arnold, W. (2011). Client risk factors and audit
resource allocation decisions. International journal on accounting, auditing
and accountability. 47, 85-108. Abacus
The Institute of Internal Auditors (IIA 2003)
The Institute of Internal Auditors (IIA, 1999)
The Institute of Internal Auditors (IIA, 2009)
The Institute of Internal Auditors (IIA, 2014)
The Institute of Internal Auditors (IIA, 2015)
Investopedia (2019). Per Capita Income (PCI). Investopedia, LLC. Date Accessed: 28/05/2019, from https://www.investopedia.com/
Jensen, M. (1986): “The Agency Cost of Free-Cash Flow: Corporate Finance and Takeovers,” American Economic Review, 76, 323-330.
Kabare, M. M. (2014). The effect of risk based auditing on financial performance in commercial state corporations in Kenya. Accessed: erepository.uonbi.ac.ke Date: 13/11/2021
Karapetrovic, O. (1999). Internal Audit Problems and possible Solutions CMD Workshop on
Auditing in Private and Public Sector Organizations . (N. M. review, Ed.) Nigeria.
Kasiva, M. V. (2012). The Impaxt of Risk Based Audit on Financial Performance in Commercial Banks in Kenya. MBA Project, University of Nairobi, School of Business, Nairobi.
Kiptoo and Muthoni. (2013). a study to evaluate the internal audit functions’ role in financial reporting in Eldoret municipal council in 2012. The study was published in the Journal of Emerging Trends in Economics and Management Services.
Kunkel, J. (2004). The changing role of internal audit. Chain Store Age 3 pp-4-5
Le Houerou, P., and Taliercio, R. (2002) Medium Term Expenditure Frameworks: From Concept to Practice. Preliminary Lessons from Africa. Washington: World Bank
Lutta, S. E. (2012). Determinants of adoption of risk based audit in public sector in Kenya. Unpublished MBA Project, University of Nairobi.
Marks, Norman. (2007). Internal audits of governance: assessing organizational governance can be complicated and may involve political risk, but it should still be given strong consideration in the audit plan. Internal Auditor (Vol. 64, Issue 6). Institute of Internal Auditors, Inc.
Martin, J. D., and Petty, J. W. (2000). Value Based Management. Harvard Business School Press
Masika, P. M. (2012). The effect of the quality of risk-based internal auditing on the effectiveness of internal audit in regulatory state corporations in Kenya. Unpublished MBA Project, University of Nairobi.
Memba, M. A. (2015). Risk Based Internal Auditing: An Introduction, Accessed: www.internalaudit.biz. Date: 12/11/2021
Millichamp, W. (2002). "Embracing risk based auditing in Internal corporate governance". Finance Review , (pp.17-20).
Mutua, V. K. (2012). The impact of risk based audit on financial performance in
commercial banks in Kenya. Unpublished MBA Project, University of Nairobi
Nyarombe F., Musau, E. G., Kavai, I., and Kipyego, K. (2015). The effect of risk based audit approaches on implementation of internal control systems; a case of Uasin Gishu County. International Journal of Business and Management Invention, 4(1), 12-32.
Obrycki, D. J., and Resendes, R. (2000), ?Economic margin: The link between EVA and CFROI?, in F.J. Fabozzi, and J.L. Grant, (eds.), Value-based metrics: Foundations
OECD Principles of Corporate Governance (1999 updated in 2004).
Peterson, P. P., and Peterson, D. R. (1996), Company performance and measures of value added. The Research Foundation of The Institute of Chartered Financial Analysts, Charlottesville
Prinsloo, J. (2008). The Development and Evaluation of Risk - Based Audit Approaches. Magister in Accounting, University of the Free State, Faculty of economic and management science (centre for Accounting).
Reilly, F. K., and Brown, K. C. (2003). Investment analysis portfolio management, 7th edition, Thomson-South Western, Cincinnati
Sanda, A., Aminu, S. M., and Garba, T. (2005). Corporate Governance Mechanisms and Firm
Financial Performance in Nigeria. AERC Research Paper 149, African Economic
Research Consortium, Nairobi
Sherer, M., & Kent, D. (1983). Auditing and Accountability. London: Pitman.
Speklé, Roland. F. (2001). Explaining management control structure variety: a transaction cost economics perspective. Accounting, Organizations and Society. Volume 26, Issues 4–5
Stewart, G.B. III (1991). The quest for value. New York: Harper-Collins
Vinnari, E., and Skaerbaek, P. (2014). The uncertainties of risk management: A field study on risk management internal audit practices in a Finnish municipality. Accounting, Auditing & Accountability Journal. ISSN: 0951-3574
Wallace, W. A. and Kruetzfeldt, R. W. (1991). Distinctive characteristics of entities with an internal audit department and the association of the quality of such departments with errors. https://doi.org/10.1111/j.1911-3846.1991.tb00826.x Date: 23/11/2021
Wery and Lambin. (2012). A study tithed 'enhancing the internal audit function through the internal audit maturity model'.
Williamson, O. E. (1979). Transaction-cost economics: the governance of contractual relations. The journal of Law and Economics, 22(2), 233-261.
Williamson, O. E. (1996). The Mechanisms of Governance. New York: Oxford
University Press.
Williamson, O. E. (2002). The Theory of the Firm as Governance Structure: From
Choice to Contract. Journal of Economic Perspectives, 16(3): 171-195
Williamson, O. E. (2002). The Theory of the Firm as Governance Structure: From
Choice to Contract. Journal of Economic Perspectives, 16(3): 171-195
Young, S., and O'byrne, S. F. (2001). EVA and value-based management: a practical guide to implementation, 2.
Ziegenfus, M. (2000). COSO Based Auditing (pp 40-56)
Zygmont, C., & Smith, M. R. (2014). Robust factor analysis in the presence of normality violations, missing data, and outliers: Empirical questions and possible solutions. The Quantitative Methods for Psychology, 10 (1), 40-55.
In-Text Citation: (Apreku-Djan et al., 2022)
To Cite this Article: Apreku-Djan, P. K., Ameyaw, F., Ahiale, F. A., Owusu, M., & Apreku, I. K. O. (2022). The Effect of Risk-Based Auditing on Value-Based Financial Performance of Banks in Ghana. International Journal of Academic Research in Business and Social Sciences, 12(5), 764– 788.
Copyright: © 2022 The Author(s)
Published by Knowledge Words Publications (www.kwpublications.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
