Effect Of Audit Committees Characteristics On Quality Of Financial Reporting In State Corporations In Kenya

Abstract

The role played by Audit committees in safeguarding public resources in State Corporations is of paramount importance. The study aimed at examining the effect of audit committee attributes on the quality of financial reporting in State corporations in Kenya. State Corporations in Kenya continue to experience problems related to poor management of resources. The audit committees are mandated to provide oversight in the management of public resources in State Corporations. This study was carried out to establish whether the attributes or characteristics of Audit Committees have significant influence on the quality of financial reporting in State Corporations. The study concentrated on AC independence, AC size and Financial expertise of AC members. These are the characteristics that could influence the quality of financial reporting in state corporations. The target population in the study was 187 State Corporations that are guided by the State Corporations Act cap 446.The study used agency theory, institutional theory, stewardship theory and stakeholders theory to investigate the relationship between the AC attributes and the quality of financial reporting. Secondary data was collected from the audited financial reports of the State Corporation. The logistic regression model was used to test the effect of Audit Committee characteristics on the quality of financial reports in State Corporation. The findings indicate that there is a fairly strong positive relationship between the independence of Audit committee members and the quality of financial reports. The findings also found that there is a strong negative relationship between the quality of financial reports and financial expertise of the Audit committee members. The study used correlation and regression analysis to analyze the data. Correlation analysis was applied on the relationship between the three AC attributes and inferential analysis was used to ascertain the relationship between AC attributes and quality of financial reports in State Corporations. A key recommendation of this study is that the Kenyan government should enact legislation to impose tough measures and penalties to deal with state corporations that do not comply with state corporations Act.