Audit committee attributes, firm characteristics, internal control framework and financial reporting quality of the State-owned Commercial enterprises in Kenya
Abstract
There is very limited information available on the effect of audit committee attributes,
firm characteristics and internal control framework on financial reporting quality of stateowned
commercial enterprises in Kenya with majority of evidence on financial reporting
quality obtained from public listed and private companies, locally and internationally.
The government from time to time has enacted various laws and regulations and issued
guidelines with the aim of strengthening financial reporting quality and internal controls
to safeguard stakeholder’s interests. Notwithstanding these intercessions, innumerable
state-owned commercial enterprises have failed to demonstrate quality financial reporting
in the annual reports and audited financial statements. The primary objective of the study
was to establish the relationships among audit committee attributes, firm characteristics,
internal control framework and financial reporting quality of state-owned commercial
enterprises in Kenya. Distinctively, the study explored to establish the relationship
between audit committee attributes and financial reporting quality; to determine the effect
of firm characteristics on the relationship between audit committee attributes and
financial reporting quality; determine the effect of internal control framework on the
relationship between audit committee attributes and financial reporting quality and to
establish the joint effect of audit committee attributes, firm characteristics and internal
control framework on financial reporting quality of SOCEs in Kenya. Numerous
measures have been used in examining financial reporting quality by researchers.
However, this study used accrual quality, qualitative characteristics and timeliness of
reporting as indicators of financial reporting quality. The research was anchored on
agency theory supported by institutional, power and actor-network theories and guided by
positivism research philosophy and used correlational and descriptive research design.
The study used secondary data for a period of eleven years (2008-2018) to construct
amalgamated data on study variables with a study population of 122 state-owned
commercial enterprises as of 31st May 2018. The study employed correlation and panel
regression analysis model in the achievement of the study objectives. Further, the study
adopted Baron and Kenny (1986) approach in testing for moderation and mediation effect
of firm characteristics and internal control framework respectively on the relationship
between audit committee attributes and financial reporting quality of SOCEs while panel
regression analysis model was used to examine the joint effect of audit committee
attributes, firm characteristics and internal control framework on financial reporting
quality. The results revealed that a statistically significant relationship existed between
audit committee attributes and financial reporting quality while firm characteristics
except for firm liquidity were found not to moderate the relationship between audit
committee attributes and financial reporting quality at 5% significant level. Further,
internal control framework did not mediate the relationship between audit committee
attributes and financial reporting quality. Audit committee attributes, firm characteristics
and internal control framework jointly significantly predicted financial reporting quality
of state-owned commercial enterprises in Kenya. The study recommends standard setters,
boards and management and other stakeholders in state-owned commercial enterprises
design and implements internal controls that enhance financial reporting quality.
Secondly, audit committee members appointed possess the right qualification and
expertise to ensure that quality information is disclosed in audited financial statements
and annual reports augment and improve financial reporting quality.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1432]
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