Audit committees and corporate governance in Kenya

Abstract

Market regulators, commissions and accountancy bodies have all recommended the establishment of audit committees as an important step in improving corporate governance. Audit committees comprising of independent non- executive directors assist the board.in fulfilling its responsibility to the shareholders and investing public by enhancing the quality of financial reports and disclosures. However,there is little empirical evidence as to whether audit committees really add any value to the organizations that establish them. This study, therefore, set out to examine the role of audit committees in corporate governance in Kenya.The objectives of the study were to examine how audit committees in Kenya operate, how ,the committees relate to management, internal audit and the external auditors, their major achievements and challenges and why some listed companies had not established audit committees. Primary data was collected via a questionnaire. The population comprised all the 48 companies listed at the NSE. Twenty-nine responses were received representing 60 percent of the population. Personal interview was used on 28 percent of the respondents while 72 percent were dropped and picked later. Secondary data was collected from the annual reports of the respondents for the year ended December 2004.The data was analyzed using frequencies, percentages and means. From the analysis 93 percent of the companies have established audit committees with non executive directors, they have written chatters and have on average 4.3 directors. The committees meet on average 3.8 times in a year and each meeting lasts 2.2 hours on average. The audit committees generally have a cordial relationship with the management, internal audit and the external auditors with 100 percent of the respondents indicating that the relationship is positive to a large extent. The major achievement was given as enhancing the independence of the internal audit function and ensuring that its recommendations are implemented. Only two respondents indicated that they had not established audit committees. The major reason given was frequent changes management.