Adherence to Mandatory Financial Disclosure Requirements by Public Companies in Kenya

Abstract

Disclosure of financial information is important. It facilitates understandability of financial reports by the users. Several regulatory agencies have stipulated minimum disclosure requirements. However there is no 'policing' system to enforce adherence to such disclosure requirements. Given this atmosphere, do companies actually adhere to minimum disclosure requirements? If they do, then to what extent? Are there categories of companies that adhere more than others? Which group if any is more lax in it's adherence to these requirements? This study attempted to answer some key questions on the extent of adherence to mandatory disclosure requirements by public companies in Kenya. The specific objectives of the study were: 1. To determine the extent to which public companies in Kenya adhere to mandatory-disclosure requirements of the companies Act. Chapter 486 of the laws of Kenya, the rules and regulations of the Nairobi Stock Exchange and the Kenya Accounting Standards of the Institute of Certified Public Accountants of Kenya. 2. Compare the level of adherence to mandatory disclosure requirements by v~rious categories of companies viz: Listed and Unlisted Companies. Large and Small Companies. Those audited by large audit firms and those audited by small audit firms. Various industrial classification of companies i.e. manufacturing, finance, wholesale/retail and agriculture. The conclusion of the study is that the overall level of adherence to disclosure requirements is quite high in Kenya. The highest level of adherence is 93% by a small listed firm, audited by a large audit firm. The lowest level of adherence is by a small unlisted firm, audited by a small audit firm. the levelis 41% The overall level of adherence is 78.16%. Listed companies have an adherence level of 85.7% while unlisted ones have 70%. Companies audited by large firms have an adherence level of 84.11% while those audited by small firms have a level of 75.09%. Manufacturing companies have an adherence level of 84.31%, Finance ones 72.53%, wholesale companies 78.18% while agricultural companies have a level of 85%. The Chi-square test of independence showed all these differences in the means to be statistically si..gnificant . When it comes to size of company large companies had a mean level of 84.11% while small ones had a level of 75.09%. However, upon being tested statistically using the Chi-square test of independence the difference was determined to be statistically insignificant. This means that size has no impact on the level of adherence to disclosure requirements. The first three variables i. e. listing status I audit firm size and industrial classification do have an impact on the level of adherence to disclosure requirements.