Abstract
The study examines the relationship between audit committee attributes and financial reporting quality of State-owned Commercial Enterprises in Kenya. An analysis was done on annual reports and financial statements for 122 state-owned commercial for the period between 2008 and 2018. The results indicate that audit committee attributes has statistically significant relationship with financial reporting quality of State-owned Commercial Enterprises in Kenya. Results further reveal the audit committee independence has statistically significant and negative relationship with financial reporting whereas audit committee qualification, size and number of meetings held in a financial year had statistically significant and positive relationship with accrual quality. While audit committee independence and qualification exhibited statistically significant positive and negative relationship with qualitative characteristics respectively, it was evident that audit committee attributes had no significant relationship with timeliness in reporting. It is therefore, concluded that audit committee attributes impact financial reporting quality in State-owned Commercial Enterprises in Kenya requiring the appointing authorities to appoint audit committee members with the right skill mix and qualification to realize value addition services and improve financial reporting oversight. Keywords: Audit Committee Attributes, Financial Reporting Quality, State-owned Commercial Enterprises DOI: 10.7176/RJFA/11-14-12 Publication date: July 31 st 2020
Highlights
High profile accounting scandals (Enron; WorldCom) has placed the role of audit committee at the fight against fraudulent financial reporting, increased demand for enhanced corporate governance mechanisms (Mohiuddin & Karbhari, 2010)
The audit committee attributes comprised of independence (AC_IND), qualification (AC_QUA), size (AC_SIZ) and number of meetings held in a year www.iiste.org (AC_MEET) whereas accrual quality (AQ), qualitative characteristics (QC) and timeliness in reporting (TR) were applied in the test as measures of financial reporting quality (FRQ)
The study used Audit Committee Independence, Size, Qualification and Meetings held in a year as indicators of the Audit Committee Attributes while Accrual Quality, Qualitative Characteristics and Timeliness reporting were used as barometers of Financial Reporting Quality
Summary
High profile accounting scandals (Enron; WorldCom) has placed the role of audit committee at the fight against fraudulent financial reporting, increased demand for enhanced corporate governance mechanisms (Mohiuddin & Karbhari, 2010). Bedard and Gendron (2010) observe that regulators expect independent audit committee with frequent meetings to strengthen quality of financial information while maintaining/strengthening financial reporting quality (FRQ). Audit committee is viewed to improve quality of financial information by providing oversight on financial reporting process leading to investor confidence (Bedard & Gendron, 2010). While legal perspective observes that audit committee roles are prescribed by laws and regulations, agency theory suggests that monitoring of management by audit committee strengthens financial information and reporting process quality (Bedard & Gendron, 2010). The expertise paradigm as one of the psychological perspectives and institutional theory has affirmed the linkage between audit committee qualification and financial reporting quality (Bedard & Chi, 1993). The expertise paradigm as one of the psychological perspectives and institutional theory has affirmed the linkage between audit committee qualification and financial reporting quality (Bedard & Chi, 1993). Turley and Zaman (2007) assert that audit committee may have influence as supported by power theory on and be affected by use of authority by members and other stakeholders drawing power from different sources
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