Effect of Risk Assessment as an Element of Internal Control System on the Quality of Financial Reporting Information in Local Governments of Rwanda

Abstract

Risk assessment as a component of the internal control system allows the management to stay focused on the entity's pursuit of its operation and produce high-quality financial reporting. Despite the adoption of risk assessment as part of an internal control system for years, Rwanda's local governments faced many persistent problems in their financial reporting information. Thus, this research evaluated the effect of risk assessment as a component of the internal control system on the quality of financial reporting in Rwandan local governments. The study was conducted in the 30 districts of Rwanda. Primary data was collected using the questionnaire, and the reports of the Office of General Auditors of Rwanda were consulted to collect secondary data. The findings from descriptive analysis showed a high level of risk assessment with a mean of 3.87. The level of the quality of financial reporting information was high, with a mean of 4.02. Findings from correlation analysis showed that the correlation coefficient between risk assessment and quality of financial reporting information was 0.648, and the p-value was 0.00. The linear equation from regression analysis showed a constant of 2.135, indicating that if the risk assessment as an independent variable stays constant, a positive change in the quality of financial reporting information of 2.135 is observed. The model shows that for a unit increase in risk assessment quality, financial reporting information is predicted to increase by 0.493 units. The management of local governments of Rwanda has been recommended to put more effort into considering the potential for fraud to assess risks for achieving the objective of avoiding public fund embezzlement