Effect of Audit Committee Characteristics on Fraudulent Financial Reporting in Commercial Banks in Kenya
Main Article Content
Keywords
Audit, committee, characteristics, fraudulent, finance, commercial banks, Kenya
Abstract
The purpose of this research was to investigate the effect of audit committee characteristics on fraudulent financial reporting in commercial banks in Kenya. The research specific objectives were to; determine the effect of audit committee size, audit committee independence, audit committee financial expertise and audit committee gender diversity on fraudulent financial reporting in Commercial banks in Kenya. The theories used in this study were the Agency theory and Fraud pentagon theory. The research design used was explanatory research design and the year of observation were 2018 to 2022. The target population of the study was all commercial banks in Kenya. Secondary data obtained from the audited financial reports of the banks were used in the study. The panel data was analyzed using both descriptive and inferential statistics. The study findings revealed that larger audit committee sizes, greater independence, and higher gender diversity are all associated with significant reductions in fraudulent activities. The study revealed that larger audit committee sizes, greater independence, and higher gender diversity are all associated with significant reductions in fraudulent activities. The study findings sought to inform the banking institutions, institutions that deal with the fight against fraud and management, investors and for policy formulation.
References
Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of financial Economics, 94(2), 291-309.
Alchian, A. A., & Demsetz, H. (1972). Production, information costs, and economic organization. The American economic review, 62(5), 777-795.
Alkebsee, R. H., Tian, G.-L., Usman, M., Siddique, M. A., & Alhebry, A. A. (2021). Gender diversity in audit committees and audit fees: evidence from China. Managerial Auditing Journal, 36(1), 72-104.
Arslan M, Alqatan A. Role of institutions in shaping corporate governance system: evidence from emerging economy. Heliyon. 2020 Mar 7;6(3):e03520. doi: 10.1016/j.heliyon.2020.e03520. PMID: 32181393; PMCID: PMC7063146.
Ashiru, Folajimi & Nakpodia, Franklin & Adegbite, Emmanuel. (2019). Principles of Corporate Governance and Effective Boards. 10.4324/9781315169477-2.
Axelton, Z., & Chandna, V. (2023). A practical guide to SEC financial reporting and disclosures for successful regulatory crowdfunding. Business Horizons, 66(6), 709-719.
Bhuiyan, M. B. U., Salma, U., Roudaki, J., & Tavite, S. (2020). Financial reporting quality, audit fees and risk committees. Asian Review of Accounting, 28(3), 423-444.
Brazel, J. F. (2018). Do auditors and audit committees lower fraud risk by constraining inconsistencies between financial and nonfinancial measures? Current Issues in Auditing, 12(2), P7-P15.
Edogbanya, A., & Kamardin, H. (2015). The relationship between audit and risk management committees on financial performance of non-financial companies in Nigeria: A conceptual review. Mediterranean Journal of Social Sciences, 6(3), 206.
Horwath, C. (2011). Putting the Freud in Fraud: Why the Fraud Triangle Is No Longer Enough. IN Horwath, Crowe.
Kamarudin, K. A., Ismail, W. A. W., & Alwi, M. (2014). The effects of audit committee attributes on fraudulent financial reporting. Journal of Modern Accounting and Auditing, 10(5).
Kibiya, M. U., Che-Ahmad, A., & Amran, N. A. (2016). Audit committee independence, financial expertise, share ownership and financial reporting quality: Further evidence from Nigeria. International Journal of Economics and
Financial Issues, 6(7), 125-131.
Krishnan, G. V., & Visvanathan, G. (2007). Does the SOX definition of an accounting expert matter? The association between audit committee directors' accounting expertise and accounting conservatism. Available at SSRN 866884.
Li, L., & McMurray, A. (2022). Corporate Fraud in Developing Countries. Corporate Fraud Across the Globe, 71-101.
Luh, P. K. (2024). Gender of firm leadership, audit committee gender diversity and audit quality through the lens of audit fee: a Ghanaian insight. Gender in Management: An International Journal, 39(3), 388-408.
Makhlouf, M. H. (2022). Audit committee and impression management in financial annual reports: evidence from Jordan. EuroMed Journal of Business.
Mardessi, S. (2022). Audit committee and financial reporting quality: the moderating effect of audit quality. Journal of Financial Crime, 29(1), 368-388.
Meckling, W. H., & Jensen, M. C. (1976). Theory of the Firm. Managerial Behavior, Agency Costs and Ownership Structure.
Mehta, A., & Bhavani, G. (2017). Application of forensic tools to detect fraud: The case of Toshiba. Journal of Forensic and Investigative Accounting, 9(1), 692-710.
Munther, A.-N. (2019). Effect of corporate governance rules on voluntary disclosure in Jordanian corporations listed with the Amman Stock Exchange (ASE):(An empirical study). Studies in Business and Economics, 14(1), 154-168.
Ndofor, H. A., Sirmon, D. G., & He, X. (2015). Utilizing the firm's resources: How TMT heterogeneity and resulting faultlines affect TMT tasks. Strategic Management Journal, 36(11), 1656-1674.
Pududu, M. L., & De Villiers, C. (2016). Earnings management through loss avoidance: Does South Africa have a good story to tell? South African Journal of Economic and Management Sciences, 19(1), 18-34.
Puspitha, M. Y., & Yasa, G. W. (2018). Fraud pentagon analysis in detecting fraudulent financial reporting (study on Indonesian capital market). International Journal of Sciences: Basic and Applied Research, 42(5), 93-109.
Raghunandan, K., Rama, D. V., & Read, W. J. (2001). Audit committee composition,“gray directors,” and interaction with internal auditing. Accounting horizons, 15(2), 105-118.
Rutten, M., & Muli, K. (2008). 9 The Migration Debate in Kenya. In International migration and national development in sub-Saharan Africa (pp. 182-203). Brill.
Shankaraiah, K., & Amiri, S. M. S. (2017). Audit committee quality and financial reporting quality: A study of selected Indian companies. Jurnal Dinamika Akuntansi dan Bisnis, 4(1), 1-18.
Terjesen, S., Sealy, R., & Singh, V. (2009). Women directors on corporate boards: A review and research agenda. Corporate Governance: An International Review, 17(3), 320-337.
Wells, J. T. (2014). Principles of fraud examination: John Wiley & Sons.
Xie, B., Davidson III, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: the role of the board and the audit committee. Journal of Corporate Finance, 9(3), 295-316
Article Sidebar
Article Details
Faith Jetalam Kiplagat , Department of Accounting and Finance, School of Business & Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Department of Accounting and Finance, School of Business & Economics, Moi University, Kenya
Naomi Koske , Department of Accounting and Finance, School of Business & Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Department of Accounting and Finance, School of Business & Economics, Moi University, Kenya
Stephen Chelogoi , 1Department of Accounting and Finance, School of Business & Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Department of Accounting and Finance, School of Business & Economics, Moi University, Kenya