The Impact of Audit Committee Diligence on Modification of Audit Opinion: State Owned Enterprises in Kenya.

Abstract

The study examined the effect of audit committee meetings as a proxy for audit committee diligence on modification of audit opinion in commercial and manufacturing state owned enterprises in Kenya. The study examined data from 28 companies in the commercial and manufacturing sector covering the period of 2007 to 2016. The data was analysed using a logistic regression model. The study established significant negative relationship between number of audit committee meetings as proxy for audit committee diligence and modified audit opinion. The study findings imply that increased number of audit committee meetings reduced the likelihood of receiving modified audit opinion. This means increased quality of supervision by diligent audit committee led to improved quality of financial reporting. Diligent monitoring could reduce opportunistic behaviours by management as suggested by the agency theory. The findings from this study will contribute significantly practitioners in corporate governance in the public sector to be more diligent in order to improve quality of financial reporting. In addition, the findings will be beneficial to both internal and external auditors to engage with audit committee to ensure smooth audit process and reporting.

Key Words: Modified Audit Opinion, Audit committee diligence, Firm size, State Owned enterprises.

DOI: 10.7176/RJFA/12-6-10

Publication date:March 31^st 2021