Effect of audit committee characteristics on audit effectiveness in the county government of Kericho, Kenya

Abstract

Financial performance is an important element for organizational survival., whether public or private, profit or not for profit. Various studies have been done on the audit committees and organizational performance, both in the public and private sectors. Firms are becoming aware of the importance of effective corporate governance (CG) that should provide the mechanisms necessary for improving their organizational effectiveness. It is generally agreed that audit committees play a crucial role in governance practices, particularly in enhancing the boards’ effectiveness in monitoring management. This study aimed to determine the effect of audit committee characteristics on audit effectiveness in the County Government of Kericho. Specifically, the study sought to determine the effect of audit committee meeting frequency, financial expertise, tenure, and independence of audit committee on audit effectiveness. The agency and institutional theories guided the study. Data were obtained from a population of 68 senior employees from the county governments of Kericho conversant with corporate governance structures of the County. The study utilized a correlational research design to study the audit committee characteristics and effectiveness. Further, the study applied census sampling to select all 68 employees. Data were analyzed using both descriptive and inferential statistics with the aid of SPSS software. Correlation and multiple regression analysis were used to assess the effect of various variables on audit effectiveness. The study established the selected audit committee characteristics accounted for 80.6% of the variations in audit effectiveness (R2=.806; p<0.05). Specifically, financial expertise was established to have a significant positive effect on audit effectiveness (b=0.381; p<0.05), independence of the audit committee also had a significant positive effect on audit effectiveness (b=0.158; p<0.05). On the other hand, the tenure of the audit committee had a significant negative effect on audit effectiveness (b=-0.165; p<0.05). There was no evidence that the frequency of meetings had any significant effect on audit effectiveness as the p-value was >0.05 (b=0.381; p>0.05). These findings conclude that the audit committee should comprise diverse membership to enhance audit effectiveness. Still, it must have a finance expert that the members should be independent and serve for a fixed term. These results are significant as they provide evidence of the effect of various board characteristics on audit effectiveness from a developing country and the public sector, which can be applied in policy and enrich the existing literature.