Factors influencing audit committee independence

Abstract

While the consequences of audit committee independence may be widely known in accounting literature, its antecedents are not yet clearly understood, especially in the African context. This has led to poorly implemented audit committee practices in both private and public sectors of developing economies, more so in public corporations where bureaucratic inertia and regulatory lethargy often slowdown work in general. The Kenyan Government by law requires the establishment of independent audit committee by each public entity. However, after 6 years following the enactment of this law, external audit reports available indicate low levels of audit committee independence by the governments in Kenya. In order to address this gap in knowledge and practice, this study was designed where data was collected from a sample of 360 county government employees.

Descriptive and inferential statistics such as mean, standard deviation, t-test, ANOVA, multiple linear regression were used to process the data. A two predictor model made up of audit committee members’ attributes and legal framework was developed which accounted for 25.7% of the variance in audit committee independence. Further tests revealed statistically significant differences in the factors of audit committee members’ attributes, legal framework and organizational characteristics based on the demographic characteristics of the respondents. The results indicate respondents ranked legal framework (M = 3.9, SD = 0.83) at the top followed by audit committee members’ attributes (M = 3.6, SD = 1.0) and organizational characteristics (M = 3.4, SD = 1.1). This interpretation is based on the Likert scale of 1 to 5. In conclusion, the findings indicate low levels of audit committee independence in the governments in Kenya. The importance of audit committee members’ attributes and the legal framework in ensuring audit committee independence is observed from the survey. The governments in Kenya should review the existing audit committees so as to improve the low levels of independence observed. Based on this finding, it is recommended that the governments in Kenya should develop a process of nominating and appointing audit committees taking into account the professional experience of the members and the legal framework that ensures audit committees are independent.