| dc.description.abstract | Disclosure and accountability are the corner stones of corporate governance. There has been a
growing number of earnings manipulation which has only recently begun to receive the
attention of regulators. A director's greatest virtue is his independence that allows him to
challenge management decisions and evaluate corporate performance from a completely free
and objective perspective. Audit committee comprising independent directors assist the board
in fulfilling its responsibility to the shareholders and investing public by facilitating transparent
and objective disclosures in company financial statements. There is however another school of
thought that challenges the value added by independent directors which is that although such
directors may perform some functions better than other directors they could perform other
functions worse resulting in no net advantage for the company if its board has a high proportion
of independent directors.
This study therefore sets out to determine whether audit committees and their composition of
independent and non-executive directors have an effect on major disclosures and other nonfinancial
characteristics of companies listed at the Nairobi Stock Exchange. The objectives of
the study were to determine major disclosures and other non-financial characteristics of
companies listed at the Nairobi Stock Exchange before and after the establishment of audit
committees; to determine the perceived value of audit committees by management of such
companies; and to assess the achievement ofthe objectives of audit committees in such
compames.
In categorizing major non-financial disclosures, the annual reports were analyzed to determine
the value added information and disclosures in these reports which included information on
achievements, targets, corporate governance standards, social responsibility, risk management,
compliance with regulatory standards, explanations and related party transactions. To determine
the perceived value of audit committees by management of listed companies in Kenya a
questionnaire was developed which included queries on the composition, mandate and
reporting obligations of audit committees. It also sought to determine management perception
to the various attributes of audit committees based on best international market practices and
the recommendations of the Blue Ribbon Committee (1999).
From the analysis of the data it was observed that audit committees were mandated to ensure
efficiency and effectiveness of operations, reliability of financial and other management
information and to safeguard assets. These mandates howe-v.er were not reviewed annually. It was noted that the audit committees reported to the Board and not the shareholders, contrary to
best international market practices and the Blue Ribbon Committee (1999). It was also noted
that, although management perceived audit committees to add value to the company, it had
reservations on the attributes of audit committees, in particular the necessity of independence
and the expertise of the members of the audit committees. It was also noted that only 23% of
the companies responded that their audit committees had successfully achieved their objectives.
The analysis determined that although audit committees have a significant effect on the major
disclosures and other non-financial characteristics of companies listed at the Nairobi Stock
Exchange, it was apparent that the essence of audit committees in listed companies in Kenya is
yet to be appreciated and understood by both the Board and the management. | en |
