The Relationship Between International Financial Reporting Standards and Quality of Financial Reporting of Listed Companies in Kenya

Abstract

Investors rely on information supplied through annual financial reports for their investments and other decision-making needs. Quality financial reports create efficiency in the allocation of resources in the capital market. This study examined the quality of financial reporting practices by companies listed at Nairobi Securities Exchange following the adoption of IFRS. It assessed their implementation, amendments, revisions, improvements and adoption of new IFRS. It also examined the impact of factors internal to the business environment including company size, leverage, return on equity and liquidity on the quality of financial reporting of listed companies in the Nairobi Securities Exchange. Data was obtained for 60 firms listed in the Nairobi Securities Exchange for five years from secondary data sources, which included NSE handbook and companies’ websites. It was analyzed using mean scores, standard deviation, correlation matrix and analysis of variance. The results of the study indicate the quality of financial reporting mean for the period was 3.81611confirming a marginal improvement in the quality of financial reporting compared to 2011 mean (3.7546). This confirms that adoption of new IFRS, amendments; revisions and improvements do improve the quality of financial reporting though the improvement was not significant. Keywords: Quality of financial reporting. Economic decisions, International Financial Reporting Standards.