The Effect of Audit Quality On Executive Compensation Of Firms Listed At Nairobi Securities Exchange
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The weakness of corporate governance is perhaps the most important factor blamed for the corporate failure consequences from the economic and corporate crises. There is much that can be done to improve the integrity of financial reporting through greater accountability, the restoration of resources devoted to audit function, and better corporate governance policies. The main objective of the study was to examine the effect of Audit Quality on Executive compensation of firm listed at Nairobi securities Exchange. The research adopted a descriptive survey design, in order to ascertain and be able to describe the characteristics of the variables of an interest in a situation. It aimed to establish the the impact of audit quality on executive compensation. The population of interest for this study were the firms listed in the NSE. Given the list of companies, the researcher was able to come up with a sampling frame of all companies represented within the study circle. The sample size chosen was 30 companies. This size is based on stratified random selection of the companies listed in the Nairobi Securities Exchange. Secondary data was also used in the study. From the findings, averages for executive compensation for the 30 sampled companies as extracted from the financial and annual statements reflects an upward increase over the 5 year period, with the highest being 3.2 billion in 2012. In addition, the averages for number of accounting and audit committee for the 30 sampled companies rose from 5.70 to 5.97. From the annual averages of the thirty companies, it is evident that executive compensation increased with increase in the number of accounting and audit committee, audit fees as well as the number of auditing hours. In conclusion, there is a significant relationship between number of auditing hours and number of accounting and audit committee for the listed companies depicting that the time required depend on the number of audit committee for effectiveness in auditing. In conclusion, firms listed in NSE grant more equity-based compensation to their CEOs when audit quality is efficient in terms of Number of accounting and audit committee, Audit fees and Number of Auditing hours. The results suggest that it is important to consider the effect of detection mechanisms such as auditor quality while examining the relation between executive compensation and accounting manipulation. There is thus the need to for the listed companies to adopt effective corporate governance practices that address key auditing practices for effectiveness of audit quality.