Governance at the Core: How Audit Committee Independence, Expertise and Size Shape Financial Reporting Quality in Kenyan State Corporations

Abstract

Financial reporting quality is fundamental to transparency, accountability and effective governance in the public sector. In Kenya, state corporations play a crucial role in national development and public resource management yet persistent audit queries, weak internal controls and recurring financial misstatements continue to erode public confidence in their financial disclosures. This study examines the influence of audit committee (AC) characteristics, specifically independence, financial expertise and size, on the quality of financial reporting in Kenyan state corporations. Guided by agency and stewardship theories, and using a target population of 187 State Corporations, the study adopts a descriptive and correlational design. Data from audited financial statements and governance reports of audited financial reports of State Corporation was analyzed using descriptive and inferential analysis. Logistic regression model was used to test the effect of Audit Committee characteristics on the quality of financial reports in State Corporations. The findings reveal a positive significant effect of both committee independence and size on quality of financial reporting. In contrast, financial expertise had a negative significant effect on quality of financial reporting. The study contributes to public sector governance and policy by offering empirical insights and practical recommendations aimed at strengthening audit committee effectiveness, improving financial transparency and restoring public trust in the accountability of Kenya’s state corporations.