Audit Committees and Corporate Governance in a Developing Country

Abstract

Market regulators, commissions and accountancy bodies have recommended the establishment of audit committees as an important step in improving corporate governance. In 2002 the Kenya Capital Markets Authority required all listed companies to establish audit committees. This study examined the role of audit committees in corporate governance in Kenyan listed companies. In particular, how audit committees operate in a developing country such as Kenya and how these practices compare with those of western economies and other emerging economies; how audit committees relate to management, internal audit, and external auditor; and the major achievements and challenges facing audit committees in Kenya. A questionnaire survey completed by 29 companies (60%) showed much similarity to studies in major economies. However, skills shortage and dominant shareholder or government may have affected the operations of audit committees. All the audit committees reported cordial relationships with the management, internal audit and the external auditors, and were perceived to have improved the quality of financial reporting.

Keywords: Audit committees, Corporate governance, Kenya, Listed Companies, Internal audit, External audit

JEL Classification: M49, M41, M47, G34, G38, G15, C99