THE ROLE OF AUDIT COMMITTEES IN ENHANCING FINANCIAL REPORTING QUALITY IN SUB-SAHARAN AFRICA’S CORPORATE SECTOR

Abstract

This study examined the effect of audit committee effectiveness on financial reporting quality within the context of listed non-financial firms in Sub-Saharan Africa. Drawing samples from 235 listed non-financial firms in Nigeria, South Africa, and Kenya spanning the period from

2013 to 2022, the study employed Generalized Method of Moments (GMM) step and Stepwise Regression Techniques to analyze the data. The primary objective of the study was to investigate the effect of audit committee effectiveness, including size, diligence, and financial expertise, on financial report quality, as measured by Jones Discretionary Accrual. Additionally, the study extends this objective by examining the moderating role of board independence on the relationship between audit committee attributes and financial reporting quality. The findings revealed that audit committee diligence [coef. = 0.041 (0.002)] has a positive and significant effect on financial reporting quality, suggesting that an increase in audit committee diligence will improve financial reporting quality. However, audit committee size [coef. = 0.011 (0.236)] and financial expertise[coef. = 0.003 (0.990)] exhibited insignificant effects on financial reporting quality. Moreover, the study identified board independence [coef. = 0.022 (0.001)] has a significant moderator, enhancing the impact of audit committee diligence on financial report quality. Based on these findings, the study made the following recommendations to enhance audit committee effectiveness and financial reporting quality in Sub-Saharan Africa. These include promoting active audit committee oversight through regular meetings, fostering collaboration between audit committees and boards, and ensuring a majority of independent directors to strengthen audit committee effectiveness. Additionally, the study underscored the importance of continuous monitoring and evaluation of audit committee effectiveness to address emerging challenges and promote transparency and accountability in financial reporting. Through empirical analysis, the study provides insights into the effectiveness of audit committee effectiveness in enhancing financial reporting quality in Sub-Saharan Africa. The findings contribute to a deeper understanding of audit committee effectiveness and the effect on financial reporting quality in the region, offering valuable contributions for both academic research and practical applications