Effect of Audit Committee Diversity on Quality of Financial Reporting in Non-Commercial State Corporations in Kenya

The purpose of this study was to establish the effect of audit committee diversity on quality of financial reporting in non-commercial state corporations in Kenya. All the non-commercial state corporations that existed in 2005 were studied. The study was founded on stewardship theory, policeman theory, lending credibility theory and stakeholder theory. The study adopted descriptive research design and the target population of the study was the seventy two non-commercial state corporations that existed subsequent to the introduction of Treasury guidelines in 2005 on formation and operationalization of audit committees in the public sector. The study used a census survey on all 72 state corporations. The study employed stratified purposive sampling to select the respondents from the target population. The study used primary and secondary data. Primary data was obtained from administration of the questionnaires and the secondary data obtained from the Kenya National Audit Office annual reports, Audited Financial statements of state corporations and Finance Bills of the respective financial years. Descriptive statistics used were frequencies, mean and standard deviation, while inferential statistics used are correlation and regression analysis. Regression analysis was employed to measure relationships between dependent and independent variables. The findings from both correlation and regression analysis revealed that audit committee diversity had statistically significant relationship with the quality of financial reporting. This study recommended that when constituting audit committees in state corporations, consideration should be put on diversity. Diversity of audit committees should be evaluated based on gender, age, geographical orientation and tenure. Audit committees should consist of diversified members. This because demographic diversity of audit committee enhances the quality of firm‘s financial reporting.