Effect of Corporate Governance Mechanisms on Quality of Financial Reporting in Kano Plains Family Helper Project, Ahero Division, Kenya

Abstract

Non-Profit-Oriented sector where community based organizations are drawn from is a major agent of economic growth and employment. In the year 2013, the sector accounted for 5 % of the country's GDP and it is one of the country's leading sectors by size and employment. Despite their immense contribution to Kenya's GDP, community based organizations continue to face numerous challenges in financial reporting. Earlier studies have attributed the concerns to government policy and later to accountant's laxity with little success. No Studies have focused on the corporate governance mechanisms of these organizations as a possible root cause to the concerns they face in financial reporting. However, there is no comprehensive information about how management board size as an element of corporate governance mechanism affects quality of financial reporting in CBO's given that studies have only focused on corporate governance practices. Further there is no information about board audit independence affect financial reporting at Kano plains family helper project. Moreover, past studies on the effect of board monitoring and quality of financial reporting have been conducted on other industries other than community based organization like Kano plains family helper project and have given contradictory results thereby failing to advance theory development. The inconsistency has not been settled to date. This implies that the results of any new investigation into this relationship could yield unsatisfactory results unless attempt is made in the approach to uncover the reason for the mixed outcomes posted earlier. The general objective of the study was to determine the effect of corporate governance mechanisms on quality of financial reporting at Kano plains family helper project. The specific objectives of the study were to determine the effect of board size on quality of financial reporting, establish the effect of board audit independence on financial reporting and to determine the effect of board monitoring on quality of financial reporting on quality of financial repoting. The study adopted a correlational survey design. The target population was 112 respondents drawn from the Kano plains FHP.A sample size of 85 respondents were selected though systematic sampling. A pilot study was carried on 10 respondents to validate the research instrument. Primary data for the study was obtained through structured questionnaires while secondary data obtained through document review. The reliability of the instruments was achieved through the use Cronbach's alpha coefficient. The adjusted R 2 for corporate governance mechanisms was 0.672 meaning that board size, Board audit independence and board monitoring and ownership structure account for 67.2% variance in quality of financial reporting at Kano plains FHP.The study recommends that members of the board who are in the audit committee should be more independent so as to avoid interference in financial reporting.