An investigation of the relationship between audit committee characteristics and quality of financial reporting in state owned enterprises in the transport sector

Abstract

The Zimbabwean economy in general and the State Owned enterprises in the transport sector in particular have been hard hit by a number of operational constraints which include among others; lack of affordable working capital, unavailability of economic enablers such as electrical power, antiquated machinery and poor corporate governance practices. Lack of effective audit committee has led to massive fraud cases and poor quality financial reporting in state owned companies in the transport sector. This poor quality financial reporting has led to reduced investor confidence and some of these companies are facing total collapse. This problem of poor quality financial reporting has caused the researcher to initiate carrying out the research. The purpose of the research is to establish whether a relationship exists between audit committee characteristics and quality of financial reporting holding other factors constant. The research was quantitative in nature taking the form of survey zeroing in on the relationship between audit committee characteristics and quality of financial reporting. The research findings showed that poor quality financial reporting in state owned enterprises in the transport sector were mainly as a result of ineffective audit committees which lacked independence, financial expertise and which did not meet frequently. Some of the recommendations are that audit committees should at least meet four times a year, the committee should have a minimum of three members with the majority or two thirds being independent members and also that at least one member of the committee should possess financial expertise.