Corporate Governance, Quality Audit, Transparency and Creative Accounting of Commercial State-Owned Enterprises in Kenya
DOI:
https://doi.org/10.53819/81018102t5354Abstract
Organizations worldwide face significant challenges in corporate governance, audit quality, transparency and creative accounting practices, despite the presence of enhanced regulatory frameworks and oversight mechanisms. Creative accounting remains widespread globally, with 46% of organizations reporting accounting fraud and median losses of $593,000 per case, undermining financial reporting integrity and stakeholder trust. In Kenya specifically, despite standardization efforts since 2014, persistent obstacles include limited technology adoption, inadequate legal frameworks, and a shortage of trained personnel, leading to low confidence in financial statements. The study used a comprehensive literature review to examine conceptual and empirical studies on corporate governance, audit quality, transparency, and creative accounting, integrating key theories to develop a cohesive framework and identify gaps in current research and practice. The empirical literature reveals mixed findings regarding the effectiveness of board composition and independence in preventing creative accounting practices. While some studies suggest that board size and independence can significantly influence creative accounting, others indicate no significant impact. However, internal audit functions, when properly implemented, significantly reduce creative accounting practices. The study identifies significant gaps in understanding the effectiveness of governance frameworks, measuring actual compliance with transparency standards, and examining the interrelationships between different governance elements. The study concludes that a comprehensive and integrated approach to corporate governance, audit quality, and transparency is essential to combat creative accounting practices. The study recommends that organizations and policymakers undertake a comprehensive review of existing literature to synthesize fragmented knowledge and develop a cohesive framework integrating key theories. Empirical literature should be reviewed to understand the practical implications of governance mechanisms and to tailor governance structures effectively. Collaborative efforts between organizations and researchers are essential to address emerging gaps and develop an integrated theoretical framework. A suitable framework incorporating audit quality as a mediator and transparency as a moderator should be proposed and validated through empirical testing. Organizations should prioritize implementing governance mechanisms such as diverse boards, robust internal and external audit functions, and enhanced transparency practices.
Keywords: Corporate Governance, Audit Quality, Transparency, Creative Accounting, Theoretical Framework
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