Board characteristics and modified audit opinion ofcompanies listed at the nairobi security exchange

Abstract

Board characteristics are essential in determining the modified audit opinion of listed companies at the Nairobi Securities Exchange. However, there has been a deterioration of quality in financial reporting, with up to 64.7% of companies receiving qualified report, while just 32% have been able to receive clean reports. This research aimed to identify the effect of board characteristics on the modified audit opinion of the companies listed at Nairobi Security Exchange. The specific objectives were: to establish the effect of board size on modified audit opinion, to analyse the effect of frequency of board meetings on modified audit opinion, to determine how board independence affects modified audit opinion and to establish the effect of board professional qualification on modified audit opinion of companies listed at the Nairobi Securities Exchange. The study was premised on agency, stakeholders, institutional, and stewardship theories. The researcher used a descriptive research design with a population of 46 listed companies, where all were included in the study. The study used panel data obtained from annual financial reports between 2015 and 2024 from all the listed Companies at the Nairobi Securities Exchange. Panel data analysis was done using the R software. The findings showed that board professional qualification had an insignificant negative effect on the modified audit opinion. Board independence demonstrated a negative significant effect on modified audit opinion. The results showed that board size had a positive significant effect on modified audit opinion. It was discovered that board frequency of meetings negatively affects modified audit opinion. The conclusion made was board professional qualification, independent board and frequency of board meetings are critical in reducing modified audit opinion of companies at the Nairobi Securities exchange. It was recommended that companies should adopt an optimum board size for efficiency in decision making. Future study may narrow down to a particular sector and incorporate moderating variables.