Board structure and the likelihood of financial statement fraud. Does audit fee matter? Evidence from manufacturing firms in the East Africa community

Abstract

AbstractThis study examines the moderating effect of audit fee on the relationship between board structure and the likelihood of financial statements fraud (LFSF). The study uses the logistic regression and a sample of 15 manufacturing firms listed within the East African Community partner states from 2007 to 2021. The Beneish M-Score is used a proxy measure of the likelihood of financial statements fraud. The findings of this paper revealed that board gender diversity, board financial expertise, board independence, frequency of board meetings, audit fee are significant variable in reducing the likelihood of financial statements fraud. The result further demonstrated that the impact of board structure on LFSF is significantly influenced by audit fee. The findings of this study provide valuable information for investors and regulators in the EAC and other regions with similar legal and institutional environment on the nexus between board structure, audit fee and LFSF. The current study contributes to the board structure and LFSF literature by assessing whether audit fee moderates the relationship among listed manufacturing firms in the EAC. Like prior studies on financial statements fraud, the main limitations of this study is the measurement of LFS. Hence, the study wholly inherited the limitations of the Beneish M-Score.

Keywords

• Likelihood of financial statement fraud
• board structure
• audit fee
• East Africa community