CREATIVE ACCOUNTING TECHNIQUES, UNIVERSITY SIZE AND QUALITY OF FINANCIAL REPORTING IN PUBLIC UNIVERSITIES IN KENYA

Abstract

Institutions need to report their financial status regularly over a prescribed period so as to enable the stakeholders be aware of their performance. According to IPSASB, a key component for quality financial reporting is the strict adherence to the objective and the specific qualitative characteristics of financial reporting information, which will lead to stakeholder confidence. This is because the quality of any financial report is of high concern to both the final users and the society since it has an effect on the economic decisions that could have a direct impact to the society. This has led some institutions to use creative accounting. However, the Office of Auditor General found that only 4 out of 36 (9%) public universities were having unqualified opinion during financial year 2021/2022 compared to 7(19.4%) in 2020/2021 showing a decreasing trend in regard to unqualified opinion. The general objective of this study was to establish the effect of creative accounting techniques on the quality of financial reporting in public universities in Kenya. The specific objectives for the study were: to determine effect of Revenues recognition, classification of expenses, valuation of assets and liabilities, debtor provision recognition and to determine the moderating effect of university size on the relationship between creative accounting techniques and the quality of financial reporting in public universities in Kenya. The study was guided by information asymmetry theory, legitimacy theory and the positive accounting theory. The study adopted the positivist research philosophy while the research design was causal research design. The study target population was 866 respondents where stratified random sampling technique was used resulting in a study sample of 274 respondents was drawn using Yamane formula. Data was collected using questionnaires and interview schedule. Secondary data was collected in regard to type of audit opinion and size of the university using approved budgets. Data was analyzed using descriptive statistics including mean, frequency, percentages and standard deviation. Inferential statistics consisting of correlation analysis and multiple linear regression analysis was used to determine the effect of creative accounting techniques on quality of financial reporting in public universities in Kenya. Data was presented using tables, charts and graphs. The multiple regression showed that creative accounting in revenue recognition, classification of expenses, valuation of assets and liabilities and debtor provision recognition had a significant negative effect on quality of financial reporting in public universities in Kenya. Hierarchical regression results showed university size had a significant moderating effect on the relationship between creative accounting techniques and the quality of financial reporting. The study concluded that creative accounting practices has a significant negative effect on the quality of financial reporting and university size plays significant moderating effect on this relationship. It is recommended that the management of the university should establish and enforce rigorous revenue recognition policies that adhere to international accounting standards, develop and implement comprehensive guidelines for the classification of expenses in financial reports, establish and enforce consistent depreciation policies that align with international accounting standards and to enforce strict adherence to the policy on provision for doubtful debts.