The interplay of corporate governance, internal audit effectiveness, and sustainable financial reporting quality in Tanzanian commercial banks

Abstract

This paper investigates the relationship between internal audit effectiveness, corporate governance attributes, and sustainable financial reporting quality within Tanzanian commercial banks. Grounded by agency cost theory to provide new insights into the determinants of financial reporting quality in a developing country context. A cross-sectional and correlational research design was employed, utilizing a structured questionnaire distributed to 150 respondents across a representative sample of Tanzanian commercial banks. Data analysis was conducted using multiple linear regression techniques, with comprehensive diagnostic tests to ensure the robustness of the findings. The results indicate that larger board sizes and proactive board role performance significantly enhance financial reporting quality, reflecting the importance of strong governance structures. Board independence showed a significant impact on financial reporting quality, suggesting that board independence with active engagement contributes to financial reporting quality. Internal audit quality also emerged as a critical predictor of reliable financial reporting, underscoring the role of internal audit in promoting transparency and accountability. These findings contribute to the ongoing debate in corporate governance literature by providing evidence from a developing country perspective, highlighting the nuanced roles of governance and audit in shaping financial reporting quality. This study fills a key gap in the literature by focusing on the Tanzanian banking sector, offering practical recommendations for policymakers and practitioners aimed at enhancing the integrity of financial reporting. Policymakers should emphasize board independence and the active involvement of board members and strengthen internal audit functions to improve reporting transparency and accountability.