Audit committees and audit quality in rural and community banks in Ghana

Abstract

Purpose This study explores how audit committee (AC) oversight is enacted in practice and how professional (functional) diversity, structured review activities and interactions with external auditors operate as governance mechanisms shaping audit quality in Ghana's rural and community banks (RCBs), a systemically important yet under-examined segment of the country's financial sector. Design/methodology/approach Guided by agency theory, resource dependence theory, and stakeholder theory, the study adopts a qualitative research design and draws on semi-structured interviews with 15 audit committee members and 15 external auditors. The data were analyzed using NVivo-assisted thematic analysis to generate process-oriented insights into audit committee oversight practices. Findings The findings show that audit committee effectiveness in RCBs is shaped by three interrelated oversight mechanisms: (1) professional (functional) diversity that enhances collective judgment and critical scrutiny, (2) structured and rigorous review of auditor independence, audit processes, and financial reporting and (3) sustained but independent communication between audit committees and external auditors. These mechanisms collectively strengthen audit oversight and support higher audit quality in resource-constrained banking environments. Practical implications The study provides actionable governance guidance for regulators, boards and policymakers by demonstrating how audit committee composition, review discipline and auditor engagement can be strengthened to improve audit oversight in community-based financial institutions. Originality/value This study contributes to audit governance literature by moving beyond proxy-based evidence to provide process-level, qualitative insights into how audit committee oversight operates in practice. By integrating agency, resource dependence and stakeholder perspectives within the context of rural and community banks in an emerging economy, the study extends existing theories to stakeholder-intensive and resource-constrained institutional settings relevant across Africa and similar contexts.