Factors Affecting External Audit Quality in Municipalities of Palestine: Moderating Role of Supreme Audit Institutions

The study aims to analyze the factors of external audit quality that accountants and
internal auditors believe are significant in Palestinian municipalities. Moreover, the
study aims to examine the influences of the Supreme Audit Institutions (SAIs) on the
links between external audit quality and its factors. These factors include auditor
characteristics, audit firm attributes, and the effectiveness of municipal internal
control in the municipalities. The study's data were gathered from secondary and
primary sources. The secondary data was gathered from previous research as well as
the annual and interim reports of the Palestinian SAIs. Furthermore, the study used a
questionnaire survey that distributed to over than 309 accountants and internal
auditors in 155 Palestinian municipalities who have firsthand knowledge of the
financial statements under audit and are in constant contact with external auditors.
SmartPLS3 software used in the statistical analysis of the data obtained from 186
survey respondents. The study found significant and positive relationships between
audit quality and its determinants: auditor characteristics with dimensions of ethics,
independence, and competence; audit firm attributes with dimensions of audit fees and
audit firm size; and effectiveness of municipal internal control with dimensions of
internal auditing, accounting basis, and laws and regulations. Furthermore, the
findings revealed that supreme audit institutions moderated negatively the relationship
between audit firm attributes and audit quality, but positively the relationship between
auditor characteristics and audit quality, as well as the relationship between the
effectiveness of municipal internal control and audit quality. This study not only
contributes in expanding the literature concerning audit quality in Palestinian
municipalities, it also provides meaningful guideline to the audit profession regulators
and government in setting the audit standards and procedures, municipal management
in hiring high-quality auditors, and audit firms in providing a high-audit quality.
Finally, this study considered a few restrictions and recommendations for further
investigation in new aspects of audit quality in the public sector organizations.