External Audit Quality and Its Factors in Palestinian Municipalities: Moderating Effect of Supreme Audit Institutions

Objectives: The study aims to investigate the relationship between external audit quality and its factors (i.e., auditor characteristics, audit firm attributes, and effectiveness of municipal internal control), as well as the moderation effect of supreme audit institutions between external audit quality and its selected actors, as perceived by accountants and internal auditors in Palestinian municipalities.
Methods: To achieve the objectives, questionnaires were distributed to 309 accountants and internal auditors in 155 Palestinian municipalities. They have firsthand knowledge of the financial statements under audit and are in constant communication with external auditors. SmartPLS 3 was used for statistical analysis.
Results: The results revealed that the direct relationships between audit quality, auditor characteristics, and effectiveness of municipal internal control were positive. These relationships were also positively moderated by supreme audit institutions. The relationship between audit quality and audit firm attributes was also positive, but it was negatively moderated by supreme audit institutions.
Conclusions: Audit firms, audit profession regulators, and municipality administrators can use these findings as useful guidelines in determining the factors of audit quality required in municipal audit engagements. This study encourages future research to examine other moderators, such as politics and public elections.