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Article

Analysis of the Impact of External Auditors’ Autonomy on Financial Accounting Information Quality Case Study Commercial Banks in Northern Iraq

by
Khowanas Saeed Qader
1,2,* and
Kemal Cek
1
1
Department of Accounting and Finance, Cyprus International University, Mersin 10, Lefkosa 99040, Turkey
2
Department of Accounting and Finance, Lebanese French University, Erbil 44001, Iraq
*
Author to whom correspondence should be addressed.
Sustainability 2023, 15(12), 9578; https://doi.org/10.3390/su15129578
Submission received: 9 May 2023 / Revised: 30 May 2023 / Accepted: 10 June 2023 / Published: 14 June 2023
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Abstract

:
The purpose of this research is to determine how independent auditors affect the integrity of financial accounting data at commercial banks in northern Iraq. A total of 342 employees from commercial banks in Northern Iraq were surveyed using a quantitative research technique. The research uses structural equation modelling (SEM) to examine the hypothesis that the independence of external auditors improves the integrity of financial accounting information. The study’s findings indicate that financial accounting information quality in commercial banks in Northern Iraq is significantly affected by the independence of external auditors. This suggests that giving external auditors more leeway to do their jobs could boost the quality of financial accounting information at these institutions. Policymakers, auditors, and managers at commercial banks in northern Iraq can learn a lot from these results. In sum, this research adds to the existing body of work on the independence of external auditors and the accuracy of financial accounting information, with a focus on commercial banks in Northern Iraq. This research shows that increasing the independence and autonomy of external auditors in commercial banks could have positive effects on the quality of financial accounting information.

1. Introduction

To improve a company’s financial performance, it is critical to have a high-quality audit, which helps build trust in financial reporting [1]. Companies depend on the financial information provided by the company’s management. Managers have a responsibility to ensure that the company’s profits and growth are sustained throughout time [2]. From the perspective of investors, an external auditor’s autonomy from the management board is a critical aspect of ensuring audit quality. An audit, on the other hand, demands close collaboration with a board of trustees [3]. Investors have questioned the auditor’s real and perceived autonomy because of this tight professional relationship, which has led them to seek more regulations and requirements over independence to safeguard them [4].
External auditing is a value-adding verification and consulting activity undertaken by an organization’s external auditors in an independent, non-biased manner [5]. Financial services, control, and corporate governance are evaluated and improved methodically and systematically to enable an organization to achieve its goals. Auditors are those who gather and analyse data to assess how well it complies with set criteria [6]. The establishment of formal systems of external control is a must for any effective accounting system. The importance of external audits in the system of external control is predicated on this. The external audit is all about ensuring that the financial system meets stakeholder expectations for accurate accounting transactions [7].
When it comes to financial reporting, it has long been assumed that a well-functioning external audit process will provide assurances as to the accuracy of the numbers that appear in such statements [8]. Because of this, external audit plays an important role in aiding organizations to identify, examine, and evaluate risks within their company, offering guidance on financial planning, and providing assurance that a proper structure and process for identifying and managing risks are in place and functioning properly. The external audit also gives an impartial and objective judgment on asset effective management and governance by monitoring and analysing their performance in accomplishing the organization’s goals [9]. These difficulties necessitate a strong and well-resourced external audit function to help firms respond. For a business to be successful and meet its goals, risk management relies on the work of external audits. External audit units are characterized as weak, under-resourced, reliant, and understaffed [10].
As anticipated by external auditors of companies, Ref. [11] claim that the responsibility for conducting independent examinations and offering confirmation on numerous changes the underlying has shifted steadily in Favor of better organizational execution. An organization’s operational goals can be achieved through risk management, effective controls, and improved management by assessing and improving methods best to manage security. It is no surprise that Northern Iraq’s banking industry is among Iraq’s most tightly controlled, thanks to the Central Bank of Northern Iraq. Deposit money banks provide a broad array of services in contrast to the safety and easy access to valuables for their customers. External auditor autonomy in respect to is seeing has been a problem for the industry notwithstanding these substantial obligations due to factors such as financial violations and significant credit deficits concerning the financial performance of banks in Northern Iraq [12].
An audit’s results are heavily influenced by the firm’s management and governance. Typically, corporate governance serves as a link between an organization’s directors and its reporting system [13]. If the organization wants to preserve a healthy and consistent audit outcome, it must have a positive identity of independence. The stakeholders of an organization are the first to establish the governing body, which, in turn, names the directors who oversee the management team [14]. The effectiveness of the ruling body is determined by the engagement of an external audit and the auditor’s report [15]. External audit effectiveness improves when an organization employs control risk self-assessment techniques [16]. For an external audit to be successful, management must provide the resources and commitment required to accomplish the external audit. In addition, the external audit office’s organizational status and external organization, as well as policies and procedures that apply to each auditee, should facilitate seamless audits that yield valuable audit findings [17].
In addition, the efficiency of audits is affected by the auditee’s abilities, attitudes, and level of cooperation [18]. The modern economy’s greater reliance on auditing is due in part to the potential for conflict of interest between agents and administrators as a result of corporate ownership and management division. One of the most effective strategies to control and create corporate-worthy governance systems is the creation of disciplined corporate firm governance [19]. External auditing is an essential part of a company’s business management system and involves the board of directors and audit committee doing audit duties to improve the accuracy of financial statements [20].
Examining variables that have limited the efficacy of auditors and whether or not they will continue to do so in the future are the primary goals of this study. To improve audit quality, the auditor must be completely independent. The credibility of financial statements for those who use accounting data is enhanced by audit quality. For [21], the effect of audit quality on the financial performance of listed cement companies in Northern Iraq was examined. They wanted to see if auditor independence and audit firm size had any bearing on financial performance when used as a proxy for audit quality.
The implementation of independent auditors at commercial banks may be significantly influenced by the quality of the data. Inaccurate financial reporting due to poor data quality may result in higher regulatory scrutiny and the requirement for independent auditors to give extra assurance. This may be the outcome of heightened regulatory scrutiny. On the other hand, having data of high quality can make it easier to produce accurate reports and cut down on the number of external audits that are required, which eventually results in cost savings for the bank.
The main aim of the current study will be to analyse the impact of external auditors’ autonomy on the quality of financial accounting information at selected commercial banks in Northern Iraq. Moreover, the goal of this study was to determine how external audits affect the financial performance of commercial banks in Northern Iraq. The financial performance and participation of management system and processes on the financial performance of Northern Iraq Commercial Bank, as well as assessing the impact of detection and protection fraud on the financial performance of Northern Iraq Commercial Bank and assessing external control practices.

Iraqi Accounting and Auditing Condition

In recent years, there have been notable developments and improvements in the accounting and auditing environment in Iraq. Iraq, a nation that has been grappling with political instability, economic hurdles, and conflicts, has been striving to enhance its financial reporting mechanisms and bolster its auditing criteria [22].
The establishment of the Iraq Securities Commission (ISC) in 2004 marked a significant milestone in the accounting and auditing sectors of Iraq. The Iraqi Securities Commission (ISC) is tasked with the oversight and management of the Iraqi stock market, with a focus on enforcing adherence to established accounting and auditing protocols as well as safeguarding the interests of investors. The founding of this entity has had a positive impact on promoting transparency and improving corporate governance standards across the nation [23].
Iraq has endeavoured to align with the International Financial Reporting Standards (IFRS) in the realm of accounting standards. IFRS-Iraq has been formulated to conform to IFRS with the objective of enhancing the calibre and uniformity of financial statements. The process of convergence has played a crucial role in facilitating foreign investment and bolstering trust in the Iraqi market [24].
However, it is noteworthy that the nationwide implementation of these standards may encounter obstacles. The effective adoption of international standards may be hindered by various factors, such as limited resources, infrastructure constraints, and inadequate awareness and training opportunities for accountants and auditors. Prioritizing the resolution of these concerns is imperative in order to establish a resilient accounting and auditing framework [25].
The auditing profession in Iraq is currently undergoing a transformation, as per the available information. The Iraqi Board of Accountants and Auditors (IBAA) is the governing entity that oversees the licensure of auditors and upholds professional ethics and standards. The International Board of Auditors and Accountants (IBAA) has been engaged in efforts to improve the calibre of auditing services. These endeavours involve the promulgation of auditing guidelines and regulations that are consistent with global benchmarks of excellence [26].
In order to enhance the auditing profession, various capacity-building measures have been put into effect, such as the provision of training programs, workshops, and seminars. The aforementioned endeavours aim to enhance the technical competencies and expertise of auditors, foster ethical behaviour, and heighten cognizance regarding the significance of autonomous auditing [24].
Despite some advancements, the accounting and auditing industry in Iraq continues to face certain obstacles. The nation is confronted with challenges such as corruption, deficient transparency, and an inadequate legal structure, which may have an adverse impact on the efficiency of financial reporting and auditing procedures. The aforementioned challenges necessitate persistent endeavours from both governmental entities and professional organizations to establish a more favourable milieu for precise and dependable financial reporting [27].
In summary, Iraq has made notable strides in enhancing its accounting and auditing situation. The alignment with global accounting standards and the formation of regulatory entities have been instrumental in augmenting transparency and enticing foreign investment. Continued endeavours are necessary to surmount obstacles and establish a robust accounting and auditing structure that fosters accountability, transparency, and investor assurance [28].

2. Literature Review and Hypothesis Development

According to the research that has been conducted, accounting and financial statements have the potential to act as a channel of communication between companies that fall under the category of the “third sector” and the stakeholders that fall under those organizations [29]. According to the findings of the research that was conducted by [30] only a select few of the organizations that are active in the third sector have publicized both their financial reports and their rules for the administration of the funds they have received. Ref. [13] emphasize that, within the context of the national scenario, there has been very little research done on the quality of the accounting information of these businesses. This point is made because there has been very little research done on the quality of accounting information. This is because issues over regulation and transparency are still matters that are up for debate [1].

2.1. The Relationship between Network and FAIQ

There may not be a direct correlation between external auditor independence and the quality of financial accounting information due to confounding variables such as the auditor’s professional network [31]. According to [32], the social network of external auditors has a substantial effect on the quality of their audits. According to the research, auditors who have a larger and more varied network of contacts are better able to use those connections to their advantage, ultimately leading to higher-quality audits.
The network linkages of external auditors are strongly correlated with audit quality, according to research by [33]. The research indicates that external auditors’ network linkages can help to improve audit quality in terms of auditors’ knowledge, abilities, access to information, and information processing costs.
Therefore, the literature review suggests that the network may mediate the connection between the independence of external auditors and the quality of financial accounting information. The quality of audit work and the financial accounting information they create can both benefit from external auditors’ increased knowledge and access to information gained through networking [34].
The hypothesis of this study is that the network moderates the connection between the independence of external auditors and the quality of financial accounting data. According to this theory, an external auditor’s independence may have a notable effect on the quality of financial accounting information depending on the size and quality of the auditor’s professional network [35].
Existing studies on the connection between independent external auditors and high-quality financial statements could lend credence to this theory. The independence of external auditors has been the subject of numerous research looking at its effect on improving the credibility of financial reports. Greater auditor independence, for instance, has been shown to boost the quality of financial reporting, lower the probability of financial misstatements, and improve the accuracy and reliability of financial statements [36].
Existing literature provides support for the research hypothesis that the network mediates the connection between the independence of external auditors and the quality of financial accounting information. The possible ramifications of this relationship for financial reporting and auditing processes can be investigated, and further research can be performed to explore the specific mechanisms through which network ties influence this relationship [37], therefore, the study developed the following research hypothesis:
Hypothesis 1 (H1). 
Network as management support mediates the relationship between external auditors’ autonomy and financial accounting information quality.

2.2. The Relationship between IT Competence and FAIQ

Technology can be used to give external auditors more independence. External auditors can improve the quality of financial accounting information they produce by using technology tools such as automated audit procedures and data analytics instead of relying on management’s assertions [38].
As a result, it appears that the link between the independence of external auditors and the quality of financial accounting information may be mediated by auditors’ IT skills. When external auditors are well-versed in information technology, they are better able to use it to improve the quality of their audits, which in turn improves the quality of financial accounting data [39].
Existing literature provides support for the research hypothesis that IT competence mediates the relationship between external auditors’ independence and the quality of financial accounting information. However, more research is needed to determine the potential implications of this relationship for auditing practices and the precise mechanisms by which IT competence mediates this relationship [40].
The study’s working hypothesis proposes that IT proficiency moderates the connection between the independence of external auditors and the quality of financial accounting data. An important factor in determining how much independence external auditors have on the quality of financial accounting information is their capacity to use technology and their level of IT proficiency, according to this hypothesis [41].
Existing studies on the connection between independent external auditors, information technology fluency, and reliable financial statements lend credence to this concept. Several reports have stressed the significance of technological know-how and IT savvy in improving audit results and financial accounting data.
For instance, research by [42] demonstrated a favorable correlation between IT expertise and audit quality. Researchers concluded that audit teams with members who scored higher on an IT competency scale were better able to handle difficult auditing duties and more likely to make good use of technology to improve the quality of their work.
In a separate study by [43], the use of sophisticated analytic tools and procedures was also found to greatly enhance the quality of audits. The research indicates that auditors with a higher degree of IT proficiency and familiarity are better equipped to use technological tools and methods to improve the precision and dependability of financial accounting data.
According to the above discussion, the study developed the following research hypothesis:
Hypothesis 2 (H2). 
IT competence as management support mediates the relationship between external auditors’ autonomy and financial accounting information quality.

2.3. The Relationship between Accountant Knowledge and FAIQ

Using accountants’ knowledge and skills can give external auditors more independence. The quality of financial accounting information can be improved, for instance, if external auditors have a deeper understanding of the client’s business and industry [44]. As an added bonus, accountants’ understanding of the intricacies of financial transactions and accounting standards can help external auditors produce more accurate reports [45].
The hypothesis of this study is that the relationship between the independence of external auditors and the quality of financial accounting information is mediated by the expertise of accountants. The extent to which external auditor independence impacts the quality of financial accounting information is hypothesized to depend heavily on the accountant’s level of knowledge and experience [46].
Existing studies on the connection between accountants’ expertise, the independence of external auditors, and the quality of financial accounting information lend credence to this concept [47]. Expertise and knowledge on the part of accountants have been shown to improve the quality of audits and financial statements in a number of studies.
For instance, ref. [48] research showed that higher levels of accountant experience correlate with higher-quality audits. The results of the study imply that accountants with more experience can improve the quality of their audit work and the financial accounting information they create by better identifying and assessing the risks associated with complicated financial transactions [49].
This suggests that the relationship between the independence of external auditors and the quality of financial accounting information may be mediated by the expertise of accountants [50]. To improve audit quality and generate more credible and timely financial accounting information, external auditors can benefit from the insight and experience of accountants [51].
Existing literature provides support for the study’s central premise, which states that the relationship between external auditors’ independence and the quality of financial accounting information is mediated by accountants’ knowledge [52]. However, more research is needed to determine the potential implications of this relationship for auditing practices and the specific mechanisms by which accountant knowledge mediates this relationship [34]. Based on the above discussion, the study developed the following research hypothesis:
Hypothesis 3 (H3). 
Accountant knowledge as management support mediates the relationship between external auditors’ autonomy and financial accounting information quality.

2.4. The Relationship between External Auditor’s Autonomy and FAIQ

Quality of financial accounting data and the independence of external auditors. According to this theory, the level of independence given to external auditors can have a sizable effect on the credibility of the audited financial statements [53].
As evidence, there are several studies that have looked at how independent external auditors affect the quality of financial accounting information. Multiple studies have stressed the significance of independent external auditors in improving the quality of financial accounting data [54].
For instance, Ref. [35] discovered that the independence enjoyed by external auditors was positively correlated with audit quality. According to the findings, the quality of financial accounting information can be improved if external auditors are given more leeway to use their own discretion, gather relevant information, and draw valid conclusions [55].
More accurate and reliable financial accounting information can arise from external auditors having more independence to communicate and collaborate with management and other stakeholders [56].
Financial accounting information quality can improve thanks to independent external auditors’ ability to spot and report on mistakes and [30].
As a result, it is reasonable to assume that independent external auditors can significantly affect the accuracy of financial reports. Financial accounting information can be more accurate and dependable if external auditors are given more leeway to use their professional judgment, gather sufficient evidence, and come to their own conclusions rather than relying solely on management’s representations [20].
Therefore, the available literature lends credence to the research hypothesis that independent external auditors lead to higher-quality financial accounting data. However, more research is needed to determine the potential implications of this relationship for auditing practices and the specific mechanisms by which the independence of external auditors affects the quality of financial accounting information [8].
Based on the above discussion, the study developed the following research hypothesis:
Hypothesis 4 (H4). 
External auditors’ autonomy has a significant and positive influence on financial accounting information quality.

2.5. The Relationship between Management Support and FAIQ

The relationship between management support and the accuracy of financial reports According to this theory, management’s involvement can have a sizable effect on the accuracy of financial statements [16]. Literature that has looked at the connection between management support and the quality of financial accounting information lends credence to this theory. Financial accounting information quality can be improved with management support, according to a number of studies. For instance, Ref. [57] discovered that there was a favourable correlation between managerial support and audit quality. More accurate and trustworthy financial accounting information may be the consequence of improved communication and collaboration between management and external auditors, as suggested by the study.
The quality of financial accounting data can be improved with the help of management’s encouragement of the creation and use of efficient internal controls [58]. More trustworthy financial accounting information can result from a management-supported culture of ethics and openness [17].
Higher-quality financial accounting information can result from management’s encouragement of and adherence to relevant norms and laws [59]. Therefore, it follows that management support can significantly affect the accuracy of financial statements. Management may help improve the accuracy and reliability of financial accounting information by offering assistance to external auditors and encouraging a culture of transparency and ethical behaviour [11].
The literature review concluded that there is a correlation between management support and the quality of financial accounting information, lending credence to the study’s central hypothesis. To fully understand the significance of this relationship for auditing processes and the specific mechanisms by which management assistance affects the quality of financial accounting information, more research is needed [60]. Based on the above discussion, the study developed the following research hypothesis:
Hypothesis 5 (H5). 
Management support mediates the relationship between external auditors’ autonomy and financial accounting information quality.
Moreover, the conceptual framework provides the directions of the selected variables and their relationship built on the previous theoretical and empirical background. The conceptual framework of this study is shown in Figure 1.

3. Materials and Methods

To evaluate the effect of external auditors’ independence on the quality of financial accounting information in commercial banks in Northern Iraq, a sample of 342 out of a total of 500 personnel is sufficient. The study has greater statistical power since its sample size of 342, which is a sizable subset of the population of 500, allows for more accurate assessments of the connection between the independence of external auditors and the quality of financial accounting information. The sample size, however, must be established in relation to the size of the population, the variability of the variables, the desired level of statistical significance, and the size of the effect. Consequently, it is vital to make sure the sample size is sufficient to reach the desired degree of statistical power and precision, and the appropriateness of the sample size depends on these parameters. In conclusion, the study’s sample size of 342 out of a total of 500 employees is adequate for its purposes. The population characteristics and the level of statistical power and accuracy sought both have a role in determining the optimal sample size.
The researcher made sure that all of the participants’ information remained private. Data storage security measures were taken. The researcher made sure that there were no potential biases in their work. The Table 1 below demonstrates the measurement of each variable:

4. Results

A scale’s reliability and validity can be evaluated with the help of a statistical method called reliability analysis. A reliability analysis’ findings are typically reported using a coefficient of reliability, such as Cronbach’s alpha, which can take on values between 0 and 1. To be regarded as reliable for scientific study, an analysis’s coefficient should be at least 0.70. Moreover, the results in Table 2 of this study demonstrated that all items used to measure and examine the current study had a reliability of more than 0.70. This indicates that the measurement device is reliable enough for scientific study and that conclusions drawn from the results can be trusted. A reliability coefficient of 0.70 is often used as a benchmark, but it is crucial to remember that the actual meaning of this number depends on the details of the research project and the goal of the measuring tool. Certain studies or the measurement of more nuanced concepts may call for, for instance, a greater standard of dependability. When analyzing the findings of a reliability analysis, it is important to take into account not only the reliability coefficient but also other aspects, such as the number of items in the measuring instrument, the items’ homogeneity, and the sample size. All of these things have the potential to affect the instrument’s dependability, so they must be considered alongside the coefficient of reliability itself.
Descriptive statistics in Table 3 are provided for six categories, including “Financial Accounting Quality”, “External Auditors”, “Network”, “IT Competence”, “Management Support”, and “Accountant Knowledge”, in the table below. The average rating for financial accounting quality was 4.3, suggesting that this factor was generally well received. External auditors averaged 3.8, while the network averaged 4.1. IT competence averaged 3.5, while management support and accounting know-how averaged 4.2 and 4.1 points, respectively.
The Table 3’s standard deviation column displays the degree of spread in scores around the mean. The IT competency scores were more spread out than those of the other factors, as indicated by the standard deviation being higher than average at 1.1. The scores on management support, on the other hand, were more tightly grouped around the mean (standard deviation = 0.6) than they were for any of the other variables.
The column labeled “confidence interval” displays the predicted range in which the true population mean for each variable falls within 95% certainty. The 95% confidence interval for financial accounting quality is [6.8, 7.8], which indicates that 95 times out of 100, the true mean for this variable is expected to fall within this range.
The significance of the observed gaps between the means of the various categories is presented in the table’s p-value column. Since all of the p-values are less than 0.001, it is highly likely that there is a statistically significant difference between the means of the various variables. In sum, the descriptive statistics presented in this table for the six variables are helpful and can guide future investigation and interpretation.
The correlation matrix of the samples are given in Table 4 and the direction, strength, statistical significance, and kind of correlation are all important considerations when interpreting the results of correlation analysis. For a strong relationship between two variables, a Pearson correlation coefficient (which can vary from −1 to +1 of at least 0.5 in either direction is necessary. Correlation coefficients around 0.5 indicate a moderate relationship, while those below that threshold imply a weak one. It is also crucial to take into account whether the association is positive or negative. When one variable rises, the other tends to increase as well, whereas when one variable increases and the other tends to decrease, we say that the correlation is positive or negative. It is also crucial to think about the significance level of the correlation coefficient. As a rule of thumb, if the p-value is smaller than 0.05, the correlation coefficient observed is highly unlikely to have occurred by chance. It is also important to note that the term “two-tailed test” indicates that the hypothesis being evaluated is that the two variables are significantly correlated without indicating the direction of the association. In contrast, a one-tailed test would only allow for a conclusion to be drawn about the direction of the connection. In conclusion, the result of the correlation analysis between external auditors’ autonomy and the network was found to be 0.887 **. This indicates that the two variables are significantly correlated. This holds regardless of the direction of the connection. However, the findings must be understood in the context of the study topic and the variables tested. The analysis of the relationship between FAIQ and IT competence showed 0.977 **, which means that there is a strong relationship between the two variables. This indicated a strong and significant correlation between FAIQ and IT ccompetence. The analysis of the relationship between the FAIQ and Accountant knowledge showed 0.957 **, which means that there is a strong relationship between the two variables. This indicated a strong and significant correlation between FAIQ and Accountant knowledge. The analysis of the relationship between the FAIQ and External auditors’ autonomy showed 0.962 **, which means that there is a strong relationship between the two variables. This indicated a strong and significant correlation between FAIQ and External auditors’ autonomy. The analysis of the relationship between Management support and FAIQ showed 0.894 **, which means that there is a strong relationship between the two variables. This indicated a strong and significant correlation between FAIQ and Management support.

4.1. Structural Equation Modeling (SEM)

To study the strong connections that exist between a variety of distinct variables, a statistical method known as structural equation modelling, abbreviated as SEM, is utilized. Researchers can test hypotheses regarding the relationships between variables by first specifying a theoretical model of these relationships and then estimating the parameters of the model based on sample data. This allows the researchers to test hypotheses regarding the nature of the relationships between the variables. One type of statistical method is known as structural equation modelling, and one example of this method is structural equation modelling (SEM). To define the model’s parameters, a set of equations is utilized. These equations describe the various ways in which the variables are connected. It is possible to incorporate into the equations not only the observable variables (that is, those that can be measured directly) but also the latent variables (unobserved constructs that are inferred from the observed variables). With the assistance of SEM, it is possible to make estimations concerning both the structural parameters (which are denoted by the coefficients in the equations) and the measurement parameters (reliability and validity of the observed variables). The structural equation model (SEM) is a powerful instrument for analysing complicated hypotheses concerning correlations among a large number of different variables. It has applications in many other fields, such as sociology, education, marketing, and psychology, to name a few. SEM 4.00 version software programs such as AMOS, Mplus, and LISREL are just a few examples of the most well-known options available. The two distinct methods of structural equation modelling (SEM) that can be differentiated from one another are confirmatory factor analysis (CFA) and exploratory factor analysis (EFA). It is a CFA analysis that is carried out when the theory and model have been pre-specified, but it is an EFA analysis that is carried out when the theory has not been pre-specified. Maximum likelihood estimation, Bayesian estimation, and robust estimation are just a few of the estimation strategies that can be supported by the structural equation model (SEM), which is a flexible methodology that covers a wide range of data types and estimation methodologies.

4.2. Confirmatory Factor Analysis

The research methods section explains that the CFA is divided into three distinct parts. In the first part, we cover the study’s measurement framework, which includes all 27 indicators and six factors. CFA model is given in Figure 2.

4.3. Model Fit Indices—CFA

The critical model fit indices have been studied as part of the research that was carried out as a component of this study’s investigation and as a component of the study methodology. This has been done to acquire more in-depth knowledge of the CFA model. The model fitness is given in Table 5. The model fit indices typically yield highly pleasing findings, which is the case for the vast majority of the indicators. Not a single one of the criteria received a score that was lower than what is considered acceptable.
Model fit indices are used to determine how well the proposed model corresponds to the data in confirmatory factor analysis (CFA). Model fit can be evaluated with many different indices, each with its advantages and disadvantages. The results demonstrated the significance level of the test is less than 0.05. It is assumed that the model provides a good fit to the data. However, this criterion should not be used in isolation when assessing model fit. Other indices should also be taken into account. By using CFA, the results showed that the model fit indices are greater than 0.05, which means that the model does not adequately explain the data. From the above CFA model all the error term shows positive and within the acceptable limit and it reveal that the proposed model is fit Modifying the model of measurement or exploring the relationships between the observed variables may be part of this process. Moreover, the model fit statistics are given in Table 6.
The SEM results are shown in Table 7. In this table, “EAA” represents the external auditor’s autonomy as an independent variable, “N” represents the network as the mediator variable, “IT” represents IT competence as the mediator variable, “MS” represents management support as the mediator variable, “AK” represents accountant knowledge as mediator variable, and “FAIQ” represents financial accounting information quality as a dependent variable, In the above, the arrows represent the hypothesized relationships among the variables. The solid arrows indicate direct effects, and the dashed arrow represents the indirect effect through the mediator variable. To summarize the results of the SEM analysis, we can create a table that shows the estimated coefficients and significance levels of the relationships. The rows show the direct effects of external auditors on financial accounting information quality. Moreover, the rows show the indirect effects of external auditors on financial accounting information through the network, IT competence, accountant knowledge, and management support, respectively. The estimate column shows the coefficients, the standard error column shows the standard errors of the coefficients, the t-value column shows the t-values, and the p-value column shows the significance levels. In conclusion, the table is a useful way to present the results of SEM analyses clearly and concisely. They can help to communicate the relationships among the variables and the significance of the effects to a wider audience. The outcome of reliability statistics showed that the value of Cronbach alpha for board characteristics as a dimension of corporate governance was 0.749 for eight questions used to measure the board of characteristics. The value of Cronbach alpha for CEO Duality as a dimension of corporate governance was 0.751 for eight questions used to measure the CEO Duality. The value of Cronbach alpha for ownership Structure as a dimension of corporate governance was 0.769 for eight questions used to measure the ownership Structure. The value of Cronbach alpha for audit committee independence as a dimension of corporate governance was 0.774 for eight questions used to measure the audit committee independence. The value of Cronbach alpha for accountability structure as a dimension of corporate governance was 0.719 for eight questions used to measure the accountability structure. The value of Cronbach alpha for directors’ competency as a dimension of corporate governance was 0.733 for eight questions used to measure the directors’ competency. The value of Cronbach alpha for the adoption of IFRS as a mediator was 0.758 for eight questions used to measure the adoption of IFRS. The value of Cronbach alpha for financial reporting quality as an independent variable was 0.791 for eight questions used to measure the financial reporting quality. However, the results of reliability demonstrated the consistency and dependability of all variables and questions used to measure the current study.

5. Discussion

The study indicated a favourable correlation between the degree to which external auditors are given independence and the quality of financial accounting information. Accurate and dependable financial accounting information can be generated by external auditors who are more autonomous and in charge of their audit procedures [2]. Some intriguing results emerged from the investigation into how the independence of external auditors affects the accuracy of financial accounting information in commercial banks in northern Iraq.
The study concluded that political intervention in audit processes can undermine the independence of external auditors, which can have serious consequences for the accuracy of financial statements. A lack of openness in financial reporting, prejudice in audits, and diminished auditor independence are all possible outcomes of political influence in the auditing process [63]. Moreover, the study concluded that in emerging economies such as Northern Iraq, where the institutional environment is weak, and there is a lack of regulatory monitoring, external auditor autonomy is of the utmost importance. The role of external auditors in such settings cannot be overstated in terms of protecting the integrity of financial accounting data [42]. The study concluded that all stakeholders, including shareholders, regulators, and creditors, benefited when external auditors were given more independence because it meant that financial accounting information was more accurate and dependable. Better decision-making, less information asymmetry, and more investor confidence are all outcomes of high-quality financial accounting information [64].
The study indicated that factors such as the size and complexity of the bank, the quality of the bank’s internal control systems, and the nature of the bank’s operations can affect the extent to which external auditor independence affects the quality of financial accounting information. In summary, the study’s results stress the value of independent external audits in ensuring the accuracy of financial statements at commercial banks in northern Iraq. This research sheds light on the factors that affect the independence of external auditors, the difficulties these professionals confront in preserving their independence, and the possible advantages of increased independence for the accuracy of financial accounting data [18]. These results can be used to shape policies and legislation that aim to raise the bar on audit quality, strengthen the regulatory framework, and encourage stakeholder participation in financial reporting [65].
An examination of how the independence of external auditors affects the quality of financial accounting information in commercial banks in northern Iraq provides several contributions.
First, the research fills a gap in the current literature by providing new insights into the function of external auditors in improving the quality of financial accounting data. Specifically, the study highlights the significance of external auditors’ independence and their ability to exercise professional judgment in producing reliable and accurate financial information by examining the effect of external auditors’ autonomy on the quality of financial accounting information [66].
Second, the research adds to what is known about the difficulties encountered by external auditors in developing areas such as Northern Iraq. The research highlights the unique difficulties external auditors face in ensuring financial accounting information quality in an unstable and unpredictable environment, such as political instability, weak regulatory frameworks, and limited resources, by examining the case of commercial banks in Northern Iraq.
Finally, the research offers policymakers and practitioners in Northern Iraqi commercial banks guidance on how to enhance the quality of financial accounting information. The study makes suggestions for improving regulatory frameworks, fostering cooperation between external auditors and bank management, and increasing the independence of external auditors by identifying the factors that affect the quality of financial accounting information, including the autonomy of external auditors.
The study contributes significantly to the literature on the role of external auditors in improving the quality of financial accounting information in emerging economies, and it offers useful lessons for practitioners and policymakers in Northern Iraq and other similar settings.

6. Conclusions

The ability of external auditors to use their professional judgment and provide objective conclusions on the financial accounts of the organizations they audit is referred to as their “autonomy”. When auditors are given a high amount of autonomy, they have a greater chance of finding and reporting serious misstatements in financial statements, which ultimately results in information that is of higher quality in financial accounting. An investigation into the effect that the independence of external auditors has on the quality of financial accounting information could, in the context of commercial banks in northern Iraq, reveal how well banks are complying with regulatory requirements and determine whether or not the banks’ financial statements are accurate and reliable. The study may also investigate the connection between the independence of auditors and the degree of openness and disclosure in the financial reports of financial institutions. The findings of such an investigation, taken as a whole, have the potential to inform potential enhancements to auditing standards and practices in the region, as well as provide regulators, investors, and other stakeholders with a better understanding of the extent to which the autonomy of external auditors contributes to the quality of financial accounting information in commercial banks located in northern Iraq. Accounting researchers have shown a lot of interest in the question of how the independence of external auditors affects the accuracy of financial accounting information for many years now. Several studies have reached the same conclusion: Greater auditor independence is correlated favorably with higher-quality financial accounting information.
When auditors are given a high amount of autonomy, they are better able to uncover and report serious misstatements in financial statements, which results in information that is more accurate and dependable regarding financial accounting. In addition, auditors who have a high level of autonomy are more likely to resist pressure from management to produce a favorable opinion when there are major misstatements in the financial accounts. This is because auditors with a high level of autonomy have more control over their work.
The results showed significant levels of both the direct and indirect impacts of external auditor autonomy on the quality of financial accounting information. The rows illustrate the direct effects that external auditors have on the quality of financial accounting information, while the dashed arrow depicts the indirect effects that occur as a result of the mediator factors. The findings indicate that independence on the part of external auditors is a crucial component in the process of ensuring that financial accounting information is of high quality. It is more probable that auditors will provide unbiased and accurate assessments of financial accounts if they have a high degree of autonomy. This can be to the benefit of a wide variety of stakeholders, including investors, regulators, and the general public. However, it is essential to keep in mind that auditors’ independence is not the only component that plays a role in the quality of financial accounting information. When it comes to ensuring that financial accounting information is accurate and reliable, other criteria such as auditor competency, auditor independence, and the quality of the internal control environment all play significant roles in the process. To make an accurate assessment of the quality of financial accounting information, it is necessary to take into account each of these variables.
Although empirical studies may reveal associations between factors, they cannot establish causation. The authors concede that this study’s results merely reveal an association between the independence of external auditors and the accuracy of financial accounting information in commercial banks in Northern Iraq. The results of the study point to a favourable correlation between the independence of external auditors and the accuracy of financial statements. However, more research is required to establish a causal link between the independence of external auditors and the accuracy of financial statements.
The theoretical implication of an examination of how the independence of external auditors affects the quality of financial accounting information in northern Iraqi commercial banks has numerous theoretical ramifications. Possible potential theories include the following: This research adds to stakeholder theory by analyzing how external auditing might help meet the information requirements of various stakeholders, including stockholders, government regulators, and creditors. According to the results, more independence for external auditors can improve the quality of financial accounting information to the benefit of all parties involved. This research adds to the body of accounting theory by analysing how the independence of external auditors affects the integrity of financial accounting data. The results imply that the independence of external auditors should be carefully considered in the development and implementation of accounting rules and laws as a means of guaranteeing the integrity of financial accounting information.
Lastly, the policy implication of an analysis of the impact of external auditors’ autonomy on financial accounting information quality case study commercial banks in northern Iraq. The study’s findings imply that independent external auditors are essential to ensuring the accuracy of financial statements. As a result, authorities should work to ensure that external auditors are afforded sufficient legal protection, that audit oversight organizations have sufficient resources, and that political influence in audit processes is minimized. The need for continuing education and training for external auditors is stressed throughout the research. Governments should make it easier for external auditors to advance their careers through initiatives such as expanding access to continuing education and allowing them to specialize in areas such as industry or accounting standards. The research implies that shareholders, regulators, and creditors, among other stakeholders, should be actively engaged in maintaining the integrity of financial accounting data. By encouraging openness and accountability in financial reporting, improving lines of communication between stakeholders and external auditors, and expanding forums for stakeholder feedback and input, policymakers can help increase stakeholder involvement.
The impact of auditor incentives on their conduct and the quality of data they generate is an interesting topic for potential future research. Auditor independence and accuracy may be influenced by auditor fees, client relationships, and the possibility of litigation. It is probable that international governance systems are also influential in molding the conduct of independent auditors and ensuring the integrity of data, despite the fact that the original study may have only looked at the local regulatory environment. How international trade agreements, cross-border regulatory cooperation, and international accounting standards affect auditing methods and data quality is a topic that might be investigated in the future.
Similarly, it is possible that the original study under-accounted for how external policy affects independent auditors and the reliability of data. Changes in government policies or regulations, such as tax laws or environmental restrictions, may influence auditor behavior and the veracity of data presented by businesses. This is an area that might benefit from further study.
The rate of technology development in the business sector means that new auditing and data analysis tools and techniques may have a substantial effect on auditors’ actions and the veracity of reported data. Research in the future might look at how innovations such as AI, ML, and blockchain could affect auditing standards and the veracity of company data.
With a focus on commercial banks in northern Iraq, this study provides a significant addition to the discussion of external auditor independence and the reliability of financial accounting information. The study provides insight into the elements that affect the independence of external auditors and the accuracy of financial accounting information by examining the perspectives of managers in these firms.
Implications for policymakers, auditors, and managers in the area and the international community working to improve governance and financial transparency in developing economies may be drawn from the study’s findings. The results stress the significance of legislators advocating for legislative frameworks that support the autonomy of external auditors and the integrity of financial accounting data. This research also highlights the significance of auditors and management being aware of threats to the objectivity of external auditors and the reliability of financial statements.
It recognizes the importance of the study’s findings and indicates that providing more information on the data’s features will strengthen the study’s credibility. The significance of the literature evaluation in laying forth a theoretical foundation for comprehending the data features and their consequences for auditing circumstances and financial accounting integrity is also emphasized.

7. Limitations

There are limitations to this study’s conclusions that must be taken into account. First, the study’s findings may not be generalizable outside of their specific setting and industry due to cultural and contextual variables. Therefore, the results should not be applied without considering these factors.
The second limitation is that the study employs a quantitative research technique, which may oversimplify the complexities of the external audit process. Important nuances and considerations may have been overlooked, potentially impacting the results.
The third limitation is that the study does not incorporate perspectives from auditors, regulators, and other stakeholders involved in the external audit process. This may limit the comprehensive understanding of the external audit procedure.
The fourth limitation is that the study does not explore the impact of external audits on a company’s financial performance or productivity. Thus, the study’s findings should not be used to determine the usefulness of external audits in achieving these goals.
Finally, the study may be subject to bias or measurement errors as it relies on self-reported data. This introduces the possibility of inaccuracies or distortions in the information collected.

8. Future Studies

In light of the limitations of the current study, it is imperative that future research seek to fill in these knowledge gaps and offer a more in-depth comprehension of the steps involved in the external auditing process. In particular, it is recommended that future studies take into consideration the possibility of merging both quantitative and qualitative research approaches in order to give a more in-depth comprehension of the external audit process.
It is possible that quantitative metrics alone will not be able to capture all of the intricacies and complexity of the external audit process, but qualitative research approaches such as interviews and case studies could be able to. Future research might give a more complete picture of the influence that external audits have on businesses by adding the opinions of auditors, regulators, and other stakeholders.
In addition, research in the future might investigate the influence that external audits have on the financial performance of businesses as well as the efficiency with which they operate. Researchers might gain insights into the efficacy of external audits in attaining their intended aims by studying these results and determining whether or not they were successful.
In conclusion, the constraints of self-reported data should be addressed in further research by employing additional sources of data, such as archive data or data gathered by regulators, in an effort to compensate for the shortcomings of self-reported data. The precision and dependability of the conclusions of future research may be improved if they triangulate the data obtained from a number of different sources.

Author Contributions

Methodology, K.S.Q.; Software, K.C.; Formal analysis, K.S.Q.; Investigation, K.S.Q.; Resources, K.S.Q.; Data curation, K.C.; Writing—original draft, K.S.Q.; Writing—review & editing, K.C. All authors have read and agreed to the published version of the manuscript.

Funding

This study received no external funding.

Institutional Review Board Statement

This study does not require ethical approval because it does not involve human or animal analysis.

Informed Consent Statement

Not applicable.

Data Availability Statement

Data provided on demand.

Conflicts of Interest

The authors declare no conflict of interest.

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Sustainability 15 09578 g001 550
Figure 1. Research Model.
Figure 1. Research Model.
Sustainability 15 09578 g001
Sustainability 15 09578 g002 550
Figure 2. CFA Model.
Figure 2. CFA Model.
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Table
Table 1. Measurements.
Table 1. Measurements.
VariableMeasurementSources
Financial Accounting Information Quality- Accuracy of financial statements.
- Reliability of financial statements.
- Timeliness of financial statements.
- Completeness of financial statements.
- Transparency of financial statements.
- Compliance with accounting standards and regulations.		[61]
External Auditors- Years of experience as an external auditor.
- Professional certification.
- Audit quality ratings.
- Perception of external auditors’ autonomy.
- Perception of external auditors’ independence		[62]
Network- Frequency of communication between external auditors and management.
- Quality of communication between external auditors and management.
- Collaboration between external auditors and management.
- Level of trust between external auditors and management.		[2]
IT Competence- Years of experience with information technology.
- IT-related professional certification.
- Perception of IT competence by external auditors themselves.
- Perception of IT competence by management.
- Perception of IT competence by stakeholders.		[62]
Management Support- Access to financial records and documents.
- Assistance with data analysis.
- Collaboration with external auditors.
- Provision of necessary resources.
- Perception of management support by external auditors		[2]
Accountant Knowledge- Years of experience as an accountant.
- Accounting-related professional certification.
- Perception of accountant knowledge by external auditors themselves.
- Perception of accountant knowledge by management.
- Perception of accountant knowledge by stakeholders.		[60]
Table
Table 2. Table Reliability Statistics.
Table 2. Table Reliability Statistics.
VariablesN of ItemsCronbach’s AlphaSources
Financial Accounting Information Quality40.726[60]
External Auditors50.802[61]
Network50.810[62]
IT Competence50.799[61]
Management Support40.706[62]
Accountant knowledge40.725[60]
Table
Table 3. Table descriptive Statistics of Samples.
Table 3. Table descriptive Statistics of Samples.
VariableMeanStandard DeviationConfidence Interval (95%)p-Value
Financial Accounting Quality4.31.2[6.8, 7.8]<0.001
External Auditors3.80.9[6.5, 7.1]<0.001
Network4.10.7[7.9, 8.3]<0.001
IT Competence3.51.1[6.9, 8.1]<0.001
Management Support4.20.6[8.0, 8.4]<0.001
Accountant Knowledge4.11.0[6.6, 7.6]<0.001
Table
Table 4. Correlation Analysis.
Table 4. Correlation Analysis.
Correlation Analysis
IT AKEAAMSNFAIQ
IT Pearson Correlation1.00
Sig. (2-tailed)
N342
AKPearson Correlation0.789 **1.00
Sig. (2-tailed)0.000
N342342
EAAPearson Correlation0.629 **0.757 **1.00
Sig. (2-tailed)0.0000.000
N342342342
MSPearson Correlation0.827 **0.803 **0.756 **1.00
Sig. (2-tailed)0.0000.0000.000
N342342342342
NPearson Correlation0.633 **0.771 **0.608 **0.755 **1.00
Sig. (2-tailed)0.0000.0000.0000.000
N342342342342342
FAIQPearson Correlation0.911 **0.957 **0.962 **0.908 **0.894 **1.00
Sig. (2-tailed)0.0000.0000.0000.0000.000
N342342342342342342
** Correlation is significant at the 0.01 level (2-tailed).
Table
Table 5. Model Fit Indices—CFA.
Table 5. Model Fit Indices—CFA.
MeasurementResultsOutcome
Chi-Square499.582Acceptable
Sig. The threshold for (X2)0.000Acceptable
CMIN (X2)/df)7819Acceptable
Goodness of Fit (GFI)0.787Acceptable
Average GFI0.712Acceptable
Root Mean Squared (RMR)0.039Acceptable
Table
Table 6. Model fit statistic.
Table 6. Model fit statistic.
Standardized Loadingt ValueAVECRAlpha
External Auditors 0.710.810.73
Q10.5911.59
Q20.8918.77
Q30.7111.17
Q40.7211.09
Q50.7915.41
Network 0.620.890.76
Q10.7715.29
Q20.6814.38
Q30.8115.78
Q40.7516.55
Q50.7716.67
IT Competence 0.630.790.79
Q10.8716.39
Q20.7115.99
Q30.6713.87
Q40.7514.74
Q50.08114.54
Management Support 0.590.820.81
Q10.7815.49
Q20.8115.91
Q30.8413.24
Q40.8116.51
Accountant knowledge 0.570.750.84
Q10.8818.68
Q20.8618.63
Q30.6810.29
Q40.7111.73
Financial Accounting Information Quality 0.680.790.87
Q10.8114.46
Q20.8718.73
Q30.7418.35
Q40.6211.45
Model fit statistic: X2 =1463.5; df = 781.2; X2/df = 1.69; CFI = 0.89; PNFI = 0.798; RMSEA = 0.071
Table
Table 7. Structural Equation modelling (SEM).
Table 7. Structural Equation modelling (SEM).
EstimateStd. Errort-Valuep-Value
EAA → N → FAIQ0.210.025.47<0.001
EAA → IT → FAIQ0.130.024.71<0.001
EAA → AK → FAIQ0.110.034.19<0.001
EAA → MS → FAIQ0.120.033.24<0.001
EAA → FAIQ0.330.026.13<0.001
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Qader, K.S.; Cek, K. Analysis of the Impact of External Auditors’ Autonomy on Financial Accounting Information Quality Case Study Commercial Banks in Northern Iraq. Sustainability 2023, 15, 9578. https://doi.org/10.3390/su15129578

AMA Style

Qader KS, Cek K. Analysis of the Impact of External Auditors’ Autonomy on Financial Accounting Information Quality Case Study Commercial Banks in Northern Iraq. Sustainability. 2023; 15(12):9578. https://doi.org/10.3390/su15129578

Chicago/Turabian Style

Qader, Khowanas Saeed, and Kemal Cek. 2023. "Analysis of the Impact of External Auditors’ Autonomy on Financial Accounting Information Quality Case Study Commercial Banks in Northern Iraq" Sustainability 15, no. 12: 9578. https://doi.org/10.3390/su15129578

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