Public Financial Management (PFM) Laws and Audit Quality in Ghana: The Moderating Role of Auditor-Client Relationship

Abstract

Purpose: This study examines the extent to which public financial management (PFM) laws contribute to audit quality in the public sector and how the auditor-client relationship moderates this effect.

Design/Methodology/Approach: This study used a quantitative survey research design to collect data from about 400 public sector auditors working with Ghana's Supreme Audit Institution (SAI), the Audit Service, by adopting the contextual factor of the IAASB's framework for Audit Quality using the PLS-SEM method of analysis.

Findings: The study found that in the Public Sector, Public Financial Management (PFM) laws positively influence audit quality, while auditor-client relationships also negatively contribute to audit quality.

Furthermore, it was also established that the auditor-client relationship negatively moderated the relationship between Public Financial Management (PFM) laws and audit quality.

Implications/Research Limitation: The results of this study extend and add to the growing empirical studies on Public Financial Management (PFM), audit quality and the field of public sector auditing. However, the study will be limited to only public sector auditors working with Ghana's Supreme Audit Institution (SAI), the Audit Service.

Practical Implication: The study results have the prospect of encouraging policy-makers to strengthen the independence and improve the capacity of the State Auditor (i.e. Ghana Audit Service) through appropriate PFM laws that seek to improve auditor-client relationships through relevant compliance and enforcement mechanisms.

Originality/Value: This study is the first to directly examine how the Public Financial Management (PFM) laws contribute to audit quality in Ghana and how the auditor-client relationship moderates this effect.

Nevertheless, this study differs from other prior empirical research on the basis of the method employed and the context of the study.