The Impact of External Audit on the Quality of Financial Reports in
Jordanian Insurance Companies
AYMAN SALEH MUSTAFA HARB*, OSAMA MOHAMMAD KHALEEL BALLOUT,
OMAR FAREED SHAQQOUR, HAMZA MOHAMMAD AHMED KHUZAMIEH
Accounting Department,
Zarqa University,
Zarqa 13110,
JORDAN
*Corresponding Author
Abstract: - This study aimed to the impact of an external audit on the quality of financial reports with its
dimensions (relevance, credibility) in Jordanian insurance companies, The study population consisted of the
auditors, whose number is (440), and distributed (209) questionnaires, returned of them (185) questionnaires,
and the valid questionnaires for analysis were (169) questionnaires representing a responses rate of (71.9%) of
the study sample. Some appropriate statistical methods were used and the statistical program ("SPSS") was
used. The results showed that there is a high level of external audit, and the level of the quality of financial
reports was medium. The statistical analysis indicated a statistically significant effect at the significance level
(0.05 ≥α) for external audit on the relevance of financial reports of Jordanian insurance companies. This result
may be because the audit offices contracted by Jordanian insurance companies seek to examine and evaluate
the data, reports, financial statements, administrative activities and processes in these companies objectively,
and impartially, to obta. The study recommended that external auditors should continuously participate in
training programs and workshops to inform them of all that is new in the audit profession, especially about the
insurance sector.
Key-Words: - External Audit, Quality of Financial Reports, Relevance, Credibility, Jordanian Insurance
Companies.
Received: August 7, 2023. Revised: March 7, 2024. Accepted: April 28, 2024. Published: May 17, 2024.
1 Introduction
The accounting information made accessible by
companies registered at the financial markets greatly
affects the extent of trust, financial dealing, and
trading in the financial markets, so accounting
information quality, whether financial or non-
financial, has a s ignificant and effective role in
assessing the investor's view to endeavor in future
investment in the financial markets through listed
companies. Thus, accounting information quality is
very important to companies to perform their role
effectively and efficiently, which leads to enhancing
the confidence of the user of such information and
accounting reports taken from the financial
statements of those companies, giving such
companies an additional advantage if compared to
others, [1].
External audit plays a distinguishing role in
identifying and detecting deviations, maintaining the
assets of the enterprise, as well as the accuracy of
accounting information in financial statements, and
guiding decisions in a way that significantly affects
the business community in the country since it gains
a prominent and important role as transparency
standards for institutions become higher. External
audit ensures an accurate, reliable, and trusted use of
financial statements financial, [2].
Accordingly, this study was conducted to
analyze the impact of external audit on t he quality
of financial reports in its dimensions (relevance,
credibility) in Jordanian insurance companies.”
2 Problem Formulation
"The quality of reports has a si gnificant impact on
the economy due to its importance in clarifying the
status of Jordanian insurance companies and their
financial performance in the Future , t hus the
problem statement lies in its attempt to answer the
following main question:"
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2024.21.102
Ayman Saleh Mustafa Harb,
Osama Mohammad Khaleel Ballout,
Omar Fareed Shaqqour,
Hamza Mohammad Ahmed Khuzamieh
E-ISSN: 2224-2899
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Volume 21, 2024
"Does external audit have an impact on t he
quality of financial reports in Jordanian insurance
companies? Branching from the main question are
the following sub-questions":
1. Does external audit have an impact on
the relevance of financial reports"?
2. "Does external audit have an impact on
the credibility of financial reports"?
2.1 The Importance of Studying
Giving a perception to relevant parties on the quality
of external audit and the level of quality of financial
reports.
2.2 Objectives of the Study
1. Identify an external audit in Jordanian
Insurance Co.
2. Identify the quality of reports on relevance
and credibility.
3 Theoretical Framework, Literature,
and Developing Hypotheses
3.1 Theoretical Framework
Has defined an external audit as “An organized
process carried out by an independent person to
express a professional opinion on the set of financial
statements belonging to a particular economic unit
and communicating the results to interested users",
[3]. External audit is a systematic process organized
to objectively examine and evaluate the evidence of
financial activities, [4]. Has defined it as "An
organized process carried out by an independent
person through his examination of financial
statements, documents, and accounting books to
give an impartial technical opinion on the
correctness of the accounts of the enterprise, [5].
Factors affecting the quality of external, [6]:
- Size of the Audit Office.
- Audit fees.
- Specialization in industry.
3.2 Literature Review
[7], clarify the relationship between planning of
audits and reducing tax. [8], show the impact of the
Corona pandemic on external audits in accordance
with the auditing standards in Jordanian banks. [9],
aimed to analyze and test the relationship between
the audit quality measured by t he size of the Audit
Office, measured by the characteristics of
appropriateness and fair representation of
accounting information. [10], Explained the
relationship between the ownership structure pattern
and the characteristics of the board of directors on
the one hand, and the quality of external audit on the
other hand. [11], showed the impact of detecting
fraud risks, as w ell as its role in improving the
quality of auditing in Iraqi audit companies and
offices. [12], tested the impact of the degree of
disclosure of non-financial information in
accordance with the instructions of the corporate
governance of banks, and to achieve that goal, the
study relied on the analysis of financial reports of
Jordanian commercial banks. [13], the study also
examined whether the quality of the external auditor
modifies the correlation between financial reporting
quality and investment efficiency. [14], the study
focused on providing a new insight into the effects
of fixed value that emphasizes the role of
monitoring the ownership structure, in addition to
the role of IFRS reporting in providing high-quality
information and thus enhancing the value of stocks.
[15], aimed to identify the main factors affecting the
quality of financial statements disclosed by
companies listed on the Istanbul Financial Market,
where a group of factors were selected to study their
impact on the quality of financial statements,
including International Financial Reporting
Standards in Turkey.,[16], attempted to identify the
relationship between the quality of financial reports
and the investment efficiency of non-financial
companies listed on the Palestinian Stock Exchange.
[17], identified corporate governance, quality
reporting, and its relationship to the quality of
financial reports. [18], revealed the impact of audit
risks on the fair value. [19], determine the impact of
business reporting language on t he quality of
financial reports. [20], determine the impact of
(COSO) on Internal Control in Public Shareholding
Companies. [21], determine external audit in sudden
financial collapse. [22], studies show to the
effectiveness of implementing procedures in
improving the quality of auditors’ reports. [23],
measure the impact of audit quality control on the
quality of accounting disclosure under the motives
of the management manipulating accounting
policies.
3.3 Study Hypotheses
"H0: “There is no statistically significant impact of
external audit on the quality of financial reports in
its dimensions (relevance, credibility) in Jordanian
insurance companies”.
H01: "There is no statistically significant impact of
external audit on the relevance of financial reports".
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2024.21.102
Ayman Saleh Mustafa Harb,
Osama Mohammad Khaleel Ballout,
Omar Fareed Shaqqour,
Hamza Mohammad Ahmed Khuzamieh
E-ISSN: 2224-2899
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H02: "There is no statistically significant impact of
external audit on the credibility of financial reports".
4 Methods and Procedures
The descriptive analytical approach has been
adopted. It relies on the study of the phenomenon
and provides an accurate description of it.
4.1 Study Population and Study Sample
The study population consisted of all external
auditors affiliated with audit offices and companies
who have worked on auditing data, reports, and
financial statements in the insurance companies
sector in Jordan. It numbered to (440) external
auditors. As for the study sample, the size of the
withdrawn sample was based on the total size of the
study population, and the margin of error allowed in
the current study is (0.05). Accordingly, (209)
questionnaires were distributed, of which (185)
were recovered, and the number of questionnaires
valid for analysis was (169), making up 71.9%.
4.2 Sources of Data
1) Secondary sources: "These are represented by
books, published and unpublished master's theses
and university.
2) "Primary sources: "Was used the questionnaire.
4.3 Stability of the Study Tool
According to the coefficient of internal consistency
(Cronbach Alpha) in Table 1.
Table 1. “Stability - coefficients”
Number Dimension “Cronbach Alpha”
(coefficient)
17 External audit in total 0.970
12 Relevance 0.880
14 Credibility 0.926
26 The quality of
financial reporting in
total
0.929
4.4 Statistical Methods Used
The following statistical methods were used:
1. Cronbach - Alpha and Frequency tables and
percentages.
2. Arithmetic means and standard deviations
for the fields and variables` paragraphs
responses.
3. Simple linear regression analysis.
4.5 Study Hypotheses Testing
The study variables follow the normal distribution
in Table 2.
Table 2. The normal distribution (Shapiro-Wilk test)
“Dimension” “Test value” “Level of
significance”
External audit in
total
0.95 0.40
Relevance
0.98
0.45
Credibility
0.91
0.41
H0: “There is no statistically significant impact of
external audit on the quality of financial reports in
its dimensions (relevance, credibility)" in Jordanian
insurance companies”.
To test this hypothesis, a simple linear
regression equation was calculated. This is shown in
Table 3.
H0.1: "There is no statistically significant
impact of external audit on the relevance of
financial reports in Jordanian insurance companies".
Showing the impact of external audit on the
relevance of financial reports in Jordanian insurance
companies. This is shown in Table 4.
H0.2: “There is no Statistically significant
impact of external audit on t he credibility of
financial reports”.
Showing the impact of external audit on the
credibility of financial reports. This is shown in
Table 5.
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2024.21.102
Ayman Saleh Mustafa Harb,
Osama Mohammad Khaleel Ballout,
Omar Fareed Shaqqour,
Hamza Mohammad Ahmed Khuzamieh
E-ISSN: 2224-2899
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Table 3. Linear regression
Hypothesis
T
R
R²
Adjusted R
Square
F
Statistical
“There is no statistically significant impact of external
audit on the quality of financial reports in its dimensions
(relevance, credibility) in Jordanian insurance companies”
11.171
0.654
0.428
0.424
124.782
0.000
Table 4. Linear regression
Hypothesis
T
R
R²
Adjusted
R Square
F
Statistical
significance
“There is no statistically
significant impact of external
audit on the relevance of financial
reporting in Jordanian insurance
companies”
18.879
0.825
0.681
0.679
356.401
0.000
Table 5. Linear regression
Hypothesis
T
R
R²
Adjusted
R Square
F
Statistical
significance
“There is no statistically
significant impact of external
audit on the credibility of
financial reports in Jordanian
insurance companies
5.165
0.371
0.138
0.133
26.682
0.000
5 Conclusions
Amount of the study variables to (0.970) for
external audit, and (0.929) for financial reporting
quality in total is given in Table 1.
Shows the presence of effect at the significance
level (0.05 ≥α) for external audit on the quality of
financial reports in its dimensions (relevance,
credibility) in the Jordanian insurance companies.
The value of the correlation coefficient (R)
amounted to (0.654). The value of (R-square)
reached (0.428), as a whole, which indicates that
external audit explains the value of (42.8%) of the
change in the quality of financial reports. The value
of the test (F) reached (124.782) with a statistical
significance of (0.00), which is a statistically
significant value indicating a d iscrepancy in the
ability of the independent variable to influence the
dependent variable in Table 3.
Shows the presence of effect at the significance
level (0.05 ≥α) for external audit. The value of the
correlation coefficient (R) amounted to (0.825). The
value of (R-square) reached (0.681), indicating that
external audit explains the value of (68.1%) of the
change in the relevance of financial reports. The
value of the (F) test reached (356.401) with a
statistical significance of (0.00), which is a
statistically significant value indicating a variation
in the ability of the independent variable to
influence the dependent variable in Table 4.
Shows the presence of effect at the significance
level (0.05 ≥α) for external audit on the credibility
of financial reports in the Jordanian Insurance
Companies. The value of the correlation coefficient
(R) reached (0.371), which is a statistically
significant value and indicates the degree of
correlation of a statistically significant function
between the independent variable and the dependent
variable. The value of (R-square) amounted to
(0.138), which is a statistically significant value that
explains the ability of the application of external
audit to enhance the credibility of financial reports,
indicating that external audit explains the value of
(13.8%) of the change in the credibility of financial
reports in Table 5.
5.1 Discussion and Conclusion
The level of external audit in Jordanian insurance
companies was high with an average of (3.91) from
the point of view of the external auditors
surveyed."This result is probably due to the
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DOI: 10.37394/23207.2024.21.102
Ayman Saleh Mustafa Harb,
Osama Mohammad Khaleel Ballout,
Omar Fareed Shaqqour,
Hamza Mohammad Ahmed Khuzamieh
E-ISSN: 2224-2899
1258
dependence of Jordanian insurance companies on
reliable audit offices and companies, which ensures
that this process complies with known accounting
standards and works within the agreed terms and
time, this result agreed with [18]. A moderate level
regarding the quality of financial reports in
Jordanian insurance companies with an arithmetic
mean of (3.41) from the point of view of the
external auditors surveyed, where it came in first
place after (relevance) with an arithmetic mean of
(3.68) and with a high evaluation score, and it came
second after (credibility) with an average score of
(3.19) and with an average evaluation score. This
result may be attributed to the fact that the financial
reports of Jordanian insurance companies have clear
and understandable accounting and financial
information reflecting the reality of the company's
operations and its financial position this result
agreed with [19]. The statistical analysis indicated a
statistically significant impact at the significance
level (0.05 ≥α) for external audit on the quality of
financial reports of Jordanian insurance companies.
The researcher attributes this result to the fact that
the external audit process carried out in Jordanian
insurance companies seeks to examine, evaluate,
and verify the correctness and accuracy of the data
and accounts included in the financial records and
statements of the companies under audit, which
leads to detecting errors or financial deviations, if
any, and informing those concerned, as well as
ensuring that those financial reports do not contain
significant distortions and provide a true and fair
picture of the financial position of the company this
result agreed with [8]. The statistical analysis
indicated a st atistically significant effect at the
significance level (0.05 ≥α) for external audit on the
relevance of financial reports of Jordanian insurance
companies. This result may be because the audit
offices contracted by Jordanian insurance
companies seek to examine and evaluate the data,
reports, financial statements, administrative
activities, and processes in these companies
objectively, and impartially, to obtain evidence of
financial activities, and detect errors and deviations
in the financial statements of the company under
audit, and to confirm that the accounting
information contained therein is appropriate and has
an impact on the decision of information users this
result agreed with [1]. The statistical analysis
showed a statistically significant effect at the
significance level (0.05 ≥α) for external audit on the
credibility of financial reports in Jordanian
insurance companies. The researcher attributes this
result to the fact that Jordanian insurance companies
contract with reliable audits this result agreed with
[13].
5.2 Recommendations
Jordanian insurance companies shall adopt
International Financial Reporting Standards when
preparing their lists and financial statements.
External auditors shall participate continuously in
training programs and workshops to keep abreast of
everything new in the audit profession, especially
about the insurance sector.
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Ayman Saleh Mustafa Harb,
Osama Mohammad Khaleel Ballout,
Omar Fareed Shaqqour,
Hamza Mohammad Ahmed Khuzamieh
E-ISSN: 2224-2899
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
The authors equally contributed in the present
research, at all stages from the formulation of the
problem to the final findings and solution.
Sources of Funding for Research Presented in a
Scientific Article or Scientific Article Itself
We thank Zarqa University for the financial support.
Conflict of Interest
The authors declare no conflicts of interest.
Creative Commons Attribution License 4.0
(Attribution 4.0 International, CC BY 4.0)
This article is published under the terms of the
Creative Commons Attribution License 4.0
https://creativecommons.org/licenses/by/4.0/deed.en
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WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2024.21.102
Ayman Saleh Mustafa Harb,
Osama Mohammad Khaleel Ballout,
Omar Fareed Shaqqour,
Hamza Mohammad Ahmed Khuzamieh
E-ISSN: 2224-2899
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Volume 21, 2024