Auditor independence and financial reporting: The moderating contextual variables: A case of emerging market banks

This research investigates the relationship between external auditor independence and the financial reporting quality (FRQ) in the banking sector of Jordan. It specifically examines the mediation role of corporate governance, environment, auditor tenure, fees, size of the auditing firms, and bank-related factors. A partial least squares structural equation modeling (PLS-SEM) approach is used to analyze survey findings based on 287 responses from financial experts of commercial and Islamic banks. Findings have found that auditor independence has a strong and direct positive association with FRQ. Corporate governance and environments are found to have significant mediations, suggesting that auditor independence is more effective within strong institutional environments. However, auditor tenure has been found to have a non-linear moderation effect. It implies that moderate tenure increases FRQ, while excess engagement weakens independence. Findings also negate any association of fees, size of auditing firms, and bank-related factors (Nguyen et al., 2023; Okoh & Audu, 2024). Research contributes to theories of agency and institutions by placing a strong emphasis on the importance of governance and environments in facilitating auditor independence. These findings also underscore the importance of implementing effective regulatory practices in developing countries worldwide.