Monitoring and audit quality: Does quality standards compliance matter?

• Monitoring small and medium-sized audit firms (SMPs) has a significant positive impact on audit quality, with compliance with quality standards acting as a key mediating factor.
• Effective regulatory oversight and adherence to standards like ISA 220 and ISQM 1 ensure higher audit quality and bolster public trust in financial reporting.
• The study provides actionable insights for regulators, professional bodies, and SMPs to strengthen audit methodologies, enhance compliance, and support economic growth in developing economies like Ghana.

This study explores the relationship between monitoring small and medium-sized practice firms (SMPs) and audit quality, emphasizing the role of quality standards compliance as a mediating factor. Using data from 209 SMPs in Ghana and variance-based structural equation modeling, the study demonstrates a statistically significant positive link between monitoring and audit quality. Regulatory oversight improved adherence to revised standards like ISA 220 and ISQM 1, thereby enhancing the credibility and reliability of audits in a developing economy context.

The findings highlight the importance of effective monitoring mechanisms to address compliance gaps in emerging economies. Regulatory agencies and professional bodies must prioritize strengthening their monitoring frameworks, such as Ghana’s Quality Assurance Monitoring (QAM) unit. SMPs are encouraged to refine their audit methodologies, comply with ethical standards, and continuously update their practices to align with international quality management standards. These measures improve audit performance and enhance public confidence in the financial reporting ecosystem.

The study also underscores the broader economic implications of improving audit quality, such as attracting foreign investments and protecting shareholder interests. It calls for collaborative efforts between auditors and clients to ensure adherence to ethical practices and the use of appropriate reporting frameworks. While the research focuses on Ghana, its insights are relevant to other developing economies with similar characteristics. Future research could expand on this study by examining longitudinal data and further integrating additional variables to understand audit quality dynamics in diverse contexts.

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