Audit Quality Characteristics and Financial Reporting Quality Among Jordanian Small and Medium Enterprises: A PLS-SEM Approach

This study aims to examine the influence of geographical distance, social distance, auditor independence, technical quality, and process quality on the quality of financial reporting, providing a comprehensive understanding of the aspects that determine audit effectiveness. The research employs a quantitative technique, using Partial Least Squares Structural Equation Modeling (PLS-SEM) with bootstrapping (5000 resamples) to assess hypotheses grounded on agency and signaling theories. Data was collected via a survey administered to managers and proprietors of small and medium-sized firms (SMEs). A total of 186 valid answers were gathered and examined to investigate the relationships among the variables. All five recommended parameters had a favorable and substantial influence on the quality of financial reporting. Spatial distance was recognized as the primary predictor, followed by process quality, social distance, technical quality, and auditor independence. The model explained 26% of the variance in financial reporting quality. This research is one of the first investigations to systematically analyze how certain variables of audit quality—specifically physical distance, social distance, auditor independence, technical competence, and process quality—affect financial reporting results. The main contribution is in the use of original survey data, which provides novel information about how organizations evaluate and choose audit service providers and how these decisions eventually affect reporting quality. The focus on small and medium-sized organizations enhances the importance, since these companies often encounter limitations that impede their capacity to uphold elevated reporting requirements. This research enhances the current literature by consolidating many dimensions of audit quality into a unified analytical framework, so providing a more thorough knowledge of the interrelated variables influencing financial reporting procedures, especially in emerging nations. The results provide pragmatic insights for regulators and practitioners aiming to bolster audit efficacy and improve the dependability of financial reporting in these circumstances.