Current study seeks to analyze the impact of corporate governance mechanism on audited financial statements reliability by analysing mediating effect of auditor quality. Study based on primary data which was collected from 188 respondents of Libyan banking industry through convenience sampling. Multiple regression analysis was used to determine the relationship among independent variables and mediating variable and bivariate regression analysis used to analyze the relationship among mediating variable and dependent variable. The current study used reliability of audited financial statement as a dependent variable and auditor quality as mediating variables. The independent variables in current study are; non- audit services, auditor rotation, measures of audit firm size, measures of audit firm fees and measures of audit committee characteristics. Result of current study stated that there is a direct positive relationship between corporate governance practices and auditor quality. The results also reveal a direct strong positive relationship between auditor quality and the reliability of audited financial statements. In terms of mediation, the findings of the study show that auditor quality partially mediates the relationship between corporate governance mechanisms and the reliability of audited financial statements.
The role of the auditor is essential for verifying the accuracy and correctness of the information provided by corporations. He acts as an intermediary between the management and the users of this financial information. To reduce the information asymmetry, the auditor has also to comminicate with those using the information he provides. Thus, it is important that the groups involved have an understanding of the audit’s meaning. However, in this case the opinions are divided. Several attitudes do exist concerning the expectations of the purpose and operation of the audit. Humphrey (1997) provides the most notable distinctions between views of auditing: as a socially oriented function, in which “the auditors are portrayed as ethical, socially responsible individuals”, and auditing as a monopolistic business.