The Role of Institutional Related Factors in Shaping the Usefulness of Public Sector External Auditors’ Recommendations

Abstract

The study examined the effect of institutional related factors on the use of public sector external audit recommendations in Tanzanian Local Government Authorities (LGAs). Based on institutional and stewardship theories, the study measured the influence of auditees’ risk management activity, management commitment and a culture of transparency on perceived usefulness of audit
recommendations. Data was gathered from a sample of 126 district council directors who responded to structured questionnaires through a descriptive explanatory cross-sectional research design. The research used descriptive statistics, correlation and multiple regression analysis. Results showed that the impact of all institutional factors on perceived usefulness of audit recommendations were significantly positive. The factors of auditees’ risk management had the highest influence (β = 0.264, p < 0.001), second were about management commitment (β = 0.195, p = 0.004) and a culture of transparency (β = 0.172, p = 0.007).The multivariate model explained 29.0% of the variance in the perceived usefulness of audit recommendations, suggesting a moderate predictability. These results suggest that the degree of institutionalization, ethical leadership and robust risk management mechanisms may not only increase the bootstrap value but also facilitate usefulness of audit recommendations. In sum, the study suggests that enhancing managerial accountability and transparency can significantly enhance the usefulness of external auditors’ recommendations
in public sector entities. The study recommends institutional reforms, which should focus on values-based leadership, risk- based governance, and transparency in all decision-making processes that would improve usage of audit recommendations for higher yields and better accountability outcomes.
Keywords: Institutional Factors, External Auditors’ Recommendations, Management Commitment, Transparency Culture, Risk Management Practices, Public Sector