Page 74 - Azerbaijan State University of Economics

Samuel Atsibha Gebreyesus: The Effect of Audit Legal Frameworks on Public
Expenditure Management …

2.2.2 The Lending Credibility Theory
According to this theory, the major objective of the audit is to provide credibility to
the financial statements. From this perspective, the service that the auditors are
providing to their clients is reliability. Users of financial statements notice aspects in
audited financial statements that give them more confidence in the data supplied by
management (in the financial statement). Users are seen to gain from improved
credibility, which is often thought to imply that the quality of investment decisions
improves when they are based on accurate information (Ittonen, 2010).

3. EMPIRICAL LITERATURE REVIEW
A numbers of topics emerge from the literature review and history review. One of
these is the fact that there are several complementary arguments for why auditing is
beneficial. The importance of agency relationships in understanding the value of
auditing is especially essential in the public sector, where these interactions are more
intricate. Auditing has always been necessary for management control (Cordery,
2017). According to (Mebratu, 2015), a research Conducted on internal audit
function and its challenges in public sector governance: Empirical evidence from
Amhara National Regional State, Ethiopia using the Ordinary Least Squares
multiple regression approach. The study found a link between the role of audit risk
management and professional audit standards, formal mandates, unrestricted access,
competent leadership, and management assistance and professional audit to be
found. Even the world's most advanced countries will not be able to completely
implement all of them. Research by (Yismaw, 2007) evaluated the effectiveness of
internal audits in Ethiopia's public sector. According to the standards are among
them. In several Sub-Saharan African countries, a few of these components can
study; internal audit effectiveness was determined by organizational setting, audit
quality, management support, and auditee characteristics. Internal audit quality and
management support were shown to be the most important criteria for the internal
audit function's performance, although organizational context and auditee
characteristics were not. Despite the fact that internal audit plays a critical role in the
performance of any business, institutional management does not respond adequately
to the findings and suggestions of internal audit.

4. SAMPLING PROCEDURE AND SAMPLE SIZE DETERMINATION
The study used primary data from the office of the auditor general of Ethiopia; using
a simple random selection method, respondents were selected from the auditing
staffs. The Yamane (1967) formula was used to determine the sample size.
To provide an overview of the relationship between public sector auditing and
public expenditure management in public sector entities, a descriptive analysis was
used based on the results of a structural equation model.

74