The relationship between corporate governance and audit quality on sustainability: A study on Saudi energy listed companies

Abstract

The study examines the influence of corporate governance on audit quality and their impact on SDGs 7 and 13, specifically focusing on Saudi energy companies. Considering recent developments in corporate governance mechanisms, such as the roles of the Board of Directors and Audit Committee, this study emphasises the importance of audit quality in promoting sound audit practices and ensuring reliable financial reporting. Consequently, it concludes that corporate governance and audit quality play a vital role in advancing SDGs 7 and 13. This research is motivated by Saudi Arabia’s challenge to diversify its energy sources within the framework of the Vision 2030 initiative, aligning with the objectives of the SDGs. The research aims to identify the specific governance challenges faced by energy companies in a region where energy is central and integrate these challenges into the broader SDG sustainable development agenda. It addresses gaps in the literature, particularly the scarcity of studies in Saudi Arabia that explore the impact of corporate governance on audit quality and the achievement of SDGs 7 and 13. Saudi Vision 2030 emphasises the importance of corporate governance, and existing studies suggest that improved corporate governance in developing countries could enhance audit quality and help achieve the SDGs. However, there is a lack of evidence-based conclusions on strengthening audit quality to meet corporate governance goals in the MENA region, including Saudi Arabia. Moreover, studying the environmental sustainability of energy companies in countries like Saudi Arabia is an urgent task. The study employs a mixed-methods approach, conducting interviews with 25 participants from the Saudi energy sector and surveying 201 participants involved in corporate governance, audit, and SDGs 7 and 13 in Saudi Arabia. This approach addresses gaps in the literature by incorporating qualitative information and being the first to include participant perspectives on overall audit quality. The theoretical framework combines agency theory and stakeholder theory to synthesise various interests and address corporate governance issues comprehensively. Methodologically, the study provides robust justification beyond purely statistical analyses. Empirical literature highlights the importance of good corporate governance and audit quality for achieving sustainability objectives related to clean energy provision and climate change mitigation. The interplay among governance, audit quality, and sustainability objectives is complex. This study’s theoretical and policy contributions are relevant for understanding the relationship between governance, audit quality, and SDGs. The evidence demonstrates the relationship between these objectives, aiding organisations and policymakers in designing effective governance frameworks and achieving sustainability goals. Overall, this study contributes to the literature by highlighting the unique challenges and opportunities for Saudi energy companies, emphasising the crucial role of corporate governance in enhancing audit quality and shaping future research and corporate strategies, and illustrating the complex interaction between good governance, improved audit quality, and achieving SDGs.