The Effects of Political Instability on Financial Restatement in Libyan Banks: Evidence from External Auditors

Abstract

This study attempts to investigate the impact of political instability on financial restatement in Libyan banks from external auditors’ perspective. It focuses on the attitudes of external auditors as they play an important role in verifying the reliability of financial reports in the middle of politically unstable economic conditions. Data has been collected using 74 structured questionnaires that were distributed among external auditors working in the capital of Tripoli, Libya. Through using quantitative analysis, the research has examined the potential effects of political instability on the occurrence of financial misstatements and the subsequent financial restatements. Results indicate that political instability can significantly affect the quality of financial reports, largely through weakening institutional oversight mechanisms and compromising the independence of external auditors. these findings implies that unstable political conditions increase the risk of financial restatement by banks through the created ambiguity in standard compliance level and banks’ governance structures.