Audit quality and ESG-corporate sustainability performance: evidence on the mediating role of internal control system

Abstract With increasing pressure on companies to enhance their environmental, social, and governance (ESG) reputation, auditing has become a critical tool for ESG compliance and accountability. Although the significance of audit quality in the promotion of corporate sustainability has been outlined by previous researchers, little has been said about the role of internal control system. This study fills this gap by examining the relationship between the audit quality and the ESG-corporate sustainability performance, with a particular emphasis on the mediating role of internal control system. A quantitative approach was applied by focusing on the top 100 largest companies listed in the Saudi Stock Exchange (TADAWUL). The results indicate that auditor expertise, compliance, and responsiveness play significantly affect ESG-corporate sustainability performance, without the same effect being detected for the auditor skepticism. Furthermore, auditor skills as well as responsiveness is positively associated with the internal control system that is also found to have a significant positive relationship with ESG-corporate sustainability performance. Notably, the internal control system was found to significantly mediate the relationship between auditor expertise, compliance, and responsiveness and ESG-corporate sustainability performance, but no mediating effect was found for auditor skepticism. This study contributes to the literature by revealing the mediating effect of internal control system, thereby enhancing the literature base in the field of study. Empirically, the study provides practical insights for stakeholders and policymakers on how audit quality through the internal control system can enhance ESG sustainability performance in the Saudi context.