East African Scholars Journal of Economics, Business and Management Abbreviated Key Title: East African Scholars J Econ Bus Manag ISSN 2617-4464 (Print) | ISSN 2617-7269 (Online) Published By East African Scholars Publisher, Kenya Volume-3 | Issue-6 | June-2020 | DOI: 10.36349/EASJEBM.2020.v03i06.074 *Corresponding Author: Fuad Elmahedi Hussein 545 Research Article Audit Firm Factors, and External Environment Audit Factors: Effects on Audit Quality in Libya Fuad Elmahedi Hussein 1 and Mustafa Mohd Hanefah 2 1 Faculty of Economics and Political Sciences, Azzaytuna University Libya 2 Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia Article History Received: 02.06.2020 Accepted: 14.06.2020 Published: 23.06.2020 Journal homepage: https://www.easpublisher.com/easjebm Quick Response Code Abstract: Purpose – This paper investigates in the relationship between the audit firm factors; i.e., planning, supervision, specialization in the industry, and audit firm size and audit quality. This study examines the moderating effect of the external environment audit i.e., professional bodies, laws and regulations, and recognized standards in the relationship between audit firm factors and audit quality. Design/methodology/approach – The sample comprises the external auditors from Libyan Association of Accountants and Auditors (LAAA). Data was collected 253 auditors by personally administered questionnaire. Multiple regression analysis is applied to examine the association between audit office factors and external environment audit, and audit quality. Findings – The regression analysis supported a postulate that the audit firm factors have significant positive relationship with the audit quality. But the results indicate that the external environment audit factors cannot moderate the relationship between the audit firm factors and audit quality. Originality/value – This is the first study examining the impact of external environmental factors moderating between audit firm factors and audit quality. Keywords: Audit firm factors, External environment audit factors, Audit quality, Libya. Copyright @ 2020: This is an open-access article distributed under the terms of the Creative Commons Attribution license which permits unrestricted use, distribution, and reproduction in any medium for non-commercial use (Non-Commercial or CC-BY-NC) provided the original author and source are credited. INTRODUCTION The question of whether auditors adequately play this role in safeguarding financial information by ensuring credible reporting has recently received much attention from customers, creditors, business relationships-shareholders, employees, public authorities, etc. (Johl et al., 2007). At the beginning of the new millennium, high profile corporate collapses worldwide (e.g, Enron Corp and World Com in USA; HIH Insurance Group in Australia; Sanyo, Nikko Cordial in Japan) are linked to the collapse of Arthur Andersen in 2002. It has captured the attention of regulators, auditors, academics, and investors not only in countries that suffered from such corporate collapses, but also in other countries that have not experienced such crises and problems (Carlin et al., 2008). Consequently, more attention is given to improve audit quality in order to block or at least reduce the probability of fraud and errors resulting in financial failures and to restore confidence in financial markets after they were shocked by the collapse of big firms. Audit quality is viewed as one of the factors that affect the credibility of financial information. Higher audit quality is assumed to result in more accurate information (Davidson, 1993). This study investigates audit quality by exploring the factors that help to enhance external audit quality in Libya. This paper investigates in the relationship between the audit firm factors; i.e., planning, supervision, specialization in the industry, and audit office size and audit quality. This study examines the moderating effect of the external environment audit i.e., professional bodies, laws and regulations, and recognized standards in the relationship between audit firm factors and audit quality. The following sections provide the literature review and hypotheses development, methodology, variable measurement and testing goodness of data, followed by empirical results, discussion of findings and conclusion. LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT This section displays the hypotheses of study based on the literature and the arguments provided by this paper as the following. AUDIT FIRM FACTORS Audit firm factors play a major role in improving audit quality. Among the tasks of the audit firm are; selection and appointment auditors, appropriation of auditors to clients the audit process, supervision of assistants‟ actions, setting up plans prior to auditing, following up works of its assistants and