The Effectiveness of Strategic Auditing in Assessing the Sustainability of Financial Performance and Structural Risks in Islamic and Conventional Banks in the Middle East: Toward a Balanced Model Between Governance Efficiency and Public Value Sustainability
DOI:
https://doi.org/10.31272/jae.i153.1526Keywords:
Strategic auditing, governance effectiveness,, structural risk,, sustainable financial performance,, public value,, Islamic banks,, structural equation modelingAbstract
The banking sector in the Middle East faces a pronounced gap between the complexity of structural risks that threaten the sustainability of financial performance and the capacity of traditional auditing tools to detect or interpret their implications—particularly considering the divergent regulatory and value logics that distinguish Islamic from conventional banks. The present study aims to analyse the structural foundations of strategic auditing as an interpretive framework for integrating governance, structural risks, financial performance sustainability, and public value.
The study adopts a quantitative methodology based on Structural Equation Modelling (SEM), drawing on data collected from 260 professionals specialising in auditing, governance, and risk management across six Arab countries. The confirmatory factor analysis demonstrates high levels of reliability and validity across the measurement scales.
The structural model reveals a strong positive effect of strategic auditing on governance efficiency and a direct negative effect on structural risks. It further identifies both direct and indirect effects on the sustainability of financial performance, with governance emerging as a central mediating mechanism through which the outputs of strategic auditing are translated into sustainable financial outcomes. Moreover, the findings indicate that structural risks substantially undermine financial sustainability, whereas sustainable financial performance enhances banks’ capacity to generate public value. Multi-group analysis uncovers statistically significant structural differences between Islamic and conventional banks. Islamic banks appear more sensitive to the effects of strategic auditing and structural risks, reflecting the distinctiveness of their institutional configurations and dual regulatory frameworks. The study’s scholarly contribution lies in proposing an integrated explanatory model that brings together strategic auditing, governance, structural risk, and public value within a single causal framework. The institutional understanding of strategic auditing guides regulatory practices aimed at fostering a more resilient, sustainable banking sector capable of generating long-term public value.
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