The Role of the External Auditor in Applying International Standard on Auditing 520 (Analytical Procedures) in Early Detection of Financial Distress in Companies Listed on the Palestine Stock Exchange

Abstract

This study examines the impact of external auditors’ use of analytical auditing procedures on predicting financial distress in industrial companies listed on the Palestine Stock Exchange. Its significance lies in enhancing the quality of external auditing and supporting the continuity of Palestinian companies, thereby protecting investors’ and shareholders’ interests and contributing to national economic stability. The study employed a descriptive-correlational approach, distributing a questionnaire to a sample of 152 external auditors practicing in Palestine. Results showed that the level of use of analytical procedures by external auditors was high, and that such use had a positive and significant effect on improving the ability to predict financial distress. Analytical procedures were found to contribute notably to explaining variations related to financial distress prediction, reflecting their critical role in the auditing process. The study recommends strengthening the application of analytical procedures through continuous training and adherence to international auditing standards, as well as enhancing cooperation between internal and external auditors to improve the accuracy of predicting financial distress and support business continuity.