The Moderating Role of Sustainable Innovation on the Relationship Between Internal Audit Effectiveness and Sustainable Auditing Practices in Libya’s Public Sector

This study aims to examine the moderating role of sustainable innovation (SI) in the relationship between internal audit effectiveness (IAE) and sustainability auditing (SA) practices in Libya’s public sector. It also explores the influence of audit standards and principles (ASP) on SA practices, emphasising their role in strengthening sustainability governance and environmental, social, and governance (ESG) compliance. A quantitative, cross-sectional survey design was utilised, targeting financial and governmental institutions in Libya. Data were collected from 500 valid responses and analysed using hierarchical regression and PLS-SEM to evaluate the relationships among IAE, SI, ASP, and SA practices. Robustness checks were performed to ensure statistical reliability. The findings reveal that IAE significantly enhances SA practices, reinforcing transparency and ESG reporting. SI positively moderates this relationship, demonstrating that innovation amplifies the impact of effective internal audits on sustainability outcomes. While ASP contributes to SA practices, its effect remains limited unless combined with strong internal audit functions and sustainability initiatives. The interaction effects underscore the necessity of integrating innovation and regulatory frameworks to optimise sustainability auditing. This study is limited to Libya’s public sector, which may affect the generalisability of the findings. Future research could conduct comparative analyses across different regulatory environments. The results highlight the importance of fostering innovation in auditing practices and aligning internal audit functions with sustainability frameworks to enhance ESG accountability and compliance. This study contributes to the existing literature by integrating SI and ASP into the internal audit framework, offering new insights into their combined effects on SA practices in emerging markets.