Internal audit function: an exploratory study from Egyptian listed firms

Abstract

PurposeThe purpose of this paper is to explore the nature and characteristics of internal audit function in Egyptian listed firms and assess its ability to fulfill its role in corporate governance.Design/methodology/approachThe study has been carried out through a questionnaire survey that aims to explore the internal audit function in Egyptian listed firms from four main aspects: insourcing or outsourcing arrangements of the internal audit function; organizational setting; activities; and interaction with external auditors.FindingsThe findings of the study reveal that a large proportion of Egyptian listed firms have internal audit function, but internal audit function in these firms is less matured. Internal audit function has low levels of organizational independence, management support, and qualification of internal audit staff. Also, the results reveal that internal audit function is still focused on financial audit and internal controls compliance and has not yet moved towards the expanded new role explained in Institute of Internal Auditors's new definition. Finally, the results indicate that there is a weak level of interaction between internal and external auditors in Egypt. These results suggest that internal audit function in Egyptian listed firms, in its current status, faces many difficulties that affect negatively its effectiveness in corporate governance.Research limitations/implicationsThe findings of the study create doubt about internal audit's role as a corporate governance mechanism in Egyptian firms and, therefore, indicate that extensive efforts should be made to enhancing the internal audit profession in Egypt. The results of the study should be considered by regulators in Egypt in order to begin the necessary actions for legally pending the Egypt Code of Corporate Governance issued in October 2005 and in order to begin the necessary actions for developing the internal audit profession. However, owing to relatively small sample size, these finding should be interpreted with caution.Originality/valueThis paper contributes to the understandings of the nature and characteristics of internal audit function by empirically exploring the nature and characteristics of internal audit function in Egypt, as an emerging market.