Contribution Of Internal Audit Research Articles

The Role of Internal Audit in The Merger and Acquisition Process to Provide Added Value: A Critical Review

Purpose – This research focuses on how internal audit influences added value in the merger and acquisition (M&A) process. One of the internal audits provides value added by doing due process diligence For M&A transactions. The failure rate in creating value for companies and shareholders through M&A is still relatively high. Factors contributing to such failures include cultural differences between organizations, overly optimistic decisions based on market assessments, overestimating synergies, and inappropriate technology assessments. In overcoming these risks, the role of internal audit becomes crucial. This research underscores how internal audits can aid in recognizing and addressing the risks linked to M&A, particularly during the strategy, feasibility assessment, and results integration implementation phases. Methodology – This research uses descriptive qualitative analysis methods Findings – Research demonstrates that internal audit plays a vital role in guaranteeing the seamless operation of the M&A process. Internal audits help identify the various risks involved in the M&A process, from market and financial risks to legal and cultural risks. In addition, internal audits also provide recommendations for improvements needed to ensure that the M&A process runs according to the company's plans and goals. Thus, the contribution of internal audit is significant in ensuring the success of every M&A transaction carried out by the company. Originality – This article comprehensively discusses internal audit activities in the M&A process so the internal audit activity can add value to the company.

Case Study: Internal Audit's Contribution to Financial Sustainability in Self-Financing Units

The aim of this research is to demonstrate the role of internal audit activity in achieving financial sustainability in self-financing units, and to achieve the objectives of the research and test its hypotheses, we conducted a case study in municipal institutions in Nineveh Governorate. One of the most important findings of the study that the researchers reached was the weak role of internal audit in achieving financial sustainability, the lack of adoption of modern internal audit objectives, and the lack of a clear program for internal audit prepared according to sustainability. The study concluded with a number of recommendations, the most important of which are: Activating the internal audit advisory services with regard to the financial sustainability of the unit, directing its expenditures and maximizing its revenues, and the internal audit should measure the financial sustainability of the financial reporting information through specific quantitative measures.

The Contribution of Internal Audit to the Performance of the Internal Control System

Internal control is increasingly seen as the foundation on which the company relies to ensure, on the one hand, the effectiveness and efficiency of operations, the quality of information and compliance with laws, regulations and policies, and on the other hand, to prevent and control risks that may affect the achievement of objectives. Therefore, internal control encompasses all the different types of security that exist within the organisation to provide reasonable assurance that objectives are achieved. In short, through the deployment of an effective and efficient internal control system, a company is better equipped to achieve its objectives and avoid pitfalls and imponderables. Furthermore, internal auditors are part of the steering framework. Thus, they have the possibility to carry out evaluations, whether permanent or punctual, on the other elements of internal control. Therefore, internal audit is an element of the internal control system, and its purpose is to ensure that all the company's operations are under control and that the company is managed efficiently and transparently. The ultimate objective of our research is to analyse the role of internal audit as a performance tool of the internal control system.

Contribution of Internal Audits on the Effectiveness of Procurement Assignments in Tanzania’s Local Government Authorities (LGAs)

The paper assesses internal audit effects on procurement in Local Government Authorities (LGAs). The data is from a structured questionnaire to 241 respondents from LGAs, Public Procurement Regulatory Authorities (PPRA), Internal Audit General office and the National Audit office. The study uses exploratory factor and multiple regression methods to analyse the data using STATA programme and finds that internal audit competencies, procedure and independence affect positively the contribution of internal audit to procurement by LGAs. Thus, the study recommends that internal auditors be exposed to different audit environments and implement strictly the Public Procurement Act (PPA). Employers should employ auditors with various skills. Auditors should know the procedure in PPA and the procurement cycle, which the entities have to follow. Lastly, authorities should enforce the auditors’ independence through providing sufficient resources for the internal audit functions, ensure the audit units access all information and discourage political interference in auditors’ work.

Internal Audit and Added Value: What is the Relationship? Literature Review

In the current economic context marked by the relentlessness of the competition, the internal auditor is often called upon to put his skills at the service of organizations in order to control risks and evaluate internal control systems. Consequently, he contributes to the creation of value. The purpose of this paper is to analyze the theoretical foundations of internal auditing and their relationship with the value creation for organizations. Through a literature review on the contribution of internal audit to value creation, we found that the results of the majority of these papers supported a positively significant relationship. However, by conducting a critical analysis of models used, we demonstrated the methodological limitations that may bias these results. As a result, we have listed the limitations of traditional indicators of value creation (Return on Assets, Return on Equity, discounted cash flows, among others); thus, we have argued the superiority of the Economic Value Added (EVA), as a measure indicator of value creation through the inclusion of the cost of capital in its structure. Following these well-founded results, a subsequent study will be conducted to empirically test the contribution of internal auditing to value creation by integrating EVA as a measure of value creation.

The Contribution of internal audit to the corporate performance: a proposal of measurement indicators

This paper relies on the link between internal audit and corporate performance.
 Indeed, internal audit is an important function in the company as it plays the role of counselor to good management and towards improving the competitiveness of organizations. However, to fully take this role, structure of internal audit is expected to have qualified staff who care for the effectiveness of procedures and control costs. An effective audit helps to increase business performance through risk management, by improving production and management processes and maintaining an internal control itself which will arise later in a in a contribution performance.
 The objective of this article is to propose and calculate indicators that will allow us to measure the contribution of the structure of internal audit performance. To collect data for this study, we conducted in-depth interviews and a survey using a questionnaire to various employees of an SME

Internal audit and financial performance of Yemeni commercial banks: Empirical evidence

This study seeks to verify the contribution of internal audit (IA), especially its role in improving financial performance in Yemeni commercial banks, with a specific focus on three factors, namely: the independence and objectives of IA, the quality of IA and the size of IA. This study reviews some existing literature on the contribution and role of IA in improving financial performance. It relies on available data from questionnaires. 90 questionnaires were distributed to nine commercial banks in Yemen (23 branches) working under the supervision of the Central Bank of Yemen; 81 questionnaires (90%) were regained and used in the process of analysis. To analyze the data, three analysis approaches were used, including description, correlation, and regression. The results showed that the IA has a significant impact on the overall performance of Yemeni commercial banks. Furthermore, the results showed that the auditors’ efficiencies, as well as their financial and accounting experiences, have a significant and positive impact on financial performance. It was revealed that the independence and objectivity of internal auditors are highly insignificant for financial performance. However, the size of IA and the frequency of the auditors’ meetings have a negative and significant effect on financial performance. This study provides some recommendations for improving the effectiveness of IA, which in turn will contribute to improving financial performance.

Audit Committees in Maltese Listed Companies and their Perceived Effectiveness: An Assessment

Purpose: In this study we assess and analyse the effectiveness of Audit Committees within Maltese Listed Companies with respect to the following five determinants: composition, authority and resources, diligence, internal audit contribution and assessment. Design/Methodology/Approach: In order to ensure that the objective was achieved, this study adopted a qualitative mixed-method approach to collect data. Sixteen semi-structured interviews were conducted with ten Maltese Listed Companies representatives, four External Auditors and two Regulators. Findings: The findings indicate that there is still some disagreement as to the extent of Maltese Audit Committee Effectiveness. The appointment of Audit Committee members is left to the discretion of the Board, which tends to appoint the Non-Executive Directive to the Audit Committees without sufficient considerations for their competences and possibly their effective independence. Additionally, Audit Committees might be over-burdened with extremely varied objectives and with insufficient resources for them to reach all such objectives. Practical Implications: Audit Committee meetings held by Maltese Listed Companies seem to surpass the minimum requirement stipulated by law and this is perceived to be contributing to their effectiveness. Moreover, although Internal Audit Functions are seen as fundamental for Audit Committees to reach their objectives, the lack of a statutory requirement to establish IAFs is probably negatively impacting Audit Committee Effectiveness. Originality/value: Finally, although there seems to be a general opinion that Audit Committees assessment is necessary, the introduction of tighter regulation, such as a statutory requirement to introduce an independent third party in such process, is likely to encounter opposition.

Internal audit as an antecedent of economic growth

PurposeThis paper reports a study that examines the role of the internal audit function as a cornerstone of corporate governance, on economic growth.Design/methodology/approachData were obtained from 108 countries for the period 2011–2015. The World Bank, the Institute of Internal Auditors Research Foundation and the Transparency International Corruption Perception Index were the data sources. Two statistical techniques were used: regression analysis to test the study hypotheses and the Chi-squared test to determine whether variations between countries.FindingsThe findings suggest that conformance with internal audit standards and maturity (in years) of the internal audit department contribute to economic growth. They also reveal a relationship between the professional standing of internal audit staff (represented by professional qualifications and number of training hours annually) and the contribution to economic growth, that being that the greater the professional standing of staff, the greater internal audit conformance to the standards and the higher the contribution to economic growth. Further, the findings reveal that the impact of internal audit on economic growth varies among countries according to income classifications.Originality/valueThe consideration of internal audit as one of the four fundamental bases of corporate governance, and therefore, its relationship with economic growth is a neglected topic in the research arena. This study addresses that shortcoming by providing worldwide evidence on the contribution of internal audit to economic growth and, thus, makes a new contribution to the literature. Further, evidence is provided to enlighten poorly performing economies of the value of mandating the presence of internal audit and the compliance of it with international internal audit standards.

The Practices and Effectiveness of Internal Auditing among Public Higher Education Institutions, Ethiopia

The existence of multi-dimensional measures of internal audit effectiveness, and the findings of most prior studies are not consistent. As a result of this, to add knowledge to the existing literature and to give direction to the institutions, the study focused on the comparison of the practices and effectiveness of internal auditing among public higher education institutions in Ethiopia. With regards to the sampling techniques employed towards achieving the objective of the study, proportional stratified random sampling, purposive sampling and census were used for the selection of sample institutions, the relevant department and the appropriate respondents respectively. Following this, a total of one hundred sixty (160) questionnaires were distributed to the internal auditors of the sampled institutions out of which one hundred twenty-one (121) questionnaires were effective. The internal auditors were picked from eighteen sample universities out of the 30 target universities. The respondents were considered based on their direct attachment to the study area. By using analysis of moment structures (AMOS), the confirmatory factor analysis was used to identify a set of items which are strongly related to the variables. The Chi-Square test was applied to analyze the data. Top management support, organizational independence, adequate and competent internal auditors, internal audit charter, quality of internal audit work, career and advancement, management perception of internal audit function value, information technology, and objectivity of internal auditors were used as the proxy measures of internal auditing practices, whereas auditees’ evaluation, added contribution of internal audit, and auditing quality were used as the proxy measures of internal audit effectiveness. Out of these 12 variables employed in the confirmatory factor analysis, only 9 variables (top management support, organizational independence, adequate and competent internal auditors, internal audit charter, quality of internal audit work, information technology, objectivity of internal auditors, auditees’ evaluation, and auditing quality) were supported for further analysis. The findings of the study signified that, statistically, there was no significant difference in internal auditing practices and effectiveness among the public higher education institutions. The following could be the reasons for this insignificant difference: first, most public higher education institutions in Ethiopia are similar in policies, procedures, organizational contexts, rules and regulations, and organizational structure; and second, all the public higher education institutions share the same internal audit manual. It can be concluded that the use of electronic technology or modern auditing system instead of traditional auditing systems will improve the auditing activities of the institutions.

Cyber security assurance process from the internal audit perspective

PurposeThe purpose of this study is to analyze the cybersecurity assurance approaches to determine the key issues and weaknesses within the internal audit and risk management perspective. Organizations increasingly rely on digital data to drive their growth and they are interconnected in a complex web to a multitude of stakeholders.Design/methodology/approachIn this paper, cybersecurity is defined, and cybersecurity assurance model is explained based on the relevant literature. In addition, the role of internal auditing is introduced within this new business landscape. Finally, recommendations are made to provide best practices for stakeholders.FindingsThere are four major cyber-focused standards and frameworks in the current literature, namely, Control Objectives for Information and Related Technology, International Organization for Standardization, The American Institute of Certified Public Accountants and National Institute of Standards and Technology. In addition, there are many mechanisms in existence and operation currently which support cybersecurity assurance to prevent major threats. These include risk assessment, risk treatment, risk management, security assurance and auditing.Research limitations/implicationsCyber risk is not something that can be avoided; instead, it must be managed. Hence, it is very important to maintain formal documentation on related cyber controls. Internal audit should be an integral part of cybersecurity assurance process, as internal audit have a unique position to look across organizations. The contribution of internal audit also provides comfort to the Board and Audit Committee.Practical implicationsA model is introduced how the internal audit and information security functions could work together to support organizations accomplish a cost-effective level of information security. The key issues and approaches are explained for how to become a trusted cybersecurity advisor and a sample cybersecurity awareness program checklist is provided at Appendix 1.Social implicationsConsidering cybersecurity threats grow with speed, complexity, and impact, organizations are no longer satisfied with an answer to a question like “are we secure?” instead, they need the answer for such a question like “how to give a reasonable assurance that our business will be secure enough?”. In that respect, the role of internal audit is discussed based on the relevant literature and the current condition of the business environment.Originality/valueA model is introduced how the internal audit and information security functions could work together to support organizations accomplish a cost-effective level of information security. The key issues and approaches are explained for how to become a trusted cybersecurity advisor and a sample cybersecurity awareness program checklist is provided at Appendix 1.

The Contribution of Internal Audit to the Improvement of Internal Control System

In order to be more flexible in a perpetual mutational environment and face up to damaging effects of an economic situation in strong growth, organizations have to acquire efficient management tools allowing them to accomplish their objectives and to protect themselves against inherent risks. The implementation of an internal control system is considered to be the guarantor of an invincible organizational system and a means of control of risky operations. However, an applied and well conceived internal control provides the organization just a reasonable and not an absolute insurance about its objectives realization and sustainability. It is the reason for which an upper level control, accomplished by the internal audit function, seems to be a palliative to the internal control deficiencies, and a means of supervising and evaluating the application of procedures and internal control rules. Thus, this research aims at demonstrating how internal audit can participate to the improvement of internal control system. In this context, we have introduced a qualitative study, which was based on a sample of 10 Moroccan publicly traded companies that operate in many industries. Through the interviews conducted with this sample, we had identified firstly, the different control levels within organizations, and their degree of effectiveness and their capacity to face up risks as well as the limits of each type of control. Secondly, this research explored that internal audit is considered as a response to the insufficiencies of different lower control levels, and a means of monitoring and piloting the effectiveness of internal control system, across notably the recommendations provided.

The Relationship between Internal Audit Characteristic, Audit Committee Characteristic and Interaction between Internal Audit and Audit Committee on Internal Audit Contribution

The Malaysian Code of Corporate Governance (MCCG) was first introduced in 2000 and it was then revised in 2007 and 2012. This was then followed by the Bursa Malaysia Revamped Listing Requirement in 2001 and Guidelines on Internal Audit Function for Public Listed Companies in 2002. These enacted reforms aim to promote and improve corporate governance in public listed companies in Malaysia.

The Critical Role of Internal Audit in Addressing Bank Fraud: A Conceptual Framework and Critical Review of the Literature with Future Extensions.

The recent global financial recession highlighted the critical role that the banking system plays in the modern economy. Banks are complex financial institutions that operate in a constantly changing business environment and deal with high levels of risk, while facing fraudulent actions in regular basis. In order to address these problems, banks engage in various internal audit techniques such as the implementation of controls and prevention tools, the usage of anti-fraud methods and data mining. The aim of this paper is to redefine the contribution of internal audit in the banking system by highlighting its crucial role in addressing bank fraud. This is achieved by initially proposing a new conceptual framework and then by providing a thorough critical review of both theoretical and empirical literature which helps in determining the value of internal auditing. The results confirm the fact that internal audit can play a major role in risk assurance and bank fraud management thus, ensuring their normal and uninterrupted operation. The paper also provides some useful insights for future application of internal audit methods in the banking sector thus, laying the ground for a fruitful dialogue among the various stakeholders.

The Effect of Internal Audit Function Quality and Internal Audit Contribution to External Audit on Audit Fees

Corporate governance mandates and listing rules identify internal audit functions (IAF) as a central internal control mechanism. External auditors are expected to assess the quality of IAF before placing reliance on its work. We provide evidence on the effect of IAF quality and IAF contribution to external audit on audit fees. Using data from a matched survey of both external and internal auditors, we extend prior research which is based mainly on internal auditors' assessment and conducted predominantly in highly developed markets. We find a positive relationship between IAF quality and audit fees as well as a reduction in audit fees as a result of external auditors' reliance on IAF. The interaction between IAF quality and IAF contribution to external audit suggests that higher quality IAF induces greater external auditor reliance on internal auditors' work and thus result in lower external audit fees.

Statistical Analysis of the Role of Internal Audit in Promoting Good Governance in Public Institutions in Kenya

Internal Auditing has increasingly been recognized as an integral part of modern control structures and governance practices in both the private sector and public service. It has also been adding value in organizations across all sectors for many years in order to fight against the global financial crisis and recent cases of corporate frauds that have brought into sharp focus the consequence of the precarious role to be played by the internal auditors in ensuring good corporate governance. The main objective of this study was to find out how the Risk Management, Control Process and Governance Process, which are functions of internal auditing are being recognized today at high level in many organizations, especially in public Sectors, when well structured and given the required mandate to perform, improves performance and serves as valuable contributors in Promoting good governance in its functions which are accountability, transparency, effectiveness & efficiency and responsiveness in the public institutions in Kenya. The research adopted both the descriptive and correlation research designs in order to be successful, where 370 out of 398 respondents, sampled from eighteen (18) public institutions, completed a structured questionnaire. The events were recorded; analyzed, interpreted and described by using SPSS version 20 and the specific tools that were adopted in order to identify the levels of contribution of Internal Audit in Good Governance in the public institutions, respondent responses were determined by their demographic profiles. Parametric statistics were used to derive a meaningful conclusion from the empirical data using tools like descriptive statistics, t-test and Pearson Correlation. The study concluded that there is a strong significant relationship between Internal Audit and Good Governance in Public institutions.

Hubungan dan Pengaruh Audit Internal atas Fungsi Produksi untuk Menilai Efektivitas dan Efisiensi Proses Produksi

The objective of this study is to examine the relationship and the influence between the internal audit toward production function to assess effectiveness and efficiency of the production process at PT.Sumber Nitrat Jaya. The type of research is survey with descriptive research and analysis technique used is the analysis of qualitative data and quantitative data analysis. The sample was 30 respondents. Based on the significance test of correlation coefficients between the variables, it shows a correlation between internal audit with the production function to assess the effectiveness and efficiency of the production process obtained a correlation coefficient of 0.950, which means there is a very strong relationship. By testing the hypothesis that the correlation of the results obtained there is a significant relationship between internal audit with the production function to assess the effectiveness and efficiency of production processes in PT Sumber Nitrat Jaya, because of Ho1 was rejected and Ha1 was accepted where t count HA1> T Table (16.156>2.048). Significance test based on the regression parameter showed a simple linear regression of Y = 4.523 + 0.581 X + ε. This is supported by testing hypotheses derived regression t count> T Table (16.156> 2.048) then there is a significant influence of internal audit toward the production function to assess the effectiveness and efficiency of production processes in PT Sumber Nitrat Jaya because Ho2 was rejected and Ha2 was accepted. This is also supported by the R square value of 0.903 obtained results, or 90.3%. This shows the contribution of internal audit in explaining the effectiveness and efficiency of production processes by 90.3% while the remaining 9.7% is explained by other factors not examined or not included in the model.

The Risk-based Role of Internal Audit within Albania, Public Organizations

The aspiration of Albania for European integration has added mandatory requirements for public sector to modernize the internal audit function in adherence with International Internal Auditing Standards. According to such Standards supported by Picket (2005) and CIPFA (2003) the internal audit is an assurance function that provides independent opinion on the effectiveness of internal controls that support the achievement of the organizations objectives. Internal auditors can provide consultancy service, in particular to aid management to improve the organization control environment. Meanwhile, Diamond (2002) explains that the internal audit role, remit, scope and activities are driven by the macroeconomic objectives and political stabilization. For those countries with governance problems the first objective is to ensure compliance with financial laws and regulations. Therefore, the most suitable approach for the internal audit is the compliance auditing to attain macroeconomic stabilization objectives. Therefore, the main question around which this paper is based is whether the public sector in Albania is ready to adopt the modern model of internal audit moving beyond the traditional compliance and financial remit to comply with recognized International Internal Audit Standards. This paper finds that although changes in Albanian normative framework since 2007, internal audit within government organizations are still adopting traditional approach of internal audit involving financial inspections rather than performance auditing activities aiming to provide opinion on risk management, control and governance. This paper analyzes that the embryonic risk culture of Albanian public sector, the lack of skilled internal audit resources and a little understanding of both managers and internal auditors with regard to the contribution of internal audit in risk management and corporate governance system aimed at achieving the government organizations objectives are the main reasons why the risk based model and consultancy role of internal auditors is not yet applied. Therefore, this paper recommends the internal auditors to perform additional consultancy tasks to enhance the internal control system and build the risk management methodologies and structures due to the management lack of knowledge. As soon as the organizations become risk mature the internal auditors can provide assurance appraisal service based on risks. The Practice Advisory Standard 1000 recommends principles which should be used as guidance for regulatory framework of internal audit function within Albania, public sector, guiding internal auditors in order for them to maintain their independence, objectivity and due professional care while conducting consulting service.

Internal Audit Attributes and External Audit's Reliance on Internal Audit: Implications for Audit Fees

This study aims to examine two aspects of internal audit quality, namely internal audit competency and internal audit contribution to financial statement audits. Consistent with the substitution view, this study predicts a negative relationship between the competency aspects of internal audit (the tenure of the existence of internal audit in the organization, internal audit staff expertise in IT and computer skills, training hours, internal audit staff professional certifications in accounting and auditing, and internal audit staff experience in auditing) and audit fees. Second, this study tests whether the contribution of internal auditors to financial statement audit reduces audit fees. The data analysis is based on a cross‐sectional regression model with observations of 73 public‐listed firms in Malaysia, which include publicly available data matched with survey responses from their internal and external auditors. The results of the study suggest that the competency of internal audit, namely the tenure of the existence of internal audit in the organization, training, internal audit staff prior experience in auditing and accounting, and certifications are associated with lower audit fees. Our findings for both aspects of internal audit quality (competency and internal audit contribution) lend support to the substitution view for explaining the links between internal audit quality and audit fees.

Reconciling Archival and Experimental Research: Does Internal Audit Contribution Affect the External Audit Fee?

Consistent with guidelines from external auditing standards, a large body of experimental and survey research suggests that an internal audit function (IAF) can contribute in ways that lead to decreased external audit fees; however, research using archival methodologies generally finds either no relation or a positive relation between proxies for IAF contribution and external audit fees. In this paper, we provide new evidence using a unique and previously unavailable data set to develop archival proxies of internal audit contribution. We find that SAS No. 65-based proxies for the contribution of internal audit are associated with lower unexpected external audit fees. We show that proxies used in prior archival studies are limited in their ability to capture the IAF’s potential contribution to external auditing, and suggest that the unavailability of high quality proxies could help explain the divergent findings of experimental and survey-based studies in relation to archival studies in this area. In addition, our results suggest that fee reductions are more strongly associated with the direct assistance of, than with reliance on work previously performed by, the internal auditor. Overall, our results provide evidence consistent with external auditing standards and with results from prior experimental and survey studies suggesting that IAFs can indeed contribute in ways that lead to lower external audit fees.