Internal Audit Function Research Articles

Digital engineering audit management strategy based on machine learning combined with wireless communication network

In response to the evolving landscape of the modern era, the requirements for engineering audit have undergone significant changes. To achieve efficient audit tasks and obtain accurate and reliable results, the integration of machine learning and wireless network technology has become essential, leading to the emergence of digital and information-based audit modes. This paper focuses on the development of a digital audit system that combines engineering audit management fusion with machine learning and wireless network technology. Such an approach reflects the dynamic shift in internal audit functions and objectives, providing clear guidelines for the future of digital audit management. By harnessing the power of machine learning and wireless networks, the digital audit system effectively addresses challenges associated with data management, sharing, exchange, and security during the audit process. Through seamless integration, it enables comprehensive electronic and digital management of internal and audit business processes. This research explores the platform’s functionalities and its potential application, using actual audit data for analysis. The proposed digital audit system showcases superior real-time data querying performance, heightened accuracy in checks, and enhanced retrieval capabilities. The simulation results validate the system’s efficacy, highlighting its ability to deliver true and dependable audit outcomes. By embracing digital transformation, the engineering audit field can harness the potential of cutting-edge technologies, thus paving the way for a more efficient, reliable, and future-ready approach to audit management.

The sourcing arrangements of internal audit function (IAF) under COVID-19 pandemic: empirical evidence from emerging market

The sourcing arrangements of internal audit function (IAF) under COVID-19 pandemic: empirical evidence from emerging market

AUDITING WITH AI: A THEORETICAL FRAMEWORK FOR APPLYING MACHINE LEARNING ACROSS THE INTERNAL AUDIT LIFECYCLE

Artificial Intelligence (hereinafter AI), and specifically, Machine Learning (hereinafter, ML), has shown tremendous potential to revolutionize the internal audit (hereinafter, IA) profession, from enabling audit coverage of entire test populations, to introducing objectivity in the analysis of key areas. However, prior literature shows that the multiplicity of innovation options can be overwhelming. This paper aims to offer a theoretical framework that would enable audit practitioners, within both industry and professional services, to consider how ML capabilities can be harnessed to their fullest potential across the internal audit lifecycle, from audit planning to reporting. The paper discusses how DA and ML capabilities relate to the internal audit function’s (hereinafter, IAF) remit, drawing from extant literature. In doing so, the paper identifies the most specific options available to IAFs to drive innovation across each segment of the audit lifecycle, leveraging various DA and ML techniques, and supports the assertion that auditors require a continuous innovation mind-set to be effective change agents. The paper also draws out the requirement for effective guardrails, especially with emerging technology, such as Generative AI. Finally, the paper discusses how the value arising from these efforts can be measured by IAFs.

Internal auditing's role in preventing and detecting fraud: An empirical analysis

Internal auditing plays a pivotal role in preventing and detecting fraudulent activities. However, the orientation and role of internal auditing in dealing with fraud risk can vary significantly across different companies. This study examines the relationship between the internal audit function (IAF) and fraud, providing new insights into the current practices of internal auditing. Using a survey dataset comprising responses from 275 Chief Audit Executives across Germany, Switzerland and Austria, we investigate factors that correlate with an increased propensity for IAFs to engage in fraud prevention and detection. Our findings suggest that a robust corporate governance environment significantly influences the extent to which the IAF is involved in preventing and detecting fraud. Shedding light on the positioning of internal auditing between management and the audit committee with respect to fraud, our results show that increased IAF involvement with management positively affects the level of activities to prevent and detect fraud, while increased IAF involvement with the audit committee has the opposite effect. Furthermore, we find that the propensity of IAFs to engage in fraud prevention and detection increases when the IAF applies technology‐based auditing techniques for risk identification. Our results have implications for building appropriate protection against the steadily increasing risk of fraud within organizations, while holistically addressing the ambiguity regarding the responsibility for preventing and detecting fraud.

THE ROLE OF INTERNAL AUDIT IN RISK MANAGEMENT OF CORPORATE ORGANIZATIONS

Abstract. The role of audit in a company is very important because auditis a control of all activities in the organization, so the function of internalaudit is to control all activities in the organization so that workimplementation is more effective and efficient according topredetermined standards, therefore the role of internal audit Thecompany's risk will be small because company risk management canhelp the company's risk of events that will be faced in the future. Thisresearch uses a qualitative approach which aims to understand thephenomena that occur in research subjects to assess research questionsand to provide data. based on the researchers' ideas. focuses on previousresearch findings regarding the role of internal auditors in implementinggood risk management for good corporate governance. Based on thedescription, analysis, data interpretation and statistical data processingthat have been described in the previous chapters, it can be concludedthat the level of effectiveness of the role of the internal audit function isimportant in operational risk management. Based on the calculationresults of the average level of effectiveness located in quadrant II in theCartesian Diagram, it shows that the role of the internal audit function inoperational risk management has been effective. The role of internalauditors in risk management is closely related to the risk managementsystem development stage. Top management must be aware of theirspecific functions and responsibilities in risk management. Topmanagement must provide appropriate signals to lower levels ofmanagement (top-down approach) to convince them of their operationalresponsibilities regarding for example the development andimplementation of internal controls. Keywords: Internal Audit, Risk Management

Optimizing Financial Auditing through Effective Audit Committees: A Comprehensive Literature Review

The proliferation of financial scandals worldwide has sparked a revolution in the way audit quality is conceived and assessed, highlighting the shortcomings of traditional approaches to the preparation and production of financial statements. Faced with this situation, the business and legal communities reacted by introducing new legislation on financial security. The new legislation shifts the focus of audit quality assessment towards an in-depth analysis of the audit process. Collective action has been taken by entrusting this task to the audit committee, which embodies the relational pivot within the control process, interacting in a concerted manner with both the internal and external audit functions. The aim of this article is to quantify the importance of setting up an effective audit committee within a company, by demonstrating the preponderance of its role as a central body in enriching and carrying out the audit mission, as part of an overall audit process.

The power of institutional investors: empirical evidence on their role in investment in internal audit function

PurposeInstitutional investors are major shareholders in publicly traded firms and play crucial roles in the financial and governance aspects of these firms. Despite their importance, little is known about their role in internal auditing. This study aims to fill this gap by investigating the relationship between institutional investors’ ownership and investment in the internal audit function (IAF).Design/methodology/approachThe study uses ordinary least squares regressions with two-way cluster-robust standard errors (firm and year) to estimate the relationship between institutional investors’ ownership and investment in IAF for Malaysian listed firms between 2009 and 2020.FindingsThe findings show that companies with higher levels of institutional ownership invest more in IAF, suggesting that institutional investors can effectively monitor managers due to their large holdings. Moreover, both transient and dedicated institutional investors are more likely to invest in IAF.Originality/valueThe results highlight the importance of institutional investors as a significant determinant of investment in IAF, which can aid regulators and managers in understanding the institutional investors’ role in governing and optimizing the efficient use of a firm’s resources. The findings also provide insight into institutional investors’ behavior regarding monitoring systems, which may inspire regulators and policymakers to consider increasing institutional investors’ participation to enhance governance structures.

The effect of the internal audit function’s perceived assurance versus advisory purpose on the external auditor’s reliance decision

PurposeThis study aims to examine the extent to which external auditors (EAs) use the work of the internal audit function (IAF) based on the purpose of its primary activities. The authors rely on attribution theory, which suggests that individuals search for meaning when an event occurs. In this setting, the authors explore how the overall (assurance vs advisory) or specific (e.g. risk management and evaluating internal controls) focus of IAF activities influences perceived EA reliance on the IAF’s work.Design/methodology/approachThe authors first explore the research question with data extracted from a broad, longitudinal survey conducted triennially by the national chapters of the Institute of Internal Auditors in Austria, Germany and Switzerland. The data includes responses from 2014, 2017 and 2020 administrations of the survey. The authors conduct a parallel survey with practicing EAs attending two training sessions of a European office of a global network firm. Hypotheses were tested using ordered logistic regression.FindingsAmong the chief audit executive (CAE) participants, the authors observe that a balanced or primarily assurance-related purpose of the IAF, relative to a primarily advisory-related purpose, is associated with higher perceived EA reliance. The authors observe similar perceptions of the extent of reliance among the EA participants.Originality/valueWith a unique data set of practicing internal auditors from three countries, coupled with a sample of EAs, to the best of the authors’ knowledge, this study is the first to examine differences in EA reliance across the IAF’s primary roles. The study relies on data from three European countries, which differs from prior EA reliance literature with a largely North American focus. Further, comparison between perceptions of EAs and CAEs is a novel approach and this paper’s findings suggest that perceptions of CAEs could be a reliable proxy for EA-intended behavior.

Peran Audit Internal Dalam Penerapan Peraturan Menteri Keuangan Nomor 112/PMK.03/2022

This research aims to investigate the role of internal audit in the context of implementing Minister of Finance Regulation Number 112/PMK.03/2022. These regulations have a significant impact on financial governance and accountability across various entities. With a focus on internal audit, this research explores how the internal audit function contributes to ensuring compliance with these financial regulations. This research method uses qualitative methods involving documentation analysis and interviews. The results of the research are expected to provide insight into the effectiveness of the role of internal audit in supporting the implementation of related Minister of Finance Regulations and provide recommendations for further improvements in the entity's financial management.

A Study of the Internal Audit Function of the University of Sierra Leone

A Study of the Internal Audit Function of the University of Sierra Leone

Making Sense of the Internal Audit Function: Towards Internal Controls Integration and Organizational Learning

Making Sense of the Internal Audit Function: Towards Internal Controls Integration and Organizational Learning

Internal Audit Function And Independence Of The Board Of Commissioners Towards The Company

As payment for conducting the audit, the auditor will impose audit fees on the entity being audited. A number of variables, such as the task's complexity, the level of skill needed to complete it, the pay scale for knowledge development programs, and other professional considerations, affect the fees that auditors charge to do audits. The purpose of this study is to determine the effects of audit fees for the Indonesia Stock Exchange's banking subsector between 2021 and 2022 on corporate risk, internal audit function, and board of commissioners independence. The study's population comprises firms that have been indexed on the Indonesia Stock Exchange for a certain timeframe, spanning from 2021 to 2022. Purposive selection was used to pick data from 100 banking subsectors that were listed on the Indonesia Stock Exchange for the study sample. In this study, quantitative analysis is used. The Eviews 12 software was used to conduct the analysis. The findings of the partial test indicate that the audit fee is influenced by the risk of the internal audit function and the independence of the board of commissioners, but that company risk and board independence have no effect on the audit fee.

The Role of Internal Auditors in Implementation Social Environmental Governance

The aim of this study is to know how big the role of the auditor is in raising awareness of the application of sustainability reporting and the extent to which information is disclosed on the aspects of Environment, Social and Governance (ESG). Several previous studies were used as objects reviewed. The result underscores the multifaceted contributions of internal auditors, ranging from providing assurance on ESG disclosures and conducting due diligence on business partners to engaging in consulting activities and fostering a sustainable supply chain. This practice emphasizes that ESG-related expertise within Internal Audit Functions (IAFs) is crucial for promoting ESG maturity and effective reporting. Collaboration between internal and external auditors is vital to maintain independence and objectivity, ensuring the quality and reliability of ESG-related information. The trend of integrating ESG considerations into audit processes aligns with the broader global shift toward responsible business practices, and it positions internal auditors as valuable contributors to corporate governance and stakeholder trust. As ESG gains prominence, the internal auditor's ability to navigate the complexities of ESG metrics and controls becomes a competitive advantage, reinforcing their role as a key player in achieving sustainable and responsible business outcomes.

The development of knowledge management implementation at the Financial and Development Supervisory Agency (BPKP)

The Financial and Development Supervisory Agency (BPKP), a pivotal public sector entity tasked with internal audit functions, recognizes the paramount importance of effectively managing auditors' experience and expertise. This study aims to delineate the Knowledge Management (KM) implementation stages within BPKP, a topic scarcely explored in Indonesian public-sector research. This study uses an abductive approach with a case study method by explaining a series of events over time with theory-based analysis. The results showed that the KM implementation in BPKP was carried out in four stages: preparation at the local level by conducting change management, work culture development, and initial research; implementation at the local level; implementation at the national level with a focus on the development of process, human, and technology aspects; and national development focuses on laying the groundwork for KM culture. There are KM implementation steps carried out by BPKP but not explained in the theory proposition: change management and developing a work culture that supports KM processes, initial research, benchmarking, and KM implementation regulations. BPKP needs to assess the maturity level of KM to determine the focus areas that need to be improved. This study contributes conceptually to KM frameworks tailored for public sector entities.

INTERNAL CONTROL SYSTEM AND EFFECTIVE INTERNAL SHARIAH AUDIT FUNCTION: A CONCEPTUAL FRAMEWORK

This study proposes a conceptual framework for the internal control system, as a necessary pre-requisite for an effective internal Shariah audit function in Islamic Financial Institutions (IFIs). To improve a strong management of risks that do not comply with the Shariah, it is imperative that the internal Shariah audit function is effectively operated. This study reviews existing literature on the internal Shariah audit function. By adopting contingency theory, this study then develops a conceptual framework for an effective internal Shariah audit function. The main argument presented in this article is that a strong internal control system leads to a more effective the internal Shariah audit function at managing risks associated with non-compliant events in IFIs. This study contributes to provide a clear direction to the IFIs in reshaping the prevailing Shariah audit function and Shariah governance arrangements.

Leveraging computer-assisted audit tools for corporate sustainability: Evidence from Ethiopia

The existing ample literature studied the factors for adopting computer-assisted audit techniques (CAATs) by internal and external auditors, frequently ignoring their impact on the quality of audits and companies’ efficiency. This study delivers new evidence on the kinds of CAATs utilized by internal auditors, examines their adoption impact on corporate sustainability, and studies the moderating impact of company characteristics. This study used data from internal auditors in Ethiopia gathered using a survey, and the study hypotheses were tested using the partial least squares-structural equation modeling (PLS-SEM) technique. The study found a moderate utilization of CAATs by internal auditors in executing their activities. The result also revealed a highly positive impact of internal auditors’ CAAT utilization on fraud discovery in the acquisition process. The study found that the intensity of this relationship is impacted by the companies’ characteristics of management commitment. However, the size and type of the company are not impacting it. This study finding complements prior studies and helps practitioners make decisions that can improve CAAT utilization in internal audit functions for a high level of companies’ sustainability.

The involvement of internal audit in environmental, social, and governance practices and risks: Stakeholders' salience and insights from audit committees and chief executive officers

We conducted 31 interviews with audit committee (AC) members, chief executive officers (CEOs), and chief audit executives (CAEs) to investigate the role of the internal audit function (IAF) in environmental, social, and governance (ESG) processes and related risks. We find that multiple possible combinations of the maturity of companies' ESG practices and CAE's perception of the IAF stakeholders' salience drive the type of IAF's involvement in ESG. In ESG‐mature companies with more salient ACs, the IAF provides assurance over ESG practices, ESG reporting, and reputation risks related to ESG, and it focuses on the governance dimension of ESG. When the CEO is perceived as more salient, the type of IAF's involvement includes both assurance over ESG controls in the supply chain and consulting on ESG activities. In contrast, in low ESG maturity companies with more salient AC, the IAF's role is limited to providing assurance over internal controls established to comply with environmental, health, and safety legal requirements, and prevent managers' unethical behavior. Finally, we discuss the implications for the IAF's ability to add value to the organization. We contribute to the underexplored research area of IAF's involvement in ESG practices and related risk.

Internal Audit in Public Hospitals: the case of Greece

Internal control is of utmost importance for effective corporate governance, particularly in public hospitals aiming for modernization in the Greek framework. Internal audit functions enhance transparency, enforce accountability, and ensure compliance with societal values, bolstering public trust. This study delves into the implementation of internal control in Greek public hospitals, considering factors like size, structure, and operational intricacies. We explore the regulatory framework, procedures, scope, and objectives, while interviewing auditing experts for insights into challenges and opportunities. Findings reveal procedural dominance in current implementation of the Law. Focus on accounting neglects crucial functional departments. The audit committee's role and composition raise independence concerns. Understaffing further hampers operations. A significant weakness appears in the independence of the audit. Internal auditors report to the hospital administrator and participate in the audit committee. The appointment and remuneration of auditors is not based on the auditor's competence and suitability, but on a cost basis. The question therefore arises as to whether the auditor performs the duties objectively and impartially in accordance with the International Institute of Internal Auditors' standards. Furthermore, regarding the research question on the role of the internal auditor and the treatment by auditees, there has been a significant improvement as evident by the respondents’ answers.

Internal Audit Quality In North Sumatra Government

This study explores the concept of internal audit quality within the context of the North Sumatra Government. The focus is on understanding the factors influencing and contributing to the effectiveness and reliability of internal audit practices in the region. Through a quantitative research approach, data is collected to analyze the key components of internal audit quality and their impact on organizational governance. The study employs a survey methodology, distributing questionnaires to internal auditors, management, and other stakeholders involved in the internal audit processes of North Sumatra Government agencies. The research investigates factors such as adherence to professional standards, competency of internal auditors, independence, and the effectiveness of communication within the internal audit function. Preliminary findings indicate a correlation between internal audit quality and the overall governance and risk management framework within the North Sumatra Government. The study contributes to the existing body of knowledge by providing insights into the specific dynamics and challenges faced by internal audit functions in the public sector. The implications of this research extend to government officials, policymakers, and internal audit practitioners, offering recommendations for enhancing internal audit quality to strengthen accountability, transparency, and organizational performance within the North Sumatra Government. The results aim to inform decision-makers and contribute to the continuous improvement of internal audit practices in the regional public sector.

Implikasi Peran Auditr Internal Dalam Tata Kelola Perusahaan

The internal audit function continues to evolve in line with changes in the business environment. In Europe, the challenging business environment is closely related to risks and corporate governance issues. As a result, a shift in the internal audit function in addressing corporate governance issues demands greater independence from the function. Responding to the need for a more independent internal audit function, a decision regarding the appointment and dismissal of the head of the internal audit and his remuneration is required, which must be approved by the supervisor. These changes indicate that the role of internal audit in the governance management relationship has changed. This research provides an overview of these changes, the trends toward an increasing role of internal audit in corporate governance, the expected benefits of internal audit independence organizations, and the future challenges in European countries.