Internal Audit Function Research Articles

Internal Audit Function And Financial Accountability Of Laikipia County Government, Kenya: Application Of Internal Audit Independence

The public sector has experienced a growing demand for accountability and the need to optimize value within the constraints of limited resources. This research sought to assess the effect of internal audit function on financial accountability in the county government of Laikipia, Kenya. The specific objective of the study was to evaluate the effect of independence of the Internal Audit function on financial accountability of Laikipia County Government. The study targeted 105 employees working in the finance and economic planning department. Out of these, a sample of 51 employees were chosen and 48 questionnaires were duly filled and qualified for analysis. Data was gathered, sorted, coded, and entered on SPSS for analysis. Descriptive statistical analysis was applied to provide a summary of the data using mean as well as standard deviation metrics. Correlation and multiple regression analysis were employed to explore relationships and provide insights into the variables. The outcomes were presented using tables and charts. The questionnaire was found to be reliable, and the data was normally distributed and homogeneous, with no intercorrelation between the variables under study. The model adopted in the study was confirmed significant using ANOVA. Independence of the audit function was found to be a positive and significant predictor of financial accountability. The study recommended that policymakers should: enhance the independence of the audit function in Laikipia County Government by structurally separating the internal audit section from the Finance and Economic Planning department to strengthen its oversight capacity; implement measures to manage conflicts of interest, minimize management interference, and ensure adherence to auditing standards. To enhance effective financial accountability in the public sector, future research should examine factors influencing internal audit effectiveness

The relationship between audit committees, external auditors, and internal control systems: a literature review and a research agenda

Purpose This paper aims to focus on the relationship between audit committees, external auditors and internal control systems (ICS) and strives to point out mutual influences between the instances to provide an integrated perspective for firms’ multilateral monitoring mechanisms. Furthermore, this study emphasizes the incorporation of sustainability and fraud considerations into the traditional roles of audit committees and auditors. Design/methodology/approach This structured literature review is based on 71 empirical-quantitative studies published in high-quality journals between 2005 and 2022. Considering the classification of ICS into ICS quality and internal audit function, the studies are analyzed with regard to audit committees’ and external auditors’ characteristics, divided into incentives and competencies, as well as their mutual relationships. Findings This study highlights a dynamic trilateral network of relationships between monitoring authorities and primarily shows that audit committees equipped with adequate competencies generate a substitutive effect for external auditors by reducing their efforts, whereas ICS quality serves as a possible mediator in this network of relationships. The establishment of an integrative three-party coalition of competent and adequately incentivized monitoring parties is essential to guarantee sufficient and appropriate ICS and overall corporate governance quality. Practical implications The findings should prompt legislators and firms to ensure a deeper collaboration between audit committees, internal auditors and external auditors to generate synergy effects and economies of scale within the integrative monitoring process. Legislators should develop stricter requirements for competencies of audit committees and auditors. These should include a holistic triad of sustainability, fraud and digital expertise as well as mandatory forensic procedures performed by all monitoring bodies. Originality/value The authors contribute to prior research by highlighting the importance of an integrative three-party coalition of monitoring authorities to ensure corporate governance quality and to generate synergy effects within a dynamic multilateral monitoring process. Furthermore, the authors offer cutting-edge implications by stressing the need for consideration of sustainability and fraud aspects in the traditional work and profiles of audit committees and auditors.

Frontier AI developers need an internal audit function.

This article argues that frontier artificial intelligence (AI) developers need an internal audit function. First, it describes the role of internal audit in corporate governance: internal audit evaluates the adequacy and effectiveness of a company's risk management, control, and governance processes. It is organizationally independent from senior management and reports directly to the board of directors, typically its audit committee. In the Institute of Internal Auditors' Three Lines Model, internal audit serves as the third line and is responsible for providing assurance to the board, whereas the combined assurance framework highlights the need to coordinate the activities of internal and external assurance providers. Next, the article provides an overview of key governance challenges in frontier AI development: Dangerous capabilities can arise unpredictably and undetected; it is difficult to prevent a deployed model from causing harm; frontier models can proliferate rapidly; it is inherently difficult to assess frontier AI risks; and frontier AI developers do not seem to follow best practices in risk governance. Finally, the article discusses how an internal audit function could address some of these challenges: Internal audit could identify ineffective risk management practices; it could ensure that the board of directors has a more accurate understanding of the current level of risk and the adequacy of the developer's risk management practices; and it could serve as a contact point for whistleblowers. But frontier AI developers should also be aware of key limitations: Internal audit adds friction; it can be captured by senior management; and the benefits depend on the ability of individuals to identify ineffective practices. In light of rapid progress in AI research and development, frontier AI developers need to strengthen their risk governance. Instead of reinventing the wheel, they should follow existing best practices. Although this might not be sufficient, they should not skip this obvious first step.

MONITORING ACTIVITY IN THE RISK-ORIENTED INTERNAL AUDIT: A MODEL PROPOSAL

The purpose of this article is to make a proposal for process development for monitoring activities in a way that includes experiences gained from audits conducted in order to achieve the goal of risk-oriented internal audit function in institutions and to contribute a guiding study on the subject to the literature. In this study, first of all, the risk-oriented internal audit approach and monitoring process are explained with the document analysis method, and then a model for the monitoring process is presented and conclusions and recommendations are made. By using the document analysis method and the features of the risk-oriented internal audit approach, an original application process was compiled to test the risk and control processes for the internal audit activities required for an effectively functioning monitoring system. It is suggested that risk- oriented internal audit will be an important tool in increasing the added value for institutions with the monitoring system designed for risk- oriented internal audit activity, which examines the processes and offers suggestions for areas of development in order to ensure that all financial and non-financial resources are used effectively, economically and efficiently and to add value to the work of the organization.

The Mediating Effect of Information Technology Usage on the Relationship of Internal Audit Processes and Internal Auditor Competence towards Internal Audit Effectiveness: Evidence from the Chinese Financial Sector

The effectiveness of internal auditing is determined by various factors, such as the independence of the internal audit function, auditors’ competence, effective audit planning, efficient audit processes, and support from senior management. The digitalization and informatization of modern enterprises have transformed the way companies are managed and have similarly impacted internal audit practices. Informatization not only alters traditional internal audit processes but also changes auditors’ ways of working and thinking. From the perspective of resource-based theory, the effective allocation and full utilization of human, technological and organizational resources can enhance the effectiveness of internal audit. Therefore, the purpose of this study is to examine the impact of internal audit processes (IAP) and internal auditor competence (IAC) on internal audit effectiveness (IAE), as well as the mediating effect of information technology usage (ITU) on the relationship between IAP and IAC and IAE. To test the proposed hypotheses, a questionnaire survey was conducted within Chinese financial enterprises, yielding a total of 133 valid responses. Statistical data analysis was performed using the partial least squares structural equation modelling (SEM-PLS) method. The results indicate that both IAP and IAC have a significant impact on IAE and ITU. Furthermore, ITU serves as a mediating factor, enhancing the positive contributions of IAP and IAC to IAE.

The Moderating Powers of Internal Audit Function on the Relationship between Corporate Governance and Financial Reporting Quality of Publicly Listed Companies in Developing Countries: A Propose Framework

The Moderating Powers of Internal Audit Function on the Relationship between Corporate Governance and Financial Reporting Quality of Publicly Listed Companies in Developing Countries: A Propose Framework

LITERATUR REVIEW: SUATU TINJAUAN FUNGSI AUDIT INTERNAL TERHADAP TATA KELOLA PERUSAHAAN

Along with increasingly rapid economic development, the role of internal audit in companies is becoming increasingly important, especially for corporate governance. The trend of globalization is intensifying, and trade between countries is increasingly dense. This brings economic benefits to the company while increasing risks. In order to survive and thrive, companies must face more challenges. On the one hand, enterprises should increase investment in internal governance management, and establish institutions such as shareholder meetings, boards of directors, manager levels and supervisory boards, and gradually standardize corporate governance structures. On the other hand, strengthening the company's internal audit can not only improve the company's operational conditions, but also discover problems within the company in a timely manner and control them effectively. However, compared to other developed countries in Indonesia, the internal audit system was established too late, so these units have different experiences in learning from abroad, thus causing many problems in establishing internal audit institutions in Indonesia, and many companies do not do so. pay attention to internal audits. The purpose of this research is to provide an overview of the relationship between the internal audit function and corporate governance in companies.

Determinants of Internal Audit Effectiveness in Local Government Authorities (LGAs): Evidence from Morogoro Region of Tanzania

This study examines the determinants of internal audit effectiveness in Local Government Authorities (LGAs), addressing the growing importance of robust Internal Audit Function (IAF) in public sector governance. The study employed the descriptive research design based on a mixed research approach integrating both qualitative and quantitative approaches. Data were collected from 45 purposively selected respondents with extensive auditing experience. A multiple linear regression model was used to assess the impact of these factors on internal audit effectiveness. The empirical results indicate that the four factors account for 65.7% of the variance in internal audit effectiveness, with IT utilization being the most significant contributor (R² = 0.657, Adjusted R² = 0.616). The ANOVA results further validate the model, showing a statistically significant F-statistic of 3.2976 with a p-value of 0.001, indicating the robustness of the findings. Top management support was found to be critical in fostering a culture of accountability, while the independence of internal audit ensures objectivity and unbiased assessments. IT utilization was identified as a key driver in enhancing the efficiency and reliability of audit processes. Finally, the competence of internal auditors was shown to significantly influence the quality and accuracy of audit outcomes. The study recommends the need for institutionalizing top management support, safeguarding auditor independence, advancing IT utilization, and promoting continuous professional development for auditors. These measures are essential for improving governance and accountability within LGAs, thereby contributing to more effective and reliable internal audit practices.

MEDIATING EFFECT OF INTERNAL AUDITORS’ ETHICAL CONDUCT ON THE RELATIONSHIP BETWEEN USAGE OF INFORMATION TECHNOLOGY, MANAGEMENT SUPPORT FOR INTERNAL AUDIT DEPARTMENT, AND INTERNAL AUDIT EFFECTIVENESS: A CONCEPTUAL FRAMEWORK

Low level of internal audit effectiveness is practically increasing in the Nigerian ministries, department, and agencies. In proffering solution to this lingering issue, this present study proposed a framework to examine the degree of effectiveness of internal audit functions in Kano state, Nigeria MDAs. The proposed framework is motivated by agency theory with the mediating effect of auditor’s ethical conduct. This present study extends the already extant body of knowledge in the area of internal audit effectiveness by expanding agency theory with the mediating effect of auditor’s ethical conduct. Also, this study has implication to support management, shareholders and other policy makers in addressing ineffectiveness and corrupt practices in the Nigerian MDAs. If this framework is authenticated, it would provide more evocative insight on the extends of internal audit effectiveness in Kano Nigerian MDAs, the legislators and government official would benefit greatly from this study if eventually concluded as it would assist MDAs to enhance internal audit effectiveness and curb corruption. In the subsequent studies the proposed framework will be empirically tested through data collection and analysis of relevant data.

Job Evaluation Based on Hay Method for Developing the Compensation System for The Internal Audit Function in A Transforming Oil and Gas Company

Job Evaluation Based on Hay Method for Developing the Compensation System for The Internal Audit Function in A Transforming Oil and Gas Company

Key drivers of cybersecurity audit effectiveness: A neo‐institutional perspective

The aim of this paper is to analyse which factors explain the effectiveness of internal audit in providing assurance about cybersecurity risk management. On the basis of neo‐institutional theory, we hypothesize that coercive (cybersecurity regulation), normative (professionalization of internal auditors and Boards) and mimetic forces (outsourcing of cyber security assurance services) positively contribute to cybersecurity audit (CSA) effectiveness. As these forces do not come about in an interest free model, we study the role of and the interaction with other actors who shape the CSA practices—Boards and security experts. We hypothesize that Board's support to CSA and the level of internal auditors' cooperation with the first and the second line of defence positively affect CSA effectiveness. To test our hypothesis, we conducted a survey involving IT auditors and Chief Audit Executives from various industries, organizations of different sizes and countries. We examined the hypothesized relationships in a series of regression analyses. We find that normative forces (professionalization of the internal auditors and Boards' competences), Board's support to CSA and cooperation between the internal audit function (IAF) and the first two line of defence significantly explain the CSA effectiveness. We find no support for the effect of regulation as a coercive force and outsourcing as a mimetic force. We discuss potential reasons for our findings and their implications. The paper is an original analysis that advances our understanding of key drivers of CSA effectiveness and their relationships.

Internal audit and control in an enterprise: how it works and why it is needed

The author examines the importance and principles of functioning of internal audit and control at enterprises, which is a key tool for ensuring the efficiency of the company, preventing possible problems and compliance of activities with legal and regulatory requirements. The article describes in detail the main stages of conducting an internal audit, including planning, conducting, preparing a report and implementing recommendations. Various types of audits are also discussed, such as: • Audit of the accounting system. • Audit of the risk management system. • Audit of the quality management system. • Audit of personnel policy. • Information security audit. • Audit of logistics processes. • Environmental safety audit. • Occupational safety audit. Particular attention is paid to the role of auditors and the importance of independence and impartiality in the conduct of audits. The article will be useful to business managers, financial directors, auditors and anyone interested in management and control issues in business.

Effectiveness of internal controls mechanisms in preventing and detecting fraud

This review examines the effectiveness of internal control mechanisms in preventing and detecting fraud within organizations. Internal control mechanisms are essential components of corporate governance, designed to safeguard assets, ensure the accuracy of financial records, and promote operational efficiency. The study begins by defining internal controls and their critical role in fraud prevention and detection, highlighting the significance of a robust control environment. The components of the internal control environment, risk assessment, control activities, information and communication, and monitoring activities are discussed to provide a comprehensive understanding of their structure and function. Preventive controls, such as segregation of duties, authorization processes, and access controls, are analyzed to assess their role in minimizing the risk of fraud occurrence. Case studies and examples of organizations with effective preventive measures are presented to illustrate best practices. The challenges and limitations faced by organizations in implementing preventive controls are also explored. Detective controls, including reconciliation processes, internal audits, and whistleblower hotlines, are evaluated for their ability to identify and expose fraudulent activities. The review reviews case studies demonstrating the success of detective controls in uncovering fraud and discusses the obstacles organizations encounter in maintaining effective detection mechanisms. The evaluation section of the study focuses on metrics and indicators used to assess the effectiveness of internal controls, such as the reduction in fraud incidents and increased detection rates. Tools and techniques for evaluation, including internal and external audits, are examined to understand their role in ensuring control effectiveness. The review concludes by offering best practices for enhancing internal control mechanisms, emphasizing continuous monitoring, employee training, and the adoption of advanced technologies. The critical role of management in fostering a culture of ethical behavior and supporting internal audit functions is underscored. Recommendations for organizations and directions for future research are provided to guide ongoing efforts in fraud prevention and detection. Keywords: Fraud Prevention, Internal Control, Detective Control.

Digital Transformation, Emotional Intelligence, and Organizational Culture Toward Internal Audit Quality: Conceptual Framework

This paper investigates the interplay between digital transformation, emotional intelligence (EI), and internal auditing quality within Saudi public institutions, with a focus on the mediating role of EI and the moderating role of organizational culture. The advent of digital transformation has significantly influenced internal auditing practices, necessitating an adaptation to new technologies and methodologies. Emotional intelligence is identified as a crucial factor in enabling audit teams to effectively manage the challenges and opportunities presented by digital transformation, enhancing communication, decision-making, and adaptability. Organizational culture further influences this relationship by providing a supportive environment that facilitates the adoption of digital innovations and the development of EI among audit personnel. The findings suggest that a synergistic approach, incorporating digital transformation initiatives with the development of EI and fostering a conducive organizational culture, can significantly enhance the quality and effectiveness of internal auditing in Saudi public institutions. This study contributes to the understanding of how digital transformation, EI, and organizational culture interact to improve internal auditing practices, offering valuable insights for policymakers and practitioners aiming to optimize internal audit functions in the face of ongoing digital advancements.

The impact of risk management implementation on the effectiveness of SAI’s internal audit function

Internal audits play an important role in monitoring the achievement of organizational objectives. However, research on the factors influencing the success of internal audits remains limited. This study aims to investigate the effectiveness of BPK’s Itama (The Inspectorate General of the Audit Board of the Republic of Indonesia) functions, hypothesized to be influenced by risk management policy implementation. This study employs quantitative methods; data were collected via surveys and analyzed using structural equation modeling (SEM) to test theory-based hypotheses. Results reveal a significant positive correlation between risk management policy implementation and the effective functioning of Itama. Additionally, the study identifies key factors determining the success of risk management policy implementation: economic, social, and political conditions. Therefore, internal auditors of supreme audit institutions must consider these external factors when implementing risk management policies. This study contributes to understanding internal audit effectiveness by highlighting the impact of external economic, social, and political conditions.

The Performance of The Internal Audit Functions in Higher Education Institutions: The Auditees Perspective

State-owned universities worldwide are facing challenges that cast doubt on the effectiveness of their internal audit departments. The objective of the study was to assess the current state of internal audit functions in terms of performance in Zimbabwe's higher education institutions. The research utilised a multi-case study approach, focusing specifically on state universities in Zimbabwe. Data was collected through a survey distributed to auditees in these state-owned universities and analysed the responses using multiple regression analysis. For rigor and robustness, the quantitative data was triangulated with the qualitative analysis of the auditor general reports covering the years 2013 to 2021. The qualitative findings showed that auditees generally lacked knowledge about the performance of internal audit functions in public universities. Further, the auditor general reports revealed the malpractices in state universities in the presence of internal auditors. The study recommends raising awareness about the importance of internal audit functions within university communities through training, education and displaying the internal audit charter on the university website. The auditor general must be proactive by conducting audits of the internal audit function in the state-owned universities. The lack of awareness about the internal audit function despite over a decade of existence in the ZSUs is an indication of the low value attached to the departments.

Analisis Adopsi Continuous Auditing pada Fungsi Audit Intern di Lembaga Negara XYZ

This research is motivated by the challenges faced by the Internal Audit Function (IAF) at XYZ Government Institution in the midst of the rapid development of technology and financial transactions that have been fully digitized using the Enterprise Resource Planning / Human Resources Information System. In order to utilize financial transaction data and technology, IAF carries out digital transformation by adopting continuous auditing and developing the Pemantauan Off Site Risiko Operasional (PERISAI) application as a continuous auditing implementation tool. The purpose of this study is to analyze the suitability of the steps taken by the IAF at XYZ Government Institution in adopting continuous auditing based on the Global Technology Audit Guide (GTAG) 3: Coordinating Continuous Auditing and Monitoring to Provide Continuous Assurance (2nd edition), analyzing the success of the PERISAI application based on the user's perspective using the DeLone and McLean Information System Success Model. This research uses a case study research strategy with an exploratory study method. The data collection methods used were semi-structured interviews consisting of open and closed ended questions, documentation, and observation. The results of this study indicate that the steps taken by FAI to implement continuous auditing are not fully in accordance with the key steps for implementing continuous auditing in GTAG 3 (2nd edition), while the PERISAI application is considered successful by FAI internal auditors even though there are still some things that must be improved from the aspects of people, process, and technology used.

External Auditor’s Reliance Decision on the Internal Audit Function: A Qualitative Analysis on the Coordination Process

External Auditor’s Reliance Decision on the Internal Audit Function: A Qualitative Analysis on the Coordination Process

Independence and objectivity of internal auditors within provincial governance systems

The study addresses the dearth of research on internal audit activity independence (IAAI) and internal auditors' objectivity within South Africa's (SA) provincial governance systems, despite their crucial role in government department performance. A mixed research approach was employed, using 260 purposely selected participants. Questionnaires, telephone interviews, and focus group discussions were used as data collection instruments. A triangulation of descriptive statistics and thematic analysis was applied to report the findings. The study found that management is not taking timely corrective action based on audit findings and recommendations. Internal auditors have friendship relationships with auditee employees, sectional heads are not cooperating with the internal audit function (IAF), and management has a negative perception of the IAF, viewing it more as a fault-finder than as adding value to the organization. Furthermore, the study's insights offer practical implications for improving internal audit practices within provincial governance systems, thereby facilitating better governance and operational efficiency.

Enhancing the internal auditors' effectiveness in jordanian companies: The impact of cloud-based accounting usage and the moderating role of digital proficiency

The main aim of this research was to explore how the digital proficiency of internal auditors impact the relationship between adopting cloud-based accounting and the digital efficiency of internal auditors in Jordanian-listed industrial firms. 98 questionnaires, gathered from internal audit managers in these companies, underwent analysis using Statistical Package for Social Sciences (SPSS) using descriptive-analytical methods. Results indicated that adopting cloud-based accounting significantly influences the effectiveness of internal auditors in these Jordanian-listed industrial companies. Moreover, the study found that the digital proficiency of internal auditors positively affects how much cloud-based accounting adoption impacts their effectiveness. These findings hold importance for regulators and decision-makers, offering insights to shape potential new regulations aimed at enhancing the use of cloud-based accounting in internal audit departments within Jordan's industrial sector. This could ultimately help internal auditors in overseeing public funds. Given the extensive impact of cloud technology on modern business, it's crucial to understand how these innovations can improve the precision and benefits of internal audit functions. Exploring the factors that drive the implementation of cloud technologies in internal audit is also essential. Notably, this study represents the initial attempt to examine existing research on the role of cloud-based accounting in enhancing internal audit effectiveness concerning the digital proficiency of auditors within Jordan's industrial sector.